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Item 8. Financial Statements and Supplementary Data

2025-03-28 compared with 2024-04-01 · 392 added, 160 removed, 485 unchanged (53% of the section changed)

5 unchanged sentences

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 173 )

Balance Sheets

Statements of Operations

Statements of Changes in Stockholders’ Equity

Statements of Changes in Stockholders’ Equity (Deficit)

Statements of Cash Flows

3 unchanged sentences

Opinion on the financial statements

We have audited the accompanying balance sheets of HCW Biologics Inc.

(the “Company”) as of December 31, 2023 and 2022, the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and itscash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Liquidity and going concern

As discussed in Note 1 to the financial statements, the Company is not profitable, has recorded negative cash flows from operations, and will need substantial capital to support its ongoing operations.

Management's evaluation of the events and conditions and management’s plans to mitigate these matters are also described in Note 1.

We have audited the accompanying balance sheet of HCW Biologics Inc.

(the “Company”) as of December 31, 2023, the related statements of operations, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for year then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provided a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2019.

April 1, 2024

We have served as the Company’s auditor from 2019 to 2024.

May 15, 2024 (except for Note 16, as to which the date is March 28, 2025)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and the Board of Directors of HCW Biologics Inc.

Miramar, Florida

Opinion on the Financial Statements

We have audited the accompanying balance sheet of HCW Biologics Inc (the "Company") as of December 31, 2024, the related statements of operations, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has suffered recurring negative cash flows from operations, negative working capital and the need for funding to support its operations that raise substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provide a reasonable basis for our opinion.

/s/ Crowe LLP

We have served as the Company's auditor since September 2024.

Indianapolis, Indiana

March 28, 2025

HCW Biologics Inc.

2 unchanged sentences

Cash and cash equivalents

Short-term investments

Accounts receivable, net

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Property, plant and equipment, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

1 unchanged sentence

Accrued liabilities and other current liabilities

Short-term debt, net

Total current liabilities

Other liabilities

Total liabilities

Commitments and contingencies (Note 17)

Stockholders’ equity:

Stockholders’ equity (deficit):

Common stock:

6 unchanged sentences

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

( 100,556,137

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

The accompanying notes are an integral part of these financial statements.

5 unchanged sentences

General and administrative

Reserve for credit losses

Legal expenses

Reserve for credit losses and other expenses

Total operating expenses

1 unchanged sentence

Interest expense

Other (expense) income, net

Other income, net

Net loss per share, basic and diluted

2 unchanged sentences

HCW Biologics Inc.

Statem ents of Changes in Stockholders’ Equity

Stockholders’ Equity

Statem ents of Changes in Stockholders’ Equity (Deficit)

Stockholders’ Equity (Deficit)

Stockholders’

Balance, December 31, 2021

Issuance of Common Stock upon exercise of stock options

Equity (Deficit)

Balance, January 1, 2023

Issuance of Class A

Common Stock upon

exercise of stock options

Stock-based compensation

Balance, December 31, 2023

Issuance of Common Stock upon exercise of stock options

Common Stock upon exercise of stock options

Common Stock upon equity subscription

Issuance of warrants

Exercise of pre-funded warrants

Issuance cost of common stock

Issuance costs of common stock warrants

Stock-based compensation

Balance, December 31, 2024

( 100,556,137

The accompanying notes are an integral part of these financial statements.

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Stock-based compensation

Unrealized loss (gain) on investments, net

Realized (gain) on investments

Unrealized (gain) on investments, net

Realized (gain) on investments, net

Changes in the carrying amount of right-of-use asset

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Proceeds for sale or maturities of short-term investments

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock

Proceeds from issuance of debt, net

Offering costs

Proceeds from issuance of debt

Proceeds from common stock warrants

Issuance costs for common stock and warrants

Debt repayment

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

1 unchanged sentence

Supplemental disclosure of cash flow information:

Cash paid for interest, net of capitalized interest

Cash paid for interest, net of amounts capitalized

Noncash operating, investing and financing activities:

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

Capital expenditures accrued, but not yet paid

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

Reserve for credit losses

9 unchanged sentences

Liquidity and Going Concern

In accordance with ASC 205-40, Presentation of Financial Statements – Going Concern (“Topic 205-40”), we are required to evaluate whether there are conditions and events, considered in the aggregate that raise substantial doubt about our ability to continue as a going concern for at least 12 months from the issuance date of our financial statements.

In accordance with FASB Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements – Going Concern (“Topic 205-40”), management is required to evaluate whether there are conditions and events, considered in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern for at least 12 months from the issuance date of the Company’s audited financial statements.

This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued.

When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern.

The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

As of December 31, 2024, 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 to December 31, 2023, the Company incurred cumulative net losses of $ 67.8 million.

As of December 31, 2023, the Company had $ 3.6 million in cash and cash equivalents, compared to $ 22.3 million as of December 31, 2022.

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.

As a result of these conditions substantial doubt about the Company’s ability to continue as a going concern was raised.

To date, we have funded operations primarily through the sale of stock and revenues generated from the Company’s exclusive worldwide license with Wugen, Inc.

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

Since inception to December 31, 2024, the Company incurred cumulative net losses of $ 98.1 mill ion.

These losses reflect the events previously reported in the Form 10-K/A filed on May 15, 2024 with the Securities and Exchange Commission (“SEC”), involving reserve for credit losses and other expenses of $ 6.6 million.

The reserve for credit losses and other expenses arose from two events previous reported by the Company on the Form 8-K filed on January 12, 2024 and the Form 8-K filed on May 1, 2024.

See Part II, Item 9A.

-- “Controls and Procedures.”

On August 15, 2022, the Company entered into a loan and security agreement (the “2022 Loan Agreement”) with Cogent Bank, pursuant to which it received $ 6.5 million in 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 December 31, 2024, certain subcontractors have filed mechanics liens related to unpaid invoices issued in connection with the Company’s construction of its new manufacturing facilities and upgraded research laboratories.

The 2022 Loan Agreement contains a provision for a discretionary default in the event that the Company fails to pay sums due in connection with construction of any improvements;

however, as of the reporting date, the lender has not elected to do so.

As of December 31, 2024, the Company has reflected this loan as Short-term debt, net, to reflect that the lender has the right to accelerate the loan under a discretionary default provision.

The Company continues to seek the financing required to complete the construction project, with the cooperation of the lender and lien holders .

To date, the Company has funded operations primarily through the sale of stock, issuance of Senior Notes and revenues generated from the Company’s 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 the Company’s internally-developed multi-cytokine fusion protein molecules, and its manufacturing and supply arrangement with Wugen.

In the year ended December 31, 2022 and 2023, the Company recognized revenues of $ 6.7 million and $ 2.8 million, respectively, generated from the supply of clinical and research grade material to Wugen.

Under the Company’s policy for its going concern assessment under Topic 205-40, future receipt of potential funding from partnerships, equity or debt issuances or other transactions is considered probable if a transaction is approved by the Board of Directors and the Company has entered into legally binding agreements.

As of March 31, 2024, the Company has closed or entered into binding legal agreements for additional financings of $ 12.5 million.

On February 20, 2024, in a $ 2.5 million private placement of common stock, the Company sold an aggregate of 1,785,718 shares to certain officers and directors.

As of March 31, 2024, the Company entered into an agreement to issue $ 10.0 million of secured notes (the “Secured Notes”), of which $ 2.0 million funded prior to the issuance date of the accompanying financial statements.

The Secured Notes were sold to certain officers and directors of the Company as well as other investors.

Management plans to pursue additional sources of capital.

Future financings may be from non-dilutive funding sources such as bank or debt financing, out-licensing rights to technology or markets, cooperative agreements for clinical trials, or other business development transactions, which may include the issuance of additional equity financing and/or third-party collaboration funding.

If the Company is not successful in raising additional capital, management has the intent and ability to streamline its business plan and reduce costs.

The Company believes that, as a result of these plans, it has sufficient liquidity and probable financing to meet the Company’s funding requirements for at least 12 months from the issuance date of the accompanying financial statements.

In implementing a streamlined business plan the Company may be forced to delay, reduce, or eliminate some of its product development programs, efforts to establish manufacturing capacity, headcount and other operating costs, as well as commercialization efforts.

Projections are based on assumptions, including the Company’s existing commitments and contingencies, that may prove to be incorrect, and the Company may use available capital sooner than expected.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business.

In the years ended December 31, 2023 and 2024, Company recognized revenues generated from the supply of clinical and research grade material to Wugen of $ 2.8 million and $ 2.6 million, respectively.

As reported in the Company’s Form 8-K filed on July 18, 2024 and further described in Part I, Item 3.

– “Legal Proceedings” below, as of July 13, 2024, the Company and Dr.

Wong, the Company’s Founder and Chief Executive Officer, entered into a confidential Settlement Agreement and Release (the “Settlement Agreement”) with ImmunityBio and its affiliates.

The Settlement Agreement includes mutual general releases by and among the parties thereto.

No party is required to make any monetary payments to any other party or person under the Settlement Agreement and each party will bear its own expenses incurred in connection with the matter.

In accordance with the provisions of the Settlement Agreement, upon completion of remedial procedures, the parties stipulated that the Arbitration and Complaint should be dismissed.

The Arbitration and related Complaint were dismissed on December 24, 2024.

The Company entered into the Settlement Agreement to avoid the costs, disruption and distraction of further litigation.

In the accompanying condensed balance sheet as of December 31, 2024, the Company reported a balance of $ 14.4 million for legal fees incurred but not yet paid that were included within Accounts payable and an accrual of $ 42,800 for accrued legal fees within Accrued liabilities and other current liabilities.

The Company is engaged in discussions with the law firms involved with this matter to arrange a reasonable payment plan with respect to those legal fees.

With the execution of the Settlement Agreement, the Company resolved the attendant uncertainties for the outcome of the Arbitration and additional complexities, and it launched its new financing plan.

Subsequent to the year end, the Company received a $ 2.0 million insurance payment, which was paid directly to the law firm who represented Dr.

Wong for his defense during the Arbitration.

Subsequent Events.

Prior to the resolution of the Arbitration, the Company had limited options to raise capital required to operate.

On February 20, 2024, the Company completed a $ 2.5 million private placement of shares of common stock with certain of its officers and directors at a price of $ 1.40 per share.

The Company issued 1,785,718 shares of common stock in connection with the offering.

The shares have not been registered and will not be sold or transferred except as permitted under law and pursuant to registration or exemption therefrom.

The Board of Directors and Audit Committee of the Board of Directors reviewed the transaction under the Company’s policy for Related Party Transactions (the “Policy”) and determined that the transaction was in compliance with the Policy.

In multiple closings that occurred from March 31, 2024 to October 31, 2024, the Company issued an aggregate of $ 6.9 million of Secured Notes, with $ 2.9 million from the Company’s officers and members of the board of directors, including $ 2.4 million purchased by Dr.

Wong, Founder and CEO, $ 220,000 purchased by Rebecca Byam, Chief Financial Officer, $ 140,000 purchased by Scott T.

Garrett, Chairman of the board of directors, $ 60,000 purchased by Gary M.

Winer, member of the board of directors, $ 25,000 purchased by Lee Flowers, Senior Vice President for Business Development, and $ 25,000 purchased by Rick S.

Greene, member of the board of directors.

The Company launched a new financing plan in the third quarter of 2024.

On November 13, 2024, we entered into an engagement letter with the Maxim Group to act as the exclusive placement agent for a multi-step equity financing.

In November 2024, the Company completed two financing transactions.

On November 18, 2024, the Company entered a $ 6.9 million securities purchase agreement with an institutional investor, involving a registered direct offering and a concurrent private placement of common stock and warrants.

The offering, priced above market under Nasdaq rules and closed on November 20, 2024.

As a result of this offering, the Company issued 6,717,000 shares of Common Stock and warrants to purchase 6,717,000 shares of Common Stock at $ 1.03 per shares, at a combined price of $ 1.03 per unit consisting of one share of Common Stock and one five-year warrant to purchase a share of Common Stock.

On November 17, 2024, HCW Biologics entered into an exclusive worldwide license agreement with WY Biotech for the rights to develop and commercialize one of HCWB’s preclinical product candidates, HCW11-006.

WY Biotech Co., Ltd.

is a China-based company specializing in the early-stage development of recombinant protein drugs and gene/cell therapies.

As the Company disclosed in the Form 8-K filed on March 19, 2025, the Company and WY Biotech agreed on the principal terms for an amendment to the WY Biotech License Agreement, in which the parties agreed to restructure the payment schedule for the $ 7.0 million upfront license fees, including delaying the initial $ 4.0 million portion thereof that was originally due on or about March 17, 2025 .

The parties also agreed to amend the Company’s final deliverable to fulfill the performance obligation is the delivery of a report on the characterization of the license molecule.

Under the amended terms, the Company expects to fulfill its performance obligations and earn the full $ 7.0 million upfront fee in June 2025.

There were no other material changes to the WY Biotech License Agreement, which involves the grant to WY Biotech of an exclusive, world-wide license to use and apply HCW11-006 for in vivo applications.

In particular, the Company will retain the Opt-In Right thereunder, which gives the Company the option to assume all control and responsibility for the development, manufacture and commercialization of HCW11-006 for in vivo applications in the North America, South America, and Central America.

The Company retains ex vivo rights.

On March 3, 2025, the Nasdaq Hearings Panel (the “Panel”) of The Nasdaq Stock Market LLC (“Nasdaq” or the “Exchange”) granted the Company an extension in which to regain compliance with all Nasdaq continued listing rules.

The Panel’s determination follows a hearing on February 13, 2025, at which the Panel considered the Company’s plan to regain compliance with Listing Rules 5450(a)(1), 5450(b)(2)(A) and 5450(b)(2&3)(C), the minimum bid price (“Bid Price”), the market value of publicly held securities (“MVPHS”) and the market value of listed securities (“MVLS”) rules, respectively.

As a result of the extension, the Panel granted the Company’s request for continued listing on the Exchange, provided that the Company demonstrates compliance with the Bid Price Rule by April 28, 2025, and all other Exchange continued listing rules by June 15, 2025.

As of December 31, 2024, the conclusion of a going concern assessment, before consideration of our financing plans, was that there is substantial doubt about the Company’s ability to continue as a going concern.

The Company considered future elements of its financing plan that were probable and likely to be implemented within the next year to determine if financing activities currently underway are sufficient mitigate the substantial doubt in the going concern analysis, in addition to considering continued operating losses and the burden of obligations for expenses incurred in connection with past legal proceedings.

The Company expects to complete other capital-raising transactions in the first half of 2025, for which Maxim Group will act as our Placement Agent.

Management concluded that there were no mitigating circumstances which alleviated the substantial doubt over its ability to continue as a going concern.

If the Company is not successful in raising additional capital through these activities, management intends to revise its business plan and reduce costs.

If such revisions are insufficient, the Company may have to curtail or cease operations.

The accompanying audited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

The Company believes that substantial doubt exists regarding its ability to continue as a going concern for at least 12 months from the date of issuance of the Company’s audited financial statements and that the substantial doubt that existed in its going concern analysis was not alleviated.

Summary of Significant Accounting Policies

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The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

Reclassification of Prior Period Presentation of Legal Expenses

Certain prior period amounts have been reclassified to distinguish between General and administrative expenses in the ordinary course of business and legal expenses incurred in connection with the Arbitration and Settlement Agreement described in Notes 1.

Reclassification of legal expenses incurred in connection with legal proceedings impacts the audited statements of operations.

There is no effect on reporting results of operations from prior periods.

Use of Estimates

4 unchanged sentences

Actual results could differ from estimates.

Segment Reporting

The Company operates and manages its business as one reportable and operating segment, which is the business of developing and commercializing novel immunotherapies for diseases promoted by chronic inflammation, especially age-related diseases.

The Company’s chief executive officer, who is the chief operating decision maker ("CODM"), reviews financial information on an aggregate basis for allocating and evaluating financial performance.

In addition, our CODM is regularly provided with detailed results of preclinical and clinical data which is considered in his decision for the allocation of resources.

Segment Reporting for further details.

The single operating segment constitutes all of the Company activity, the chief operating decision maker regularly reviews the entity-wide operating results and performance .

All long-lived assets are maintained in the United States of America.

Cash and Cash Equivalents

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A ll of the Company's revenues were derived from the supply of clinical grade material to Wugen under the supply agreement between Wugen and the Company, as contemplated in the Wugen License.

As of December 31, 2023, there was a balance of $ 1.5 million in accounts receivable related to sales to Wugen on the accompanying audited balance sheet, and the Company believes that collection of these amounts are probable.

As of December 31, 2024 , there was a balance of $ 582,201 in accounts receivable related to sales to Wugen on the accompanying audited balance sheet, which was collected as of the date of issuance of the Annual Report.

Since December 24, 2020, the Company holds 2,174,311 shares of Wugen common stock, which were received as consideration for the Wugen License on December 24, 2020.

6 unchanged sentences

Property, plant and equipment are stated at cost less accumulated depreciation.

Depreciation expense is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 39 years.

The Company has elected to use component depreciation for property, plant and equipment, which is permitted but not required under US GAAP.

A long-lived asset may consist of several different and significant physical components.

A component is a tangible part or portion of property, plan and equipment that (a) can be separately identified as an asset and depreciated or amortized over its own separate expected useful life and (b) is expected to provide economic benefit for more than one year.

If a component has an expected useful life that differs from the expected useful life of the asset to which it relates, the cost should be accounted for separately and depreciated or amortized over its separate expected useful life.

The Company identifies the components at the time of the acquisition or construction of the long-lived asset.

The total capitalized costs of the long-lived asset is allocated to components either on a specific identification basis or based on relative fair value.

Depreciation expense for each component is calculated using the straight-line method over the estimated useful lives of the assets within the component, which range from 3 to 39 years.

Land is not subjected to the recording of depreciation expense because it has an infinite life.

2 unchanged sentences

Construction-in-progress is not depreciated.

Upon completion and ready for intended use, construction-in-progress is reclassified to the appropriate category within property, plant and equipment.

Upon retirement or sale of the assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet in the period in which the retirement or sale occurred, and the resulting gain or loss is recognized in the statements of operations.

Repairs and maintenance are expensed as incurred.

Depreciation of property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets, as follows:

Upon completion and becoming ready for intended use, construction-in-progress is reclassified to the appropriate component within property, plant and equipment.

If a component that is separately identified and depreciated is replaced, the replacement should be capitalized at the time of its installation if the capitalization criteria have been met.

The net book value of the component that was replaced, if any, should be charged to depreciation expense in the period it is replaced.

If not separately identifiable in the accounting records, the estimated net book value of an item to be replaced should be calculated by estimating the previously capitalized costs of the replaced component and subtracting an estimate of accumulated depreciation.

The estimate of accumulated depreciation is calculated using the same depreciation method and expected useful life previously used to depreciate the total asset to which the component relates.

Depreciation of property, plant and equipment is calculated by component using the straight-line method over the estimated useful lives of the assets, as follows:

Estimated Useful Lives

4 unchanged sentences

The lesser of the lease term or life of the asset

Costs, such as repairs and maintenance, associated with replacing items not identified as a component are expensed as incurred.

Impairment of Long-Lived Assets

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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.

2 unchanged sentences

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.

Any such revisions are recorded on a cumulative catch-up basis, noting no material revisions during the year ended December 31, 2023.

Any such revisions are recorded on a cumulative catch-up basis, noting no material revisions during the years ended December 31, 2023 and 2024.

For each in process SOW, amounts are billed in the same quarter the costs are incurred.

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 years ended December 31, 2023 and 2024 , the Company recognized revenues related to sale of development supply materials to Wugen of $ 2.8 million and $ 2.6 million, respectively.

7 unchanged sentences

The current portion of deferred revenue represents the amount to be recognized within one year from the balance sheet date based on the estimated performance period of the underlying performance obligations.

In the year ended December 31, 2021, there was a balance of $ 1.8 million in deferred revenues in the Company's balance sheet, all of which were recognized as revenue in the year ended December 31, 2022.

There were no deferred revenue balances as of December 31, 2023 or 2024.

1 unchanged sentence

The underlying shares of common stock are not traded on any public market and thus have limited marketability.

The Company does not have significant influence over the operating and financial policies of Wugen.

The Company does not have any influence over the operating and financial policies of Wugen.

As a result, the Company has accounted for this investment 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 was recognized during the years ended December 31, 2023 and 2024.

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

Treasury which are classified as trading securities.

As of December 31, 2022, the Company held $ 9.7 million in U.S.

Treasury bills included in Short-term investments in the balance sheet included in the audited financial statements.

As of December 31, 2023, the Company had no Short-term investments.

Subsequent Events.

Operating Leases

28 unchanged sentences

Compensation expense is recorded as either research and development or general and administrative expenses in the statement of operations based on the function to which the related services are provided.

Forfeitures are accounted for as they occur.

The Company has granted options with service-based and performance-based vesting conditions.

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In the event an offering is terminated or the timing for completing the offering is uncertain, all of the deferred offering costs will be expensed within the Company’s statement of operations in the period in which the determination is made.

In the year ended December 31, 2022, the Company expensed $ 190,547 of deferred offering costs in connection with its $ 100.0 million shelf registration statement on Form S-3, including a prospectus for the issuance and sale of up to $ 15.5 million shares of the Company's common stock through an at-the-market program, which was declared effective by the SEC on August 26, 2022.

The Company accounts for income taxes using an asset and liability approach in accordance with applicable guidance prescribed by FASB issued ASC 740, Income Taxes (“Topic 740”).

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Recently Issued Accounting Pronouncements

In June 2016 the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).

It requires the use of the current expected credit losses (CECL) impairment model for a broad scope of financial instruments, including financial assets measured at amortized cost (which includes loans, held-to-maturity debt securities and trade receivables), net investments in leases, and certain off-balance sheet credit exposures.

The CECL model requires the immediate recognition of estimated expected credit losses over the life of the financial instrument.

The estimate of expected credit losses considers not only historical information, but also current and future economic conditions and events.

For accounts receivable, the Company estimates a reserve for expected credit losses based on existing contractual payment terms, actual payment patterns of its customers, current and future economic and market conditions and individual customer circumstances.

For other asses, the measurement approach used by the Company may be based on the probability-of-default method, under which expected credit losses are determined by multiplying the probability of default (i.e., the probability the asset will default within the given time frame) by the loss given default (the percentage of the asset not expected to be collected because of default).

The Company adopted CECL on January 1, 2023 on a prospective basis and it had no impact on the Company’s financial statements.

In November 2023, the FASB issued ASU No.

2023-07, Improvements to Reportable Segment Disclosures (ASU 2023-07) which is intended to improve reportable segment disclosures primarily through enhanced disclosure of reportable segment expenses and requires that a public entity that has a single reportable segment provide all the disclosures required by ASU 2023-07 and all existing segment disclosures in Topic 280.

The new guidance is required to be applied retrospectively to all prior periods presented in the financial statements and is effective for the Company for fiscal periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The Company has one reportable segment and is evaluating the impact of the standard on the Company’s financial statements.

In December 2023, the FASB issued ASU No.

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The Company is evaluating the impact of the standard on the Company’s financial statements.

In November 2024, the FASB issued ASU No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (ASU 2024-03) which requires public business entities to provide enhanced disaggregation of expenses in financial statements, including detailed disclosures on inventory purchases, employee compensation, depreciation, and amortization.

The new guidance is effective for the Company for fiscal periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027.

The Company is evaluating the impact of the standard on the Company’s financial statements.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segments Disclosures (“ASU No.

2023-07”), which improves segment disclosure requirements, primarily through enhanced disclosure requirements for significant segment expenses.

The improved disclosure requirements apply to all public entities that are required to report segment information, including those with only one reportable segment.

We adopted ASU No.

2023-07 on January 1, 2024.

The adoption had no impact on the reportable segment we have identified, and additional required disclosures have been included in Note 16.

Segment Reporting.

Property, Plant and Equipment, Net

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Depreciation and amortization expense for the year ended December 31, 2024 was $ 644,616 , of which $ 390,209 is included in research and development expenses.

During the year ended December 31, 2023, the Company capitalized interest expense of $ 95,627 , into Construction in progress.

During the year ended December 31, 2023 and 2024, the Company capitalized interest expense of $ 95,627 and $ 189,416 , respectively, which is presented within Construction in progress.

Fair Value of Financial Instruments

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Money market funds

Treasury notes

At December 31, 2024:

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So long as there continues to be no public market for these securities, the Company will classify this asset as a cost method investment, recorded at cost less impairment adjusted for observable market changes.

As of December 31, 2022 and 2023, Investments had a balance of $ 1.6 million, reflecting the investment in Wugen, whic h the Company continues to carry at cost since no public market exists for these securities and no impairment adjustments have been necessary since the acquisition date.

As of December 31, 2023 and 2024 , Investments had a balance of $ 1.6 million, reflecting the investment in Wugen, whic h the Company continues to carry at cost since no public market exists for these securities and no impairment adjustments have been necessary since the acquisition d ate.

Subsequent Events.

Accrued Liabilities and Other Current Liabilities

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

As of December 31, 2023, the Company had a balance of $ 2.6 million included in Accrued liabilities and other current liabilities in the balance sheet included in the audited financing statements, consisting of $ 392,000 for construction expenses, $ 105,000 for manufacturing expenses, $ 1.1 million for legal expenses, $ 262,000 for clinical expenses, $ 365,000 in bonus expense, $ 160,000 for salary expenses, $ 119,000 for the current portion of long-term debt , $ 28,500 in lease liability and $ 68,500 of other liabilities.

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.

As of December 31, 2024, the Company had a balance of $ 981,940 included in Accrued liabilities and other current liabilities in the balance sheet included in the audited financing statements, consisting of $ 422,000 for construction expenses, $ 49,000 for manufacturing expenses, $ 155,000 for legal expenses, $ 121,000 for clinical expenses, $ 5,000 in bonus expense, $ 202,000 for salary expenses and $ 28,000 of other liabilities.

Cogent Bank Loan

On August 15, 2022, the Company entered into the 2022 Loan Agreement with Cogent Bank, pursuant to which it received $ 6.5 million in 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.

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

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

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.

The interest-only period was 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 has the op tion to prepay the outstanding balance of the loan prior to the Maturity Date without penalty.

As of December 31, 2023 , the current portion of $ 119,398 is included in Accrued liabilities and other current liabilities, and the noncurrent portion of $ 6.3 million is included in Debt, net in the balance sheet included in the audited financial statements.

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

Under the terms of the 2022 Loan Agreement, the Company is required to keep an operating account from which payments to service the Cogent Bank Loan will be drawn.

In addition, the Company also agreed to maintain an escrow account with adequate funds for at least 90 days of principal payments, interest payments, taxes and insurance, with a balance of $ 185,436 as of December 31, 2024.

The 2022 Loan Agreement contains a provision for a discretionary default in the event that the Company fails to pay sums due in connection with construction of any improvements;

however, as of the reporting date, the lender has not elected to do so.

As of December 31, 2024, the Company has reflected this loan as Short-term debt, net, to reflect that the lender has the right to accelerate the loan under a discretionary default provision.

As of December 31, 2024, $ 6.3 million is included in Short-term debt, net in the accompanying audited balance sheet.

Senior Secured Notes

On March 31, 2024, the Company entered into a Note Purchase Agreement with the Purchasers (as defined in the Note Purchase Agreement), pursuant to which the Company may issue secured notes up to an aggregate principal amount up to $ 10.0 million (“Secured Notes”).

As of December 31, 2024, the Company received $ 6.9 million through the issuance of Secured Notes, which is included within Debt, Net on the accompanying audited balance sheet.

Investors included Dr.

Wong, Founder and Chief Executive Officer, who invested $ 2.4 million;

Rebecca Byam, Chief Financial Officer, who invested $ 220,000 ;

Lee Flowers, Senior Vice President of Business Development, who invested $ 25,000 ;

Garrett, the Chairman of the Company’s board of directors, who invested $ 140,000 ;

Winer, a member of our board of directors, who invested $ 60,000 ;

Greene, a member of the board of directors, who invested $ 25,000 , as well as unrelated parties.

As of July 2, 2024, existing investors in Secured Notes unanimously agreed to an Amended and Restated Note Purchase Agreement and related documents (“Amended and Restated Note Purchase Agreement”).

On September 30, 2024, existing investors approved an amendment to the Amended and Restated Note Purchase Agreement which extended the last closing date to October 31, 2024.

No other terms were changed.

Under the terms of the Amended and Restated Note Purchase Agreement, the Secured Notes continue to bear interest at a rate of 9 % per annum, payable quarterly in arrears.

The Secured Notes will mature on August 30, 2026 (the “Maturity Date”), on which date the principal balance, accrued but unpaid interest and other amounts owed under the terms of the Amended and Restated Note Purchase Agreement shall be due and payable.

The Company pledged its equity ownership interest in Wugen, which was equivalent to a 5.6 % ownership stake in that company as of December 31, 2024 (“Pledged Collateral”).

The Pledged Collateral will be held and released according to the terms of the Escrow Agreement, as security for the Secured Notes.

The Secured Notes have a Mandatory Prepayment provision, according to which the Company is required to prepay the Secured Notes before the Maturity Date under certain circumstances.

In the event of a Mandatory Prepayment, Secured Notes may receive a bonus payment based on the gross proceeds of the sale of the Pledged Collateral.

If the Secured Notes are repaid on the Maturity Date, holders will receive their pro rata share of a fixed bonus payment of $ 3.4 million in addition to payment of outstanding

principal and accrued and unpaid interest.

If a bonus payment is paid, then there is no prepayment penalty.

The Amended and Restated Note Purchase Agreement also contains default provisions, according to which, following an event of default, the Company may be required to distribute the Pledged Collateral to the Purchasers on a pro rata basis based on a $ 10.0 million issuance of Secured Notes, in full satisfaction of the indebtedness evidenced by the Secured Notes.

As of December 31, 2024, the fair value of the embedded derivative, which incorporated the likelihood of certain events occurring, was immaterial.

Thus, as of December 31, 2024, the Company did not recognize the embedded derivative in the accompanying condensed financial statements.

Subsequent Events.

The Company accounts for the bonus payment to be paid if the Secured Notes are repaid on the Maturity Date by accreting the bonus payment to the full amount due on the Maturity Date, utilizing the effective interest rate method.

As of December 31, 2024, the Company recognized $ 527,304 for the accretion of the fixed bonus payment.

Five-Year Maturities

The Company classifies the total undiscounted contractual payments that are due in the next 12 months as current.

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The table below shows the amount of maturities for each of the five years following the date of the latest balance sheet:

Cogent Bank Loan

Maturities per Year

License Agreement

Senior Secured Notes

Maturities per Year

Note that the total debt in the table above includes the full accretion of debt issuance costs for the Cogent Bank Loan and the full accretion of the fixed bonus payment for the Senior Secured Notes.

License Agreements

Wugen License

On December 24, 2020, the Company entered into the Wugen License transferring rights to Wugen to develop, manufacture, and commercialize certain cellular therapy products based on two of the Company’s fusion protein molecules.

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The Company concluded that Wugen is a customer and the Wugen License is a functional license under the provisions of Topic 606.

In addition to upfront fees and revenues from other transactions that took place upon entering the Wugen License, the Wugen License includes milestone payments and royalties.

WY Biotech License

On November 17, 2024, the Company entered into the WY Biotech License transferring rights to WY Biotech to develop and commercialize a preclinical molecule constructed with the Company’s T-cell Receptor β Chain constant region (“TRBC”) drug discovery and development platform.

The term of the agreement with expire on the date on which all obligations under this Agreement between the parties with respect to the payment of milestones or royalties with respect to licensed products have passed or expired.

On March 17, 2025, the parties agreed to the principal terms of an amendment to the terms of the WY Biotech License.

The Company concluded that WY Biotech is a customer and the WY Biotech License, as amended, is a functional license under the provisions of Topic 606.

Opt-In Right for WY Biotech License

Under the terms of the WY Biotech License, the Company has an “opt-in right” for United States, Canada, Central America, and South America markets for no cost, that may be exercised after the completion of a Phase 1 trial in China.

WY Biotech is responsible for all of the costs for the clinical study.

The Company will make a determination of whether it will exercise the Opt-In Right upon the release of a human-data read-out from the Phase 1 trial to be conducted by WY Biotech.

Milestones and Royalties

In addition to upfront fees and revenues from other transactions that took place upon entering the these licenses, the licenses includes milestone payments and royalties.

The Company uses judgment to determine whether milestones or other variable consideration should be included in the transaction price.

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The Company reevaluates the transaction price, including estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

Sale of Common Stock and Warrants

On November 18, 2024, the Company entered into a securities purchase agreement with a single institutional investor (the “Investor”) for the issuance and sale of (i) 4,160,000 shares (the “Shares”) of the Company’s common stock, par value $ 0.0001 per share (the “Common Stock”) and (ii) pre-funded warrants to purchase up to 2,557,000 shares of Common Stock (the “Pre-Funded Warrants”) in a registered direct offering (the “Registered Offering”), pursuant to a shelf registration statement on Form S-3 (File No.

333-266991), which was declared effective by the SEC on August 26, 2022.

The Registered Offering was made by means of a prospectus supplement filed with the SEC on November 20, 2024 that forms a part of such registration statement.

In a concurrent private placement (the “Private Placement” and together with the Registered Offering, the “Offering”), the Company also issued unregistered warrants to purchase up to an aggregate of 6,717,000 shares of Common Stock (“Common Stock Warrants”) for $ 1.03 per share.

The Company sold the Common Stock and Pre-Funded Warrants with an accompanying Common Stock Warrant to purchase one share of Common Stock, and the Common Stock and Pre-Funded Warrants were immediately separated from the Common Stock Warrants and issued separately.

The combined purchase price for each Share and accompanying Common Stock Warrant was $ 1.03 per unit and the combined purchase price for each Pre-Funded Warrant and accompanying Common Stock Warrant was $ 1.0299 per unit.

The Common Stock Warrants have an exercise price of $ 1.03 per share, are exercisable immediately, and expire on the five-year anniversary of the date of issuance.

The Pre-Funded Warrants have an exercise price of $ 0.0001 per share, are exercisable immediately, and will not expire until exercised in full.

The gross proceeds to the Company from the Offering were approximately $ 6.9 million before deducting the placement agent’s fees and other offering expenses of $ 638,045 payable by the Company.

The Offering closed on November 20, 2024.

The Investor may not exercise any portion of the Common Stock Warrants or Pre-Funded Warrants to the extent it would beneficially own more than the limits defined in the respective Warrant Purchase Agreement.

The exercise price and number of shares of Common Stock issuable upon the exercise of the Common Stock Warrants and Pre-Funded Warrants are subject to adjustment in the event of any stock dividends and distributions, stock splits, stock combinations or stock reclassifications, as described in the respective warrant agreements.

Under certain circumstances, the warrants may be exercised on a “cashless” basis.

Both the Common Stock Warrants and Pre-Funded Warrants were classified as a component of permanent stockholders’ equity within additional paid-in-capital and were recorded at the issuance date.

The Common Stock Warrants and Pre-Funded Warrants are equity classified because they are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, permit the holders to receive a fixed number of shares of Common Stock upon exercise, are indexed to the Company’s Common Stock and meet the equity classification criteria.

In addition, the Common Stock Warrants and the Pre-Funded Warrants do not provide any guarantee of value or return.

On November 20, 2024, the Investor exercised all of the Pre-Funded Warrants by delivering a notice of exercise to the Company and paying the exercise price.

The Company issued 2,557,000 shares of registered Common Stock to the Investor on November 21, 2024.

There were no Common Stock Warrants exercised as of December 31, 2024.

Preferred Stock

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

At December 31, 2023 and December 31, 2024, the Company had 10,000,000 shares of preferred stock authorized and no such shares issued.

Net Loss Per Share

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For the year ended December 31, 2024 , for options with service-based vesting conditions, the Company recognized $ 61,250 of employee stock-based compensation expense in research and development expenses and $ 947,762 of employee stock-based compensation in general and administrative expenses in the statement of operations included in the audited financial statements.

As of December 31, 2023 , the Company had an aggregate of $ 1.8 million of unrecognized employee stock-based compensation cost for options with service-based vesting, which is expected to be recognized over a weighted average vesting period of 1.62 years.

As of December 31, 2024 , the Company had an aggregate of $ 799,393 of unrecognized employee stock-based compensation cost for options with service-based vesting, which is expected to be recognized over a weighted average vesting period of 0.72 years.

Employee Benefit Plan

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Collaborative Arrangements

The Company has certain contract research agreements with contractors that were entered during the two years ended December 31, 2023 for the (i) hybridoma development, (ii) cell line improvement, and (iii) research to support pre-clinical studies.

We own all rights to the resulting intellectual property, including the antibodies, sequences, and data.

The Company has certain contract research agreements with contractors that were entered during the two years ended December 31, 2024 for the (i) hybridoma development, (ii) cell line manufacturing productivity improvement, and (iii) research to support pre-clinical studies.

Under the hybridoma development and cell line manufacturing productivity improvement agreements, we own all rights to the resulting intellectual property, including the antibodies, sequences, and data.

For certain contractors, the Company is obligated to pay one future milestone payment upon filing and acceptance of an IND for each respective human antibody or protein from cell line;

however no additional future development or financial obligations are due under these contract research agreements as of December 31, 2023 or 2024.

For certain research collaborations agreements, the research intellectual property may be jointly owned or ownership may be based upon inventorship.

In those circumstances, the Company has obtained the exclusive option to an exclusive license for the research intellectual property.

The Company di d no t have a provision for income taxes (current or deferred tax expense) for tax years ended December 31, 2023 and 2024.

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Permanent book/tax differences

Other adjustments

Deferred adjustments & true-up

R&D credit carryforward

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Charitable contributions

Unrealized gain/loss

Depreciable assets

Total deferred tax assets

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The Federal NOLs are available to offset 80 % of taxable income.

In addition, the Company had federal research and development credits carryforwards of $ 720,165 and $ 1.3 million, as of December 31, 2022 and 2023 , respectively, to reduce future federal income taxes, if any.

In addition, the Company had federal research and development credits carryforwards of $ 1.3 million and $ 1.5 million, as of December 31, 2023 and 2024 , respectively, to reduce future federal income taxes, if any.

These carryforwards expire from 2038 through 2044 and are subject to review and possible adjustment.

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Accordingly, these expenditures were capitalized and amortized for tax purposes.

As of December 31, 2022 and 2023, the Company had $ 864,179 and $ 2.6 million, respectively, of amortization expense related to Section 174 capitalized R&E costs.

As of December 31, 2023 and 2024 , the Company had $ 2.6 million and $ 3.8 million, respectively, of amortization expense related to Section 174 capitalized R&E costs.

The Company’s tax returns remain subject to examination by tax authorities beginning with the tax year ended December 31, 2020.

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Related Party Transactions

See Note 16 for disclosure of related party transactions which occurred after the balance sheet reporting date.

On February 20, 2024, the Company completed a $ 2.5 million private placement of shares of common stock with certain of its officers and directors at a price of $ 1.40 per share.

The Company issued 1,785,718 shares of common stock in connection with the offering.

The shares have not been registered and will not be sold or transferred except as permitted under law and pursuant to registration or exemption therefrom.

As of October 31, 2024, the Company issued an aggregate of $ 6.9 million of Secured Notes, with $ 2.9 million from the Company’s officers and members of the board of directors, including $ 2.4 million purchased by Dr.

Wong, Founder and CEO, $ 220,000 purchased by Rebecca Byam, Chief Financial Officer, $ 140,000 purchased by Scott T.

Garrett, Chairman of the board of directors, $ 60,000 purchased by Gary M.

Winer, member of the board of directors, $ 25,000 purchased by Lee Flowers, Senior Vice President for Business Development, and $ 25,000 purchased by Rick S.

Greene, member of the board of directors.

Segment Reporting

HCW Biologics, Inc.

has one reportable segment:

life science.

The life science segment consists of operations focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and diseases.

The Company’s CODM is the chief executive officer .

The accounting policies of the life science segment are the same as those described in the summary of significant accounting policies.

The CODM assesses performance for the life science segment based on net loss, which is reported on the statement of operations as net loss.

The measure of segment assets is reported on the balance sheet as total assets.

The Company has not generated any product revenue from commercial product sales of internally-developed immunotherapeutic products for the treatment of diseases, as no products have been approved for commercial sale as of December 31, 2024.

The Company expects to continue to incur significant expenses and operating losses for the foreseeable future as it advances molecules through all stages of development and clinical trials and, ultimately, seek approval for commercial sale.

As such, the CODM uses cash forecast models in deciding how to invest into the life science segment.

Such cash forecast models are reviewed to assess the entity-wide operating results and performance in conjunction with monitoring the results of R&D experiments for preclinical compounds and clinical trial data for clinical-stage compounds.

The assessment of results of preclinical and clinical studies are critical to the allocation of resources by the CODM.

The tables below summarizes the significant expense categories regularly reviewed by the CODM for the years ended December 31, 2023 and 2024:

Cost of revenues

Operating expenses:

Research and development expenses

Salaries, benefits and related expenses

Manufacturing and materials

Preclinical expenses

Clinical trials

Overhead allocations

Total research and development expenses

General and administrative

Salaries, benefits and related expenses

Professional services (a)

Facilities and office expenses

Depreciation expenses

Rent and occupancy expenses

Other expenses

Total general and administrative expenses

Other segment items (b)

Total operating expenses

Net segment loss

Professional services consist primarily of audit and accounting advisory services, tax advisory services, corporate legal services related to SEC compliance, and legal fees related to patent filings.

Other segment items include the following unusual or nonrecurring items:

Arbitration legal fees

Reserve for credit losses and other expenses

Accretion of fixed bonus upon maturity of Senior Notes

Interest expense

Other income, net

Other segment items

Commitments and Contingencies

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The Company has operating leases for approximately 12,250 square feet of space located in Miramar, Florida.

The leases have a two-year term which commenced on March 1, 2022 and terminated on February 29, 2024 .

Upon the commencement of the leases, the Company used its incremental borrowing rate of 6.0 % to determine the amounts to recognize for a ROU asset and a lease liability.

There are no obligations under finance leases.

The components of the lease expense for the year ended December 31, 2023 were as follows:

For the Year Ended December 31, 2023

Operating lease cost

Supplemental cash flow information related to lease for the twelve months ended December 31, 2023 was as follows:

For the Year Ended December 31, 2023

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

Operating cash flows

Right-of-use assets obtained in exchange for lease obligations:

Operating lease

As of December 31, 2023, the supplemental balance sheet information related to leases was as follows:

As of December 31, 2023

Operating lease right-of-use assets

Operating lease liabilities, current

On February 29, 2024, the lease on the Company's current location reached the end of its term and the Company entered a new one-year lease for the same location which commenced on March 1, 2024 and terminated on February 28, 2025 .

On January 27, 2025, the Company entered a new one-year lease for the same location which commenced on March 1, 2025 and terminates on February 28, 2026 .

As a lease of 12 months or less in duration and qualifies for a short-term lease exemption under A SC 842-20-25-2.

The Company elected to account for this lease on a straight-line basis over the lease term and will not recognize a ROU asset and a lease liability as a result.

The Company has no obligations under financing leases.

As of December 31, 2024, the remaining lease payments were as follows:

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

As of December 31, 2023, we are under contract for obligations of $ 1.2 million that we expect to pay during the year ending December 31, 2024.

As of December 31, 2023, the Company had commitments to fund $ 6.9 million in construction costs, related to the buildout of its new headquarters and manufacturing facility.

As of December 31, 2024, we are under contract for obligations of $ 12,500 that we expect to pay during the year ending December 31, 2025.

As of December 31, 2024 the Company had commitments to fund $ 4.4 million for future construction costs related to the buildout of its new headquarters and manufacturing facility under the terms of a construction agreement with BE&K Building Group (“Construction Contract”) , which are not included in the balance sheets.

The Construction Contract was terminated as of December 31, 2024.

As of December 31, 2024, certain subcontractors had filed mechanics liens related to unpaid invoices issued in connection with the facility.

On December 16, 2024, BE&K sent the Company a draft, unfiled lawsuit and requested the parties discuss payment.

On January 22, 2025, the Company entered into a forbearance agreement with BE&K to allow the Company until March 31, 2025 to continue efforts to find the financing required to complete the construction and renovation of the building.

Pursuant to the forbearance agreement, the Company made an initial payment of $ 1.0 million in partial satisfaction of amounts owing to BE&K and its subcontractors.

The Company has continued to pursue financing alternatives to provide the funding needed to come current in past amounts due and complete the construction and renovation of the Property.

Project Financing

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Given the uncertainty of when or if funds will be recovered from the Lender, the Company recognized a reserve for a credit loss for $ 5.3 million as of December 31, 2023.

The Company intends to pursue all available remedies to recover these funds, including legal actions, receivership and insurance.

The Company continues to pursue all available remedies to recover these funds, including legal actions, receivership and insurance.

Legal Matters

Legal Proceedings

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.

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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.

Arbitration, Settlement and General Release

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

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

(collectively “ImmunityBio”) 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 that same date, ImmunityBio 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 April 26, 2023, the parties stipulated that ImmunityBio’s action against the Company would be consolidated with the ImmunityBio 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 is now proceeding in arbitration before JAMS, with an arbitration hearing scheduled for May 20, 2024.

In addition, on March 26, 2024, Altor/NantCell gave notice that they are filing a complaint (the “Complaint”) against the Company in the Chancery Court of the State of Delaware for the contribution of legal fees and expenses advanced to Dr.

Wong, our founder and chief executive officer, in connection with the arbitration discussed above.

Prior to the filing of the Complaint, Altor/NantCell had previously sought advancement from the Company and the Company agreed to advance 50 % of Dr.

fees going forward from December 2023.

On January 8, 2024, Altor/NantCell reserved their right to pursue contribution against the Company for 50 % of the amount Altor/NantCell sent for advancement of expenses for Dr.

In the Complaint, Altor/NantCell seek 50 % of the fees they have already advanced to Dr.

Wong, a declaration that the Company has an obligation to contribute 50 % of the advancement of Dr.

Wong’s expenses including 50 % of Dr.

Wong’s expenses incurred in connection with the arbitration through final resolution of the matter, and costs and fees in bringing this action.

On May 1, 2023, ImmunityBio filed a demand against the Company before JAMS.

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

ImmunityBio’s proceeding against the Company proceeded in Arbitration before JAMS and consolidated with the arbitration ImmunityBio initiated against Dr.

Wong (the “Arbitration”).

On March 26, 2024, ImmunityBio filed a complaint (the “Complaint”) against the Company in the Chancery Court of the State of Delaware for the contribution of legal fees and expenses advanced to Dr.

As reported in the Company’s Form 8-K filed on July 18, 2024 and described in Part I, Item 3.

– “Legal Proceedings,” as of July 13, 2024, the Company and Dr.

Wong, the Company’s Founder and Chief Executive Officer, entered into a confidential Settlement Agreement and Release (the “Settlement Agreement”) with Altor BioScience, LLC (“Altor”), NantCell, Inc.

(“NantCell”), and ImmunityBio, Inc.

(the parent of Altor and NantCell, together with Altor and NantCell, “ImmunityBio”), to resolve the previously disclosed Arbitration before JAMS brought by Altor and NantCell as well as the Complaint Altor filed against the Company in the Chancery Court of the State of Delaware for the contribution of legal fees and expenses advanced to Dr.

The Settlement Agreement includes mutual general releases by and among the parties thereto.

No party is required to make any monetary payments to any other party or person under the Settlement Agreement and each party will bear its own expenses incurred in connection with the matter.

In accordance with the provisions of the Settlement Agreement, upon completion of these procedures, the parties mutually stipulated that the Arbitration and Complaint should be dismissed.

The Arbitration and the Complaint were dismissed on December 24, 2024.

Inflationary Cost Environment, Geopolitical Risks and Other Macroeconomic Factors

5 unchanged sentences

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 filed.

In addition to the required recognition or disclosure disclosed in the footnotes herein, there were also the following subsequent events after the reporting date:

On February 29, 2024, the lease on the Company's current location reached the end of its term.

The Company entered a new one-year lease for the same location which commenced on March 1, 2024 and terminates on February 28, 2025.

As a lease of 12 months or less in duration and qualifies for a short-term lease exemption under ASC 842-20-25-2.

The Company elects to account for this lease on a straight-line basis over the lease term and will not recognize a ROU asset and a lease liability as a result.

The remaining lease payments under the new short-term lease are $ 274,823 .

On February 20, 2024, the Company completed a $ 2.5 million private placement of shares of common stock with certain of its officers and directors at a price of $ 1.40 per share.

The Company issued 1,785,718 shares of common stock in connection with the offering.

The shares have not been registered and will not be sold or transferred except as permitted under law and pursuant to registration or exemption therefrom.

The Board of Directors and Audit Committee of the Board of Directors reviewed the transaction under the policy for Related Party Transactions and determined that the transaction was in compliance with the Company's policy.

As of March 31, 2024, the Company agreed to issue $ 10.0 million in secured notes to investors, including certain officers and directors.

As the Company disclosed in the Form 8-K filed on March 19, 2025, the Company and WY Biotech agreed to amend the WY Biotech License Agreement due to a delay in WY Biotech coming to a definitive agreement with their designated contract design

development and manufacturing organization (“CDMO”).

Specifically, in order to accommodate the delay, the parties agreed to restructure the payment schedule for the $ 7.0 million upfront license fees, including delaying the initial $ 4.0 million portion thereof that was originally due on or about March 17, 2025 , to reduce the performance milestones that the Company must complete in order to earn the full $ 7.0 million nonrefundable upfront payments in June 2025, and to provide that either party may terminate the Agreement if WY Biotech is not able to definitively engage its CDMO by June 2025.

Under the amended terms, the Company expects to fulfill our performance obligations and earn the full $ 7.0 million upfront fee in June 2025.

The Panel’s determination followed a hearing on February 13, 2025, at which the Panel considered the Company’s plan to regain compliance with Listing Rules 5450(a)(1), 5450(b)(2)(A) and 5450(b)(2&3)(C), the minimum bid price (“Bid Price”), the market value of publicly held securities (“MVPHS”) and the market value of listed securities (“MVLS”) rules, respectively.

As reported in the Company’s Form 8-K filed on February 21, 2025, on February 20, 2025 , the Company entered into an Equity Purchase Agreement with Square Gate Capital Master Fund, LLC - Series 4 (“Square Gate”), pursuant to which the Company will have the right, but not the obligation, to sell to Square Gate, and Square Gate will have the obligation to purchase from the Company, up to $ 20,000,000 (the “Maximum Commitment Amount”) (with a potential increase of an additional $ 20,000,000 ) worth of the Company’s shares of Common Stock, at the Company’s sole discretion, over the next 36 months (the “Put Shares”), subject to certain conditions precedent and other limitations.

Square Gate covenanted not to cause or engage in any short sales or hedging transactions with respect to the shares of the Company’s Common Stock.

On February 20, 2025, the Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with Square Gate, pursuant to which the Company agreed to submit to the SEC an initial registration statement on Form S-1 by April 6, 2025 and to use commercially reasonable efforts to cause the Registration Statement to be declared effective by the SEC.

The Maxim Group LLC acted as the Company’s exclusive Placement Agent in connection with this transaction.

Pursuant to Equity Purchase Agreement, following the expiration of the due diligence period, the Company was obligated to pay Square Gate a commitment fee of $ 150,000 , which was required to be paid in shares of the Company’s common stock, par value $ 0.0001 per share (“Common Stock”), valued at the closing share price of the Common Stock on The Nasdaq Stock Market on February 19, 2025.

The due diligence period expired on or about March 10, 2025.

On March 12, 2025, the Company issued 384,615 shares of Common Stock to Square Gate, and such share will be restricted until such time as the Company has an effective S-1 registration statement to register these shares, as is required by the Registration Rights Agreement.

On February 20, 2025, the Company and certain holders of Senior Notes agreed on the Principal Terms for conversion of approximately $ 6.6 million of the outstanding principal of the Senior Notes into shares of the Company’s Common Stock at an exercise price of $ 0.65 per share, along with issuance of warrants to purchase shares of the Company’s Common Stock at an exercise price of $ 0.65 per share up to approximately $ 3.3 million of such shares, and the granting of rights to receive proceeds from some of the Company’s shares of Wugen common stock.

Upon conversion, the Senior Notes will be surrendered, including the right to receive their pro rata portion of a $ 3.4 million fixed bonus if they had been repaid at maturity.

The conversion terms are contingent on stockholder approval and will be subject to a vote at the Special Meeting of the Stockholders scheduled on March 31, 2025.

On February 21, 2025, the Company filed a definitive proxy statement related to matters that will be presented to stockholders for their approval at a Special Meeting of Stockholders (“Special Meeting”) to be held on March 31, 2025.

At the Special Meeting, the Company will submit to its stockholders the following three proposals, each of which is, among other things, part of the Company’s plan to regain compliance with applicable Nasdaq continued listing requirements:

(1) approval of one or more reverse splits of the Company’s Common Stock, (2) approval of the full issuance of shares of our Common Stock under an Equity line of Credit, and (3) approval of the issuance of shares of the Company’s Common Stock upon conversion of approximately $ 6.6 million of the $ 6.9 million outstanding principal of the Secured Notes pursuant to the Principal Terms for Conversion Amendment, as defined, and more fully described in Part II, Item 9B – “Other Information – Special Meeting of the Stockholders.”

After reaching an agreement earlier in January, on January 24, 2025, the Company received a $ 2.0 million insurance payment to offset its legal expenses related to fees incurred in mounting a defense for Dr.

Wong, the Company’s Founder and Chief Executive Officer, in the Arbitration between ImmunityBio and the Company and Dr.

Commitments and Contingencies - Legal Matters.

As of December 31, 2024, certain subcontractors had filed mechanics liens related to unpaid invoices issued in connection with construction of the Company’s new manufacturing facilities and upgraded research laboratories.

On January 22, 2025, the Company entered into a forbearance agreement with BE&K Building Group, the prime contractor on the project, to allow the Company until March 31, 2025 to continue efforts to find the financing required to complete the construction and renovation of the Property.

Pursuant to the forbearance agreement, the Company made an initial payment of $ 1.0 million in partial satisfaction of amounts owing to BE&K and its subcontractors.

The Company has continued to pursue financing alternatives to provide the funding needed to come current in past amounts due and complete the construction and renovation of the facility.

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .

As the Company reported in its Form 8-K filed on September 20, 2024, on September 19, 2024, the Audit Committee (the “Audit Committee”) of the Board of Directors (the “Board”) of HCW Biologics Inc.

(the “Company”) dismissed Grant Thornton LLP (“Grant Thornton”) as the Company’s auditing firm, effective immediately.

This decision was not related to any disagreements with Grant Thornton on any matter of accounting principles, financial statements disclosures, auditing scope or auditing procedure.

The Audit Committee appointed Crowe LLP (“Crowe”), as the successor independent registered public accounting firm beginning in the quarter ended September 30, 2024, and is effective immediately.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data