HCW Biologics Inc. 10-K

Item 8 Financial Statements and Supplementary Data. HCW Biologics Inc. Index to Financial Statements Years ended December 31, 2023 and 2024 Audited Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 97 Report of Independent Registered Public Accounting Firm (PCAOB ID Number 173 ) 98 Balance Sheets 99 Statements of Operations 100 Statements of Changes in Stockholders’ Equity (Deficit) 101 Statements of Cash Flows 102 96 RE PORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders HCW Biologics Inc. Opinion on the financial statements 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 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. 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 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 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 from 2019 to 2024. Miami, FL May 15, 2024 (except for Note 16, as to which the date is March 28, 2025) 97 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. 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 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 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 98 HCW Biologics Inc. Bal ance Sheets December 31, December 31, 2023 2024 ASSETS Current assets: Cash and cash equivalents $ 3,595,101 $ 4,674,572 Accounts receivable, net 1,535,757 582,201 Prepaid expenses 1,042,413 328,181 Other current assets 230,916 113,528 Total current assets 6,404,187 5,698,482 Investments 1,599,751 1,599,751 Property, plant and equipment, net 20,453,184 22,909,869 Other assets 56,538 28,476 Total assets $ 28,513,660 $ 30,236,578 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Liabilities Current liabilities: Accounts payable $ 6,167,223 $ 22,332,261 Accrued liabilities and other current liabilities 2,580,402 981,940 Short-term debt, net — 6,314,684 Total current liabilities 8,747,625 29,628,885 Debt, net 6,304,318 7,377,865 Total liabilities 15,051,943 37,006,750 Commitments and contingencies (Note 17) Stockholders’ equity (deficit): Common stock: Common, $ 0.0001 par value; 250,000,000 shares authorized and 36,025,104 shares issued at December 31, 2023; 250,000,000 shares authorized and 44,541,295 shares issued at December 31, 2024 3,603 4,454 Additional paid-in capital 83,990,437 93,781,511 Accumulated deficit ( 70,532,323 ) ( 100,556,137 ) Total stockholders’ equity (deficit) 13,461,717 ( 6,770,172 ) Total liabilities and stockholders’ equity (deficit) $ 28,513,660 $ 30,236,578 The accompanying notes are an integral part of these financial statements. 99 HCW Biologics Inc. State ments of Operations Years Ended December 31, 2023 2024 Revenues: Revenues $ 2,841,794 $ 2,566,792 Cost of revenues ( 2,281,434 ) ( 1,607,389 ) Net revenues 560,360 959,403 Operating expenses: Research and development 7,676,316 6,388,994 General and administrative 6,779,515 6,839,596 Legal expenses 6,571,689 15,910,480 Reserve for credit losses and other expenses 5,250,000 1,300,000 Total operating expenses 26,277,520 30,439,070 Loss from operations ( 25,717,160 ) ( 29,479,667 ) Interest expense ( 283,042 ) ( 631,137 ) Other income, net 1,005,925 86,990 Net loss $ ( 24,994,277 ) $ ( 30,023,814 ) Net loss per share, basic and diluted $ ( 0.70 ) $ ( 0.77 ) Weighted average shares outstanding, basic and diluted 35,929,446 38,793,018 The accompanying notes are an integral part of these financial statements. 100 HCW Biologics Inc. Statem ents of Changes in Stockholders’ Equity (Deficit) Stockholders’ Equity (Deficit) Common Stock Additional Paid-In Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity (Deficit) Balance, January 1, 2023 35,876,440 $ 3,588 $ 82,962,964 $ ( 45,538,046 ) $ 37,428,506 Issuance of Class A Common Stock upon exercise of stock options 148,664 15 23,724 — 23,739 Stock-based compensation — — 1,003,749 — 1,003,749 Net loss — — — ( 24,994,277 ) ( 24,994,277 ) Balance, December 31, 2023 36,025,104 $ 3,603 $ 83,990,437 $ ( 70,532,323 ) $ 13,461,717 Issuance of Common Stock upon exercise of stock options 13,473 1 2,443 — 2,444 Issuance of Common Stock upon equity subscription 1,785,718 178 2,499,827 — 2,500,005 Issuance of Common Stock 4,160,000 416 2,452,249 — 2,452,665 Issuance of warrants — — 4,465,589 — 4,465,589 Exercise of pre-funded warrants 2,557,000 256 — — 256 Issuance cost of common stock — — ( 226,201 ) — ( 226,201 ) Issuance costs of common stock warrants — — ( 411,844 ) — ( 411,844 ) Stock-based compensation — — 1,009,011 — 1,009,011 Net loss — — — ( 30,023,814 ) ( 30,023,814 ) Balance, December 31, 2024 44,541,295 $ 4,454 $ 93,781,511 $ ( 100,556,137 ) $ ( 6,770,172 ) The accompanying notes are an integral part of these financial statements. 101 HCW Biologics Inc. State ments of Cash Flows Years Ended December 31, 2023 2024 Cash flows from operating activities: Net loss $ ( 24,994,277 ) $ ( 30,023,814 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,135,184 1,184,389 Stock-based compensation 1,003,749 1,009,011 Unrealized (gain) on investments, net ( 248,445 ) — Realized (gain) on investments, net ( 15,625 ) — Changes in the carrying amount of right-of-use asset ( 1,671 ) ( 418 ) Reserve for credit losses 5,250,000 — Changes in operating assets and liabilities: Accounts receivable ( 1,118,061 ) 953,556 Deposit for interest reserve ( 5,250,000 ) — Prepaid expenses and other assets 432,410 831,622 Accounts payable and other liabilities 1,619,357 11,874,767 Operating lease liability ( 326,742 ) ( 56,541 ) Net cash used in operating activities ( 22,514,121 ) ( 14,227,428 ) Cash flows from investing activities: Purchases of property and equipment ( 6,202,600 ) ( 261,617 ) Proceeds for sale or maturities of short-term investments 10,000,000 — Net cash provided by (used in) investing activities 3,797,400 ( 261,617 ) Cash flows from financing activities: Proceeds from issuance of common stock 23,739 6,462,834 Proceeds from issuance of debt — 6,905,000 Proceeds from common stock warrants — 2,958,125 Issuance costs for common stock and warrants — ( 638,045 ) Debt repayment ( 38,273 ) ( 119,398 ) Net cash (used in) provided by financing activities ( 14,534 ) 15,568,516 Net (decrease) increase in cash and cash equivalents ( 18,731,255 ) 1,079,471 Cash and cash equivalents at the beginning of the period 22,326,356 3,595,101 Cash and cash equivalents at the end of the period $ 3,595,101 $ 4,674,572 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 283,042 $ 569,770 Noncash operating, investing and financing activities: Capital expenditures accrued, but not yet paid $ 4,240,593 $ 2,010,478 Purchases of property and equipment included in accounts payable and other liabilities $ — $ 829,207 Reserve for credit losses $ 5,250,000 $ — The accompanying notes are an integral part of these financial statements. 102 HCW Biologics Inc. Notes to the Financial Statements December 31, 2023 and 2024 1. Organization and Summary of Significant Accounting Policies Organization 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 believes age-related low-grade chronic inflammation, or “inflammaging,” is a significant contributing factor to several chronic diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases. The Company is located in Miramar, Florida and was incorporated in the state of Delaware in April 2018. Liquidity and Going Concern  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 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. 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 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. 103 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. Hing C. 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. See Note 18. 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. Hing C. 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. 104 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 Basis of Presentation The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Management must apply significant judgment in this process. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from estimates. 105 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. See Note 16. 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 Cash and cash equivalents consist of demand deposits at financial institutions, money market funds, and highly liquid investments with original maturities of three months or less. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement (“Topic 820”), establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between fair value measurements based on market data (observable inputs) and those based on the Company’s own assumptions (unobservable inputs). This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions. Fair value measurements are classified based on the lowest level of input that is significant to the measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values, as disclosed in Note 3, takes into account the market for the Company’s financial assets and liabilities, the associated credit risk, and other factors as required. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents, accounts receivable, and investments. The Company’s cash and cash equivalents are deposited in accounts with financial institutions that management believes are of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. For the year ended December 31, 2024, the Company recognized revenues of $ 2.6 million. 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, 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. Currently, these shares represent a 5.6 % equity ownership interest of Wugen, based on fully diluted, issued and outstanding shares as of December 31, 2024. The Company has not been able to realize any benefit from the sale of these shares, as they are not currently traded on any public market and thus have limited marketability. The Company is highly dependent on a third-party manufacturer to supply drug products for its research and development activities of its programs, including clinical and non-clinical studies. These programs could be adversely affected by a significant interruption in the supply of such drug products. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements. 106 Property, Plant and Equipment, Net Property, plant and equipment are stated at cost less accumulated depreciation. 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. Leasehold improvements are amortized on a straight-line method over the shorter of the useful life of the leasehold improvement or the term of the lease. Construction-in-progress represents property and buildings under construction and consists of construction expenditures, equipment procurement, and other direct costs attributable to the construction. Construction-in-progress is not depreciated. 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 Building 39 years Property 5 - 15 years Laboratory equipment 5 years Office equipment 3 years Furniture and fixtures 7 years Leasehold improvements 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 Long-lived assets are reviewed for indications of possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amounts to the future undiscounted cash flows attributable to these assets. An impairment loss is recognized to the extent an asset group is not recoverable, and the carrying amount exceeds the projected discounted future cash flows arising from these assets. Impairment losses, if any, are recognized in earnings. There were no impairment losses for any of the periods presented. 107 Collaborative Arrangements When the Company enters into collaboration arrangements, it assesses whether the arrangements fall within the scope of FASB issued ASC 808, Collaborative Arrangements, based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. If the payments from the collaboration partner to the Company represent consideration from a customer, such as license fees and contract research and development activities, the Company accounts for those payments within the scope of FASB issued ASC 606, Revenue from Contracts with Customers (“Topic 606”). However, if the Company concludes that the payments are not from a customer, for certain activities and associated payments, such as for certain collaborative research, development, manufacturing, and commercial activities, these payments are presented as a reduction of research and development expense or general and administrative expense, based on where the Company presents the underlying expense. Revenue Recognition The Company accounts for revenues in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”). To determine revenue recognition for arrangements that fall within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services transferred to the customer. At contract inception, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. 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. License Grants: For out-licensing arrangements that include a grant of a license to the Company’s intellectual property, the Company considers whether the license grant is distinct from the other performance obligations included in the arrangement. For licenses that are distinct, the Company recognizes revenues from nonrefundable, upfront payments and other consideration allocated to the license when the license term has begun and the Company has provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement. Milestone and Contingent Payments: At the inception of the arrangement and at each reporting date thereafter, the Company assesses whether it should include any milestone and contingent payments or other forms of variable consideration in the transaction price using the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Since milestone and contingent payments may become payable to the Company upon the initiation of a clinical study or filing for or receipt of regulatory approval, the Company reviews the relevant facts and circumstances to determine when the Company should update the transaction price, which may occur before the triggering event. When the Company updates the transaction price for milestone and contingent payments, the Company allocates the changes in the total transaction price to each performance obligation in the agreement on the same basis as the initial allocation. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment, which may result in recognizing revenue for previously satisfied performance obligations in such period. The Company’s licensees will generally pay milestones payments subsequent to achievement of the triggering event. 108 Materials Supply: The Company provides clinical and research grade materials so that licensees may develop products based on the licensed molecules. 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. Each of these transactions represents a single performance obligation that is satisfied over time. The Company recognizes revenue using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company’s progress toward completion. As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgement to determine the progress towards completion. 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 years ended December 31, 2023 and 2024. For each in process SOW, amounts are billed in the same quarter the costs are incurred. 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. Accounts Receivable, Net Accounts receivable is presented in accordance the current expected credit losses (“CECL”) impairment model as required under Topic 326. 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. As of December 31, 2023 or December 31, 2024 , the Company determined that a reserve for expected credit losses was not required. No accounts were written off during the periods presented. 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 have not been met. 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. There were no deferred revenue balances as of December 31, 2023 or 2024. Investments The Company holds a minority interest in Wugen. The underlying shares of common stock are not traded on any public market and thus have limited marketability. 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. See Note 18. Subsequent Events. 109 Operating Leases The Company determines if an arrangement is a lease at inception. Operating leases right of use (“ROU”) assets are included in Other assets, and operating liabilities are included in Accrued liabilities and other current liabilities, and Other liabilities on the balance sheets included in the audited financial statements. 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. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company has a lease agreement with lease and non-lease components, which are accounted for separately. For short-term leases with a term of one year or less, the Company uses the practical expedient and does not record an ROU asset for such short-term leases. Research and Development Expenses Research and development costs are expensed as incurred and include salaries, benefits, and other operating costs such as outside services, supplies and allocated overhead expenses. The Company may perform research and development for its own proprietary drug candidates and technology development or for certain third parties under collaborative arrangements. For its proprietary drug candidates and its own internal technology development programs, the Company invests its own funds without reimbursement from a third party. Where the Company performs research and development activities under a clinical joint development collaboration, it records the partner’s share of collaboration expenses as a reduction to research and development expense when reimbursement amounts are due under the agreement. The Company records an accrued expense for the estimated costs of its contract manufacturing activities performed by third parties if there is no invoice. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to vendors. Payments under the contracts include upfront payments and milestone payments, which depend on factors such as the achievement of the completion of certain stages of the manufacturing process. For purposes of recognizing expense, the Company assesses whether the production process is sufficiently defined to be considered the delivery of a good, as evidenced by predictive or contractually required yields in the production process, or the delivery of a service, where processes and yields are developing and less certain. If the Company considers the process to be the delivery of a good, the Company recognizes the expense when the drug product is delivered, or otherwise bears risk of loss. If the Company considers the process to be the delivery of a service, the expense is recognized based on its best estimates of the contract manufacturer’s progress towards completion of the stages in the contracts. The Company recognizes and amortizes upfront payments and accrues for liabilities based on the specific terms of each arrangement. Arrangements may provide upfront payments for certain stages of the arrangement and milestone payments for the completion of certain stages, and, accordingly, may result in advance payments for services that have not been completed or goods not delivered and liabilities for stages where the contract manufacturer is entitled to a milestone payment. Advance payments for goods or services that will be used or rendered for future research and development activities are capitalized as prepaid expenses and recognized as expense as the related goods are delivered or the related services are performed. The Company bases its estimates on the best information available at the time. However, additional information may become available to the Company which may allow it to make a more accurate estimate in future periods. In this event, the Company may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain. Such increases or decreases in cost are generally considered to be changes in estimates and will be reflected in research and development expenses in the period identified. Patent Costs Costs related to filing and pursuing patent applications are recorded as general and administrative expenses in the statement of operations and expensed as incurred, since recoverability of such expenditures is uncertain. Stock-based Compensation The Company measures its stock-based awards granted to employees and directors based on the estimated fair value of the option on the date of grant (grant date fair value) and recognizes compensation expense over the vesting period. 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. The Company has granted options with service-based and performance-based vesting conditions. 110 The Company uses the Black-Scholes option pricing model for the respective grant to determine the grant date fair value. The Black-Scholes option pricing model requires the input of highly subjective assumptions. These variables include, but are not limited to, its stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Management will continue to assess the assumptions and methodologies used to calculate the estimated grant date fair value of stock-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies and materially impact the Company’s grant date fair value determination. For stock option grants with service-based vesting, stock-based compensation expense represents the portion of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards on a straight-line basis, net of estimated forfeitures. For options that vest upon the achievement of performance milestones, the Company estimates fair value at the date of grant and compensation expense is recognized using the accelerated attribution method when it is determined that the performance criteria are probable of being met. Debt Issuance Costs Debt issuance costs are presented in the balance sheet as a direct deduction from the carrying amount of the related debt and are amortized, using the effective interest method, as interest expense over the contractual life of the related debt. Deferred Offering Costs The Company defers offering costs consisting of legal, accounting and other fees and costs directly attributable to offering costs. For offerings expected to occur within 90 days, the deferred offering costs will be offset against the proceeds received upon the completion of the offering. Deferred offering costs will be recorded under Other noncurrent assets on the balance sheet. 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. Income Taxes 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”). Topic 740 requires that the deferred tax consequences of temporary differences between the amounts recorded in the financial statements and the amounts included in the federal and state income tax returns to be recognized in the balance sheet. The Company makes judgments regarding the realizability of its deferred tax assets. The balance sheet carrying value of its deferred tax assets is based on whether the Company believes it is more likely than not that the Company will generate sufficient future taxable income to realize these deferred tax assets after consideration of all available evidence. The Company regularly reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. Generally, cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed. The Company’s tax positions may be subject to income tax audits. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in its tax provision. The Company evaluates uncertain tax positions on a regular basis. The evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of the audit, and effective settlement of audit issues. The provision for income taxes includes the effects of any accruals that the Company believes are appropriate, as well as the related net interest and penalties. The Company had no accrual for interest or penalties on its balance sheets as of December 31, 2023 and 2024 , and has no t recognized interest or penalties in its statements of operations for the years ended December 31, 2023 and 2024 . 111 Tax Credit Receivable The Company may be eligible for research and development credits for its research and development activities, in accordance with Internal Revenue Code (“I.R.C.”) § 41(c). The credits are generally available to offset income tax liabilities. As of December 31, 2023 and 2024 , the outstanding payroll tax receivables is included in Other current assets in the balance sheet. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of common shares plus the potential dilutive effects of potential dilutive securities outstanding during the period. Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is anti-dilutive. The Company’s potentially dilutive securities, which include convertible redeemable preferred stock and outstanding stock options under the 2019 Equity Incentive Plan (“2019 Plan”) and the 2021 Equity Incentive Plan (“2021 Plan”), have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position. Recently Issued Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures which requires significant disclosures about income taxes, primarily focused on the disclosure of income taxes paid and the rate reconciliation table. The new guidance will be applied prospectively and is effective for the Company for fiscal periods beginning after December 15, 2024. 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. 2. Property, Plant and Equipment, Net Property, plant and equipment, net consists of the following: At December 31, 2023 2024 Land $ 2,150,038 $ 2,150,038 Building 6,105,570 6,105,570 Property 1,767,231 1,767,231 Laboratory equipment 2,146,637 2,146,637 Office equipment 225,369 225,369 Furniture and fixtures 292,045 292,045 Leasehold improvements 354,276 354,276 Construction in progress 10,443,859 13,545,161 $ 23,485,025 $ 26,586,327 Less: Accumulated depreciation and amortization ( 3,031,841 ) ( 3,676,458 ) Property, plant and equipment, net $ 20,453,184 $ 22,909,869 112 Construction in progress of $ 13.5 million represents direct costs of construction and equipment incurred for the Company’s new research lab and manufacturing facilities, that are not ready for their intended use. Depreciation and amortization expense for the year ended December 31, 2023 was $ 794,619 , of which $ 541,679 is included in research and development expenses. 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 and 2024, the Company capitalized interest expense of $ 95,627 and $ 189,416 , respectively, which is presented within Construction in progress. 3. Fair Value of Financial Instruments The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, U.S. government backed securities with maturity dates up to one year, accounts payable and accrued liabilities, are measured at approximate fair value due to their short-term maturities. Money market funds included in cash and cash equivalents and U.S. government-backed securities are measured at fair value based on quoted prices in active markets, which are considered Level 1 inputs. 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, 2023 and 2024: At December 31, 2023: Level 1 Level 2 Level 3 Total Assets: Money market funds $ 1,626,129 $ — $ — $ 1,626,129 Total $ 1,626,129 $ — $ — $ 1,626,129 At December 31, 2024: Level 1 Level 2 Level 3 Total Assets: Money market funds $ 3,748,325 $ — $ — $ 3,748,325 Total $ 3,748,325 $ — $ — $ 3,748,325 4. Investments In December 2020, the Company entered into the Wugen License for limited rights to develop, manufacture and commercialize cellular therapy products based on two of the Company’s fusion protein molecules. As part of the consideration received for the Wugen License, the Company received shares of Wugen common stock, which were recognized at $ 1.6 million, the fair value of the securities as of December 24, 2020, the effective date for the Wugen License. Initial recognition was at fair value based on level 3 inputs, since there was no public market on which to trade these shares at the time they were received. The fair value was determined based primarily on the pricing and terms of a third-party financing completed by Wugen in 2020. 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, 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. See Note 18. Subsequent Events. 113 5. Accrued Liabilities and Other Current Liabilities 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. 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. 6. Debt, Net 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 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 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. 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. 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. Hing C. 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 ; Scott T. Garrett, the Chairman of the Company’s board of directors, who invested $ 140,000 ; Gary M. Winer, a member of our board of directors, who invested $ 60,000 ; Rick S. 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 114 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. See Note 18. 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. The loan was initially measured on a present value basis. An amortization schedule is used to determine how much of each payment is applied to interest and principal each period. The payment is first applied to interest, and the remainder reduces the principal balance. 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 2025 $ 127,623 2026 135,266 2027 6,079,440 Total Debt $ 6,342,329 Senior Secured Notes Maturities per Year 2026 $ 9,252,700 Total Debt $ 9,252,700 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. 7. 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. The term of the agreement will expire on a product-by-product and country-by-country basis, upon the later of (i) ten years from the first commercial sale of the product or (ii) the expiration of the last-to-expire valid patent claim of such product. The Company concluded that Wugen is a customer and the Wugen License is a functional license under the provisions of Topic 606. 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. 115 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. For revenue-based royalties, including milestone payments based on the level of sales, the Company will include royalties in the transaction price at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalties are allocated has been satisfied (or partially satisfied). As part of management’s evaluation of the transaction price, the Company considers numerous factors, including whether the achievement of the milestones is outside of its control, contingent upon the efforts of others or subject to scientific risks of success. If the Company concludes it is probable that a significant revenue reversal would not occur, the associated milestone payment is included in the transaction price. Milestone payments that are not within its control, such as regulatory approvals, are generally not considered probable until those milestones are achieved. 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. 8. 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. 116 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. 9. Preferred Stock At December 31, 2023 and December 31, 2024, the Company had 10,000,000 shares of preferred stock authorized and no such shares issued. 10. Net Loss Per Share The following table summarizes the computation of the basic and diluted net loss per share: Years Ended December 31, 2023 2024 Numerator: Net loss $ ( 24,994,277 ) $ ( 30,023,814 ) Denominator: Weighted-average common shares outstanding 35,929,446 38,793,018 Net loss per share, basic and diluted $ ( 0.70 ) $ ( 0.77 ) 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 December 31, 2023 2024 Common stock options 1,779,338 1,784,036 Potentially dilutive securities 1,779,338 1,784,036 11. Stock-based Compensation On June 21, 2021, the 2021 Plan was adopted by the Company’s board of directors and approved by the Company’s stockholders. As of the adoption date, the 2019 Plan was terminated. No terms were changed for grants previously awarded under the 2019 Plan, and the Company concluded a modification did not occur. Under the 2019 Plan, the Company primarily granted employees incentive stock options, which had a maximum term of ten years from the date of the grant. Generally, the incentive stock options granted under the 2019 Plan have a four-year , service-based vesting period. All of the options granted under the 2019 Plan had an exercise price equal to the fair value of a share of common stock on the date of the grant, according to Company policy. 117 The 2021 Plan permits the grant of incentive stock options, nonstatutory stock options, stock a ppreciation rights, restricted stock, restricted stock units, and stock bonus awards. The 2021 Plan initially reserved 3,444,343 shares of Common Stock, including the transfer of remaining shares reserved under the 2019 Plan. In addition, the number of shares reserved for issuance under the 2021 Plan will increase automatically on the first day of each fiscal year beginning with the 2022 fiscal year. Under the 2021 Plan, the term of each stock option must be stated in the stock award agreement. In the case of an incentive stock option, the term will be ten years from the date of grant, or such shorter term as may be provided in the stock award agreement. Moreover, in the case of an incentive stock option granted to a participant who owns stock representing more than 10 % of the total combined voting power of all classes of our stock or the stock of any of our affiliates, the term of the incentive stock option will be five years from the date of grant or such shorter term as may be provided in the stock award agreement. Under the 2021 Plan, the Company continues to have a policy to grant options with an exercise price equal to the fair value of a share of common stock, as determined by the closing price on Nasdaq on the grant date. The following summarizes the Company’s stock option activity for the years ended December 31, 2023 and 2024: Shares Weighted Weighted Average Issuable Average Remaining Aggregate under Exercise Contract Intrinsic Options Price Term Value Outstanding at December 31, 2022 1,867,458 3.11 8.5 years $ 671,878 Granted 91,000 1.88 Exercised ( 148,664 ) 0.16 Forfeited or cancelled ( 26,342 ) 1.86 Expired ( 4,114 ) 3.40 Outstanding at December 31, 2023 1,779,338 3.31 7.7 years $ 238,210 Exercisable at December 31, 2023 942,998 3.07 7.6 years $ 173,385 Outstanding at December 31, 2023 1,779,338 3.31 7.7 years $ 238,210 Granted 50,000 1.12 Exercised ( 13,473 ) 0.18 Forfeited or cancelled ( 21,901 ) 1.69 Expired ( 9,928 ) 1.91 Outstanding at December 31, 2024 1,784,036 3.3 6.8 years $ 56,352 Exercisable at December 31, 2024 1,336,886 3.18 6.7 years $ 56,352 The exercise price of the underlying stock options and the fair value of the Company’s common stock for stock options as of the reporting date. The intrinsic value of stock options exercised during the years ended December 31, 2023 and 2024 was $ 202,917 and $ 14,484 , respectively. The weighted-average fair value of options granted during the years ended December 31, 2023 and 2024 was $ 1.42 and $ 0.85 per share, respectively. For stock option grants with service-based vesting, stock-based compensation expense represents the portion of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards on a straight-line basis, net of estimated forfeitures. For options that vest upon the achievement of performance milestones, the Company estimates fair value at the date of grant and compensation expense is recognized using the accelerated attribution method when it is determined that the performance criteria are probable of being met. In determining the grant date fair value of the stock-based awards, the Company uses the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and its determination generally requires significant judgment. Fair Value of Common Stock —Since the completion of our initial public offering on July 19, 2021, the fair value of each share of common stock underlying stock option grants is based the quoted market price on the primary stock exchange on which our common stock is traded on the day the stock award or option is granted. Expected term —The expected term of stock options is determined using the “simplified” method, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data. 118 Expected volatility —The expected volatility was derived from the historical stock volatilities of comparable peer public companies within our industry. Risk-free interest rate —The risk-free interest rate is based on the U.S. Treasury Bond in effect at the time of grant for periods corresponding with the expected term. Dividend yield —The expected dividend yield is 0 % because the Company has not historically paid, and does not expect, for the foreseeable future, to pay a dividend on its common stock. For the years ended December 31, 2023 and 2024, the fair value of employee and director stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions: Years Ended December 31, 2023 2024 Expected term (years) 5.71 5.5 Expected volatility 89.90 % 92.93 % Risk-free interest rate 3.99 % 4.22 % Dividend yield — — Fair value underlying common stock $ 1.42 $ 0.85 For the year ended December 31, 2023 , for options with service-based vesting conditions, the Company recognized $ 65,941 of employee stock-based compensation expense in research and development expenses and $ 937,808 of employee stock-based compensation in general and administrative expenses in the statement of operations included in the audited financial statements. 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, 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. 12. Employee Benefit Plan The Company offers a defined contribution savings plan (the “Benefit Plan”) under Section 401 of the Internal Revenue Code for all eligible employees. The Benefit Plan allows for discretionary contributions which are limited to the maximum allowable for federal tax purposes. The total expense related to the discretionary payments made by the Company to the Benefit Plan for the years ended December 31, 2023 and 2024 was $ 184,214 and $ 160,851 , respectively. 13. Collaborative Arrangements 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. 119 14. Income Taxes 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. The following table summarizes the differences between the statutory federal income tax rate and the Company's effective income tax rate (percent data): Rate Reconciliation 2023 2024 Net Loss Before Taxes $ ( 24,994,277 ) ( 30,023,814 ) Benefit at statutory rate ( 5,248,798 ) 21.00 % ( 6,305,001 ) 21.00 % State tax benefit net of federal benefit ( 1,027,320 ) 4.11 % ( 1,303,419 ) 4.34 % Permanent book/tax differences 31,046 ( 0.12 %) 34,362 ( 0.11 %) Deferred adjustments & true-up — 0.00 % 54,325 ( 0.18 %) R&D credit carryforward ( 540,777 ) 2.16 % ( 324,035 ) 1.08 % Change in valuation allowance 6,785,849 ( 27.15 %) 7,843,768 ( 26.13 %) Income tax expense/(benefit) $ — 0.00 % $ — 0.00 % The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2024 are presented below: 2023 2024 Deferred tax assets: Federal net operating loss carryforward $ 8,403,928 13,058,574 State net operating loss carryforward 1,738,257 2,707,319 Capitalized section 174 R&D expenses 3,872,297 4,113,266 Reserve for credit losses 1,330,613 1,330,613 R&D credit 1,260,942 1,530,652 Accrued expenses 123,408 37,786 Capitalized legal fees for patents 1,235,488 2,698,931 Stock-based compensation 566,396 792,057 Charitable contributions 65 65 ROA asset 106 — Total deferred tax assets 18,531,500 26,269,263 Deferred tax Liabilities: Unrealized gain/loss $ ( 5,238 ) $ ( 5,238 ) Depreciable assets ( 127,474 ) ( 27,054 ) Deferred revenue/costs ( 14,202 ) ( 8,617 ) Total deferred tax liability ( 146,914 ) ( 40,909 ) Net deferred tax asset 18,384,586 26,228,354 Less: valuation allowance ( 18,384,586 ) ( 26,228,354 ) Net deferred tax asset (after valuation allowance) $ — $ — A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of December 31, 2024 , after consideration of all the evidence, both positive and negative, management has determined that a valuation allowance of $ 26.2 million is necessary to reduce the deferred tax asset to the amount that will more likely than not be realized. During the year ended December 31, 2024 , the valuation allowance increased by $ 7.8 million. As of December 31, 2023 and 2024 , the Company had available federal NOL carryforwards of $ 40.0 million and $ 62.2 million, respectively. The Company also has available state NOLs carryforwards of approximately $ 40.0 million and $ 62.3 million, as of December 31, 2023 and 2024 , respectively. The federal and state NOLs will carryforward indefinitely. The Federal NOLs are available to offset 80 % of taxable income. 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. 120 Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, (the Code), substantial changes in the Company’s ownership may limit the amount of net operating loss and research and development credit carryforwards that could be used annually in the future to offset taxable income. A formal Section 382 study has not been completed to determine if an ownership change has occurred and if its net operating losses are subject to an annual limitation. Such annual limitations could affect the utilization of NOL and tax credit carryforwards in the future. Effective for tax years beginning after December 31, 2021, Section 174 requires that research and experimental expenses (“R&E”) be capitalized and amortized. The amortization period is five years for domestic expenses and 15 years for foreign expenses. Since the Company has a significant amount of expenses that fall under the definition of R&E expenses, the change can materially affect the Company's tax provision. During the year ended December 31, 2023 and 2024 , the Company analyzed its expenses and determined that expenses of $ 9.8 million and $ 6.4 million, respectively, fell within the definition of Section 174. Accordingly, these expenditures were capitalized and amortized for tax purposes. 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. However, due to NOLs and credits carried forward from prior tax years, substantially all tax years may also be subject to examination. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon review by the taxing authorities based on the technical merits. The Company recognizes interest accrued and penalties for unrecognized tax benefits in its tax provision. As of December 31, 2023 and 2024 , the Company had no t recognized any expense related to uncertain tax position in its statement of operations. 15. Related Party Transactions 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. 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. Hing C. 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. 16. 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. 121 The tables below summarizes the significant expense categories regularly reviewed by the CODM for the years ended December 31, 2023 and 2024: Years Ended December 31, 2023 2024 Revenues: Revenues $ 2,841,794 $ 2,566,792 Cost of revenues ( 2,281,434 ) ( 1,607,389 ) Net revenues 560,360 959,403 Operating expenses: Research and development expenses Salaries, benefits and related expenses 2,940,979 2,797,370 Manufacturing and materials 1,280,351 1,425,734 Preclinical expenses 1,607,601 859,701 Clinical trials 1,059,731 558,215 Overhead allocations 787,654 747,974 Total research and development expenses 7,676,316 6,388,994 General and administrative Salaries, benefits and related expenses 3,216,860 2,563,936 Professional services (a) 1,257,879 1,171,885 Facilities and office expenses 634,080 654,996 Depreciation expenses 266,763 277,554 Rent and occupancy expenses 156,807 205,511 Insurance 789,678 952,200 Taxes 334,962 196,804 Other expenses 122,486 289,406 Total general and administrative expenses 6,779,515 6,312,292 Other segment items (b) 11,098,806 18,281,931 Total operating expenses 25,554,637 30,983,217 Net segment loss $ ( 24,994,277 ) $ ( 30,023,814 ) (a) 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. (b) Other segment items include the following unusual or nonrecurring items: Years Ended December 31, 2023 2024 Arbitration legal fees $ 6,571,689 $ 15,910,480 Reserve for credit losses and other expenses 5,250,000 1,300,000 Accretion of fixed bonus upon maturity of Senior Notes — 527,304 Interest expense 283,042 631,137 Other income, net ( 1,005,925 ) ( 86,990 ) Other segment items $ 11,098,806 $ 18,281,931 122 17. Commitments and Contingencies Operating Leases The Company has operating leases for approximately 12,250 square feet of space located in Miramar, Florida. 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: 2025 $ 293,844 2026 $ 49,349 Total future minimum lease payments $ 343,193 For the years ended December 31, 2023 and 2024 , rent expense recognized by the Company was $ 169,700 and $ 196,000 , respectively, of which $ 88,800 and $ 101,300 , respectively, is included in Research and development in the statements of operations included in the audited financial statements. Contractual Commitments The Company has commitments with a third-party manufacturing organization to supply us with clinical grade materials. 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 On January 10, 2024, the Company exercised its right to terminate its credit agreement (the “Credit Agreement”), dated April 21, 2023, with Prime Capital Ventures, LLC (the “Lender”), as permitted under the terms of the Credit Agreement. The termination followed repeated delays in funding and related concerns. There are no borrowings under the Credit Agreement, and the Company will not incur any penalties as a result of such termination under the terms of the Agreement. Upon exercising its right to terminate the Agreement, the Company was entitled to receive the return of the $ 5.3 million that the Company placed on deposit to establish an interest reserve account with the Lender. Subsequent to the year ended December 31, 2023, the Lender defaulted on its obligation to return the interest reserve deposit. 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 continues to pursue all available remedies to recover these funds, including legal actions, receivership and insurance. 123 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. 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. Arbitration, Settlement and General Release On December 23, 2022, Altor BioScience, LLC and NantCell, Inc. (collectively “ImmunityBio”) initiated an arbitration against Dr. Hing C. 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, 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. Wong. On April 27, 2023, the Court approved the parties’ stipulation and ordered the parties to Arbitration. 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. Wong. 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. Hing C. 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. Wong. 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 The Company’s 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 in the Middle East, the conflict between Russia and Ukraine, China-Taiwan relations, financial market volatility and currency movements. The Company has been impacted by inflation, and may continue to be so, when procuring materials required for the buildout of our new headquarters, the costs for recruiting and retaining employees and other employee-related costs. Management employs a number of strategies to effectively navigate these issues, including product redesign, alternate sourcing, and establishing contingencies in budgeting and timelines. Future developments in these and other areas present material uncertainty and risk with respect to the Company's clinical trials, IND-enabling activities, buildout of the new headquarters, as well as the Company's financial condition and results of operations. The extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable. 18. Subsequent Events 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: 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 124 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. 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. 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 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 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 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. Hing C. Wong, the Company’s Founder and Chief Executive Officer, in the Arbitration between ImmunityBio and the Company and Dr. Wong. See Note 17. Commitments and Contingencies - Legal Matters. 125 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. 126 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.