On August 31, 2022, the company executed a $125.0 million promissory note with Nant Capital, LLC (Nant Capital), an entity affiliated with Dr. Soon-Shiong. This note bears interest at Term Secured Overnight Financing Rate (SOFR) plus 8.0% per annum. The accrued interest on this note shall be payable quarterly on the last business day of March, June, September and December, commencing on September 30, 2022. The outstanding principal amount and any accrued and unpaid interest are due on December 31, 2023. The company may prepay this note at any time, in whole or in part, without premium or penalty.

On August 31, 2022, the company amended and restated its $300.0 million variable-rate promissory note with Nant Capital. Prior to the amendment and restatement, the outstanding balance due under the promissory note was due and payable on December 17, 2022, the loan bore interest at Term SOFR + 5.4%, which was payable quarterly commencing on March 17, 2022, and the company could and can continue to prepay the outstanding principal (together with accrued and unpaid interest), in whole or in part, upon five business days’ prior written notice to the lender.

The terms of this promissory note were amended and restated to extend the maturity date of the loan to December 31, 2023, increase the interest rate on the loan to Term SOFR + 8.0% per annum, and reset the quarterly interest payment date from the 17th of the month to the last business day of March, June, September and December, commencing on September 30, 2022. No other material terms or conditions of this variable-rate promissory note were modified as part of the August 31, 2022 amendment and restatement.

In the event of a default on the loan (as defined in both the original and amended and restated promissory notes), including if the company does not repay the loan at maturity, the company had and continues to have the right, at its sole option, to convert the outstanding principal amount and accrued and unpaid interest due under this note into fully paid and non-assessable shares of the company’s common stock at a price per share equal to $5.67.

On August 31, 2022, the company also amended and restated an aggregate of $315.1 million (including outstanding principal and accrued and unpaid interest) of fixed-rate promissory notes held by entities affiliated with Dr. Soon-Shiong. Prior to the amendments and restatements, these notes bore and continue to bear interest at a per annum rate ranging from 3.0% to 6.0%, provide that the outstanding principal was and continues to be due and payable on September 30, 2025, and accrued and unpaid interest was or continues to be payable either upon maturity or, with respect to one of the notes, on a quarterly basis. Prior to the amendments and restatements, the company could and can continue to prepay the outstanding principal (together with accrued and unpaid interest), either in whole or in part, at any time without premium or penalty and without the prior consent of the lender, now subject to an advance notice period of at least five business days during which the lender can convert the amount requested to be prepaid by the company into shares of the company’s common stock, as part of the amendment and restatement described below.

The terms of these fixed-rate promissory notes were amended and restated to include a conversion feature that gives each lender the right at any time, including upon notice of prepayment, at its sole option, to convert the entire outstanding principal amount and accrued and unpaid interest due under each note at the time of conversion into shares of the company’s common stock at a price of $5.67 per share. No other material terms or conditions of these fixed-rate promissory notes were modified as part of the August 31, 2022 amendments and restatements.

Since all of the above promissory notes were entered into or amended at the same time and with entities under common control, the company determined that the promissory notes were required to be evaluated collectively to accurately capture the economics of the transactions entered in contemplation of each other and contemporaneously. ASC 470-50, Debt – Modifications and Extinguishments, provides that a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date would always be considered substantial and require extinguishment accounting. Accordingly, as a result of the addition of the conversion feature to the fixed-rate promissory notes, the fixed-rate promissory notes and the variable-rate promissory notes were determined to be extinguished given the contemporaneous nature of the amendments. The company performed a valuation of the fixed-rate promissory notes and variable-rate promissory notes before and after amendments. Under this model, the company calculated a gain on extinguishment of $82.9 million, representing the difference between the fair value of the new and amended promissory notes and the carrying value of the extinguished debt, net of any unamortized related-party notes discounts plus the cash proceeds from the new promissory note. Since the debt was obtained from entities under common control, such gain was recorded in additional paid-in capital, on the condensed consolidated statement of stockholders’ deficit for the three and nine months ended September 30, 2022. Also, the difference between face values of the new and amended promissory notes (and accrued interest on the date of the amendment) and the fair values of the new and restated promissory notes was recorded as a debt discount to be amortized as interest expense over the remaining term (or until conversion in the case of fixed-rate promissory notes) of the respective promissory notes. The company recorded amortization of the debt discount totaling $4.2 million in interest expense, on the condensed consolidated statement of operations during the three months ended September 30, 2022.

The fair values of the promissory notes without a holder conversion option were estimated using discounted cash flow analyses, based on market rates available to the company for similar debt at issuance after consideration of default and credit risk and the level of subordination. The fair values of the fixed-rate promissory notes, which were each modified to include a holder conversion option, were determined based on a binomial lattice convertible note model. The analysis involved the construction of various intermediate lattices: stock price tree, conversion value tree, conversion probability tree, and discount rate tree. Since certain of the factors analyzed are considered to be unobservable inputs, both the discounted cash flow model and the lattice model are considered to be Level 3 valuations. Significant unobservable inputs used for the discounted cash flow analysis included market yields from 18.0% to 24.8% and a risk free rate of 4.1%, and the significant unobservable inputs used for the binomial lattice model included a volatility of 84.9%, a market yield of 17.4% and a risk free rate of 3.5%.


	Balances at September 30, 2022
	(Unaudited)
	Maturity Year	Interest Rate	Outstanding Advances		Accrued Interest Added to Note		Less: Unamortized Discounts		Total

Related-Party Notes:
Nant Capital (1)	2023	Term SOFR + 8.0%	$	300,000	$	—	$	43,135	$	256,865
Nant Capital (1)	2023	Term SOFR + 8.0%	125,000		—		8,572		116,428
Total related-party notes			425,000		—		51,707		373,293

Related-Party Convertible Notes:
Nant Capital	2025	5.0%	55,226		8,398		5,673		57,951
Nant Capital	2025	6.0%	50,000		6,189		4,463		51,726
Nant Capital	2025	6.0%	40,000		—		2,778		37,222
NantMobile, LLC	2025	3.0%	55,000		4,668		6,485		53,183
NantWorks	2025	5.0%	43,418		12,654		4,995		51,077
NantCancerStemCell, LLC	2025	5.0%	33,000		7,181		3,579		36,602
Total related-party convertible notes			276,644		39,090		27,973		287,761

Total related-party debt			$	701,644	$	39,090	$	79,680	$	661,054


	Balances at December 31, 2021
	Maturity Year	Interest Rate	Outstanding Advances		Accrued Interest Added to Note		Less: Unamortized Debt Issuance Costs		Total

Related-Party Note:
Nant Capital (1)	2022	Term SOFR + 5.4%	$	300,000	$	674	$	1,438	$	299,236

Related-Party Convertible Notes:
Nant Capital	2025	5.0%	55,226		6,141		—		61,367
Nant Capital	2025	6.0%	50,000		3,810		—		53,810
Nant Capital	2025	6.0%	40,000		—		—		40,000
NantMobile	2025	3.0%	55,000		3,359		—		58,359
NantWorks	2025	5.0%	43,418		10,649		—		54,067
NCSC	2025	5.0%	33,000		5,746		—		38,746
Total related-party convertible notes			276,644		29,705		—		306,349

Total related-party debt			$	576,644	$	30,379	$	1,438	$	605,585


	Principal Payments				Interest Payments (1)
	Convertible Notes		Non-convertible Notes		Convertible Notes		Non-convertible Notes		Total

2022 (excluding the nine months ended September 30, 2022)	$	—	$	—	$	605	$	12,376	$	12,981
2023	—		425,000		2,400		49,101		476,501
2024	—		—		2,407		—		2,407
2025	276,644		—		82,267		—		358,911
Total principal and estimated interest due on related-party debt	$	276,644	$	425,000	$	87,679	$	61,477	$	850,800

_______________


	September 30, 2022		December 31, 2021
	(Unaudited)


Due from related party–NantBio, Inc.	$	1,294	$	1,294

Due from related parties–Various	194		39
Total due from related parties	$	1,488	$	1,333

Due to related party–Duley Road, LLC	$	1,710	$	1,380
Due to related party–NantWorks	—		1,113
Due to related party–NantBio, Inc.	943		943

Due to related party–Immuno-Oncology Clinic, Inc.	—		507
Due to related party–Various	365		—
Total due to related parties	$	3,018	$	3,943

Our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder founded and has a controlling interest in NantWorks, which is a collection of companies in the healthcare and technology space. As described below, we have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new immunotherapies for our product pipeline. Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman and Global Chief Scientific and Medical Officer.

Under the amended and restated shared services agreement with NantWorks dated as of June 2016, but effective as of August 2015, NantWorks, a related party, provides corporate, general and administrative, certain research and development, and other support services. We are charged for the services at cost plus reasonable allocations of employee benefits, facilities, and other direct or fairly allocated indirect costs that relate to the employees providing the services. For the nine months ended September 30, 2022 and 2021, we recorded $3.0 million and $4.2 million, respectively, in selling, general and administrative expense, and $0.6 million and $0.4 million, respectively, of expense reimbursements under this arrangement in research and development expense, on the condensed consolidated statements of operations. These amounts exclude certain general and administrative expenses provided by third-party vendors directly for our benefit, which were reimbursed to NantWorks based on those vendors’ invoiced amounts without markup by NantWorks.

As of September 30, 2022, we did not have a net amount due from or due to NantWorks. As of December 31, 2021, we owed NantWorks a net amount of $1.1 million for all agreements between the two affiliates, which was included in due to related parties, on the condensed consolidated balance sheets. We also recorded $2.3 million and $2.2 million of prepaid expenses for services that have been passed through to the company from NantWorks as of September 30, 2022 and December 31, 2021, respectively, which are included in prepaid expenses and other current assets, on the condensed consolidated balance sheets.

In 2015, we entered into a facility license agreement with NantWorks for approximately 9,500 square feet of office space in Culver City, California, which was converted to a research and development laboratory and a cGMP manufacturing facility. In 2020, we amended this agreement to extend the term of this license agreement through December 31, 2021. Commencing on January 1, 2022, the license fee increased by 3% to approximately $56,120 per month.

On May 6, 2022, we amended our facility license agreement with NantWorks to expand the licensed premises by 36,830 rentable square feet to an aggregate total of 46,330 rentable square feet. Effective May 1, 2022, the license fee is approximately $273,700 per month, which is subject to a 3% increase commencing on January 1 of each year. The space continues to be rented on a month-to-month basis, which can be terminated by either party with at least 30 days’ prior written notice to the other party. We recorded license fee expense for this facility totaling $1.6 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations.

We entered into multiple agreements with Immuno-Oncology Clinic, Inc. (the Clinic) to conduct clinical trials related to certain of our product candidates. The Clinic is a related party as it is owned by an officer of the company and NantWorks manages the administrative operations of the Clinic. Pursuant to the terms of the Clinic agreement (as amended), we made payments totaling $5.6 million in consideration of future services to be performed by the Clinic.

In 2021, we completed a review of alternative structures that could support our more complex clinical trial requirements and made a decision to explore a potential transition of clinical trials at the Clinic to a new structure (including contracting with a new, non-affiliated professional corporation) to be determined and agreed upon by all parties. Based on this decision to explore a potential transition, we determined that it was more likely than not that the previously recorded prepaid asset would not result in the collection of fees for services performed by the Clinic as contemplated in the original agreements. As a result, we wrote down the remaining value of our prepaid asset and recorded approximately $4.4 million in research and development expense, on the condensed consolidated statement of operations for the year ended December 31, 2021.

In August 2018, we entered into a supply agreement with NCSC, a 60% owned subsidiary of NantBio (with the other 40% owned by Sorrento). Under this agreement, we agreed to supply VivaBioCell’s proprietary GMP-in-a-Box bioreactors and related consumables, made according to specifications mutually agreed to with both companies. The agreement has an initial term of five years and renews automatically for successive one-year terms unless terminated by either party in the event of material default upon prior written notice of such default and the failure of the defaulting party to remedy the default within 30 days of the delivery of such notice, or upon 90 days’ prior written notice by NCSC. We recognized no revenue for the nine months ended September 30, 2022 and $0.3 million of revenue for the nine months ended September 30, 2021. We recorded $0.1 million and $0.1 million of deferred revenue for bioreactors that were delivered but not installed in accrued expenses and other liabilities, on the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022 and December 31, 2021, we recorded $0.9 million in due to related parties, on the condensed consolidated balance sheets related to this agreement.

In 2018, we entered into a shared service agreement pursuant to which we are charged for services at cost, without mark-up or profit by NantBio, but including reasonable allocations of employee benefits that relate to the employees providing the services. In April 2019, we agreed with NantBio to transfer certain NantBio employees and associated research and development projects, comprising the majority of NantBio’s business, to the company. As of September 30, 2022 and December 31, 2021, we recorded a net receivable from NantBio of $1.3 million for amounts we paid on behalf of NantBio during the year ended December 31, 2019.

In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 24,250 rentable square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility. The lease runs from July 2016 through July 2023. We have the option to extend the lease for one additional three-year term through July 2026. The base rent is approximately $72,385 per month, with annual increases of 3% that began in July 2017. We recorded lease expense for this facility of $0.7 million and $0.7 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations.

In February 2017, we entered into a lease agreement with Duley Road, a related party that is indirectly controlled by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 12,000 rentable square feet of office and cGMP manufacturing facility space in El Segundo, California. The lease term is from February 2017 through October 2024. We have the option to extend the initial term for two consecutive five-year periods through October 2034. The base rent is approximately $40,700 per month, with annual increases of 3%.

Effective in January 2019, we entered into two lease agreements with Duley Road for a second building located in El Segundo, California. The first lease is for the first floor of the building with approximately 5,650 rentable square feet. The lease has a seven-year term commencing in September 2019. The second lease is for the second floor of the building with approximately 6,488 rentable square feet. The lease has a seven-year term commencing in July 2019. Both floors of the building are used for research and development and office space. We have options to extend the initial terms of both leases for two consecutive five-year periods through 2036. The base rent for the two leases is approximately $35,800 per month, with annual increases of 3%.

As of September 30, 2022 and December 31, 2021, we recorded $0.9 million of leasehold improvement payables, respectively, and $0.8 million and $0.5 million of lease-related payables to Duley Road, which were included in due to related parties, on the condensed consolidated balance sheets. We recorded rent expense for these leases totaling $0.6 million and $0.7 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations.

In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, a related party, whereby we leased approximately 6,883 square feet (the Initial Premises) in a two story mixed use building containing approximately 64,643 rentable square feet on 605-607 Nash Street in El Segundo, California. This facility is used primarily for pharmaceutical development and manufacturing purposes. The lease term commenced in January 2021 and expires in December 2027, and includes an option to extend the lease for one three-year term through December 2030. The base rent is approximately $20,300 per month with an annual increase of 3% on January 1 of each year during the initial term and, if applicable, during the option term. In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses. We received a rent abatement for the first seven months. The lease also provides a tenant improvement incentive of $0.3 million for costs and expenses associated with the construction of tenant improvements for the Initial Premises.

In May 2021, but effective on April 1, 2021, we entered into an amendment to our Initial Premises lease with 605 Nash. The amendment expanded the leased square feet by approximately 57,760 rentable square feet (the Expansion Premises). The lease term of the Expansion Premises commenced in April 2021 and expires in March 2028, whereby the company has the option to extend the initial term for three years. Per the terms of the amendment, the term of the Initial Premises lease was extended for an additional three months and now expires on March 31, 2028. Base rent for the Expansion Premises is approximately $170,400 per month with annual increases of 3% on April 1 of each year. We are responsible for the build out of the facility space and associated costs. We received a rent abatement for the first seven months. The amended lease provides for a tenant improvement allowance of approximately $2.6 million for costs and expenses related to improvements made by us to the Expansion Premises.

Effective September 27, 2021, we entered into a lease agreement with Nant Capital, a related party controlled by Dr. Soon-Shiong, under which we leased 557 South Douglas Street in El Segundo, California. Effective May 31, 2022, we executed a lease termination agreement with Nant Capital under which we received a full refund of the first month’s rent and security deposit totaling $0.2 million that we paid upon execution of the lease. We recorded year-to-date rent expense of $0.4 million prior to the termination of the lease, in research and development expense, on the condensed consolidated statement of operations. We recognized a gain of $0.6 million on the disposal of this lease for the nine months ended September 30, 2022 in other income, net, on the condensed consolidated statement of operations.

Under the terms of the lease agreement, the lease term began on October 1, 2021 and expires on September 30, 2026. The base rent is approximately $38,250 per month with an annual increase of 3% on October 1 of each year beginning in 2022 during the initial term. The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance and operating expenses during the term of the lease. We received a rent abatement for the first month of the lease, and a one-time improvement allowance of $15,000 from the landlord that was credited against base rent obligations for the second month of the lease.

The company has options to extend the lease term for two additional consecutive periods of five years each. At the beginning of each option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement) with an annual increase of 3% during the option term. We have included the first option to extend the lease term for five years as part of the initial term of the lease as it is reasonably certain that we will exercise the option, which implies lease expiration in September 2031. We recorded $0.4 million of rent expense related to this lease for the nine months ended September 30, 2022 in research and development expense, on the condensed consolidated statement of operations.

Under the terms of the agreement, the lease term begins on May 1, 2022 and expires on April 30, 2027. The base rent is approximately $139,400 per month with an annual increase of 3% on May 1 of each year beginning in 2023 during the initial term. We will receive a rent abatement for the second through sixth month of the lease. We are also required to pay $7,600 per month for parking during the initial term and extension term, if exercised. The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance, and operating expenses during the term of the lease.

The company has an option to extend the lease term for one additional consecutive five-year period. At the beginning of the option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement) with an annual increase of 3% during the option term. We recorded $0.6 million of rent expense for this lease for the nine months ended September 30, 2022 in research and development expense, on the condensed consolidated statement of operations.