What changed in this filing

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Item 1. Financial Statements

2022-08-12 compared with 2022-05-13 · 246 added, 143 removed, 402 unchanged (49% of the section changed)

24 unchanged sentences

250,000,000 shares

authorized and 35,779,489 shares issued at March 31, 2022

authorized and 35,823,923 shares issued at June 30, 2022

Additional paid-in capital

6 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenues

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(Deficit) Equity

For the Three Months Ended March 31, 2021 and 2022

For the Six Months Ended June 30, 2021 and June 30, 2022

Redeemable Preferred Stock

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Stock-based compensation

6% cumulative dividends on

redeemable preferred

6% cumulative dividends

on redeemable

preferred stock

Accretion of issuance costs

Balance, March 31, 2021

Issuance of Class A

Common Stock upon

exercise of stock options

Stock-based compensation

6% cumulative dividends

on redeemable

preferred stock

Accretion of issuance costs

Balance, June 30, 2021

Redeemable Preferred Stock

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Balance, March 31, 2022

Issuance of Class A

Common Stock upon

exercise of stock options

Stock-based compensation

Balance, June 30, 2022

See accompanying notes to the unaudited condensed interim financial statements.

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Condensed Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

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HCW Biologics Inc.

(the “Company”) is a biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and age-related diseases.

(the “Company”) is a clinical-stage biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and age-related diseases.

The Company believes age-related low-grade chronic inflammation, or “inflammaging,”

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The Company is located in Miramar, Florida and was incorporated in the state of Delaware in April 2018.

Reverse Stock Split

In June 2021, the Company’s board of directors and stockholders approved an amendment to the Company’s certificate of incorporation to effect a 3-for-7 reverse stock split for all issued and outstanding common stock , redeemable preferred stock, and stock options, that was effective on June 25, 2021 (the “Reverse Stock Split”).

The number of authorized shares and the par values of the common stock and redeemable preferred stock were not adjusted as a result of the Reverse Stock Split.

The accompanying condensed interim financial statements and notes to the condensed interim financial statements give retroactive effect to the Reverse Stock Split for all periods presented.

As of March 31, 2022, the Company had not generated any revenue from commercial product sales of its internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases.

As of June 30, 2022, the Company had not generated any revenue from commercial product sales of its internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases.

In the course of its development activities, the Company has sustained operating losses and expects to continue to incur operating losses for the foreseeable future.

Since inception, substantially all the Company’s activities have consisted of research, development, establishing large-scale cGMP production for clinical trials, and raising capital.

The Company's total revenues to date have been generated principally from the Wugen License and manufacturing and supply arrangement with Wugen.

In the three months ended March 31, 2022, the Company recognized revenues of $ 3.1 million from manufacturing and supply of materials for Wugen.

On July 19, 2021, the Company’s registration statement on Form S-1 for its initial public offering (“IPO”) was declared effective by the Securities and Exchange Commission (the “SEC”).

The Company's total revenues to date have been generated principally from its exclusive worldwide license with Wugen, Inc.

(“Wugen”), pursuant to which Wugen licensed limited rights to develop, manufacture, and commercialize cell therapy treatments for cancer based on two of our internally-developed multi-cytokine fusion protein molecules, and its manufacturing and supply arrangement with Wugen.

In the three months and six months ended June 30, 2022, the Company recognized revenues of $ 454,000 and $ 3.6 million, respectively, generated from the supply of clinical and research grade material to Wugen.

On July 19, 2021, the Company’s registration statement on Form S-1 for its initial public offering (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”).

On July 22, 2021, the Company closed its IPO with the sale of 7,000,000 shares of common stock, at a public offering price of $ 8.00 per share, resulting in net proceeds of approximately $ 49.2 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by the Company.

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In addition, as a result of conditions for mandatory conversion, the Company was relieved of its obligation to pay $ 2.8 million in cumulative dividends that were accrued and unpaid on the conversion date.

As of March 31, 2022 , the Company had cash and cash equivalents of $ 18.1 million, short-term investments of $ 17.0 million held in U.S.

As of June 30, 2022 , the Company had cash and cash equivalents of $ 15.4 million, short-term investments of $ 17.0 million held in U.S.

government-backed securities, and long-term investments of $ 9.7 million held in U.S.

government-backed securities.

Since inception to March 31, 2022, the Company incurred cumulative net losses of $ 30.0 million.

Since inception to June 30, 2022 , the Company incurred cumulative net losses of $ 33.5 million.

Management expects to incur additional losses in the future to conduct product research and development and recognizes the need to raise addition al capital to fully implement its business plan.

The Company intends to raise capital through the issuance of additional equity financing and/or third-party collaboration funding.

The Company intends to raise capital which may include the issuance of additional equity financing and/or third-party collaboration funding.

However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of some of its products.

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Unaudited Interim Financial Information

The accompanying unaudited condensed interim financial statements as of March 31, 2022 and for the three months ended March 31, 2021 and 2022 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The accompanying unaudited condensed interim financial statements as of June 30, 2022 and for the three months and six months ended June 30, 2021 and 2022 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) for interim financial information and pursuant to Article 10 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”).

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These unaudited condensed interim financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows.

The results for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period.

The results for the three and six months ended June 30, 2021 and 2022 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period.

The condensed balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S.

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Because all of the disclosures required by U.S.

GAAP for complete financial statements are not included herein, these unaudited condensed interim financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021 which appear in the Company’s Annual Report on Form 10-K (No.

333-256510) filed for the year ended December 31, 2021 with the Securities and Exchange Commission (the "SEC") on March 29, 2022 and in other filings with the SEC.

Revenue Recognition

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The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

To date, the Company's revenues have been generated solely from the Wugen License.

The Wugen License includes licenses of intellectual property, cost reimbursements, upfront signing fees, milestone payments and royalties on future licensee’s product sales.

In addition, the Company and Wugen have an agreement for supply of materials.

To date, the Company's revenues have been generated exclusively from the Wugen License, which consists of licenses of intellectual property, cost reimbursements, upfront signing fees, milestone payments and royalties on future licensee’s product sales.

In addition, the Company and Wugen have an agreement for the supply of clinical and research grade materials under which the Company also recognized revenues.

License Grants:

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The amounts billed are recognized as revenue as the performance obligations are satisfied by the Company, once the Company determines that a contract exists.

On June 18, 2021, the Company entered into a master services agreement ("MSA") for the supply of materials for clinical development of licensed products.

On March 14, 2022, the Company entered into statements-of-work ("SOWs") contemplated under the MSA for all current and historical purchases of clinical and research grade materials.

The Company determined that upon entering into the SOWs all requirements were met to qualify as a contract under Topic 606.

No contract existed in prior reporting periods and all amounts received for the supply of materials were recorded as deferred revenue.

The manufacturing of the clinical and research materials supplied by the Company each represents a single performance obligation that is satisfied over time.

On June 18, 2021, the Company entered into a master services agreement ("MSA") with Wugen for the supply of materials for clinical development of licensed products.

The terms set forth in the MSA were not sufficient to meet all the requirements for the Company to determine that a contact existed for a transaction.

In order for a contract to exist, additional terms for each transaction require the Company to enter into a statement-of-work ("SOW") for each purchase.

Each of these transactions represents a single performance obligation that is satisfied over time.

The Company recognizes revenue using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company's progress toward completion.

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The Company reviews its estimate of the progress toward completion based on the best information available to recognize the cumulative progress toward completion as of the end of each reporting period, and makes revisions to such estimates, if facts and circumstances change during each reporting period.

For the three months ended March 31, 2022, the Company recognized $ 3.1 m illion in revenue related to sale of development supply materials.

On March 14, 2022, the Company entered into SOWs with Wugen for each of the then-current and historical purchases of clinical and research grade materials under the MSA.

As a result, the Company determined that all requirements were met to qualify as contracts under Topic 606 for the related transactions covered by these SOWs.

For the three months and six months ended June 30, 2022 , the Company recognized revenue related to sale of development supply materials to Wugen of $ 454,000 and $ 3.6 million, respectively.

Deferred Revenue

Deferred revenue represents amounts billed, or in certain cases yet to be billed, to the Company’s customer for which the related revenues have not been recognized because one or more of the revenue recognition criteria has not been met.

The Company had deferred revenue of $ 239,000 and nil as of March 31, 2021 and 2022, respectively.

All deferred revenue balances are current liabilities and reported within Accrued liabilities and other current liabilities.

The Company had deferred revenue of $ 1.8 million and $ 314,625 as of December 31, 2021 and June 30, 2022 , respectively.

All deferred revenue balances are current liabilities and reported within Accrued liabilities and other current liabilities in the accompanying condensed balance sheets.

The Company holds a minority interest in Wugen which is accounted for using the measurement alternative whereby the investment is recorded at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same investee.

No impairment has been recognized.

As of March 31, 2021 and 2022, the Company included $ 1.6 million for the investment in Wugen in Investments in the accompanying condensed balance sheet.

As of December 31, 2021 and June 30, 2022, the Company included $ 1.6 million for the investment in Wugen in Investments in the accompanying condensed balance sheets.

The Company invests net proceeds of its IPO in bills and notes issued by the U.S.

Treasury which are classified as trading securities.

As of March 31, 2022, the Company held $ 17.0 million in U.S.

As of June 30, 2022, the Company held $ 17.0 million in U.S.

Treasury bills included in Short-term investments and $ 9.7 million in U.S.

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The Company accounted for the PPP loan as debt, and the loan forgiveness was accounted for as a debt extinguishment.

As of March 31, 2022, the Company had a balance of $ 674,000 in Accrued liabilities and other current liabilities, consisting of $ 229,000 related to salary and benefits, $ 167,000 related to short term lease liability, and $ 278,000 related to other current liabilities which were primarily accrued legal fees and clinical fees.

As of June 30, 2022, the Company had a balance of $ 848,340 in Accrued liabilities and other current liabilities, consisting primarily of $ 314,625 related to deferred revenue, $ 151,000 related to salary and benefits, $ 170,687 related to short-term lease liability, and $ 212,000 related to other current liabilities which were primarily accrued legal fees and clinical trials expenses.

Redeemable Preferred Stock

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Cumulative dividends of $ 2.8 million accrued as of the conversion date were forfeited and such forfeiture was recognized through Additional paid-in capital.

At December 31, 2021 and March 31, 2022 , the Company has 10,000,000 shares of preferred stock authorized and no shares issued.

At December 31, 2021 and June 30, 2022, the Company has 10,000,000 shares of preferred stock authorized and no shares issued.

Net Loss Per Share

The following table summarizes the computation of the basic and diluted net loss per share:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

cumulative preferred dividends earned in the period

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No transfers between levels occurred during the periods presented.

The following table presents the Company’s assets which were measured at fair value at December 31, 2021 and March 31, 2022:

The following table presents the Company’s assets which were measured at fair value at December 31, 2021 and June 30, 2022:

At December 31, 2021:

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Treasury notes

At March 31, 2022:

At June 30, 2022:

Money market funds

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The Company computes its quarterly income tax expense/(benefit) by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter.

The Company did no t have a provision for income taxes (current or deferred tax expense) as of December 31, 2021 and March 31, 2022.

The Company did no t have a provision for income taxes (current or deferred tax expense) as of December 31, 2021 and June 30, 2022 .

The Company will continue to maintain a 100 % valuation allowance on total deferred tax assets.

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There are no obligations under finance leases.

The components of the lease expense for the three months ended March 31, 2022 were as follows:

Three Months Ended

The components of the lease expense for the three months and six months ended June 30, 2022 were as follows:

For the Three Months

Ended June 30, 2022

For the Six Months Ended June 30, 2022

Operating lease cost

Supplemental cash flow information related to lease was as follows:

Three Months Ended

Supplemental cash flow information related to lease for the six months ended June 30, 2022 was as follows:

For the Six Months Ended June 30, 2022

Cash paid for amounts included in the measurement of lease liabilities:

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Operating lease

As of March 31, 2022, the supplemental balance sheet information related to leases were as follows:

March 31, 2022

As of June 30, 2022, the supplemental balance sheet information related to leases was as follows:

As of June 30, 2022

Operating lease right-of-use assets

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Total operating lease liabilities

As of March 31, 2022, the remaining lease payments were as follows:

As of June 30, 2022, the remaining lease payments were as follows:

2022 (remaining 6 months)

Total future minimum lease payments

For the three months ended March 31, 2021 and 2022, rent expense recognized by the Company was $ 31,516 and $ 38,883 , respectively, of which $ 14,431 and $ 19,207 , respectively, is included in research and development in the accompanying condensed statements of operations .

For the three months ended June 30, 2021 and 2022, rent expense recognized by the Company was $ 31,552 and $ 49,966 respectively, of which $ 14,623 and $ 25,149 , respectively, is included in research and development in the accompanying condensed statements of operations .

Certain comparative figures have been reclassified to conform to the current year presentation under Topic 842 for rent expense.

For the six months ended June 30, 2021 and 2022, rent expense recognized by the Company was $ 68,466 and $ 77,139 , respectively, of which $ 34,790 and $ 32,834 , respectively, is included in research and development in the accompanying condensed statements of operations .

Certain comparative figures have been reclassified to conform to the current year presentation under Topic 842 for rent expense.

Contractual Commitments

The Company operates under the provisions of agreements with a third-party global contract development and manufacturer of biologics for the manufacture of the Company’s proprietary molecules for use in clinical trials.

At December 31, 2021, future payment obligations under such agreements were $ 2.5 million of which approximately $ 181,600 was paid in January 2022.

A t March 31, 2022, future payment obligations under such agreements were $ 2.1 million.

At December 31, 2021, future payment obligations under such agreements were $ 2.5 million.

A t June 30, 2022 , future payment obligations under such agreements were $ 4.1 million.

Management has no knowledge of any pending or unasserted claims against the Company.

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and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations.

The Company has encountered some delays in the commencement of clinical trials as a result of clinical sites experiencing COVID-related delays due to staffing shortages.

In addition, the Company has encountered some delays in the completion of IND-enabling studies required by the Federal Drug Administration ("FDA") to support Investigational New Drug Applications ("IND") due to government-mandated measures taken as a result of COVID outbreaks.

Subsequent Events

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As of such date, there were no material subsequent events identified that required recognition or disclosure other than as disclosed below or in the footnotes herein.

On August 2, 2022, HCW Biologics was granted U.S.

11,401,324 which contains claims for immunotherapeutic compounds comprised of a single-chain chimeric polypeptide with two target-binding domains on a scaffold made of an extracellular domain of human tissue factor.

On August 10, 2022, HCW Biologics committed to purchase a building located in Miramar, Florida for approximately $ 10.0 million, as the Company's new headquarters.

The Company received a commitment for a five-year term facility to finance the purchase, expansion, and improvement of property.

An initial takedown equal to 65 % of the purchase price will be funded on the closing date which is expected to be on August 15, 2022.

The term facility may be increased to provide additional funding for expansion and improvements of the property;

however, future borrowings are subject to full credit approval and due diligence by the lender.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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for the fiscal year ended December 31, 2021 included in the Annual Report on Form 10-K filed with the U.S.

Securities and Exchange Commission on March 29, 2022.

Securities and Exchange Commission (the “SEC”) on March 29, 2022.

Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

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Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A -“Risk Factors,”

in our Annual Report on Form 10-K, elsewhere in this Quarterly Report on Form 10-Q and in other filings we make with the Securities and Exchange Commission, or SEC, from time to time.

in our Annual Report on Form 10-K, elsewhere in this Quarterly Report on Form 10-Q and in other filings we make with the SEC from time to time.

The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

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HCW Biologics Inc.

("HCW Biologics", "HCW", the "Company, or "we") i s a bi opharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and age-related diseases.

(“HCW Biologics,”

“HCW,”

the “Company,”

or “we”) is a clinical-stage biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and age-related diseases.

We believe age-related, chronic, low-grade inflammation, or “inflammaging,”

is a significant contributing factor to several diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases.

The induction and retention of low-grade inflammation in an aging human body is mainly the result of the accumulation of non-proliferative senescent cells and persistent activation of protein complexes, known as inflammasomes, in innate immune cells.

These two elements share common mechanisms in promoting secretion of pro-inflammatory proteins and in many cases interact to drive inflammaging.

Our novel approach is to treat both of these elements.

The induction and retention of low-grade inflammation in an aging human body is mainly the result of the accumulation of non-proliferative but metabolically active senescent cells, which can also be caused by persistent activation of protein complexes, known as inflammasomes, in innate immune cells.

These two elements share common mechanisms in promoting secretion of pro-inflammatory proteins and in many cases interact to drive senescence, and thus, inflammaging.

Our novel approach is to eliminate senescent cells and the pro-inflammatory factors they secrete systemically through multiple pathways.

We believe our approach has the potential to fundamentally change the treatment of age-related diseases.

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As a result, HCW9218 has the ability to lower chronic inflammation and restore tissue homeostasis.

HCW9218 is expected to reach the clinical stage of its development in the first half of 2022, with the

initiation of a Phase 1 clinical trial by the Masonic Cancer Center to evaluate HCW9218 in the treatment of solid tumor cancers that progressed after standard-of-care treatment, and the initiation of a Company-sponsored Phase 1b clinical trial to evaluate HCW9218 in patients with advanced pancreatic cancer.

We expect to gain human data from these two clinical trials in cancer that will guide the future development of HCW9218 for other age-related pathologies.

(See ClinicalTrials.gov:

HCW9218 for Advanced Pancreatic Cancer (NCT05304936) and HCW9218 in Select Advanced Solid Tumors (NCT05322408)) .

HCW9218 reached the clinical stage of its development in the first half of 2022, with the initiation of a

Phase 1 clinical trial by the Masonic Cancer Center to evaluate HCW9218 in the treatment of solid tumor cancers that progressed after standard-of-care treatment.

The Company intends to open a Phase 1b clinical trial to evaluate HCW9218 in patients with advanced pancreatic cancer in the third quarter of 2022.

We have cleared IRB review and most internal procedures at several National Cancer Institute ("NCI") designated Comprehensive Cancer Centers identified as clinical sites.

As a result of COVID-related delays due to staffing shortages at clinical sites, we were unable to commence this trial earlier in the year.

In both of these studies in solid tumor cancers, we will be gathering additional data to obtain insights for future phases of clinical trials, such as the level of immune system reaction to HCW9218 and incidence of mucosal bleeding caused by the HCW9218 TGF-β

In addition, we expect that the human data from these two clinical trials in cancer will guide future development of HCW9218 for other age-related pathologies.

We believe that HCW9218 may represent a new class of safe and effective senolytic and senomorphic drugs for the treatment of a broad range of inflammaging indications, including cancer, metabolic dysfunctions, fibrosis-related pathologies, as well as neuro-inflammation and neurodegenerative diseases.

HCW9302 is anothe r lead drug candidate which is designed to activate and expand regulatory T (“T reg ”) cells to suppress the activity of inflammasome-bearing cells and the inflammatory factors which they secrete.

HCW9302 is another lead drug candidate which is designed to activate and expand regulatory T (“T reg ”) cells to reduce senescence by suppressing the activity of inflammasome-bearing cells and the inflammatory factors which they secrete.

This molecule is a single-chain, IL-2-based fusion protein.

Preclinical studies in mouse models have demonstrated the ability of HCW9302 to activate T reg cells and reduce inflammation-related diseases, supporting the potential of HCW9302 to treat a wide variety of autoimmune and age-related diseases, such as atherosclerosis.

IND-enabling activities are currently in progress and are expected to be completed by the end of 2022.

If we are successful in completing IND-enabling activities on the expected schedule, we intend to file an Investigational New Drug Application ("IND") to obtain approval from the Federal Drug Administration ("FDA") for a Phase 1b/2 clinical trial to evaluate HCW9302 in an autoimmune disorder in the first half of 2023.

Preclinical studies in mouse models have demonstrated the ability of HCW9302 to expand and activate T reg cells and reduce inflammation-related diseases, supporting the potential of HCW9302 to treat a wide variety of autoimmune and proinflammatory diseases, such as atherosclerosis.

IND-enabling activities are currently in progress, but due to COVID-related delays, the completion date for toxicology studies required by the Federal Drug Administration ("FDA") for an Investigational New Drug Application ("IND") is expected to extend to the first half of 2023.

If we are successful in completing IND-enabling activities and have no further delays in the expected schedule, we continue to plan to file an IND to obtain approval from the FDA for a Phase 1b/2 clinical trial to evaluate HCW9302 in an autoimmune disorder in the first half of 2023.

Recent Developments

At the 105th Annual Meeting of the American Association of Immunologists held in May 2022, HCW Biologics showcased two novel groups of fusion molecules created with the Company’s proprietary and versatile TOBI TM discovery platform.

Two posters were presented at the conference and are available on the Company’s website:

A “kick and expand”

strategy to generate large numbers of Cytokine-Induced-Memory-Like NK cells for adoptive cell therapy for the treatment of cancer using novel fusion proteins HCW9201 and HCW9206.

Robust human regulatory T cell expansion with fusion proteins HCW9302 and HCW9213 circumvents need for magnetic-bead or feeder cell approaches for adoptive cell therapy.

On April 19, 2022, Dr.

Hing Wong, the Company's Founder and CEO, presented, “Bifunctional Immunotherapeutic HCW9218 for Cancer and Inflammaging,”

at the Third Annual International Conference on Cell and Experimental Biology.

Wong presented preclinical data for the first time that showed results of the Company's investigational work related to the treatment of inflammaging indications in naturally-aged mice.

We believe these results demonstrate the potential of HCW9218 to fundamentally change the treatment of a broad range of diseases and conditions associated with aging, even aging itself, to enhance health span that has been diminished with aging.

On May 19, 2022, the Masonic Cancer Center, University of Minnesota, announced that they opened a new Phase 1 solid tumor cancer clinical trial and treated their first patient with HCW9218, an injectable, bifunctional immunotherapeutic, developed by HCW Biologics Inc.

This Phase 1, first-in-human clinical trial is enrolling patients that have advanced solid tumors with progressive disease after prior chemotherapies.

On August 2, 2022, HCW Biologics was granted U.S.

This patent provides protection for the underlying intellectual property on which the Company has based its lead product candidate, HCW9302.

HCW Biologics has created an extensive patent portfolio with multiple families of patent applications that are directed to the TOBI TM discovery platform technology and its single-chain and multi-chain chimeric polypeptides as well as methods of use of these polypeptides alone and in combination.

This is the first U.S.

patent issued of the Company’s 72 patent applications filed worldwide.

On August 10, 2022, HCW Biologics committed to purchase a 36,000 square foot building located in Miramar, Florida for approximately $10.0 million, as the Company's new headquarters.

The Company received a commitment for a five-year term facility to finance the purchase, expansion, and improvement of the new location.

An initial takedown equal to 65% of the purchase price will be funded on the closing date which is expected to be on August 15, 2022.

The term facility may be increased to provide additional funding for expansion and improvements of the property, however, future borrowings are subject to full credit approval and due diligence by the lender.

Trends and Uncertainties –

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There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S.

and international economies and, as such, we are unable to determine if it will have a material impact on our operations.

The extent to which the COVID-19 or outbreaks of its variants may affect our clinical trials, business, financial condition, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, such as the potential spread of the vaccine/treatment-resistant disease, the duration of the outbreaks, travel restrictions, and actions to contain the outbreaks or treat their impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures, or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

Future developments in these and other areas present material uncertainty and risk with respect to our clinical trials, business, financial condition, and results of operations.

and international economies and, as such, we are unable to determine how long it will impact our operations and if it will have a material impact over time.

The extent to which the COVID-19 or outbreaks of its variants may affect our IND-enabling activities, clinical trials, business, financial condition, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, such as the potential spread of the vaccine/treatment-resistant disease, the duration of the outbreaks, travel restrictions, and actions to contain the outbreaks or treat their impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures, or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

Future developments in these and other areas present material uncertainty and risk with respect to our clinical trials, IND-enabling activities, buildout of our new headquarters, business, financial condition, and results of operations.

Components of our Results of Operation

We have no products approved for commercial sale and have not generated any revenue from commercial product sales of internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases.

Our total revenues to date have been generated principally from our Wugen License and manufacturing and supply for Wugen.

Our total revenues to date have been generated principally from our Wugen License and MSA with Wugen.

See Note 1 to our condensed interim financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for these definitions and more information.

We derive revenue from a license agreement granting rights to Wugen to further develop and commercialize products based on two of our proprietary molecules.

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The Company recognized revenue for the related consideration at a point in time.

The manufacturing of the clinical and research materials supplied by the Company each represents a single performance obligation that is satisfied over time.

The Company recognizes revenue using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company's progress toward completion.

The revenues recognized from for a transaction to supply clinical and research grade materials entered into under the MSA and covered by a SOW, represents one performance obligation that is satisfied over time.

The Company recognizes revenue generated for supply of material for clinical development using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company's progress toward completion.

Operating Expenses

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Employee-related expenses, including salaries, benefits, and stock-based compensation expense.

Expenses related to manufacturing and materials, consisting primarily of expenses incurred primarily in connection with third-party contract manufacturing organizations (“CMO”), that produce cGMP materials for clinical trials on our behalf.

Expenses related to manufacturing and materials, consisting primarily of expenses incurred primarily in connection with third-party contract manufacturing organizations (“CMO”), which produce cGMP materials for clinical trials on our behalf.

Expenses associated with preclinical activities, including research and development and other IND-enabling activities.

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Product candidates in later stages of development generally have higher development costs than those in earlier stages.

See “Risk Factors -- Risks Related to the Development and Clinical Testing of Our Product Candidates," in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC for a discussion of some of the risks and uncertainties associated with the development and commercialization of our product candidates.

See “Risk Factors -- Risks Related to the Development and Clinical Testing of Our Product Candidates,”

in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC for a discussion of some of the risks and uncertainties associated with the development and commercialization of our product candidates.

Any changes in the outcome of any of these risks and uncertainties with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates.

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Three Months Ended

Six Months Ended

Cost of revenues

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Interest and other income (loss), net

Comparison of the Three Months ended March 31, 2021 and March 31, 2022

As of March 31, 2021, the Company did not recognize any revenues.

For the three months ended March 31, 2022, the Company recognized $3.1 million of revenues in the unaudited statements of operation that appear elsewhere is this Quarterly Report.

For those transactions for which revenue was not recognized because one or more of the criteria for revenue recognition had not been met, the Company records deferred revenue.

There were no deferred revenues as of March 31, 2022.

Comparison of the Three Months ended June 30, 2021 and June 30, 2022

On June 18, 2021, the Company entered into a MSA with Wugen for the supply of materials for clinical development of licensed products.

The terms set forth in the MSA were not sufficient to meet all the requirements for the Company to determine that a contract exists.

In order for a contract to exist, additional terms are needed that must be set forth in a SOW.

Until March 14, 2022, the Company has not entered into any SOWs for transactions to supply Wugen with clinical and research grade materials, and all amounts received for such transactions were recorded as deferred revenue.

On March 14, 2022, the Company entered into SOWs with Wugen for each of the then-current and historical purchases of clinical and research grade materials under the MSA.

As a result, the Company determined that all requirements were met for these transactions to qualify as contracts under Topic 606.

As of June 30, 2021, the Company did not recognize any revenue for supply of clinical and research grade materials, since we did not have a contract in place.

For the three months ended June 30, 2022, the Company recognized $454,000 of revenues in the unaudited condensed statement of operation that appears elsewhere in this Quarterly Report.

For any transactions to supply materials for clinical development for which a SOW has not been finalized, revenue is not recognized because one or more of the criteria for revenue recognition has not been met, in which case, the Company records deferred revenue.

There were $696,625 of short-term deferred revenues as of June 30, 2021.

As of June 30, 2022, there were $314,625 of short-term deferred revenues included within Accrued liabilities and other current liabilities on the audited condensed balance sheet that appears elsewhere in this Quarterly Report.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended March 31, 2021 and March 31, 2022:

The following table summarizes our research and development expenses for the three months ended June 30, 2021 and June 30, 2022:

Three Months Ended

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Total research and development expenses

Research and development expenses decreased $540,134, or 23%, from $2.3 million for the three months ended March 31, 2021 to $1.8 million for the three months ended March 31, 2022.

This decrease was primarily due to a decrease in manufacturing and materials expenses and preclinical expenses.

These decreases were offset by increases in salaries, benefits and related expenses;

clinical trials expenses;

and other expenses.

Salaries, benefits, and related expenses increased by $75,978, or 11%, from $696,971 for the three months ended March 31, 2021 to $772,949 for the three months ended March 31, 2022.

This increase was primarily attributable to a $68,353 increase in salaries and wages due to an increase in headcount.

There was an increase of $17,324 due to increases in health insurance costs, 401(K) employers match, and employers contribution to health savings accounts.

Compensation expense arising from vesting of stock options increased by $9,237.

These increases were offset by a reimbursement from Wugen for certain expenses incurred under the terms of the Wugen License that was $16,000 greater for the three months ended March 31, 2022 versus the comparable period in 2021.

Manufacturing and materials expense decreased by $543,014, or 71%, from $762,052 for the three months ended March 31, 2021 to $219,038 for the three months ended March 31, 2022.

In the three months ended March 31, 2021, costs were primarily from a 200-liter cGMP run for HCW9218, establishment of the HCW9206 Master Cell Bank, the initiation of the technology transfer and development runs for HCW9206, and the initiation of manufacturing of HCW9302.

In the three months ended March 31, 2022, costs were primarily from HCW9302 technology transfer and development process closeout through finalization of reports and the project initiation of a 1000L run for HCW9218.

Looking ahead for the remainder of 2022, costs will primarily be associated with HCW9302 GMP process closeout through finalization of reports, HCW9302 Fill/Finish activities, HCW9302 drug substance and drug product release testing, and a full 1000L GMP manufacturing run and fill/finish activities for HCW9218.

Expenses associated with preclinical activities decreased by $163,225, or 24%, from $676,342 for the three months ended March 31, 2021 to $513,117 for the three months ended March 31, 2022.

In the three months ended March 31, 2021, expenses were related primarily to the c ost of toxicology studies and experimental materials for IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9218 in difficult-to-treat solid tumor cancers.

In the three months ended March 31, 2022, expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9302 in an autoimmune indication, alopecia areata.

Expenses associated with clinical activities increased $59,402, or 119%, from $49,965 for the three months ended March 31, 2021 to $109,367 for the three months ended March 31, 2022.

We anticipate expenses related to clinical ac tivities will increase substantially in the future.

HCW9218, our lead drug candidate, is expected to enter the clinical stage in the first half of 2022, upon the initiation of an Investiga tor-sponsored Phase 1 clinical trial at the Masonic Cancer Center, University of Minnesota for a dose escalation study of HCW9218 as a monotherapy in solid tumors, such as breast, ovarian, prostate and colorectal cancers.

The trial is designed as a dose escalation study of HCW9218 to identify the maximum tolerated dose for future evaluation.

Research and development expenses increased $296,719, or 18%, from $1.7 million for the three months ended June 30, 2021 to $2.0 million for the three months ended June 30, 2022.

This increase was primarily due to an increase in preclinical expenses.

Salaries, benefits, and related expenses increased by $26,251, or 3%, from $775,782 for the three months ended June 30, 2021 to $802,033 for the three months ended June 30, 2022.

This increase was primarily attributable to an $88,222 increase in salaries and wages , a $29,242 increase in health insurance costs, and a $12,319 increase in compensation expense related to stock-based compensation.

These increases were partially offset by a reimbursement from Wugen for certain expenses incurred under the terms of the Wugen License that was $94,667 greater for the three months ended June 30, 2022 versus the comparable period in 2021.

Manufacturing and materials expense decreased by $9,073, or 3%, from $313,402 for the three months ended June 30, 2021 to $304,329 for the three months ended June 30, 2022.

In the three months ended June 30, 2021, manufacturing activities focused on our lead molecules, HCW9218 and HCW9302.

For HCW9218, we finalized a 200L GMP run as well as initiated the fill/finish process and final testing for product release for clinical trials.

For HCW9302, we initiated master cell bank production and completed a scale-up run of GMP materials.

In the three months ended June 30, 2022, costs were primarily from the initiation of a 1000L GMP run for HCW9218.

Looking ahead for the remainder of 2022, costs are expected to be primarily associated with several procedures required to finalize production of HCW9302, including GMP process closeout through finalization of reports, fill/finish activities, as well as drug substance and drug product release testing.

In addition, we will complete the 1000L GMP manufacturing run and fill/finish activities for HCW9218 that was initiated in the second quarter of 2022.

Expenses associated with preclinical activities increased by $280,925, or 88%, from $318,595 for the three months ended June 30, 2021 to $599,520 for the three months ended June 30, 2022.

In the three months ended June 30, 2021, expenses were related primarily to the cost of toxicology studies and experimental materials for IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9218 in difficult-to-treat solid tumor cancers.

In the three months ended June 30, 2022, expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9302 in an autoimmune indication, alopecia areata.

Expenses associated with clinical activities decreased by $23,648, or 22%, from $107,587 for the three months ended June 30, 2021 to $83,939 for the three months ended June 30, 2022.

We anticipate expenses related to clinical activities will increase substantially in the future.

HCW9218, our lead drug candidate, entered clinical stage in the first half of 2022, upon the initiation of an Investigator-sponsored Phase 1 clinical trial at the Masonic Cancer Center, University of Minnesota for a dose escalation study of HCW9218 as a monotherapy in solid tumors, such as breast, ovarian, prostate and colorectal cancers.

The trial is designed to identify the maximum tolerated dose for future evaluation.

Depending on the toxicities observed in the treated patients, between 12 and 24 patients may be enrolled.

We also intend to initiate a Company-sponsored Phase 1b clinical trial to evaluate HCW9218 in advanced pancreatic cancer in the first half of 2022.

We plan to enroll up to 24 patients in five NCI-designated centers, with the primary objectives of the study being to determine safety, maximum tolerated dose, and the recommended Phase 2 dose.

Other expenses, which include overhead allocations, increased by $30,725, or 21%, from $144,482 for the three months ended March 31, 2021 to $175,207 for the three months ended March 31, 2022.

The increase in other expenses is due primarily to an increase of $7,000 in occupancy expenses, an increase of $13,525 in repairs and maintenance, and a $7,465 increase in employee conferences and training.

For a Company-sponsored pancreatic study, we plan to enroll up to 24 patients in several NCI-designated Comprehensive Cancer Centers, with the primary objectives of the study being to determine safety, maximum tolerated dose, and the recommended Phase 2 dose.

We anticipate patient enrollment for this trial to commence in the third quarter of 2022.

Due to COVID-related delays at the clinical sites we identified to participate in this trial, we were unable to initiate the pancreatic clinical trials earlier in the year.

In both of these studies, we will be gathering additional data to obtain further insights for future phases of clinical trials, such as immune system reaction to HCW9218 and incidence of mucosal bleeding caused by the HCW9218 TGF-β

Other expenses, which include overhead allocations, increased by $22,264, or 14%, from $157,797 for the three months ended June 30, 2021 to $180,061 for the three months ended June 30, 2022.

The increase in other expenses were primarily attributable to an increase of $21,248 in travel and travel-related activities to attend scientific conferences.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2021 and March 31, 2022:

The following table summarizes our general and administrative expenses for the three months ended June 30, 2021 and June 30, 2022:

Three Months Ended

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NM - Not meaningful.

General and administrative expenses increased $798,241, or 74%, from $1.1 million for the three months ended March 31, 2021 to $1.9 million for the three months ended March 31, 2022.

The increase was primarily due to an increase in salaries,

benefits and related expenses as a result of stock-based compensation expense associated with an equity award to the CEO upon completion of the IPO and an increase for Board compensation under our non-employee director compensation program, offset by a reduction in performance bonuses.

Professional services increased $65,540, or 17%, from $393,624 for the three months ended March 31, 2021 to $459,164 for the three months ended March 31, 2022, primarily due to a $101,074 increase for corporate legal services, an $85,863 increase in expenses for other professional services, such as auditing, and a $114,240 increase in other consulting services, such as investor relations advisory services.

These increases were offset by a decrease of $240,338 in fees for legal services related to patent filings.

Other expenses increased by $502,737, primarily due to increase in insurance costs required by a public company.

General and administrative expenses increased $630,165, or 58%, from $1.1 million for the three months ended June 30, 2021 to $1.7 million for the three months ended June 30, 2022.

This increase was primarily due to an increase of $473,112 in other expenses resulting from increased insurance costs associated with being a public company.

There was also an increase of $132,834 in salaries, benefits and related expenses as a result of stock-based compensation expense associated with an equity award to the CEO upon completion of the IPO and an increase for Board compensation under our non-employee director compensation program, which was more than offset by a decrease of $195,750 in performance bonuses for the same period.

Facilities and office expenses increased by $45,563, or 67%, primarily due to an increase in software license fees.

Depreciation decreased by $44,143 primarily due to a decrease of $27,382 in amortization for leasehold improvements and a decrease of $14,128 for accretion of issuance costs.

Comparison of the Six Months ended June 30, 2021 and June 30, 2022

There was no revenue for the six months ended June 30, 2021.

For the six months ended June 30, 2022, the Company recognized $3.6 million of revenues in the unaudited statements of operations included elsewhere in this Quarterly Report.

All revenues were generated under the MSA with Wugen.

Revenue was recognized for all transactions made under the MSA for which the Company entered SOWs, since we determined that all requirements were met for the related transactions to qualify as a contract under Topic 606.

For those transactions for which revenues were not recognized because one or more of the criteria for revenue recognition had not been met under Topic 606, the Company recorded deferred revenue.

There were $696,625 of short-term deferred revenues as of June 30, 2021, and $314,625 of short-term deferred revenues as of June 30, 2022 included within Accrued liabilities and other current liabilities.

Research and Development Expenses

The following table summarizes our research and development expenses for the six months ended June 30, 2021 and June 30, 2022:

Six Months Ended

Salaries, benefits and related expenses

Manufacturing and materials

Preclinical expenses

Clinical trials

Other expenses

Total research and development expenses

Research and development expenses decreased $243,418, or 6%, from $4.0 million for the six months ended June 30, 2021 to $3.8 million for the six months ended June 30, 2022.

This decrease was primarily due to a $553,497 decrease in manufacturing and materials expenses and offset by a $117,700 increase in preclinical expenses.

Salaries, benefits, and related expenses increased by $102,228, or 7%, from $1.5 million for the six months ended June 30, 2021 to $1.6 million for the six months ended June 30, 2022.

This increase was primarily attributable to a $156,035 increase in salaries and wages, a $42,084 increase in health insurance costs, and an increase of $21,556 in compensation expense related to stock-based compensation.

These increases were partially offset by a reimbursement from Wugen for certain expenses incurred under the terms of the Wugen License that was $110,000 greater for the six months ended June 30, 2022 versus the comparable period in 2021.

Manufacturing and materials expense decreased by $553,497, or 51%, from $1.1million for the six months ended June 30, 2021 to $521,957 for the six months ended June 30, 2022.

Manufacturing and materials expenses in the six months ended June 30, 2021 resulted from activities related to establishing master cell banks for several molecules, effecting a technology transfer to our contract manufacturer required for internally-developed manufacturing processes, and successfully completing multiple cGMP production runs for our molecules.

For HCW9218, we successfully completed cGMP manufacturing runs in multiple quantities and initiated the fill/finish process and testing for product release.

For HCW9302, we had initiated master cell bank production and completed a scale-up run of cGMP-grade material.

In the six months ended June 30, 2022, costs were primarily from HCW9302 technology transfer and development process closeout through finalization of reports and the project initiation.

In addition, we initiated a 1000L GMP run for HCW9218.

Expenses associated with preclinical activities increased by $117,700, or 12%, from $1.0 million for the six months ended June 30, 2021 to $1.1 million for the six months ended June 30, 2022.

In the six months ended June 30, 2021, expenses were related primarily to the cost of toxicology studies and experimental materials for IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9218 in difficult-to-treat solid tumor cancers.

In the six months ended June 30, 2022, expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9302 in an autoimmune indication, alopecia areata.

Expenses associated with clinical activities increased $37,164, or 24%, from $157,552 for the six months ended June 30, 2021 to $194,716 for the six months ended June 30, 2022.

We anticipate expenses related to clinical activities will increase substantially in the future.

The trial is designed as a dose escalation study of HCW9218 to identify the maximum tolerated dose for future evaluation.

Depending on the toxicities observed in the treated patients, between 12 and 24 patients may be enrolled.

We anticipate patient enrollment for a Company-sponsored Phase 1b clinical trial to evaluate HCW9218 in advanced pancreatic cancer to commence in the third quarter of 2022.

For the pancreatic study, we plan to enroll up to 24 patients in several NCI-designated Comprehensive Cancer Centers, with the primary objectives of the study being to determine safety, maximum tolerated dose, and the recommended Phase 2 dose.

We anticipate patient enrollment for this trial to commence in the third quarter of 2022.

Due to COVID-related delays at the NCI-designated Comprehensive Cancer Centers we identified as clinical sites to participate in this trial, we were unable to initiate the pancreatic clinical trials earlier in the year.

Other expenses, which include overhead allocations, increased by $52,987, or 18%, from $302,280 for the six months ended June 30, 2021 to $355,367 for the six months ended June 30, 2022.

The increase in other expenses is due primarily attributable to an increase of $28,681 in travel and travel-related activities to attend scientific conferences and an increase of $16,878 in building repairs and maintenance.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the six months ended June 30, 2021 and June 30, 2022:

Six Months Ended

Salaries, benefits and related expenses

Professional services

Facilities and office expenses

Other expenses

Total general and administrative expenses

NM - Not meaningful

General and administrative expenses increased $1.4 million, or 66%, from $2.2 million for the six months ended June 30, 2021 to $3.6 million for the six months ended June 30, 2022.

The increase was primarily due to an increase of $61,936 in salaries, benefits and related expenses, an increase of $499,909 related to stock-based compensation expense associated with an equity award to the CEO upon completion of the IPO, and an increase of $83,214 for Board compensation under our non-employee director compensation program offset by a reduction in performance bonuses.

Professional services increased $77,862 or 12%, from $668,501 for the six months ended June 30, 2021 to $746,363 for the six months ended June 30, 2022, primarily due to a $169,138 increase for corporate legal services, a $117,082 increase in expenses for other professional services, such as auditing, and a $93,156 increase in other consulting services, such as investor relations advisory services.

These increases were partially offset by a decrease of $301,514 in fees for legal services related to patent filings.

Other expenses increased by $1.0 million, from $76,501 for the six months ended June 30, 2021 to $1.1 million for the six months ended June 30, 2022.

The increase is primarily due to an increase in insurance costs associated with being a public company.

Liquidity and Capital Resources

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The Company closed an IPO on July 22, 2021, resulting in net proceeds of approximately $49.2 million, after deducting underwriting discounts and commissions and offering expenses paid by the Company.

As of March 31, 2022, we had cash and cash equivalents of $18.1 million, short-term investments in U.S.

As of June 30, 2022, we had cash and cash equivalents of $15.4 million, short-term investments in U.S.

government-backed securities of $17.0 million, and long-term investments in U.S.

government-backed securities of $9.7 million.

We estimate that we will have adequate capital to meet our operating expenses and contractual obligations until the end of 2023.

On August 10, 2022, HCW Biologics committed to purchase a 36,000 square foot building located in Miramar, Florida for approximately $10.0 million, as the Company's new headquarters.

The Company received a commitment for a five-year term facility for the purchase, expansion, and improvement of the property, secured by the building.

An initial takedown equal to 65% of the purchase price will be funded on the closing date which is expected to be on August 15, 2022.

Amounts borrowed under the term facility have a fixed interest rate of 5.75%, with interest only payments required for the first year and 25-year amortization thereafter.

The term facility may be increased to provide additional funding for expansion and improvements of the property;

however, future borrowings are subject to full credit approval and due diligence by the lender.

With our remaining IPO proceeds and the financing commitment for the purchase of the Company's new headquarters, we estimate we have adequate capital to fund operations and complete of the buildout of our new headquarters to the end of 2023.

We have based our projections of operation expenses requirements on assumptions that may prove to be incorrect, and we may use all of our available capital sooner than we expect.

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timing, progress, costs, and results of our ongoing preclinical studies and clinical trials of our immunotherapeutic products;

impact of COVID-19 on the timing and progress of our clinical trials and our ability to identify and enroll patients;

impact of COVID-19 on the timing and progress of our IND-enabling activities, clinical trials and our ability to identify and enroll patients;

costs, timing, and outcome of regulatory review of our product candidates;

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cost of maintaining, expanding, and enforcing our intellectual property rights;

cost and timing of buildout of new headquarters, including risks of cost overruns and delays, and ability to obtain additional bank financing under existing term facility, if needed;

costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive regulatory approval.

1 unchanged sentence

Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures.

Comparison of the Cash Flows for the Three Months Ended March 31, 2021 and March 31, 2022

The following table summarizes our cash flows for the three months ended March 31, 2021 and March 31, 2022:

Three Months Ended

Comparison of the Cash Flows for the Six Months Ended June 30, 2021 and June 30, 2022

The following table summarizes our cash flows for the six months ended June 30, 2021 and June 30, 2022:

Six Months Ended

Cash used in operating activities

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Cash (used in) provided by financing activities

Net decrease in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Operating Activities

Net cash used in operating activities were $1.5 million for the three months ended March 31, 2021 and $1.6 million for the three months ended March 31, 2022, respectively.

Cash used in operating activities for the three months ended March 31, 2021 consisted primarily of net loss for the period of $2.8 million, a decrease of $150,356 due to an increase in prepaid expenses and other assets, and an adjustment for a non-cash charge of $567,311 resulting from the forgiveness of the PPP loan and accrued interest.

These were offset by cash provided by operating activities resulting from a decrease in accounts receivable, an increase in accounts payable and other liabilities, and an adjustment for a non-cash charge for depreciation and amortization.

Accounts receivable decreased by $1.2 million, primarily due to the collection of a payment of $1.2 million from Wugen Inc.

Accounts payable and other liabilities increased by $713,055 primarily due to increases of $239,000 in deferred revenue, $194,000 in accrued legal expenses, and $221,000 in accounts payable.

An adjustment for non-cash charges for depreciation and amortization provided cash from operations of $158,806.

Cash used in operating activities for the three months ended March 31, 2022 consisted primarily of net loss for the period of $2.1 million, $420,000 due to an increase in accounts receivable arising from billed but unpaid amounts that were recognized in revenue for delivery of clinical development materials purchased by Wugen, and $1.1 million due to a decrease in accounts payable and other liabilities.

Cash provided by operations consisted primarily of a decrease of $1.4 million in prep aid expenses and other assets.

In addition, there were adjustments for non-cash transactions that increased cash provided by operating activities primarily arising from $185,122 for net unrealized loss on investments, $142,785 for depreciation and amortization expense, and $260,348 for compensation expense due to stock-based compensation.

Net cash used in operating activities were $2.5 million for the six months ended June 30, 2021 and $4.3 million for the six months ended June 30, 2022, respectively.

Cash used in operating activities for the six months ended June 30, 2021 consisted primarily of a net loss of $5.6 million, as well as $567,311 from extinguishment of debt and $563,436 resulting from an increase in prepaid expenses and other assets.

These were offset by cash provided from operating activities resulting from a $2.5 million decrease in accounts receivable, a $1.5 million increase in accounts payable, and a noncash adjustment of $323,897 primarily related to depreciation and amortization.

The decrease in accounts receivable reflects collection of the $2.5 million cash payment due from Wugen under the terms of the Wugen License.

The increase in accounts payable and other liabilities reflects the costs related to our IPO.

Cash used in operating activities for the six months ended June 30, 2022 consisted primarily of a net loss of $5.6 million, as well as $1.5 million of cash used in operations, resulting from a $1.3 million decrease in accounts payable and other liabilities and a $213,934 increase in accounts receivable.

Cash provided by operations consisted primarily of $1.9 million arising from a decrease in prepaid expenses and other assets and adjustments for noncash charges, including $292,363 for depreciation and amortization and $531,683 for compensation expense related to stock-based compensation.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2021 consisted of purchases of equipment.

Cash provided by investing activities for the three months ended March 31, 2022, consisted of $8.0 million of cash provided when short-term investments reached maturity, offset by $23,554 of cash used to purchase equipment.

Cash used in investing activities for the six months ended June 30, 2021 consisted of purchase of scientific lab equipment and general office equipment.

Cash provided by investing activities for the six months ended June 30, 2022, consisted of $8.0 million of cash provided when short-term investments reached maturity, offset by $36,461 of cash used to purchase equipment.

Financing Activities

During the three months ended March 31, 2021, cash used by financing activities is due to the offering costs, offset by cash provided by issuance of common stock upon the exercise of vested employee stock options.

During the three months ended March 31, 2022, cash provided by financing activities is due to issuance of common stock upon exercise of vested employee stock options.

During the six months ended June 30, 2021, cash provided by financing activities resulted from the issuance of common stock upon exercise of vested employee stock options, partially offset by offering costs associated with our IPO.

During the six months ended June 30, 2022, cash provided by financing activities is due to issuance of common stock upon exercise of vested employee stock options.

Critical Accounting Policies, Significant Judgements and Use of Estimates

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We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer.

During the three months ended March 31, 2022, the Company determined that since we now have an effective MSA and SOWs for all current and historical purchases of development supply of clinical materials with Wugen, a contract exists.

We assessed all current and previous transaction to determine the timing and amount of revenue to recognize.

See Note 1 to our condensed interim financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for more information.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements