What changed in this filing

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Item 1. Financial Statements

2022-11-07 compared with 2022-08-12 · 260 added, 208 removed, 440 unchanged (52% of the section changed)

2 unchanged sentences

Condensed Balance Sheets

September 30,

Current assets:

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250,000,000 shares

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

authorized and 35,836,135 shares issued at September 30, 2022

Additional paid-in capital

6 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenues

5 unchanged sentences

Interest and other income (loss), net

cumulative preferred dividends earned in the period

Net loss available for distribution to common stockholders

Net loss per share, basic and diluted

4 unchanged sentences

(Deficit) Equity

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

For the Nine Months Ended September 30, 2021 and September 30, 2022

Redeemable Preferred Stock

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Balance, June 30, 2021

Issuance of common stock upon initial public offering, net of issuance cost

Conversion of Series A Redeemable Preferred Stock, with forfeited cumulative dividends

Conversion of Series B Redeemable Preferred Stock, with forfeited cumulative dividends

Conversion of Series C Redeemable Preferred Stock, with forfeited cumulative dividends

Issuance of Common Stock upon exercise of stock options

Stock-based compensation

Balance, September 30, 2021

See accompanying notes to the unaudited condensed interim financial statements.

HCW Biologics Inc.

Condensed Statements of Changes in Redeemable Preferred Stock and Stockholders’

(Deficit) Equity

For the Nine Months Ended September 30, 2021 and September 30, 2022

Redeemable Preferred Stock

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Balance, June 30, 2022

Issuance of Class A

Common Stock upon

exercise of stock options

Stock-based compensation

Balance, September 30, 2022

See accompanying notes to the unaudited condensed interim financial statements.

1 unchanged sentence

Condensed Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

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Proceeds for sale or maturities of short-term investments

Purchases of short-term investments

Purchases of long-term investments

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from initial public offering

Issuance costs of initial public offering

Proceeds from issuance of common stock

Proceeds from issuance of debt, net

Offering costs

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Net changes in cash and cash equivalents

1 unchanged sentence

Cash and cash equivalents at the end of the period

Non-cash operating, investing and financing activities:

Noncash operating, investing and financing activities:

Cumulative dividends earned and accrued in the reporting period

Forfeiture of cumulative dividends, upon conversion of all preferred stock

PPP loan forgiveness

Offering costs

Operating lease liabilities arising from obtaining right-of-use assets

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

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.

As of September 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.

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(“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.

The IPO met the provisions for mandatory conversion of all shares of redeemable preferred stock according to the designations for these securities.

As a result of the conversion, the Company issued 23,768,416 shares of common stock to the former holders of redeemable preferred stock.

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 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.

In the three months and nine months ended September 30, 2022, the Company recognized revenues of $ 1.8 million and $ 5.4 million, respectively, generated from the supply of clinical and research grade material to Wugen.

On August 15, 2022, the Company entered into a loan and security agreement for a $ 6.5 million, five-year loan to provide financing for the purchase of a building which will become the Company's new headquarters.

The remainder of the purchase price was paid in cash.

See Note 3 Debt.

On August 26, 2022, the Company's $ 100.0 million shelf registration statement on Form S-3, including a prospectus for the issuance and sale of up to $ 15.5 million of shares of the Company’s common stock through an at-the-market equity program, was declared effective by the Securities and Exchange Commission (“SEC”).

As of September 30, 2022 , the Company had cash and cash equivalents of $ 26.2 million and long-term investments of $ 9.7 million held in U.S.

government-backed securities.

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.

Since inception to September 30, 2022 , the Company incurred cumulative net losses of $ 37.3 million.

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

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

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Unaudited Interim Financial Information

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.

The accompanying unaudited condensed interim financial statements as of September 30, 2022 and for the three months and nine months ended September 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 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 results for the three and nine months ended September 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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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") 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.

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 contract 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.

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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.

For the three months and nine months ended September 30, 2022 , the Company recognized revenue related to sale of development supply materials to Wugen of $ 1.8 million and $ 5.4 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 $ 1.8 million and $ 314,625 as of December 31, 2021 and June 30, 2022 , respectively.

The Company had deferred revenue of $ 1.8 million and nil as of December 31, 2021 and September 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.

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No impairment has been recognized.

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.

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

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

Treasury which are classified as trading securities.

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.

Treasury notes included in Investments in the accompanying condensed balance sheet.

As of December 31, 2021, the company held $ 25.0 million in U.S.

Treasury bills included in Short-term investments and $ 9.9 million in U.S Treasury notes included in Investments in the accompanying condensed balance sheet.

As of September 30, 2022, the Company held $ 9.7 million in U.S.

Treasury notes in cluded in Investments in the accompanying condensed balance sheet.

Operating Leases

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Operating leases are included in Other assets, Accrued liabilities and other current liabilities, and Other liabilities on its balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

Operating lease right of use ("ROU") assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

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The Company adopted Topic 842 as of January 1, 2022.

Effective March 1, 2022, the Company entered into noncancelable operating leases for its current location with a two-year term.

These are the only leases in scope of Topic 842 or above the Company's capitalization threshold.

Accrued Liabilities and Other Current Liabilities

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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 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

On July 22, 2021, the Company closed on its IPO, and the requirements for mandatory conversion were met.

All outstanding shares of Series A, Series B, and Series C Preferred Stock converted into an equal number of shares of common stock.

As a result, the rights, preferences, and terms ascribed to these shares are no longer applicable.

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

As of September 30, 2022, the Company had a balance of $ 882,775 in Accrued liabilities and other current liabilities, consisting primarily of $ 70,000 related to salary and benefits, $ 174,520 related to short-term lease liability, $ 230,400 related to clinical trials expenses, $ 166,000 legal fees and $ 240,000 related primarily to other accrued liabilities.

On August 15, 2022, the Company entered into a loan and security agreement, or the 2022 Loan Agreement, with Cogent Bank, or Cogent, pursuant to which it received $ 6.5 million in gross proceeds to purchase a building that will become the Company's new headquarters.

The loan is secured by a first lien on the building.

As of September 30, 2022, the Company had $ 6.5 million in gross principal outstanding in a loan under the 2022 Loan Agreement.

The outstanding loan will mature on August 15, 2027 , or the Maturity Date, and bears interest at a fixed per annum rate equal to 5.75 %.

An interest-only period is one year followed by 48 months of equal payments of principal and interest beginning on September 15, 2023 based on a 25-year amortization rate.

Upon the Maturity Date, a final payment of unamortized principal will be due to Cogent.

The Company has the option to prepay the outstanding balance of the loan prior to the Maturity Date without penalty.

As of September 30, 2022, the loan is presented net of debt issuance costs in Debt on the accompanying condensed balance sheet.

Net Loss Per Share

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

Three Months Ended June 30,

Six Months Ended June 30,

cumulative preferred dividends earned in the period

Net loss available for distribution to common stock holders

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted-average common shares outstanding

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The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

Redeemable Preferred Stock

At September 30,

Common stock options

Potentially diluted securities

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

Fair Value of Financial Instruments

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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 June 30, 2022:

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

At December 31, 2021:

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Treasury notes

At June 30, 2022:

At September 30, 2022:

Money market funds

Treasury bills

Treasury notes

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 June 30, 2022 .

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

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

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

The Company believes it is more likely than not that the related deferred tax asset will not be realized.

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There are no obligations under finance leases.

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

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

For the Three Months

Ended June 30, 2022

For the Six Months Ended June 30, 2022

Ended September 30, 2022

For the Nine Months Ended September 30, 2022

Operating lease cost

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

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

For the Nine Months Ended September 30, 2022

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

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Operating lease

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

As of June 30, 2022

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

As of September 30, 2022

Operating lease right-of-use assets

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Total operating lease liabilities

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

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

2022 (remaining 3 months)

Total future minimum lease payments

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 .

For the three months ended September 30, 2021 and 2022, rent expense recognized by the Company was $ 36,300 and $ 43,700 respectively, of which $ 19,200 and $ 22,200 , 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 .

For the nine months ended September 30, 2021 and 2022, rent expense recognized by the Company was $ 104,100 and $ 130,300 , respectively, of which $ 52,600 and $ 57,800 , 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 .

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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.

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.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States and the world.

The spread of COVID-19 has caused significant volatility in the U.S.

and international markets.

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, 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.

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

At September 30, 2022 , future payment obligations under such agreements were $ 2.0 million.

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions.

Pursuant to such agreements, the Company may indemnify, hold harmless and defend the indemnified parties for losses suffered or incurred by the indemnified party.

Some of the provisions will limit losses to those arising from third-party actions.

In some cases, the indemnification will continue after the termination of the agreement.

The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable.

To date, the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions.

The Company has also entered into indemnification agreements with its directors and officers that may require it to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by law.

The Company also has directors’

and officers’

The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts the Company's business, results of operations and financial condition, including but not limited to the supply chain, manufacturing, clinical trials, research and development costs and employee-related costs, depends on future developments that are highly uncertain, subject to change and are difficult to predict.

Additionally, the ongoing geopolitical tensions related to Chinese aggression toward Taiwan, the conflict in Ukraine, and the related sanctions and other penalties imposed, in addition to other financial pressures from inflation and higher interest rates, are creating substantial uncertainty in the global economy.

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 and supply chain issues.

In addition, the Company has encountered some delays in the completion of IND-enabling studies required by the U.S.

Federal Drug Administration to support Investigational New Drug Applications (“IND”

) due to government-mandated measures taken as a result of COVID outbreaks.

The Company expects to be impacted by inflation, especially for materials required for the buildout of the Company's new headquarters and employee-related costs.

These headwinds may have an adverse impact on the Company's ability to conduct clinical trials as well as IND-enabling activities, causing delays in our clinical development timeline.

The Company uses a number of strategies to effectively navigate these issues, but the extent and duration of such events and conditions, and resulting disruptions to the Company's operations, are highly unpredictable.

Subsequent Events

Subsequent events have been evaluated through the date the financial statements were available to be issued.

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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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 SEC from time to time.

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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However, accumulation of senescent cells with a senescence-associated pro-inflammatory factors has been implicated as a major source of chronic sterile inflammation leading to many aging-related pathologies.

Subcutaneous administration of our lead drug candidate, HCW9218, activates Natural Killer ("NK") cells, innate lymphoid group-1, and CD8 + T cells, and neutralizes transforming growth factor beta ("TGF-β").

Subcutaneous administration of our lead drug candidate, HCW9218, activates Natural Killer (“NK”) cells, innate lymphoid group-1, and CD8 + T cells, and neutralizes transforming growth factor beta (“TGF-β”).

This bifunctionality gives HCW9218 the ability to reduce senescent cells, that is function as a senolytic, as well as eliminate senescence-associated pro-inflammatory factors, that is function as a senomorphic.

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

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.

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 first patient was dosed in a multi-center Company-sponsored Phase 1b/2 clinical trial to evaluate HCW9218 in patients with chemo-refractory/chemo-resistant advanced pancreatic cancer in October 2022.

neutralization to and by HCW9218 as well as any incidence of mucosal bleeding caused by the HCW9218 TGF-β

In addition, the Masonic Cancer Center will present preliminary human data from the solid tumor trial in a poster presentation at the Society for Immunotherapy of Cancer (“SITC”) conference to be held from November 8 through November 12, 2022 in Boston, Massachusetts.

We are targeting a readout of preliminary human data from the pancreatic study in the first half of 2023.

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

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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.

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

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 –

COVID-19 Pandemic

The spread of COVID-19 and its numerous variants has caused significant volatility in the U.S.

On August 15, 2022, the Company purchased a building located in Miramar, Florida for approximately $10.0 million, as our new headquarters.

The Company received a $6.5 million five-year loan to finance the purchase of the new property.

The loan bears a fixed interest of 5.75% per annum with interest only payment due in the first year.

The multi-center, Company-sponsored Phase 1b/2 clinical trial to evaluate HCW9218 in patients with chemo-refractory/chemo-resistant advanced pancreatic cancer has initiated.

HonorHealth Research Institute dosed its first patient on October 17, 2022, and a second patient on October 31, 2022.

We are in the process of activating other clinical sites at NCI-designated Comprehensive Cancer Centers.

As of September 30, 2022, there were no reports of dose-limited toxicity in the Phase 1 clinical trial to evaluate HCW9218 in patients with chemo-refractory/chemo-resistant solid tumors with disease progression after prior treatment with standard of care therapies, being conducted at the Masonic Cancer Center.

Patients have been enrolled and dosed for two levels of dose escalation in this trial.

On August 26, 2022, the Company's $100.0 million shelf registration statement on Form S-3, including a prospectus for the issuance and sale of up to $15.5 million of shares of the Company's common stock through an at-the-market program, was declared effective by the SEC.

The 37th Annual Meeting of the Society for Immunotherapy of Cancer accepted an abstract submitted by the Masonic Cancer Center, University of Minnesota, entitled:

A phase 1 study of HCW9218, a bifunctional TGF-β

Antagonist/IL-15 protein complex, in advanced solid tumors.

Preliminary clinical results from the Phase 1 clinical study to evaluate HCW9218 in chemo-refractory/chemo-resistant solid tumors will be presented in a poster at the SITC 2022 conference by Dr.

Melissa Geller, Principal Investigator.

Trends and Uncertainties

The spread of COVID-19, including the resurgence of cases related to the spread of new variants, has caused significant volatility in the U.S.

and international markets since March 2020.

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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.

Inflationary Cost Environment, Supply Chain Disruption and the Macroeconomic Environment

Our operations have been affected by many headwinds, including inflationary pressures, rising interest rates, ongoing global supply chain disruptions resulting from increased geopolitical tensions such as the war between Russia and Ukraine, Chinese aggression towards Taiwan, financial market volatility and currency movements.

These headwinds, specifically the supply chain disruptions, have adversely impacted our ability to procure certain services and materials, which in some cases impacts the cost and timing of clinical trials and IND-enabling activities.

In addition, the Company may be impacted by inflation when procuring materials required for the buildout of our new headquarters, the costs for recruiting and retaining employees and other employee-related costs.

Further, rising interest rates would also increase borrowing costs to the extent that the Company takes on any additional debt.

The Company uses a number of strategies to effectively navigate these issues, including product redesign, alternate sourcing, and establishing contingencies in budgeting and timelines.

However, the extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable.

For discussion of risks related to potential impacts of supply chain, inflation, geopolitical and macroeconomic challenges on our operations, business results and financial condition, see “Part II, Item 1A.

Risk Factors.”

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 MSA with Wugen.

The principal source of our revenues to date have been generated 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.

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

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 revenue recognized from 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.

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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.

elsewhere in this Quarterly Report on Form 10-Q 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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General and administrative expenses also include third-party costs such as insurance costs, fees for professional services, such as legal, auditing and tax services, facilities administrative costs, and other expenses.

We expect that our general and administrative expenses will be higher in the foreseeable future.

We anticipate increased expenses relating to our operations as a public company, including increased costs for the hiring of additional personnel, and for payment to outside consultants, including lawyers and accountants, to comply with additional regulations, corporate governance, internal control and similar requirements applicable to public companies, as well as increased costs for insurance.

During the period ended September 30, 2022, allegations were made by a former employer of Dr.

Wong, our Founder and Chief Executive Officer, against Dr.

Wong and the Company related to certain of our core intellectual property assets.

Although no claims have been filed, we began incurring legal expenses on our own behalf as well as on behalf of Dr.

Wong, as required under the Company’s indemnification agreement with our officers and directors.

We expect that our general and administrative expenses will continue to be higher in the foreseeable future due to expenses relating to our operations as a public company, including increased costs for the recruitment and retention of personnel and payment to outside consultants, advisors and accountants, as well as increased costs to comply with government regulations, corporate governance, internal control, insurance and similar requirements applicable to public companies.

In addition, we also expect we may have increased legal expenses in connection with any matters or claims arising from the allegations of Dr.

Wong's former employer.

Interest and Other Income (Loss), Net

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government-backed securities, other income related to non-operating activities, and other non-operating expenses.

On August 15, 2022, the Company entered into a short-term, market-rate lease with the former owner of the building purchased by the Company on the same date.

The lease provides the tenant with the right to occupy offices that comprise approximately 15,000 square feet for a period of one year, ending August 14, 2023.

The lease may be terminated at any time by the tenant with 60 days written notice.

During the three months ended September 30, 2022, the Company reported $30,894 in miscellaneous income, which is included within Interest and other income (loss), net in the condensed statements of operation for the three and nine months ended September 30, 2022 included elsewhere in this Quarterly Report on Form 10-Q.

Results of Operations

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenues

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Interest and other income (loss), net

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

Comparison of the Three Months ended September 30, 2021 and September 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.

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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.

As of September 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 September 30, 2022, the Company recognized $1.8 million of revenues in the condensed statement of operations that appears elsewhere in this Quarterly Report on Form 10-Q.

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.

There were $1.1 million and nil of short-term deferred revenues as of September 30, 2021 and September 30, 2022, respectively.

Research and Development Expenses

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

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

Three Months Ended

September 30,

Salaries, benefits and related expenses

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Total research and development expenses

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.

Research and development expenses decreased by $38,547, or 1%, from $2.7 million for the three months ended September 30, 2021 to $2.6 million for the three months ended September 30, 2022.

This decrease was primarily due to a decline in manufacturing expenses of $282,135 and an increase in clinical trial expenses of $222,720.

Salaries, benefits, and related expenses increased by $18,619, or 3%, from $675,155 for the three months ended September 30, 2021 to $693,744 for the three months ended September 30, 2022.

This increase was primarily attributable to a $78,314 increase in salaries and wages and a $13,262 increase in compensation expenses related to stock-based compensation, offset by a reimbursement from Wugen for certain expenses incurred under the terms of the Wugen License that was $74,667 greater for the three months ended September 30, 2022 versus the comparable period in 2021.

Manufacturing and materials expense decreased by $282,135, or 27%, from $1.0 million for the three months ended September 30, 2021 to $751,945 for the three months ended September 30, 2022.

In the three months ended September 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.

In the three months ended September 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.

In addition, we expect to 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 decreased by $40,007, or 5%, from $769,179 for the three months ended September 30, 2021 to $729,172 for the three months ended September 30, 2022.

In the three months ended September 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 September 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 by $222,720, or 320%, from $69,556 for the three months ended September 30, 2021 to $292,276 for the three months ended September 30, 2022.

We anticipate expenses related to clinical activities will increase substantially in the future, as there will be multiple clinical trials in progress for the foreseeable 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 chemo-refractory/chemo-resistant 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.

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.

For a Company-sponsored Phase 1b/2 clinical trial to evaluate HCW9218 in patients with chemo-refractory/chemo-resistant advanced pancreatic cancer, three clinical sites were opened as of September 30, 2022.

The first patient was dosed by HonorHealth on October 17, 2022.

We plan to enroll up to 24 patients from several clinical sites at NCI-designated Comprehensive Cancer Centers.

The primary objectives of this study are to determine safety, maximum tolerable dose, and the recommended Phase 2 dose.

Besides safety and dosing data, during the course of these clinical studies, we are gathering additional data to obtain further insights for future phases of clinical trials, such as immune system reaction and serum TGF- β

neutralization to and by HCW9218 and incidence of mucosal bleeding caused by the HCW9218 TGF-β

Other expenses, which include overhead allocations increased by $42,256, or 30%, from $139,371 for the three months ended September 30, 2021 to $181,627 for the three months ended September 30, 2022.

The increase in other expenses was primarily attributable to an increase of $14,294 in facility-related expenses for warranties, $7,451 in travel and travel-related activities to attend scientific conferences, and an increase of $15,709 in depreciation expense.

General and Administrative Expenses

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

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

Three Months Ended

September 30,

Salaries, benefits and related expenses

3 unchanged sentences

Total general and administrative expenses

NM - Not meaningful.

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.

General and administrative expenses increased by $327,843, or 23%, from $1.4 million for the three months ended September 30, 2021 to $1.7 million for the three months ended September 30, 2022.

This increase was primarily due to an increase of $255,895 in salaries, benefits and related expenses, resulting primarily from an increase of $287,398 in compensation expense for stock-based compensation associated with an equity award to the CEO upon completion of the IPO, expensing $144,870 of offering costs incurred in connection with our shelf registration statement on Form S-3, and an increase of $20,000 for the Company's Board of Directors (“Board”) compensation under our non-employee director compensation program put in place post-IPO.

These increases were partially offset by a decrease of $75,000 in performance bonuses and a decrease of $10,326 for employee benefits in the three months ended September 30, 2022 versus the comparable period in 2021.

Professional services expense increased by $20,460, or 6%, from $331,706 for the three months ended September 30, 2021 to $352,166 for the three months ended September 30, 2022.

The increase is primarily attributable to an increase of $75,236 for legal services related to patents, offset by a decrease of $46,800 in fees paid to advisors for investor relations and communications and a decrease of $13,177 in fees paid to other professional services.

Depreciation expense decreased by $12,881 primarily due to a decrease of $26,494 in amortization for leasehold improvements and an increase of $15,709 in depreciation expense.

The Company accelerated amortization of leasehold improvements when the underlying lease expired in February 2022.

Depreciation expenses increased as a result of the purchase of a new building for the Company's headquarters in August 2022.

Other expenses increased by $56,007, or 14%, from $395,963 for the three months ended September 30, 2021 to $451,970 for the three months ended September 30, 2022.

The increase is primarily due to expensing offering costs of $144,870 incurred in connection with our shelf registration statement on Form S-3 and an increase of $16,200 primarily resulting from an increase in Delaware franchise tax, offset by a net decrease of $117,800 in insurance costs.

Comparison of the Nine Months ended September 30, 2021 and September 30, 2022

There was no revenue for the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, the Company recognized $5.4 million of revenues in the unaudited statements of operations included elsewhere in this Quarterly Report on Form 10-Q.

All revenues were generated under the MSA with Wugen.

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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.

There were $1.1 million and nil of short-term deferred revenues as of September 30, 2021 and September 30, 2022, respectively.

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

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

Nine Months Ended

September 30,

Salaries, benefits and related expenses

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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.

Research and development expenses decreased by $281,964, or 4%, from $6.7 million for the nine months ended September 30, 2021 to $6.4 million for the nine months ended September 30, 2022.

The decrease of $835,632 in manufacturing and materials expenses were partially offset by increases in all other expenses.

Salaries, benefits, and related expenses increased by $120,848, or 6%, from $2.1 million for the nine months ended September 30, 2021 to $2.3 million for the nine months ended September 30, 2022.

This increase was primarily attributable to a $275,209 increase in salaries and wages, performance bonuses, and benefits and an increase of $34,819 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 $185,333 greater for the nine months ended September 30, 2022 versus the comparable period in 2021.

Manufacturing and materials expense decreased by $835,632, or 40%, from $2.1 million for the nine months ended September 30, 2021 to $1.3 million for the nine months ended September 30, 2022.

Manufacturing and materials expenses in the nine months ended September 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.

In the nine months ended September 30, 2022, costs were primarily from a 1000L GMP run for HCW9218 as well as HCW9302 technology transfer and development process closeout through finalization of reports and the project initiation.

Expenses associated with preclinical activities increased by $77,692, 4%, from $1.8 million for the nine months ended September 30, 2021 to $1.8 million for the nine months ended September 30, 2022.

In the nine months ended September 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 nine months ended September 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 by $259,884, or 114%, from $227,108 for the nine months ended September 30, 2021 to $486,992 for the nine months ended September 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.

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 chemo-refractory/chemo-resistant solid tumors, such as breast, ovarian, prostate and colorectal cancers.

As of September 30, 2022, there were three clinical sites opened for the Company-sponsored Phase 1b/2 clinical trial to evaluate HCW9218 in chemo-refractory/chemo-resistant advanced pancreatic cancer.

The first patient was dosed on at HonorHealth Research Institute on October 17, 2022.

For the pancreatic cancer study, we plan to enroll up to 24 patients from several clinical sites.

Other expenses, which include overhead allocations, increased by $95,244, or 22%, from $441,651 for the nine months ended September 30, 2021 to $536,895 for the nine months ended September 30, 2022.

The increase in other expenses is primarily attributable to an increase of $22,640 in facility-related expenses for warranties, an increase of $42,467 in travel and travel-related activities to attend scientific conferences and an increase of $19,512 in depreciation expense.

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

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

Nine Months Ended

September 30,

Salaries, benefits and related expenses

3 unchanged sentences

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.

General and administrative expenses increased by $1.7 million, or 49%, from $3.6 million for the nine months ended September 30, 2021 to $5.3 million for the nine months ended September 30, 2022.

The increase was primarily due to an increase of $787,307 related to stock-based compensation expense associated with an equity award to the CEO upon completion of the IPO and an increase of $755,092 related to an increase in insurance coverage appropriate for a public company.

Salaries, benefit and related expenses increased by $603,793, or 37%, from $1.6 million for the nine months ended September 30, 2021 to $2.2 million for the three months ended September 30, 2022.

The increase was primarily due to an increase of $99,657 in salaries, benefits and related expenses, an increase of $787,307 related to stock-based compensation expense associated with an equity award to the CEO upon completion of the IPO, and an increase of $103,214 for Board compensation under our non-employee director compensation program put in place post-IPO offset by a $370,750 reduction in performance bonuses.

Professional services increased by $98,324, or 10%, from $1.0 million for the nine months ended September 30, 2021 to $1.1 million for the nine months ended September 30, 2022, primarily due to a $174,339 increase for corporate legal services, a $103,905 increase in expenses for other professional services, such as auditing and tax advisers, and a $47,813 increase in other consulting services, such as architectural services related to the Company's new headquarters building.

These increases were partially offset by a decrease of $226,277 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

Other expenses increased by $1.0 million, or 218%, from $472,465 for the nine months ended September 30, 2021 to $1.5 million for the nine months ended September 30, 2022.

The increase is primarily due to an increase of $755,092 in insurance costs associated with being a public company, expensing $144,870 of offering costs related to our shelf registration statement on Form S-3 and an increase of $109,047 in Delaware franchise taxes.

Liquidity and Capital Resource

Sources of Liquidity

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 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.

As of September 30, 2022, we had cash and cash equivalents held in a money market account of $26.2 million and long-term investments in U.S.

government-backed securities of $9.7 million.

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.

On August 15, 2022, we purchased a 36,000 square foot building located in Miramar, Florida for approximately $10.1 million, including transaction costs.

A portion of the acquisition cost was funded with a $6.5 million five-year term facility, secured by the building.

The remainder of the purchase price was funded with cash.

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.

With our remaining IPO proceeds, we estimate we have adequate capital to fund operations and the buildout of our new facility 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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whether we enter into any collaboration or co-development agreements and the terms of such agreements;

whether we raise additional funding through bank loan facilities;

effect of competing technology and market developments;

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

impact of litigation, regulatory inquiries, or investigations, as well as costs to indemnify our officers and directors against third-party claims related to our patents and other intellectual property;

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;

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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 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

Comparison of the Cash Flows for the Nine Months Ended September 30, 2021 and September 30, 2022

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

Nine Months Ended

September 30,

Cash used in operating activities

Cash (used in) provided by investing activities

Cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash provided by financing activities

Net increase in cash and cash equivalents

Operating Activities

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.

Net cash used in operating activities was $7.6 million for the nine months ended September 30, 2021 and $6.6 million for the nine months ended September 30, 2022, respectively.

Cash used in operating activities for the nine months ended September 30, 2021 consisted primarily of a net loss of $9.7 million, $2.2 million from an increase in prepaid expenses and other assets, and $567,311 from extinguishment of debt.

The $2.2 million increase in prepaid expenses primarily relates to an increase in insurance premiums.

These were offset by cash provided from a $2.5 million decrease in accounts receivable, a $2.0 million increase in accounts payable, and a noncash adjustment of $436,135 for 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.

The increase in accounts payable and other liabilities primarily reflects an increase in deferred revenue and purchase of manufacturing materials.

Cash used in operating activities for the nine months ended September 30, 2022 consisted primarily of a net loss of $9.5 million, $222,555 cash decrease arising from an increase accounts receivable, and $202,979 cash decrease arising from a decrease in accounts payable and other currently liabilities.

These uses were partially offset by a $1.9 million cash increase arising from a decrease in prepaid expenses and other assets and noncash adjustments of $834,003 for stock-based compensation expense and $456,696 for depreciation and amortization expense.

Investing Activities

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.

During the nine months ended September 30, 2021, cash used in investing activities reflects the purchase of U.S.

government-backed securities with the proceeds of our IPO and the purchase of scientific lab equipment and general office equipment.

As of September 30, 2021, we held $35.0 million in short-term U.S.

government-backed securities.

During the nine months ended September 30, 2022, cash provided by investing activities consisted of $25.0 million of cash provided when short-term investments reached maturity, offset by $10.2 million of cash used to purchase property, plant and equipment.

Financing Activities

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.

During the nine months ended September 30, 2021 cash provided by financing activities primarily resulted from our IPO, offset by offering costs.

Net proceeds were approximately $49.2 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by us.

During the nine months ended September 30, 2022, cash provided by financing activities resulted from obtaining purchase financing to acquire our new headquarters building.

Critical Accounting Policies, Significant Judgements and Use of Estimates

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Recent Accounting Pronouncements

See Note 1 to our unaudited condensed interim financial statements appearing elsewhere in this Quarterly Report for more information about recent accounting pronouncements.

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

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