What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-09 compared with 2022-11-07 · 256 added, 370 removed, 330 unchanged (65% of the section changed)

2 unchanged sentences

Condensed Balance Sheets

September 30,

Current assets:

5 unchanged sentences

Total current assets

Property and equipment, net

Property, plant and equipment, net

LIABILITIES AND STOCKHOLDERS’

12 unchanged sentences

250,000,000 shares

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

authorized and 35,886,635 shares issued at March 31, 2023

Additional paid-in capital

6 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenues

4 unchanged sentences

Loss from operations

Interest and other income (loss), net

Interest expense

Other (expense) income, net

Net loss per share, basic and diluted

2 unchanged sentences

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

Condensed Statements of Changes in Stockholders’

For the Three Months Ended March 31, 2022 and 2023

Stockholders’

1 unchanged sentence

Balance, December 31, 2021

Issuance of Class A

Common Stock upon

exercise of stock options

Stock-based compensation

6% cumulative dividends

on redeemable

preferred stock

Accretion of issuance costs

Balance, March 31, 2021

Issuance of Class A

Common Stock upon

exercise of stock options

Stock-based compensation

6% cumulative dividends

on redeemable

preferred stock

Accretion of issuance costs

Balance, June 30, 2021

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

Balance, March 31, 2022

Stockholders’

1 unchanged sentence

Balance, December 31, 2022

Issuance of Class A

Common Stock upon

exercise of stock options

Issuance of Common Stock upon exercise of stock options

Stock-based compensation

Balance, March 31, 2023

Issuance of Class A

Common Stock upon

exercise of stock options

Stock-based compensation

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

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

2 unchanged sentences

Stock-based compensation

Gain on extinguishment of debt

Unrealized loss on investments, net

9 unchanged sentences

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

Net cash provided by (used in) 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 provided by financing activities

2 unchanged sentences

Cash and cash equivalents at the end of the period

Supplemental disclosure of cash flow information:

Cash paid for interest

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

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

Purchases of property and equipment included in accounts payable and other liabilities

See accompanying notes to the unaudited condensed interim financial statements.

3 unchanged sentences

HCW Biologics Inc.

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

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

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

1 unchanged sentence

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

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.

As of March 31, 2023, the Company had not generated any revenue from commercial product sales of its internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases.

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

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

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

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

In the three months and 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.

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

In the three months ended March 31, 2023, the Company recognized revenues of $ 41,883 fr om manufacturing and supply of materials for Wugen.

As of March 31, 2023, the Company had cash and cash equivalents of $ 18.4 millio n, and short-term investments of $ 9.8 million held in U.S.

government-backed securities.

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

Since inception to March 31, 2023 , the Company incurred cumulative net losses of $ 47.5 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.

T he Company intends to raise capital from non-dilutive funding sources such as bank financing, out-licensing rights to technology or markets, third-party collaboration funding, cooperative agreements for clinical trials, or other business development transactions, which may include additional debt or equity financing.

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

2 unchanged sentences

Unaudited Interim Financial Information

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.

The accompanying unaudited condensed interim financial statements as of March 31, 2023 and for the three months ended March 31, 2022 and 2023 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”).

2 unchanged sentences

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 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 results for the three months ended March 31, 2023 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, 2022 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S.

1 unchanged sentence

Because all of the disclosures required by U.S.

GAAP for complete financial statements are not included herein, these unaudited condensed interim financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021 which appear in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2021 with the SEC on March 29, 2022 and in other filings with the SEC.

GAAP for complete financial statements are not included herein, these unaudited condensed interim financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022 which appear in the Company’s Annual Report on Form 10-K (No.

001-40591) filed for the year ended December 31, 2022 with the Securities and Exchange Commission (the “SEC”) on March 28, 2023 and in other filings with the SEC.

Revenue Recognition

9 unchanged sentences

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

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

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

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

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

In addition, the Company and Wugen have an agreement for supply of materials, from which the Company also recognizes revenues.

License Grants:

13 unchanged sentences

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 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.

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

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

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

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

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

1 unchanged sentence

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

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

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

For the three months and 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 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.

For the three months ended March 31, 2023, the Company recogni zed $ 41,883 i n revenue related to sale of development supply materials.

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

No impairment has been recognized.

As of 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.

As of December 31, 2022 and March 31, 2023, the Compa ny included $ 1.6 million for the investment in Wugen in Investments in the accompanying condensed balance sheets.

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

Treasury which are classified as trading securities.

As of 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.

As of March 31, 2023 , the Company held $ 9.8 million in U.S.

Treasury bills included in Short-term investments in the accompanying condensed balance sheet.

Operating Leases

1 unchanged sentence

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

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.

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.

5 unchanged sentences

For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No.

2016-02, Leases (“Topic 842”), which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases.

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

Accrued Liabilities and Other Current Liabilities

As of December 31, 2021 , the Company had a balance of $ 2.1 million in Accrued liabilities and other current liabilities, consisting of $ 1.8 million related to deferred revenue, $ 48,750 related to manufacturing materials, $ 51,000 related to legal fees, and $ 50,000 for other expenses.

On January 8, 2021, the Company received full loan forgiveness of $ 567,311 for obligations related to the PPP loan.

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

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.

As of December 31, 2022 , the Company had a balance of $ 1.7 million included in Accrued liabilities and other current liabilities in the accompanying condensed balance sheet, consisting of $ 416,000 for legal expenses, $ 277,500 for clinical expenses, $ 524,000 for bonus expenses, $ 134,000 for salary and benefits, and $ 178,000 for a lease liability.

As of March 31, 2023 , the Company had a balance of $ 3.4 million in Accrued liabilities and other current liabilities in the accompanying condensed balance sheet, consisting of $ 1.3 million for legal fees, $ 850,000 for construction in progress, $ 459,000 for clinical expenses, $ 365,000 for bonus payable, $ 146,000 for short-term lease liability, and $ 53,000 for salary and benefits.

On August 15, 2022, the Company entered into a loan and security agreement (the “2022 Loan Agreement”) with Cogent Bank (“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 priority lien on the building.

As of March 31, 2023, the Company had $ 6.5 million in gross principal outstanding in a loan under the 2022 Loan Agreement.

The 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.

The unamortized balance is due on August 15, 2027 (the “Maturity Date”), and bears interest at a fixed per annum rate equal to 5.75 %.

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

The Company is in compliance with all covenants as of March 31, 2023.

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.

As of March 31, 2023 , the current portion of $ 67,979 is included in Accrued liabilities and other current liabilities, and the noncurrent portion of $ 6.4 million is included in Debt, net in the accompanying condensed balance sheet .

Preferred Stock

At December 31, 2022 and March 31, 2023 , the Company has 10,000,000 shares of preferred stock authorized and no shares issued.

Net Loss Per Share

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Weighted-average common shares outstanding

1 unchanged sentence

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:

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

4 unchanged sentences

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 September 30, 2022:

The following table presents the Company’s assets which were measured at fair value at December 31, 2022 and March 31, 2023:

At December 31, 2022:

Money market funds

Treasury bills

Treasury notes

At September 30, 2022:

At March 31, 2023:

Money market funds

1 unchanged sentence

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 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.

The Company did no t have a provision for income taxes (current or deferred tax expense) as of December 31, 2022 and March 31, 2023.

The 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 assets will not be realized.

As a result, the Company’s effective tax rate will remain at 0.00 % because no items either estimated or discrete items would impact the tax provision.

5 unchanged sentences

There are no obligations under finance leases.

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

The components of the lease expense for the three months ended March 31, 2023 were as follows:

For the Three Months

Ended September 30, 2022

For the Nine Months Ended September 30, 2022

Ended March 31, 2023

Operating lease cost

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

Supplemental cash flow information related to lease was as follows:

For the Three Months

Ended March 31, 2023

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

2 unchanged sentences

Operating lease

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

As of September 30, 2022

As of March 31, 2023, the supplemental balance sheet information related to leases in the accompanying condensed balance sheet included a Right-of-Use Asset of $ 150,880 in Other assets;

the current portion of a lease liability of $ 145,702 in Accrued liabilities and other current liabilities;

and the noncurrent lease liability of $ 7,476 in Other liabilities, as follows:

As of March 31, 2023

Operating lease right-of-use assets

Other current liabilities

Operating lease liabilities, current

Operating lease liabilities, net of current portion

Total operating lease liabilities

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 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 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 .

For the three months ended March 31, 2022 and 2023 , rent expense recognized by the Company was $ 38,883 and $ 43,950 , respectively, of which $ 19,207 and $ 22,212 , respectively, are included in research and development in the accompanying condensed statements of operations .

Contractual Commitments

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

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

The Company entered into an agreement 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, 2022 and March 31, 2023 , future payment obligations under such agreements were $ 406,000 and $ 1.5 million, respectively.

In addition, as of December 31, 2022, the Company committed to purchase upstream processing and fluid management equipment for $ 1.6 million, and it advanced $ 495,000 for this purchase as of March 31, 2023.

From time to time, the Company is a party to or otherwise involved in legal proceedings, including suits, assessments, regulatory actions and investigations generally arising out of the normal course of business.

In addition, the Company enters into agreements that may include indemnification provisions, pursuant to which the Company agrees to indemnify, hold harmless and defend the indemnified parties for losses suffered or incurred by the indemnified party.

When the Company believes that the outcome of such a matter will result in a liability that is probable to be incurred and result in a potential loss, or range of loss, that can be reasonably estimated, the Company will accrue a liability and make the appropriate disclosure in the footnotes to the financial statements.

On December 23, 2022, Altor BioScience, LLC and NantCell, Inc.

(“Altor/NantCell”) initiated an arbitration against Dr.

Wong, the Company’s Founder and Chief Executive Officer, in California alleging breach of contract and fiduciary duty, among other claims.

On that same date, Altor/NantCell filed a lawsuit against the Company in federal court alleging misappropriation of trade secrets, inducement of breach of contract and breach of fiduciary duty, among other claims against the Company.

On January 31, 2023, the Company filed a motion to compel arbitration, a motion for the stay of the litigation, and a motion to dismiss the complaint (“motion to compel”).

On April 18, 2023, the U.S.

District Court for the Southern District of Florida (the “Court”) heard oral argument on the Company’s motion to compel and ordered the parties to provide supplemental briefing by April 28, 2023.

Before the Court ruled on the Company’s motion to compel, on April 26, 2023, the parties stipulated that Altor/NantCell’s action against the Company would be consolidated with the Altor/NantCell arbitration demand against Dr.

On April 27, 2023, the Court approved the parties’

stipulation and ordered the parties to arbitration.

On May 1, 2023, Altor/NantCell filed a demand against the Company before JAMS.

On May 3, 2023, Altor/NantCell dismissed the federal court action without prejudice and the Court ordered the case dismissed without prejudice and closed the case.

Altor/NantCell’s proceeding against the Company will now proceed in arbitration before JAMS.

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.

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.

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 March 31, 2023 , the Company held $ 16.9 million in a federal money market fund (the “Fund”) with an investment objective 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 , the Fund is considered one of the most conservative investment options available to safeguard cash and cash equivalents.

Lost-Lasting Effects of COVID-19

The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts the Company’s business, results of operati ons 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 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 encountered some delays in the completion of 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.

Subsequent events have been evaluated through the date the financial statements were 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 April 21, 2023, the Company entered into a secured Development Line of Credit Agreement (the “Agreement”) with Prime Capital Ventures, LLC, as lender (the “Lender”), pursuant to which the Lender shall advance loans to the Company in an aggregate principal amount not to exceed $ 26.3 million and a scheduled maturity date of April 20, 2028 (the “Maturity Date”).

The note issued pursuant to the Agreement bears interest at a fixed rate of 7 percent per annum, due monthly in arrears on the first day of each month, and the outstanding principal on the note shall be due and payable in full on the Maturity Date.

On April 27, 2023 in legal proceedings brought against the Company by Altor/NantCell, the Court approved the parties’

stipulation and ordered the parties to arbitration.

On May 1, 2023, Altor/NantCell filed a demand against the Company before JAMS.

On May 3, 2023, Altor/NantCell dismissed the federal court action without prejudice and the Court ordered the case dismissed without prejudice and closed the case.

Altor/NantCell’s proceeding against the Company will now proceed in arbitration before JAMS.

Although adverse decisions (or settlements) may occur in the lawsuit described above, it is not possible to reasonably estimate the possible loss or range of loss, if any, associated therewith at this time.

As such, no accrual for these matters has been recorded within the financial statements.

See Note 8 to the accompanying notes to these unaudited condensed interim financial statements for more information about the legal proceedings with Altor/NantCell.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed interim financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report on Form 10-Q”) and (ii) our audited financial statements and related notes and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations”

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed interim financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and related notes and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations”

for the fiscal year ended December 31, 2022 included in the Annual Report on Form 10-K filed with the U.S.

3 unchanged sentences

“HCW Biologics,”

“we,”

“HCWB”, “we,”

“us”

33 unchanged sentences

HCW Biologics Inc.

(“HCW Biologics,”

“HCW,”

the “Company,”

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

is a clinical-stage biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen healthspan by disrupting the link between chronic, low-grade inflammation and age-related diseases.

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

2 unchanged sentences

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

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

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.

Senescence is a physiologic process important in promoting wound healing, tissue homeostasis, regeneration, embryogenesis, fibrosis regulation, and tumorigenesis suppression.

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”).

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 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.

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 and serum TGF- β

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

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

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 function as a senomorphic that eliminates senescence-associated pro-inflammatory factors.

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 proinflammatory diseases, such as atherosclerosis.

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

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

We are in the process of completing IND-enabling studies and intend to prepare and submit an Investigational New Drug (“IND”) application to the FDA in 2023.

Recent Developments

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.

On April 27, 2023, in the legal proceedings brought by Altor BioScience, LLC and NantCell, Inc., or Altor/NantCell, the Court approved the parties’

stipulation to move to arbitration and ordered the parties to proceed in arbitration before JAMS.

On April 21, 2023, the Company entered into a $26.25 million development line of credit to refinance an existing $6.5 million mortgage and provide financing for the buildout of the Company's new headquarters and manufacturing facility.

On March 26, 2023, the Company published a pivotal scientific paper in Aging Cell entitled, “Immunotherapeutic Approach to Reduce Senescent Cells and Alleviate Senescence-Associated Secretary Phenotype in Mice,”

Wong, the Company’s Founder and CEO, as lead and corresponding author.

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.

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

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

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

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

Inflationary Cost Environment, Supply Chain Disruption and the Macroeconomic Environment

Inflationary Cost Environment, Banking Crisis, Supply Chain Disruption and the Macroeconomic Environment

4 unchanged sentences

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.”

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 March 31, 2023, the Company held $17.0 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.

Long-Lasting Effects of COVID-19

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.

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.

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.

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

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 condensed financial statements included elsewhere in this Quarterly 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.

4 unchanged sentences

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 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.

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.

Operating Expenses

3 unchanged sentences

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

Expenses related to manufacturing and materials, consisting primarily of expenses incurred primarily in connection with third-party contract manufacturing organizations (“CMO”), which 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;

9 unchanged sentences

See “Risk Factors -- Risks Related to the Development and Clinical Testing 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.

in our Annual Report for the year ended December 31, 2022 filed with the SEC on March 28, 2023 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.

3 unchanged sentences

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.

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.

During the period ended December 31, 2022, Altor/NantCell, a former employer of Dr.

Wong, our Founder and Chief Executive Officer, initiated legal proceedings against Dr.

Wong and the Company.

On April 26, 2023, the parties stipulated that Altor/NantCell’s action against the Company would be consolidated with the Altor/NantCell arbitration demand against Dr.

On April 27, 2023, the U.S.

District Court for the Southern District of Florida (the “Court”) with jurisdiction over lawsuit against the Company approved the parties’

stipulation and ordered the parties to arbitration.

On May 1, 2023, Altor/NantCell filed a demand against the Company before JAMS.

On May 3, 2023, Altor/NantCell dismissed the federal court action without prejudice and the Court ordered the case dismissed without prejudice and closed the case.

Altor/NantCell’s proceeding against the Company will now proceed in arbitration before JAMS.

In connection with claims brought against Dr.

Wong, Altor/NantCell has advancement obligations to him for claims brought against him.

Thus, legal expenses incurred by him in connection with his arbitration will be advanced by Altor/NantCell;

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

The Company incurred legal expenses on its own behalf in the period ended March 31, 2023, and we expect to continue to incur material costs and expenses in connection with defending the Company in the foregoing legal matters for the remainder of the year.

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 (Loss), Net

2 unchanged sentences

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.

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 three months ended March 31, 2023, the Company reported $59,453 in rental income, which is included within Interest and other income (loss), net in the unaudited statement of operations for the three months ended March 31, 2023, included elsewhere in this Quarterly Report.

Results of Operations

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenues

4 unchanged sentences

Loss from operations

Interest and other income (loss), net

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.

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

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

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

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

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

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

Interest expense

Other (expense) income, net

Comparison of the Three Months ended March 31, 2022 and March 31, 2023

The Company recognized $3.1 million and $41,883 of revenues in the unaudited statements of operations that appear elsewhere is this Quarterly Report for the three months ended March 31, 2022 and 2023, respectively.

The difference in revenues for the comparative periods is primarily attributable to the recognition of deferred revenues as revenue in the three months ended March 31, 2022, upon meeting requirements for revenue recognition when the Company entered into SOWs with Wugen for current and historical purchases on March 14, 2022.

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

There were no deferred revenues as of March 31, 2022 and as of March 31, 2023.

Research and Development Expenses

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

The following table summarizes our research and development expenses for the three months ended March 31, 2022 and March 31, 2023:

Three Months Ended

September 30,

Salaries, benefits and related expenses

4 unchanged sentences

Total research and development expenses

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 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 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 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.

Research and development expenses increased by $466,135, or 26%, from $1.8 million for the three months ended March 31, 2022 to $2.3 million for the three months ended March 31, 2023.

The increase was primarily due to an increase in preclinical expenses and clinical expenses.

Salaries, benefits, and related expenses decreased by $28,484, or 4%, from $772,949 for the three months ended March 31, 2022 to $744,465 for the three months ended March 31, 2023.

This decrease was primarily attributable to a $59,000 increase in the amount of reimbursement for certain expenses incurred under the terms of the Wugen License as well as a $11,381 decrease in performance-based bonuses.

These decreases were partially offset by an increase of $43,410 in salaries and wages, benefits, and stock-based compensation expenses.

Manufacturing and materials expense increased by $65,867, or 30%, from $219,038 for the three months ended March 31, 2022 to $284,905 for the three months ended March 31, 2023.

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

In the three months ended March 31, 2023, costs were primarily costs associated with a 200L cGMP run of HCW9302.

Looking ahead for the remainder of 2023, costs will primarily be associated with restoring supply of HCW9101, which is the internally-developed affinity ligand used in our proprietary manufacturing processes in the production of all of our molecules.

Expenses associated with preclinical activities increased by $224,569, or 44%, from $513,117 for the three months ended March 31, 2022 to $737,686 for the three months ended March 31, 2023.

Expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for Phase 1b/2 clinical trial to evaluate HCW9302 in an autoimmune indication.

We expect to complete the toxicology study in the first half of 2023.

Expenses associated with clinical activities increased by $136,991, or 125%, from $109,367 for the three months ended March 31, 2022 to $246,358 for the three months ended March 31, 2023 related to the two ongoing clinical trials to evaluate HCW9218 in chemo-resistant/chemo-refractory solid tumors.

The Investigator-sponsored Phase 1 clinical trial at the Masonic Cancer Center, University of Minnesota is designed as a dose escalation study of HCW9218 to identify the maximum tolerated dose for future evaluation.

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

The Company expects this phase of the study to be complete in the first half of 2023.

The Company-sponsored, multi-center Phase 1b/2 clinical trial to evaluate HCW9218 in advanced pancreatic cancer was initiated in October 2022.

There are currently four clinical sites participating in this trial, including the NCI Center for Cancer Research, Medical University of South Carolina (an NCI-designated Comprehensive Cancer Center), Washington University in St.

Louis (an NCI-designated Comprehensive Cancer Center), and HonorHealth Research Institute.

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

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

Other expenses, which include overhead allocations, increased by $67,191, or 38%, from $175,207 for the three months ended March 31, 2022 to $242,399 for the three months ended March 31, 2023.

The increase in other expenses is due primarily to an increase of $55,773 in the allocation for depreciation.

Depreciation increased in the third quarter of 2022, when the Company purchased a property to buildout for a new headquarters and manufacturing facility.

General and Administrative Expenses

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

The following table summarizes our general and administrative expenses for the three months ended March 31, 2022 and March 31, 2023:

Three Months Ended

September 30,

Salaries, benefits and related expenses

1 unchanged sentence

Facilities and office expenses

Other expenses

Total general and administrative expenses

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.

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

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

There were $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 nine months ended September 30, 2021 and September 30, 2022:

Nine Months Ended

September 30,

Salaries, benefits and related expenses

Manufacturing and materials

Preclinical expenses

Clinical trials

Other expenses

Total research and development expenses

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 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.

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 nine months ended September 30, 2021 and September 30, 2022:

Nine Months Ended

September 30,

Salaries, benefits and related expenses

Professional services

Facilities and office expenses

Rent and occupancy expense

Other expenses

Total general and administrative expenses

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, 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

General and administrative expenses increased $1.2 million, or 66%, from $1.9 million for the three months ended March 31, 2022 to $3.1 million for the three months ended March 31, 2023.

The increase was primarily due to an increase in professional fees, which includes legal fees associated with the proceedings brought against the Company by Altor/NantCell.

Other increases included a $105,492 increase in salaries, benefits and related expenses due to an annual adjustments made in April 2022 and new hires.

Depreciation increased by $33,608, or 94%, from $35,605 for the three months ended March 31, 2022 to $69,213 for the three months ended March 31, 2023.

In the third quarter of 2022, the Company purchased a property to buildout for its new headquarters and manufacturing facility.

As a result depreciation expense allocated to general and administrative expenses for the three months ended March 31, 2023 reflects depreciation of that acquisition.

Professional services increased $1.2 million, or 272%, from $459,164 for the three months ended March 31, 2022 to $1.7 million for the three months ended March 31, 2023.

Professional services include corporate legal services, expenses related to legal actions brought by Altor/NantCell, and other professional services, such as auditing and tax advisory fees.

For the three months ended March 31, 2023, the Company incurred $1.1 million for legal fees in connection with the Altor/NantCell matter, $359,754 for legal fees in connection to patents, and $233,007 in fees associated with other professional services such as audit fees and tax advisory services.

Liquidity and Capital Resources

Sources of Liquidity

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.

As of March 31, 2023, our principal source of liquidity was $18.4 million in cash and cash equivalents, including money market investments, and $9.8 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.

On April 21, 2023, the Company entered into a $26.3 million development line of credit agreement.

We expect our principal sources of liquidity will continue to be our cash and cash equivalents, the development line of credit, out-licensing agreements, and any additional capital we may obtain through debt or 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 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.

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.

A portion of the acquisition cost was funded with a $6.5 million five-year loan obtained from the Cogent Bank (“Cogent Loan”) and is secured by the building.

As of March 31, 2023, the Company owed $6.5 million on the Cogent Loan and was in compliance with all covenants under the Cogent Loan agreement and related documents.

The Company obtained a $26.25 million development line of credit on April 21, 2023.

We intend to repay the Cogent Loan with part of the proceeds from the development line of credit at the time we draw our first advance under the new loan agreement.

We will not incur any prepayment penalties.

We believe that our cash and cash equivalents and short-term investments as of March 31, 2023 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.

4 unchanged sentences

number of trials required for regulatory approval;

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;

whether we enter into any cooperative, 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 bank financing under existing term facility, if needed;

impact of arbitration, 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.

1 unchanged sentence

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

Comparison of the Cash Flows for the 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,

Comparison of the Cash Flows for the Three Months Ended March 31, 2022 and March 31, 2023

The following table summarizes our cash flows for the three months ended March 31, 2022 and March 31, 2023:

Three Months Ended

Cash used in operating activities

Cash (used in) provided by investing activities

Cash provided by (used in) investing activities

Cash provided by financing activities

1 unchanged sentence

Operating Activities

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 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.

Net cash used in operating activities were $1.6 million for the three months ended March 31, 2022, compared with net cash used by operating activities of $3.6 million for the three months ended March 31, 2023.

The difference was primarily due to an increase in net loss from $2.1 million for the three months ended March 31, 2022 to $5.1 million for the three months ended March 31, 2023.

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

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

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

Cash used in operating activities for the three months ended March 31, 2023 consisted primarily of net loss for the period of $5.1 million and $112,500 unrealized loss on investments, net.

These amounts were offset by cash provided by operations arising from a $718,675 increase from accounts payable and other liabilities, $164,967 resulting from a decrease in accounts receivable, and $182,294 resulting from a decrease in prepaid expenses and other assets.

Further offsets were provided by noncash adjustments arising from addbacks of $298,847 from depreciation and amortization and $259,206 from stock-based compensation.

Investing Activities

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.

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

Cash used by investment activities for the three months ended March 31, 2023 consisted of $300,385 used for purchases of property and equipment.

Financing Activities

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.

During the three months ended March 31, 2022 and 2023, cash provided by financing activities is due to issuance of common stock upon exercise of vested employee stock options.

Critical Accounting Policies, Significant Judgements and Use of Estimates

14 unchanged sentences

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.

See Note 1 to our unaudited condensed interim financial statements appearing elsewhere in this Quarterly Report 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