What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-28 compared with 2022-03-29 · 237 added, 206 removed, 179 unchanged (71% of the section changed)

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In addition, future debt instruments may materially restrict our ability to pay dividends on our common stock.

Payment of future cash dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors deems relevant.

Recent Sales of Unregistered Securities

From January 1, 2021 through July 21, 2021 (the date of the filing of our registration statement on Form S-8), we issued and sold to our employees, consultants and other service providers an aggregate of 162,189 unregistered shares of common stock upon the exercise of stock options under our 2019 Equity Incentive Plan, as amended, at a weighted average exercise price of $0.14.

The securities issued in these transactions were exempt from the registration requirements of the Securities Act in reliance upon Rule 701 promulgated under the Securities Act.

The foregoing transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering.

Payment of future cash dividends, if any, will be at the discretion of the Board after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the Board deems relevant.

Use of Proceeds from Initial Public Offering of Company’s Stock

On July 19, 2021, our registration statement on Form S-1 (File No.

333-256510) related to our IPO was declared effective by the SEC.

On July 22, 2021, we completed the IPO pursuant to which we issued and sold 7,000,000 shares of common stock at $8.00 per share and received gross proceeds of $56.0 million, which resulted in net proceeds to us of $49.2 million, after deducting underwriting discounts and commissions and offering expenses paid by us.

None of the expenses associated with the IPO were paid to directors, officers, persons owning ten percent or more of any class of equity securities or to their affiliates.

EF Hutton Division of Benchmark Investments, LLC acted as sole book-running manager and Revere Securities LLC acted as co-manager for the offering.

On July 19, 2021, the SEC declared effective our registration statement on Form S-1 (File No.

333-256510), as amended, filed in connection with our IPO.

Our IPO closed on July 22, 2021, and we issued and sold 7,000,000 shares of common stock at a price to the public of $8.00 per share, for an aggregate amount of $56.0 million.

The net proceeds of the IPO were $49.2 million.

The managing underwriter of the offering was EF Hutton, division of Benchmark Investments, LLC.

There has been no material change in the planned use of proceeds from our IPO from that described in the final prospectus dated July 19, 2021 and filed with the SEC.

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Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions, that are based on the beliefs of our management.

This discussion contains forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions, which are based on the beliefs of our management.

Our actual results could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors”

section of this Annual Report on Form 10-K.

We are 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.

section of this Annual Report.

Company Overview

HCW Biologics Inc.

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 proinflammatory 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 reduce senescent cells and eliminate 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.

Our gateway indication for clinical development is oncology.

Advances in immuno-stimulatory and anti-immunosuppressive therapeutics have revolutionized cancer treatment, and our internally-developed, lead product candidate, HCW9218, is designed with both of these functionalities.

We believe the bifunctionality of HCW9218 will allow it to be effective against solid tumor cancers because it simultaneously provides immunostimulation of natural killer (“NK”) cells and effector T cells to enhance the cytotoxicity of immune cells against tumor targets, while reducing immunosuppression associated with solid tumors by capturing and neutralizing TGF-β.

The FDA has permitted two clinical trials in difficult-to-treat cancer indications to proceed.

These include a Company-sponsored trial to evaluate HCW9218 in advanced pancreatic cancer, and an Investigator-sponsored trial by Masonic Cancer Center at University of Minnesota to evaluate HCW9218 in other solid tumors.

We expect both trials to initiate in the first half of 2022.

Our internally-developed, lead product candidate, HCW9302, an IL-2-based fusion molecule that expands T reg cells in vivo and ex vivo as an injectable or cell-based strategy, is designed to reduce inflammation through deactivation of inflammasomes.

Preclinical studies have demonstrated the ability of HCW9302 to reduce inflammation, allowing for the potential to treat a wide variety of autoimmune and age-related diseases.

We expect to complete IND-enabling activities for an autoimmune indication by the end of 2022.

Upon completion of IND-enabling activities, we intend to submit an IND for a Phase 1b clinical trial to evaluate HCW9302 in alopecia areata.

Since commencing operations in 2018, we have devoted substantially all of our efforts and financial resources to building our research and development capabilities, and establishing our corporate infrastructure.

To date, we have not generated any product revenue and we have never been profitable.

We have incurred significant operating losses since the commencement of our operations.

As of December 31, 2021, we had an accumulated deficit of $30.6 million.

Our cumulative net losses for the years ended December 31, 2020 and 2021 were $15.1 million and $27.9 million, respectively.

Our net losses for years ended December 31, 2020 and 2021 were $5.8 million and $12.9 million, respectively.

We do not expect to generate product revenue unless and until we obtain marketing approval for and commercialize a drug candidate, and we cannot assure you that we will ever generate significant revenue or profits from product sales.

To date, we have financed our operations primarily with proceeds of $29.4 million from the sale and issuance of redeemable preferred stock, $49.2 million in net proceeds from our IPO, and to a lesser extent, the proceeds of upfront payments from an out-license agreement.

As of December 31, 2021, we had cash and cash equivalents of $11.7 million, short-term investments in U.S.

government-backed securities of $25.0 million, and long-term investments in U.S.

government-backed securities of $9.9 million.

We expect to continue to incur significant expenses and operating losses for the foreseeable future, as we continue our clinical development activities, particularly if and as we:

Advance the development of our lead product candidate, HCW9218, and clinical trials for oncology, and if approved by the FDA, commercialization;

Advance preclinical development of other indications for HCW9218, including fibrotic indications, especially those resulting in NAFLD and liver cancer;

Advance the preclinical development of our second lead product candidate, HCW9302, for autoimmune diseases and pro-inflammatory diseases, such as coronary artery disease;

Establish our own domestic manufacturing capability;

Maintain, expand, and protect our intellectual property portfolio;

Scale up our clinical and regulatory capabilities;

Expand operational and management information systems as well as investor relations, legal, accounting, and audit services required to operate as a public company.

As a result of these anticipated expenditures, we will need substantial additional financing to support our continuing operations and pursuit of our clinical development strategy.

Until such time as we can generate significant revenues from sales of an approved drug or drugs, if ever, we expect to finance our operations through a combination of equity offerings or other financings, collaborations, strategic alliances, co-development deals, and out-licensing arrangements.

We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all.

If we fail to raise capital or enter into such agreements as, and when, needed, we may need to significantly delay, scale back, or discontinue the development and commercialization of one or more of our product candidates which may have a negative impact on our financial condition.

We believe that our existing cash and cash equivalents, will be sufficient to fund our operating expenses through the end of 2023.

We have based this estimate on assumptions that may prove to be wrong, we could utilize our available capital resources sooner than we expect.

See the section entitled “Liquidity and Capital Resources.”

Our future viability beyond 2023 is dependent on our ability to raise additional capital to finance our operations and fund capital expenditure requirements.

Because of the numerous risks and uncertainties associated with our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the preclinical and clinical development of our product candidates.

Recent Developments

The Company achieved several milestones in the past year:

Initial Public Offering.

On July 19, 2021, the Company’s S-1 registration statement for an Initial Public Offering ("IPO") was declared effective.

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

FDA clearance for Company-sponsored Phase 1b clinical trial in cancer.

On October 28, 2021, the Company announced that we were cleared by the FDA to proceed to evaluate our lead drug candidate, HCW9218, in a first-in-human Phase 1b clinical trial in patients with advanced pancreatic cancer.

We expect to initiate this multi-center trial in the first half of 2022.

FDA clearance for Investigator-sponsored Phase 1 clinical trial in cancer.

On January 24, 2022, the Company announced that the Masonic Cancer Center, University of Minnesota was cleared by the FDA to proceed to evaluate our lead drug candidate, HCW9218, in a Phase 1 clinical trial in patients with advanced solid tumors with progressive disease after prior chemotherapies.

We expect to initiate this single-center trial in the first half of 2022.

Three publications in peer-reviewed journals.

We are successfully executing our strategy to publish pivotal scientific papers to establish our leadership in oncology and other age-related diseases in the scientific and clinical communities.

Thus far, three papers have been published:

o An article in Cancer Immunology Research describing our platform:

Becker-Hapak MK, et al.

A Fusion Protein Complex Combines IL-12, IL-15, and IL-18 Signaling to Induce Memory-like NK Cells for Cancer Immunotherapy.

September 9, 2021.

o An article in Molecular Therapy on the characterization of our lead molecules, HCW9218:

Liu B et al., Bifunctional TGF-ß

Trap/IL-15 Protein Complex Elicits Potent NK Cell and CD8 + T Cell Immunity Against Solid Tumors.

October 6, 2021.

o An article in Molecular Therapy which discusses HCW9218 and its ability to augment anti-tumor activity and reduce side effects of chemotherapy regimens:

Chaturvedi, P et al., Immunotherapeutic HCW9218 Augments Anti-tumor Activity of Chemotherapy via NK Cell Mediated Reduction of Therapy Induced Senescent Cells, January 17, 2022.

Trends and Uncertainties –

COVID-19 Pandemic

There created 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 COVID-19 pandemic continues to impact U.S.

and international markets and supply chains through the spread of COVID-19 variants.

The COVID-19 pandemic continues to present a substantial public health and economic challenge around the world.

The global COVID-19 pandemic continues to evolve, and we will continue to monitor the COVID-19 situation closely.

The extent of the impact of the COVID-19 pandemic on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the pandemic and its impact on our development activities, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel.

See "Risk Factors-- Public health crises such as pandemics or similar outbreaks could materially and adversely affect our preclinical and clinical trials, business, financial condition, and results of operations."

For additional information on the various risks posed by the COVID-19 pandemic, please read section titled “Risk Factors”

set forth in Part I, Item 1A of this Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission (the “SEC”).

Components of Results of Operation

To date, we have not generated any revenue from product sales and do not expect to generate revenue from product sales for the foreseeable future.

Until that occurs, our sole source of revenue will be derived from out-licenses, collaborative agreements, and co-development deals.

On June 18, 2021, we entered into a master services agreement with Wugen related to a development supply agreement, under which the Company will sell cGMP and non-cGMP grade licensed molecules to Wugen for clinical development.

As of December 31, 2021, we had not finalized any statements of work for orders placed under the master services agreement.

Thus, as of December 31, 2021, a contract does not exist between Wugen and the Company on which to base revenue recognition for the sale of material to Wugen.

Revenues will be deferred until such time as a contact exists.

In future periods, we intend to enter into an agreement with Wugen for commercial supply of licensed molecules when commercialization commences.

In addition, under the terms of the Wugen License, we may be eligible to receive additional cash payments that will be recognized as revenue, including development and commercialization milestones and single-digit royalties based on annual net sales of licensed products.

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.

The key to the HCWB immunotherapeutic approach is elimination of senescent cells and the pro-inflammatory factors they secrete.

Our lead product candidates address the two primary processes that promote chronic inflammation.

Subcutaneous administration of our clinical-stage, lead drug candidate, HCW9218, activates NK cells, innate lymphoid group-1, and CD8 + T cells, and neutralizes TGF-β.

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

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

This lead product candidate is currently being evaluated in two Phase 1/1b clinical trials for chemo-refractory/chemo-resistant solid tumor cancers.

Subcutaneous administration of our preclinical-stage, lead drug candidate, HCW9302, is designed to activate and expand 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 expand and activate T reg cells and reduce inflammation-related diseases, supporting the potential of HCW9302 to treat a wide variety of autoimmune and pro-inflammatory diseases, such as atherosclerosis.

HCW9302 is a preclinical compound.

We are in the process of completing IND-enabling studies and intend to prepare and submit an IND application to the FDA in 2023.

Milestones Reached in 2022 and Goals for 2023

Overview of Accomplishments Related to HCW9218

Key milestones reached as of December 31, 2022:

Completed preclinical work to establish the mechanism of action for HCW9218, granted patent that protects the underlying intellectual property on which HCW9218 is based, initiated two Phase 1/1b clinical trials and established CMC manufacturing.

Clinical Trial to Evaluate HCW9218 in Patients with Advanced Pancreatic Cancer

In October 2021, HCW Biologics was cleared by the FDA to proceed to evaluate HCW9218 in a Phase 1b/2 clinical trial in patients with advanced pancreatic cancer.

The primary objectives are to determine safety, maximum tolerated dose, and the recommended Phase 2 dose.

Patients participating in this study had advanced pancreatic cancer with progressive disease after prior chemotherapies.

No dose-limiting toxicities were reported in this trial.

A preliminary clinical data readout is expected in the first half of 2023.

If patient enrollment continues at the current pace with acceptable side effects, we expect to complete the Phase 1b portion of the study in 2023.

After initial COVID-related delays, this study made rapid progress in 2022.

As of December 31, 2022, there are four activated clinical sites recruiting and screening patients:

The Cancer Research Center at NCI, Washington University in St.

Louis (an NCI-designated Comprehensive Cancer Center), Medical University of South Carolina (an NCI-designated Comprehensive Cancer Center), and HonorHealth Research Institute.

On December 3, 2022, under a CRADA, the National Cancer Institute and HCW Biologics agreed to collaborate to perform a Phase 1b/2 clinical study to evaluate the safety and tolerability of HCW Biologics’

lead product candidate, HCW9218, in patients with advanced/metastatic pancreatic cancer.

The CRADA is entitled, “A Phase 1b/2 Study of HCW9218, a Bifunctional TGF- β

Antagonist/IL-15 Protein Complex, for Advanced Pancreatic Cancer.”

Clinical Trial to Evaluate HCW9218 in Patients with Solid Tumors

In January 2022, the Masonic Cancer Center, University of Minnesota (“UMN”) was cleared by the FDA to proceed to evaluate HCW9218 in a Phase 1 clinical trial in patients with advanced solid tumors with progressive disease after prior chemotherapies.

The primary objectives are to determine safety, maximum tolerated dose, and the recommended Phase 2 dose.

Patients participating in this study had advanced solid tumors with progressive disease after prior chemotherapies, many of whom had been treated with up to four courses of standard-of-care treatments prior to enrolling in the trial.

No dose-limiting toxicities (“DLTs”) were reported in this trial.

We expect to complete this Phase 1 study in the first half of 2023.

One of our 2023 goals is to advance this study and initiate Phase 2 clinical studies in cancer indications, such as ovarian and colorectal cancers.

If we are successful in completing the objectives of the Phase 1 study, we intend to advance at least one Phase 2 study to evaluate HCW9218 in a single cancer indication, such as ovarian cancer, subject to establishing safety and RP2D and applying to the FDA for authorization to proceed with a Phase 2 study.

However, there can be no assurance that we will successfully complete the Phase 1 study or establish safety and RP2D or the FDA will authorize us to initiate our planned clinical trials on a timely basis, or at all.

In the event we do not receive feedback on a timely basis, or we are required to change the design of our clinical protocol or address other feedback, clinical development of our products would be delayed and our costs may increase.

Overview of Accomplishments Related to HCW9302

Key milestones reached as of December 31, 2022:

Granted fundamental patent that protects the underlying intellectual property on which HCW9302 and our TOBI discovery platform are based, progressed IND-enabling activities and published a pivotal scientific paper in a high-impact, peer-reviewed journal.

Scientific Publications and Conferences

In January 2023, a pivotal scientific paper authored by our scientific research team was published in the peer-reviewed journal, Frontiers in Immunology , entitled, “A Novel Interleukin-2-Based Fusion Molecule, HCW9302, Differentially Promotes Regulatory T Cell Expansion to Treat Atherosclerosis in Mice.”

The paper highlights preclinical data from in vitro and in vivo studies demonstrating the potential of HCW9302 as a novel immunotherapeutic with the ability to suppress the progression of atherosclerosis.

The results of our research included in this publication show the potential of HCW9302 in the treatment of age-related, pro-inflammatory diseases.

We have been invited to present a poster at the American Association of Cancer Research to be held from April 14-19, 2023.

Varghese George, one of the Company's scientists, will be presenting a poster entitled, “Bifunctional immunotherapeutic HCW9218 facilitates recruitment of immune cells from tumor draining lymph nodes to promote antitumor activity and enhance checkpoint blockade efficacy in solid tumors.”

Trends and Uncertainties

Inflationary Cost Environment, Banking Crisis, 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.

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.

On March 12, 2023, the U.S.

government took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank, assuring all depositors at the failed institution that they could access all their money quickly, even as another major bank was shut down.

The Company had no exposure to a failed bank.

The Company averts risks associated with such a crisis by holding minimum cash balances required for uninterrupted operations, federal funds money market fund, and U.S.

government-backed securities.

As of December 31, 2022, the Company held $19.5 million in a federal money market fund (the “Fund”) with an investment objective is to seek to provide current income while maintaining liquidity and a stable share price of $1.

The Fund invests at least 99.5% of its total assets in cash, U.S.

government securities, and/or repurchase agreements that are collateralized solely by U.S.

government securities or cash (collectively, government securities).

As such it is considered one of the most conservative investment options offered.

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”

in this Annual Report.

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.

The continuing direct and indirect impacts of the pandemic are significant and broad-based, including supply chain disruptions, and continue to represent business and financial risks.

As such, the Company is continually coordinating with third-party contract manufacturing organizations (“CMOs”), service providers and vendors that constitute the Company’s supply chain, with respect to risks and mitigating actions.

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.

For discussion of risks related to the lingering effects of the COVID-19 pandemic, see “Part II, Item 1A.

Risk Factors”

in this Annual Report.

Components of Results of Operations

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.

The principal source of our revenues to date have been generated from our Wugen License and Master Services Agreement (the “MSA”) with Wugen.

See Note 1 to our audited financial statements included elsewhere in this Annual Report 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 internally-developed molecules.

Consideration under our contract included a nonrefundable upfront payment, development, regulatory and commercial milestones, and royalties based on net sales of approved products.

Additionally, HCW Biologics retained manufacturing rights and has agreed to provide Wugen with clinical and research grade materials for clinical development and commercialization of licensed products under separate agreements.

We assessed which activities in the Wugen License should be considered distinct performance obligations that should be accounted for separately.

We develop assumptions that require judgement to determine whether the license to our intellectual property is distinct from the research and development services or participation in activities under the Wugen License.

Performance obligations relating to the granting a license and delivery of licensed product and R&D know-how were satisfied when transferred upon the execution of the Wugen License on December 24, 2020.

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

The revenue recognized from a transaction to supply clinical and research grade materials entered into under the MSA and covered by a Statement of Work (“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 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 CMOs, which produce cGMP materials for clinical trials on our behalf;

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

Expenses incurred in connection with clinical trials;

Other expenses, such as facilities-related expenses, direct depreciation costs for capitalized laboratory equipment, and an allocation for overhead.

Other expenses, such as facilities-related expenses, direct depreciation costs for capitalized scientific equipment, and allocation for overhead.

We expense research and development costs as they are incurred.

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Payments for these activities are based on the terms of the agreement, and the pattern of payments for goods and services will change depending on the material.

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and recognized as expenses as the related goods are delivered or the services are performed.

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.

We expect research and development expenses to increase substantially for the foreseeable future as we continue the development of our product candidates.

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

We expect our research and development expenses will increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our lead product candidates, advance into later stages of development, begin to conduct larger clinical trials, expand our product pipeline, continue to maintain, expand, protect, and enforce our intellectual property portfolio, and establish our own manufacturing capabilities.

In particular, we expect our research and development expenses will increase substantially as we progress to Phase 2 and Phase 2/3 clinical trials for our lead product candidates, primarily due to the increased size and duration of later-stage clinical trials.

The duration, costs, and timing of the clinical development of our product candidates are highly uncertain and will depend on a variety of factors, including, but not limited to:

Number and scope of preclinical and IND-enabling studies;

Successful and timely patient enrollment in, and completion of, clinical trials;

Per subject trial costs;

Number of trials required for regulatory approval;

Number of sites included in the trials;

Number of subjects needed for each trial;

Cost and timing of manufacturing of cGMP materials for clinical trials;

Receipt of regulatory approvals from applicable regulatory authorities;

Establishing commercial manufacturing capabilities;

Costs to maintain, defend, and enforce our intellectual property rights.

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.

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

elsewhere in this Annual Report 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.

For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

General and Administrative Expenses

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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 increase in the foreseeable future as the size of our business grows to support additional research and development activities.

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 December 31, 2022, Altor BioScience, LLC and NantCell, Inc., or Altor/NantCell, a former employer of Dr.

Wong, our Founder and Chief Executive Officer, initiated an arbitration against Dr.

Wong in California.

On December 23, 2022, a lawsuit was filed by Altor/NantCell against us in federal court alleging misappropriation of trade secrets under state and federal laws, inducement of breach of contract and breach of fiduciary duty, among other claims against us.

See “Part I, Item 3.

Legal Proceedings”

in this Annual Report for more information.

In the year ended December 31, 2022, we incurred legal expenses on our own behalf and on behalf of Dr.

Wong, in compliance with the indemnification agreement with Dr.

Wong as an officer and director of the Company.

In addition, Altor/NantCell has advancement obligations for claims brought against Dr.

Wong, thus legal expenses incurred by Dr.

Wong in connection with his arbitration will be advanced by Altor/NantCell;

however, under certain circumstances, the Company may be required to advance legal fees.

During the year ending December 31, 2023, we expect to incur material costs and expenses in connection with defending the Company in the foregoing legal matters.

We expect general and administrative expenses incurred in the normal course of business for other purposes, such as costs for recruitment and retention of personnel, service fees for consultants, advisors and accountants, as well as costs to comply with government regulations, corporate governance, internal control over financial reporting, insurance and other requirements for a public company, are expected to continue to increase for the foreseeable future as we scale our operations.

Interest and Other Income, Net

Interest and other income, net consists of interest earned on our cash, cash equivalents, unrealized gains and losses related to our investments in U.S.

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

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 former owner (tenant) with the right to occupy offices that comprise approximately 15,000 square feet of the building 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 year ended December 31, 2022, the Company reported $90,347 in rental income, which is included within Interest and other income (loss), net in the statement of operation for the year ended December 31, 2022 included elsewhere in this Annual Report.

Results of Operations

The following table summarizes our results of operations for the years ended December 31, 2021 and 2022:

Cost of revenues

Operating expenses:

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Loss from operations

Interest and other income, net

* - not meaningful

In the year ended December 31, 2020, the Company recognized $4.1 million of revenue, as a result of entering into the Wugen License.

No revenues were recognized in the year ended December 31, 2021.

On December 24, 2020, we entered into the Wugen License.

We assessed the Wugen License and determined this was a transaction with a customer and should be accounted for under Topic 606.

The three performance obligations that had been satisfied as of the effective date of the Wugen License were:

(1) exclusive worldwide license, (2) vials of HCW9201, and (3) R&D know-how.

This is the first time we have entered into an out-license arrangement and the first time the Company has established prices for its goods and services.

Accordingly, the standalone selling price of the various performance obligations is uncertain, and we determined that an observable standalone selling price was not available for the identified performance obligations under the Wugen License.

Where a standalone selling price is not directly observable, then we estimate the standalone selling price considering marketing conditions, entity-specific factors, and information about the customer that is reasonably available.

The process for determining a standalone selling price involves significant judgment and includes consideration of multiple factors, including assumptions related to the market opportunity and the time needed to commercialize a product candidate pursuant to the relevant license, estimated direct expenses, and other costs.

The estimated transaction price for performance obligations that were satisfied as of December 31, 2020 was $4.1 million.

First, we determined a standalone selling price of $2.5 million for the vials of HCW9201 and the R&D know-how.

The prices were determined based on costs for developing the know-how and costs incurred in producing the vials.

The standalone selling price for the license was then determined using the residual approach and was priced at $1.6 million.

As of December 31, 2020, we recorded $2.5 million in Accounts receivable, net for the nonrefundable payments related to the sale of non-financial assets to Wugen that were due after the reporting period.

The Company records amounts as accounts receivable when the right to consideration is deemed unconditional.

On June 18, 2021, the Company entered into a master services agreement with Wugen related to supply of licensed molecules for use in research and clinical development.

As of December 31, 2021, the Company has not finalized any statements of work, which will specify the performance obligations required to be completed by the Company for supplies ordered by Wugen.

Interest expense

In the year ended December 31, 2021, the Company did not recognize any revenue.

As of December 31, 2021, we recognized $1.8 million of deferred revenue from the sale of clinical and research grade materials to our licensee, Wugen, included within Accrued liabilities and other current liabilities on the balance sheet included in the audited financial statements.

On June 18, 2021, the Company entered into an MSA with Wugen related to supply of licensed molecules for use in research and clinical development.

However, as of December 31, 2021, the Company did not finalize statements of work, or SOWs, for these transactions which specify the performance obligations required to be completed by the Company for supplies ordered by Wugen.

Thus, a contract did not exist as of December 31, 2021.

Revenues will be deferred until a contract exists.

The standalone selling price for materials purchased during the year ended December 31, 2021 was determined using industry-standard “cost plus”

terms which is the pricing set forth in the Wugen License.

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

Because a contract did not exist as of December 31, 2021, we deferred revenue recognition.

As of December 31, 2021, we recognized $1.8 million of deferred revenue, included within Accrued liabilities and other current liabilities on the accompanying balance sheet.

The Company’s policy is to recognize deferred revenue only to the extent product release occurred after meeting specification required, product is shipped, and cash payment is received.

In the year ended December 31, 2022, the Company recognized $6.7 million of revenue, as a result of the sale of research and clinical grade materials to Wugen under the terms of the Wugen License.

These revenues included $1.8 million of revenue that was deferred at December 31, 2021.

Since 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, the Company determined all requirements for revenue recognition under Topic 606 were met for these transactions.

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

Research and Development Expenses

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Total research and development expenses

Research and development expenses increased by $918,397, or 13%, from $7.3 million for the year ended December 31, 2020 to $8.2 million for the year ended December 31, 2021.

The increase was primarily attributable to an increase in preclinical expenses and salaries, benefits and related expenses.

Salaries, benefits and related expenses increased $99,257, or 4%, from $2.7 million for the year ended December 31, 2020 to $2.8 million for the year ended December 31, 2021.

The increase is primarily attributable to an increase in salaries, performance bonuses, and benefits of $313,745 and an increase in payroll taxes of $25,624, offset by a reimbursement of $240,000 for certain expenses incurred as required under the terms of the Wugen License.

Manufacturing and materials expenses decreased $76,663, or 3%, from $2.6 million for the year ended December 31, 2020 to $2.5 million for the year ended December 31, 2021.

During the year ended December 31, 2020, various testing and quality control procedures were conducted on the materials manufactured in 2019 and 2020 to ensure materials met all expected quality requirements.

Beginning in May 2020, we launched manufacturing for three additional molecules as well as larger cGMP production runs of the internally-developed affinity ligand used in our manufacturing process.

During the year ended December 31, 2021, the Company completed necessary procedures to release clinical materials for HCW9218.

Additionally, the Company conducted several manufacturing activities for HCW9302, including initiating the master cell bank characterization, effecting a technology transfer to our contract manufacturer, performing a 200-liter cGMP production run, as well as other testing procedures.

Research and development expenses increased by $1.1 million, or 14%, from $8.2 million for the year ended December 31, 2021 to $9.3 million for the year ended December 31, 2022.

This increase was primarily attributable to increased expenses for clinical trials, expenses associated with IND-enabling, preclinical activities, and depreciation expense.

Salaries, benefits and related expenses increased by $321,169, or 11%, from $2.8 million for the year ended December 31, 2021 to $3.1 million for the year ended December 31, 2022.

This increase was primarily attributable to a $348,008 increase in salaries and wages, which was attributable to an increase of $152,939 arising from the absence of any tax credits in 2022 as compared with 2021.

This was due to the Company exceeding the revenue threshold to qualify for tax credits.

Another cause for an increase in salaries, benefits and related expenses was the increase of $115,824 for health insurance and other benefits in the year ended December 31, 2022, compared with 2021.

For 2022, the implementation of a new performance-based bonus program also resulted in increased costs for Research and Development salaries, benefits and related expenses of $113,136 in performance bonuses, as a result of achieving goals related to patient enrollment and dose escalation for Phase 1/1b clinical trials to evaluate HCW9218 in cancer indications.

These increases were partially offset by a reimbursement from Wugen for certain expenses incurred under the terms of the Wugen License that was $500,000 in the year ended December 31, 2022, compared to $240,000 for the same period in 2021.

Manufacturing and materials expenses decreased by $61,734, or 2%, from $2.5 million for the year ended December 31, 2021 to $2.4 million for the year ended December 31, 2022.

Manufacturing and materials expenses in the year ended December 31, 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 a cGMP manufacturing run and initiated the fill/finish process and testing for product release.

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

In the year ended December 31, 2022, costs were primarily attributable to a 1000L GMP run for HCW9218 and completion of a 200L cGMP run of HCW9302, including finalizing manufacturing reports, fill and finish activities.

Expenses associated with preclinical activities increased by $171,147 or 9%, from $2.0 million for the year ended December 31, 2021 to $2.2 million for the year ended December 31, 2022.

The increase is due primarily to an increase in expenses for the toxicology studies for HCW9218 required to prepare for submission of our IND to evaluate HCW9218 in a pancreatic cancer trial, and toxicology studies for HCW9302, which is a multi-dose nonhuman primate toxicology study that began in the second half of 2021 and is expected to be completed in the second half of 2022.

Upon completion of IND-enabling activities, we intend to submit an IND for a Phase 1b clinical trial to evaluate HCW9302 in alopecia areata.

This increase was attributable to higher costs for completing toxicology studies related to IND-enabling activities.

In year ended December 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 year ended December 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 trials including professional fees related to regulatory filings, increased by $546,545 or 219%, from $249,204 for the year ended December 31, 2021 to $795,749 for the year ended December 31, 2022.

The Company expects to initiate two clinical trials for cancer indications in the first half of 2022.

One of these trials is a Phase 1b, Company-sponsored study to evaluate HCW9218 in advanced pancreatic cancer.

The other is a Phase 1 clinical trial sponsored by the Masonic Cancer Center at University of Minnesota to evaluate HCW9218 in solid tumors, such as breast, ovarian, prostate, and colorectal cancers.

advance our product candidates through clinical development, we expect our clinical trial expenses to increase significantly, as we conduct larger, later-stage clinical trials and expand the number of indications we advance in clinical development.

Other expenses consist primarily of direct depreciation costs for laboratory equipment, an allocation for rent expense, repairs and maintenance, as well as general office furniture and supplies.

The increase from the year ended December 31, 2020 to the year ended December 31, 2021 is primarily attributable to an increase in repairs and maintenance, office equipment, and rent expense, offset by a decrease in depreciation expense.

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

We intend to complete this study in the first half of 2023.

A Company-sponsored Phase 1b/2 clinical trial to evaluate HCW9218 in advanced pancreatic cancer was initiated in October 2022, when HonorHealth Research Institute dosed the first patient participating in this trial.

As of December 31, 2022, there were four clinical sites opened.

For the pancreatic cancer study, we plan to enroll up to 24 patients.

We intend to complete the Phase 1b portion of this study in 2023.

Other expenses, which include overhead allocations, increased by $187,614, or 31%, from $608,166 for the year ended December 31, 2021 to $795,780 for the year ended December 31, 2022.

An increase of $88,311 in allocated depreciation expense is attributable to the depreciation of the building acquired on August 15, 2022.

The Company applied the results of a cost segregation study to record the assets acquired, resulting in useful lives that ranged from five years to 39 years.

An increase of $63,546 in travel expense and conference fees reflects the Company's more frequent participation in major industry conferences to present preliminary

first-in-human clinical data.

Higher occupancy costs and repairs and maintenance expenses resulted in an increase of $35,637 in other expenses for the year ended December 31, 2022.

General and Administrative Expenses

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General and administrative expenses increased by $3.1 million, or 60%, from $5.2 million for the year ended December 31, 2021 to $8.3 million for the year ended December 31, 2022.

The increase is attributable primarily to an increase in salaries, benefits and related expenses, professional services fees, and other expenses.

Salaries, benefits and related expenses increased $849,425, or 57%, from $1.5 million for the year ended December 31, 2020 to $2.3 million for the year ended December 31, 2021.

The increase is attributable primarily to an increase of $367,750 for performance-based bonuses paid upon the successful completion of the Wugen License and the IPO and an increase of $323,453 in stock-based compensation expense.

Professional services increased primarily due to legal services required for patent filings and advisories fees paid for investor relations services.

Other expenses increase is primarily due to an increase in insurance premiums.

We expect to incur increasing general and administrative expenses as a result of operating as a public company, including expenses for SEC reporting, investor relations, additional insurance requirements, and other administrative expenses.

We expect to increase our administrative function to support the growth in our business and public company reporting requirements.

Interest and Other Income, Net

For the years ended December 31, 2020 and 2021, other income (expense), net increased by $483,042 primarily due to the forgiveness of the SBA Paycheck Protection Loan and accrued interest.

The increase was primarily due to an increase of $722,000 related to compensation expense associated with equity awards to the CEO, executives and directors upon completion of the IPO, an increase of $1.1 million in corporate legal fees and an increase of $531,468 for insurance coverage.

Salaries, benefits and related expenses increased by $1.1 million, or 44%, from $2.3 million for the year ended December 31, 2021 to $3.4 million for the year ended December 31, 2022.

The increase was primarily due to an increase of $722,000 related to equity awards granted to officers and executives, and an increase of $108,649 for Board compensation under our non-employee director compensation program put in place post-IPO.

For 2022, the Company implemented a performance-based bonus program for all employees, under which officers were awarded $350,000.

Professional services increased by $1.1 million, or 88%, from $1.3 million for the year ended December 31, 2021 to $2.4 million for the year ended December 31, 2022, primarily due to a $1.1 million increase for fees for legal services, including $1.0 million for legal fees arising from our legal proceedings with Altor/NantCell and related indemnification of our Founder and Chief Executive Officer in his arbitration with Altor/NantCell, a portion of which will be advanced by Altor/NantCell in compliance with its advancement obligation to Dr.

Fees increased for professional services other than legal advisors, such as auditors and tax advisors, by $87,033 for the year ended December 31, 2022 versus the comparable period in 2021.

Other expenses increased by $731,777, or 76%, from $1.0 million for the year ended December 31, 2021 to $1.7 million for the year ended December 31, 2022.

The increase is primarily due to an increase of $531,468 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 $176,480 in Delaware franchise taxes.

Interest and Other Income (Loss), Net

Interest and other income (loss), net decreased by $327,291, or 65%, from $505,366 for the year ended December 31, 2021 to $178,075 for the year ended December 31, 2022.

The decrease is primarily due to the forgiveness of the SBA Paycheck Protection Loan, including accrued interest, in 2021 that did not recur in 2022.

Liquidity and Capital Resources

Sources of Liquidity

Since inception, we have funded our operations primarily from the issuance of redeemable preferred stock and our IPO.

From our inception in 2018 to July 19, 2021, the effective date of our IPO, we raised net proceeds of approximately $85.4 million, including $49.2 million of net proceeds from the IPO.

Based on our existing business plan, we believe that our existing cash, cash equivalents and investments will be sufficient to fund our anticipated operating expenses through the end of 2023.

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

As of December 31, 2022, our principal source of liquidity was $22.3 million in cash and cash equivalents, including money market investments, and $9.7 million held in U.S.

government-backed securities presented in Short-term investments.

These funds were provided primarily from the $49.2 million of net proceeds from our IPO and to a lesser extent the Wugen License.

We expect our principal sources of liquidity will continue to be our cash and cash equivalents, out-licensing agreements, debt financings and any additional capital we may obtain through equity offerings.

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 loan, secured by the

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.

There is no prepayment penalty.

As of December 31, 2022, a balance of $6.5 million remains due for this obligation, $6.4 million of which is classified as a noncurrent liability included in Debt, net in the balance sheet included in the audited financial statements.

As of December 31, 2022, the Company was in compliance with all covenants under the loan agreement and related documents.

In August 2022, we filed a shelf registration statement on Form S-3 with the SEC (File No.

333-266991), which upon being declared effective, allowed us to offer up to $100.0 million of securities from time to time in one or more public offerings, including up to $15.5 million of shares of our common stock which we may sell, subject to certain limitations, pursuant to a sales agreement dated August 19, 2022 with Jones Trading Institutional Services LLC.

We believe that our cash and cash equivalents and short-term investments as of December 31, 2022 will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months.

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

Because of the numerous risks and uncertainties associated with the clinical development and commercialization of immunotherapeutics, we are unable to estimate the exact amount of capital requirements to pursue these activities.

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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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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, other debt arrangements, out-licensing or joint ventures, cooperative agreements or strategic collaborations;

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 financing, 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.

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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.

If we raise additional funds by issuing equity securities, our stockholders will experience dilution.

Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.

Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials.

We may also be required to sell or license to others rights to our drug candidates in certain territories or indications that we would prefer to develop and commercialize ourselves.

Summary of Statements of Cash Flows

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Cash used in operating activities

Cash used in investing activities

Cash (used in) provided by investing activities

Cash provided by financing activities

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Net cash used in operating activities was $11.0 million for the year ended December 31, 2021 and $10.4 million for the year ended December 31, 2022.

Cash used in operating activities for the year ended December 31, 2020 consisted primarily of net loss for the period of $5.8 million and an increase in Accounts receivable of $2.5 million pursuant to the Wugen License, partially offset by $595,911 of depreciation and amortization.

Cash used in operating activities for the year ended December 31, 2021 consisted primarily of net loss for the period of $12.9 million, a gain on extinguishment of debt of $567,311, and an increase in Prepaid expenses and other assets of $2.8 million, primarily offset by an decrease of $2.4 million in Accounts receivable, an increase of $1.9 million in Accounts payable and other liabilities, and $595,765 of depreciation and amortization.

Cash used in operating activities for the year ended December 31, 2021 consisted primarily of net loss for the period of $12.9 million, a gain on extinguishment of debt of $567,311, and an increase in Prepaid expenses and other assets of $2.8 million, primarily offset by a decrease of $2.4 million in Accounts receivable, an increase of $1.9 million in Accounts payable and other liabilities, and $595,765 of noncash adjustments consisting primarily of an adjustment for depreciation and amortization expense.

Cash used in operating activities for the year ended December 31, 2022 consisted primarily of a net loss of $14.9 million, $284,695 cash used arising from an increase in accounts receivable, and $128,246 cash used by a decrease in a lease liability.

These uses were partially offset primarily by a $2.5 million cash increase arising from a decrease in prepaid expenses and other assets, a $418,208 cash increase arising from an increase in accounts payable and other liabilities, and adjustments for noncash expenses of $2.0 million, consisting of $1.1 million for stock-based compensation expense, $717,854 for depreciation and amortization expense, and $186,370 for net unrealized loss on investments.

Investing Activities

For the year ended December 31, 2020, the cash used in investing activities reflects the purchase of laboratory equipment and general office equipment.

For the year ended December 31, 2021, cash used in investing activities reflects the purchase of U.S.

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government-backed securities.

For the year ended December 31, 2022, cash provided by investing activities was $14.7 million, consisting of proceeds for maturity of short-term investments of $25.0 million, offset by $10.0 million of cash used to purchase our new headquarters.

Financing Activities

For the year ended December 31, 2020, cash provided by financing activities was $11.7 million, consisting of an increase of $11.1 million from proceeds from the issuance of Series C redeemable preferred stock and an increase of $563,590 from proceeds from an SBA Paycheck Protection Loan.

For the year ended December 31, 2021, cash provided by financing activities was $49.3 million, consisting primarily of net proceeds of $49.2 million from our IPO.

For the year ended December 31, 2022, cash provided by financing activities was $6.3 million, consisting primarily of net proceeds of issuance of debt reflecting the $6.5 million loan used to fund the purchase of the Company's new headquarters.

Contractual Obligations and Commitments

As of December 31, 2021, we had $36,000 of obligations for the two months remaining in the lease terms for a non-cancellable operating lease agreement and a short-term sublease agreement related to our facilities in Miramar, Florida.

As of December 31, 2022, we had $200,015 of obligations for the 14 months remaining in the lease terms for a non-cancellable operating lease agreement related to our facilities in Miramar, Florida.

On February 25, 2022, HCW Biologics was assigned all rights, title, and interest in the primary lease which underlies the sublease.

Effective March 1, 2022, we entered into a lease extension for our current location for a period of two years.

Total contractual obligations under the lease extension are $339,300, all of which are due by February 29, 2024.

Effective March 1, 2022, we entered into a lease extension for our current location for a period of two years, ending February 29, 2024.

The Company has commitments with a third-party manufacturing organization to supply us with clinical grade materials.

As of December 31, 2021, we are under contract for obligations of $2.5 million that we expect to pay during the two years ending December 31, 2023.

As of December 31, 2022, we are under contract for obligations of $406,000 that we expect to pay during the year ending December 31, 2023.

On December 30, 2022, the Company committed to purchase upstream processing and fluid management equipment for $1.6 million.

In the normal course of business, we enter into contracts for non-clinical studies, preclinical testing, and other services and products.

These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancellable obligations under these agreements are not material.

Cogent Loan Agreement

On August 15, 2022, we entered into a loan and security agreement with Cogent Bank to partially fund our purchase of the property that will become our new headquarters.

The agreement provides for a term loan of up to $6.5 million.

Amounts outstanding on the term loan will accrue interest at bearing interest at a rate per annum equal to 5.75%.

We are obligated to make interest-only payments on the term loan from September 2022 through August 2023 and principal and interest payments in 47 equal monthly installments, based on a 25-year maturity schedule, commencing September 15, 2023 followed by one final balloon payment of all

remaining principal, interest and fees due on the maturity date of August 15, 2027.

Our obligations under the agreement are secured by, among other things, a mortgage on our new corporate headquarters and related real property.

As of December 31, 2022, $6.5 million was outstanding under the term loan and we were in compliance with all loan covenants.

Critical Accounting Policies, Significant Judgements and Use of Estimates

The financial statements are prepared in conformity with accounting principles generally accepted in the United States (“U.S.

The audited financial statements included elsewhere in this Annual Report are prepared in conformity with accounting principles generally accepted in the United States (“U.S.

GAAP”), which requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the periods presented.

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however, due to the inherent uncertainties in developing estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

Refer to Note 1 to our financial statements for our significant accounting policies related to our critical accounting estimates.

Refer to Note 1 to our audited financial statements included elsewhere in this Annual Report for our significant accounting policies related to our critical accounting estimates.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgements and estimates.

Revenue Recognition

For the year ended December 31, 2020, we adopted provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“Topic 606”).

Under Topic 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

We recognize revenue under the guidance of Topic 606.

To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of Topic 606, we perform the following five steps:

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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.

Refer to Note 1 to our financial statements for our significant accounting policies related to revenue recognition.

If all conditions are not met for revenue recognition, the Company recognizes deferred revenue.

The Company’s policy is to recognize deferred revenue only to the extent product release occurred after meeting specification required, product is shipped, and cash payment is received.

Fair Value Measurements

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We will carry this investment at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same investee.

We assess the investment each reporting period to determine if an impairment has occurred.

We assess the investment each reporting period to determine if

an impairment has occurred.

In the event that a public market becomes available for the common stock of Wugen in the future and the shares become freely tradeable, we will recognize changes in fair value according to the market price in other income in the statements of operations.

Stock-based Compensation

As described in Note 1 and Note 10 to our audited financial statements which appear elsewhere in this Annual Report on Form 10-K, we maintain a stock-based compensation plan as a long-term incentive for employees, non-employees, and directors.

As described in Note 1 and Note 10 to our audited financial statements included elsewhere in this Annual Report, we maintain a stock-based compensation plan as a long-term incentive for employees, non-employees, and directors.

The plan allows for grants of incentive stock options, non-qualified stock options, and other forms of equity awards.

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For stock option grants with service-based vesting, stock-based compensation expense represents the portion of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards on a straight-line basis, net of estimated forfeitures.

For options that vest upon the achievement of performance milestones, the Company estimates fair value at the date of grant and compensation expense is recognized using the accelerated attribution method when it is determined that the performance criteria is probable of being met.

In determining the fair value of the stock-based awards, we use the Black-Scholes option-pricing model and assumptions discussed below.

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These assumptions include, but are not limited to:

assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation to the date of the grant.

Fair Value of Common Stock —Prior to our initial public offering, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuation of our common stock as well as our Board's assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation to the date of the grant.

Since the completion of our initial public offering on July 19, 2021, the fair value of each share of common stock underlying stock option grants is based the quoted market price on the primary stock exchange on which our common stock is traded on the day the stock award or option is granted.

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Until July 19, 2021 when our IPO was effective, there was no public market for our common stock historically.

Prior to this offering, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, which may be as a date later than the most recent third-party valuation date, including:

Prior to this offering, our Board considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, which may be as a date later than the most recent third-party valuation date, including:

results of third-party valuations performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’

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As a result, if factors or expected outcomes change, and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

Now that we have completed our IPO, our board of directors determines the fair value of each share of underlying common stock based on its closing price as reported on the date of grant according to the quoted market price on the primary stock exchange on which our common stock is traded.

Now that we have completed our IPO, our Board determines the fair value of each share of underlying common stock based on its closing price as reported on the date of grant according to the quoted market price on the primary stock exchange on which our common stock is traded.

We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.

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The federal and state NOLs will carryforward indefinitely.

Federal NOLs are available to offset up to 100% of taxable income for tax years before 2021, and state NOLs are available to offset 80% of taxable income for tax years starting after 2020.

The federal NOLs are available to offset 80% of taxable income for state taxes for tax years starting after 2020.

Under Sections 382 and 383 of the Code, substantial changes in our ownership may limit the amount of NOL and research and development credit carryforwards that could be used annually in the future to offset taxable income.

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Recent Accounting Pronouncements

See Note 1 to our audited annual financial statements appearing elsewhere in this Annual Report on Form 10-K for more information about recent accounting pronouncements.

See Note 1 to our audited financial statements included elsewhere in this Annual Report for more information about recent accounting pronouncements.

Emerging Growth Company and Smaller Reporting Status

9 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-K

Item 5. Market for Registrant’s Common Equity