Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed interim financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and related notes and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2023 included in the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 28, 2025 (the “Annual Report”). Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “HCW Biologics,” “HCWB”, “we,” “us” and “our” refer to HCW Biologics Inc.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success of our clinical trials, plans and objectives of management for future operations, adequacy of our cash resources and working capital, future economic conditions or performance, and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A -“Risk Factors,” in this Quarterly Report on Form 10-Q and in other filings we make with the SEC from time to time. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. These forward-looking statements speak only as of the date hereof. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
HCW Biologics Inc. (“HCWB” or the “Company”) is a clinical-stage biopharmaceutical company developing proprietary immunotherapies to treat diseases promoted by chronic inflammation, especially age-related and senescence-associated diseases. Our immunotherapeutics represent a new class of drug that we believe has the potential to fundamentally change the treatment of cancer and many other diseases and conditions that are promoted by chronic inflammation — and in doing so, improve patients’ quality of life and possibly extend longevity. While chronic inflammation is possible at any age, it is more common as we age. In this case, the condition is known as inflammaging. The induction and retention of low-grade inflammation in an aging human body is mainly the result of the accumulation of non-proliferative but metabolically active senescent cells, which can also be caused by persistent activation of immune cells.
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Chronic inflammation, including inflammaging, is believed to be a significant contributing factor to the cause for senescence-associated diseases and conditions that diminish health span, including many types of cancer, autoimmune diseases, and neurodegenerative diseases, as well as indications that impact quality-of-life that are not life-threatening. Senescence is a physiologic process important in promoting wound healing, tissue homeostasis, regeneration, embryogenesis, fibrosis regulation, and tumorigenesis suppression. However, accumulation of senescent cells with Senescence-Associated Phenotype (“SASP”) proinflammatory factors has been implicated as a major source of chronic sterile inflammation leading to many aging-related pathologies. SASP factors, including proinflammatory cytokines, chemokines, and proteinases, drive an inflammation cycle. Senescence is considered a stress response and can be induced by a wide range of intrinsic and extrinsic insults. Over time, these insults cause normal tissue cells to enter a senescent state of irreversible growth arrest accompanied by the release of SASP factors. The inflammation cycle promoted by SASP factors also activates immune cells. Similar to senescent cells, prolonged activation of immune cells promote the release of highly proinflammatory cytokines. Unresolved activation of immune cells leads to chronic low-grade inflammation, which perpetuates this cycle.
Studies have shown that strategies to reduce or eliminate senescent cells can delay, prevent, and improve age-related dysfunctions, including cancer. Unfortunately, to date, there has been limited clinical success in targeting senescent cell accumulation or aberrant inflammasome activity using small molecule-based approaches. Preclinical research and preliminary results from first-in-human clinical trials indicate that our immunotherapeutic approach may achieve success for cancer indications, and many other age-related diseases and conditions. We believe our lead product candidates represent a novel immunotherapeutic approach and a clinically promising new class of senotherapeutic drugs for the treatment of age-related diseases.
The Company has developed two different drug discovery and development platforms, our legacy TOBI (Tissue factOr-Based fusIon) platform and our newly developed targeted platform technology – the T-cell Receptor β Chain constant region (“TRBC”) platform:
• The TOBI platform is designed to engineer multi-functional fusion protein molecules and protein complexes. It employs a Tissue Factor (“TF”) scaffold that can be packaged with multiple protein targets, including cytokines, chemokines, ligands, receptors, and single-chain antibodies.
• The Company invented its second-generation platform, the TRBC platform, to create novel immunotherapeutics designed to treat diseases, including cancer, as well as improve quality-of-life conditions. The immunotherapeutics created using the TRBC platform include multi-specific cytokines, targeted second-generation immune checkpoint inhibitors, and immune-cell engagers, which have the capabilities to activate subsets of immune cells that specifically target cancerous or infected cells.
As of July 13, 2024, the Company, Dr. Wong, Altor BioScience, LLC, NantCell, Inc. and ImmunityBio, Inc. (collectively, Altor BioScience, LLC, NantCell, Inc. and ImmunityBio Inc. will be referred to herein as “ImmunityBio”), entered into a Settlement Agreement that is described in Part I, Item 3. – “Legal Proceedings” below. The Settlement Agreement eliminated the uncertainty of the outcome of the previously disclosed Arbitration proceedings and provided clarity for the future direction and emphasis of our clinical development strategy. The settlement involved intellectual property the Company developed based on our proprietary TOBI TM drug discovery platform and its unique Tissue-Factor scaffold used to create protein-fusion molecules.
With clarity on ownership of intellectual property, the Company reassessed its clinical development pipeline and the future direction of our Company. Our expertise is in immunotherapeutic treatments and our clinical development pipeline will remain so. Our focus continues to be to develop protein-based immunotherapies that are administered by subcutaneous injection. We remain focused on diseases promoted by chronic inflammation driven by senescence, including cancer, especially age-related diseases. The diseases we will target will have no curative FDA approved treatments. Finally, we have selected programs that include life-threatening diseases, such as pancreatic and ovarian cancer, as well as “quality-of-life” indications, such as alopecia areata and senile lentigo. HCW9302 will remain one of our lead product candidates. Future drug discovery and new drug development will be based on TRBC Molecules. There are several potential candidates in each class of TRBC Molecules from which the Company will select lead molecules for each program. Part of this selection will be to determine which TRBC molecules will be developed in-house and which are more appropriate to develop through business development transactions, such as out-licensing agreements.
Our clinical development program is based on a few select lead product candidates which will be evaluated in Company-sponsored clinical trials in autoimmune disorders, solid tumors and quality-of-life conditions. We have a large portfolio of non-core programs and assets and, for these, we anticipate that clinical development will be conducted through licensing agreements and other business development transactions.
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HCWB has an experienced team led by Dr. Hing C. Wong, our Founder and CEO, who discovered and developed the immunotherapeutic Anktiva® (also known as ALT-803, an IL-15 agonist receptor) through pivotal trials. This blockbuster immunotherapeutic treatment for cancer was sold to ImmunityBio, Inc. in 2017 in a $1.0 billion acquisition. Anktiva® was approved by the U.S. Food and Drug Administration (“FDA”) for a bladder cancer indication in 2024.
Business Highlights
Financing
Our financing strategy includes capital raising through the issuance of securities as well as business development transactions, especially out-licensing certain rights outside of our focus areas. The Company continues to evaluate its portfolio to identify compounds which may be good candidates for licensing or other collaborations, where it will be to our advantage to leverage the expertise and financial strength of a partner in the development of a compound or market.
Amendment of WY Biotech License Agreement
As we reported in a Form 8-K filed on March 19, 2025, the Company and WY Biotech Co., Ltd. (“WY Biotech”) agreed to amend their License, Research and Co-Development Agreement (“Agreement”) dated November 17, 2024, due to a delay in WY Biotech coming to a definitive agreement with their designated contract development and manufacturing organization (“CDMO”). Under the amended terms, the Company expects to receive the license fee of $7.0 million in June 2025. The Company delivered a report that characterizes the licensed molecule on May 13, 2025. WY Biotech has 30-days to accept this report and elect to continue the Agreement.
There were no other material changes to the Agreement, which involves the grant to WY Biotech of an exclusive, world-wide license to use and apply HCW11-006, a preclinical molecule, 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.
$5.0 Million Equity Offering and Restructuring Existing Warrants
On May 15, 2025, the Company closed on an equity offering with gross proceeds of $5.0 million through a follow-on offering of an aggregate of 671,140 units at a purchase price of $7.45 per unit priced at-the-market under Nasdaq rules. Each unit consisted of one share of Common Stock or one Pre-Funded Warrants to purchase one share of Common Stock, with two warrants, each of which can be exercised for one share of Common Stock for $7.45 per share. In addition, the Company has entered into a privately negotiated agreement with the holder of certain existing outstanding warrants to purchase up to 167,925 shares of common stock (the “Existing Warrants”) to reduce the exercise price of such Existing Warrants from $41.20 per share to $7.45 per share.
Project to Create Manufacturing Facility
The Company remains committed to establishing some control over our clinical supply of materials, and the supply of licensed molecules for our licensees. We have retained manufacturing rights for the licensed molecules under our license agreements. With the threat of pharmaceutical tariffs hanging over the biopharmaceutical industry, a growing list of major drug makers are bolstering their manufacturing footprints in the U.S.
On January 22, 2025, the Company entered a forbearance agreement with BE&K Building Group (“BE&K”) and certain subcontractors filed mechanics liens related to unpaid invoices issued in connection with construction of the Company’s new manufacturing facilities and upgraded research laboratories. The forbearance agreement terminated on March 31, 2025, and the Company did not have financing in place to satisfy the liens. On April 17, 2025, the Company received a summons and a copy of a complaint filed by BE&K in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida (the “BE&K Complaint”). Subsequent to this filing date, certain other claims and cross claims were filed. See Part II, Item 1. – “Legal Proceedings.” The Company intends to respond in a timely fashion to the BE&K claims and cross-claims. Cogent Bank has not joined in these legal proceedings.
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.
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Compliance with Nasdaq Listing Rules
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 and a clarifying amendment the Company received on April 8, 2025, 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 16, 2025.
On March 31, 2025, at a Special Meeting of the Stockholders (the “Special Meeting”), stockholders approved three important elements of the Company’s compliance plan, including:
• Approval of a Reverse Split of the Company’s common stock, which the Company effected on April 11, 2025 with a one-for-forty (1::40) ratio. As a result, Company regained compliance with the Nasdaq Listing Rule for Bid Price by the required date of April 28, 2025.
• Approval of the issuance of up to $40.0 million of our Common Stock under the ELOC Purchase Agreement. As a result, the Company filed a registration statement to register the shares under the ELOC Purchase Agreement, which the SEC declared effective on April 16, 2025. The Company has not issued any shares under the ELOC Purchase Agreement as of the date of issuance of this Quarterly Report.
• Approval of the Principal Terms for the conversion of at least $6.6 million of Secured Notes. The Company completed the conversion transaction on May 7, 2025.
On April 17, 2025, the Company formally applied to move to the Capital Markets tier, thus we will refer to the Listing Rules for that tier for the compliance with all Listing Rules.
We anticipate recognition of $7.0 million in revenues as a result of the upfront license fee from WY Biotech in June 2025. On May 13, 2025, the Company delivered the technology transfer report to WY Biotech. WY Biotech has 30 days to accept the report and elect to continue with the license agreement. Since November 2024 when we signed the WY Biotech License, the data generated from our internal research and external collaborators indicate that HCW-11-006 exhibits an unusual capacity of stimulating and expanding murine and human immune cells in vitro against tumor cells. We intend to co-author a pivotal publication that will be submitted to a top-tier, peer-reviewed scientific journal in the second quarter of 2025.
On May 13, 2025, the Company received a letter from Nasdaq confirming that the Company has regained compliance with the Bid Price Rule, the public float requirement in Listing Rule 5550(a)(4) and the MVPHS Rule, as required by the Nasdaq Panel decision of April 8, 2025, as amended. The Company remains subject to the remaining terms of the Panel’s April 8, 2025, decision to provide an extension to the compliance period for other Listing Rules. The Company achieved compliance with the Bid Price rule on April 28, 2025, as required by the Nasdaq Panel. As of the date of issuance of this Quarterly Report, the Company continues to be in compliance with the Bid Price rule.
Several elements of our plan to regain compliance with the MVLS rule have been accomplished through the following transactions which have increased or have the potential to increase the Company’s balance of stockholders’ equity to reach the minimum of $2.5 million:
• An increase of $2.0 million recognized on January 14, 2025, when the Company received a $2.0 million insurance reimbursement for legal fees incurred for the defense of Dr. Hing C. Wong, the Company’s Founder and Chief Executive Officer, in connection with the Arbitration.
• The Company may issue shares of Common Stock up to $40.0 million through a Equity Purchase Agreement. The Company has not issued any shares under the Equity Purchase Agreement as of the date of issuance of this Quarterly Report.
• An net increase of $5.8 million resulting from the conversion of the Secured Notes. The conversion was completed on May 7, 2025.
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• The Company closed an equity financing with gross proceeds of $5.0 million on May 15, 2025. Thereafter, the Convertible Bridge Notes with outstanding principal of $270,000 will convert into common stock at a price of $7.45 per share, according to the terms of the agreement.
Clinical Development
HCW9302
On January 28, 2025, the Company received clearance of its IND from the FDA to initiate a first-in-human Phase 1 dose escalation clinical trial to evaluate one of its lead drug candidates, HCW9302, in patients with moderate-to-severe alopecia areata, a common autoimmune disease in humans that currently has no curative FDA approved treatments.
The Company intends to include up to five clinical sites in this study. Negotiations with three clinical sites are currently underway, and the Company estimates at least one site may open and initiate the study early in the third quarter of 2025.
HCW9302 is an injectable, first-in-kind interleukin 2 (“IL-2”) fusion protein complex constructed using the Company’s proprietary TOBI platform technology. Its mechanism of action involves binding to IL-2αβγ receptors predominantly expressed on regulatory T (“T reg ”) cells, thereby activating and expanding T reg cells that can suppress unwanted immune and inflammatory responses. The FDA recently cleared us to initiate a Phase 1 clinical study using HCW9302 to treat alopecia areata. Our strategy is to expand to other indications upon successful completion of the Phase 1 study.
HCW9302 is a fusion protein molecule that contains two IL-2 domains linked by an extracellular tissue factor domain. IL-2 signaling is essential for homeostasis of T reg cells. Unfortunately, recombinant IL-2 has an unfavorable pharmacokinetic profile and induces cytokine release syndrome limiting its therapeutic use. HCW9302 provides a potential solution to this problem. It is designed to have the therapeutic advantages of IL-2 while being well tolerated. In our preclinical and non-human primate studies, we found that HCW9302 exhibited a longer serum half-life with an approximately 1,000-fold higher affinity for the IL2Rα than IL-2. In addition, preclinical studies have shown HCW9302 can be administered at a dosing range that expanded and activated T reg cells but not CD4 + effector T cells. CD4 + effector T cells (also known as helper T cells) are crucial for immune responses, but under certain conditions, their excessive activation can lead to negative effects like inflammation, tissue damage, and autoimmune reactions, particularly when they become dysregulated and target self-antigens, contributing to conditions like multiple sclerosis, rheumatoid arthritis, and inflammatory bowel disease.
HCW9206
The Company recently announced results of studies of our proprietary compound, HCW9206, and its availability for commercialization. Given the results of the studies, HCW9201 has the potential to provide a solution for key challenges facing CAR-T therapies. While CAR-T therapy is a revolutionary technology that continues to play a pivotal role in treatment of cancer, autoimmune diseases, and age-related diseases, it faces challenges. In the result of the studies shared by the Company, we showed that HCW9206 has the potential to significantly reduce costs and improve clinical efficacy of engineered effector T cells. This data was first shared at the 2025 Annual Meeting of American Association of Immunologists.
HCW9206 is a proprietary fusion protein shown to be highly effective at generating chimeric T-cell receptor - T cells (CAR-Ts) for immunotherapy. HCW9206 is a novel class of immunotherapeutic drug that enables the combination of multiple immune stimulatory cytokines within a single molecule. The activity of HCW9206 was significantly better than that of standard methods employing anti-CD3/anti-CD28 and IL-2 regents for CAR lentiviral transduction and subsequent expansion of human CAR-Ts.
The Company’s research collaborator Dr. Harris Goldstein’s Lab at Albert Einstein College of Medicine, Bronx, New York, recently presented findings of these studies at the 2025 Annual Meeting of American Association of Immunologists (AAI 2025), Honolulu, HI. The poster presentation showed that HCW9206 is not only a better reagent than the current anti-CD3/anti-CD28/IL-2 method for CAR-T viral transduction, it also effectively expanded stem cell-like memory T cells (T scm ) carrying the CAR constructs. It is well known that the T scm subset of T cells exhibits better targeted cell killing and persistence than other subsets of T cells, including memory T cells, following adoptive transfer into patients. In experimental humanized models in mice, adoptively transferred HCW9206-generated HIV- and CD19-specific CAR-T displayed more potency in the suppression of HIV-1 and leukemic cells with enhanced persistence, respectively, when compared with the same CAR-Ts generated with the standard methods. The results of these studies represent an alternative novel strategy for CAR-T cell production with the advantage of generating a large population of CAR-Ts with a T scm cell phenotype, which should enhance the persistence of CAR-Ts in patients. This strategy will likely improve long-term survival
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of disease-specific CAR-Ts following adoptive transfer and enable sustained suppression of malignancies, chronic infections and autoimmune diseases.
The GMP master cell bank of HCW9206 and its manufacturing process has been established, and its drug master file as an ex vivo reagent has been filed with the US Food and Drug Administration. The Company is now seeking commercial partnerships for HCW9206 regent sale and/or integration into CAR-T based manufacturing processes.
Trends and Uncertainties
Inflationary Cost Environment, Banking Crisis, Supply Chain Disruption and the Macroeconomic Environment
The Company’s operations have been affected by many headwinds, including inflationary pressures, including those brought about by tariffs and other economic policies, high 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 as well as U.S. trade policies, financial market volatility and currency movements. These headwinds, specifically the supply chain disruptions, have adversely impacted our ability to procure certain services and materials, which in some cases impacts the cost and timing of clinical trials and IND-enabling activities. In addition, we have been impacted by inflation when procuring materials required for the buildout of our new manufacturing and laboratory facilities, the costs for recruiting and retaining employees and other employee-related costs. Further, rising interest rates would also increase borrowing costs to the extent that the Company takes on any additional debt. The Company uses a number of strategies to effectively navigate these issues, including product redesign, alternate sourcing, and establishing contingencies in budgeting and timelines. However, the extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable.
For discussion of risks related to potential impacts of supply chain, inflation, geopolitical and macroeconomic challenges on our operations, business results and financial condition, see Item 1A. “Risk Factors” in our Annual Report.
Components of our Results of Operation
Revenues
We have no products approved for commercial sale and have not generated any revenue from commercial product sales of internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases. The principal source of our revenues to date have been generated from our Wugen License and Master Services Agreement (the “MSA”) with Wugen. See Note 1 to our condensed interim financial statements included elsewhere in this Quarterly Report for these definitions and more information.
We derive revenue from a license agreement granting rights to Wugen to further develop and commercialize products based on two of our internally-developed molecules. Consideration under our contract included a nonrefundable upfront payment, development, regulatory and commercial milestones, and royalties based on net sales of approved products. Additionally, HCW Biologics retained manufacturing rights and has agreed to provide Wugen with clinical and research grade materials for clinical development and commercialization of licensed products under separate agreements. We assessed which activities in the Wugen License should be considered distinct performance obligations that should be accounted for separately. We develop assumptions that require judgement to determine whether the license to our intellectual property is distinct from the research and development services or participation in activities under the Wugen License.
Performance obligations relating to the granting a license and delivery of licensed product and R&D know-how were satisfied when transferred upon the execution of the Wugen License on December 24, 2020. The Company recognized revenue for the related consideration at a point in time. The revenue recognized from a transaction to supply clinical and research grade materials entered into under the MSA and covered by a Statement of Work (“SOW”), represents one performance obligation that is satisfied over time. The Company recognizes revenue generated for supply of material for clinical development using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company’s progress toward completion.
Operating Expenses
Our operating expenses are reported as research and development expenses and general and administrative expenses.
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Research and Development
Our research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
• Employee-related expenses, including salaries, benefits, and stock-based compensation expense;
• Expenses related to manufacturing and materials, consisting primarily of expenses incurred in connection with CMOs, which produce cGMP materials for clinical trials on our behalf;
• Expenses associated with preclinical activities, including research and development and other IND-enabling activities;
• Expenses incurred in connection with clinical trials; and
• Other expenses, such as facilities-related expenses, direct depreciation costs for capitalized scientific equipment, and allocation for overhead.
We expense research and development costs as they are incurred. Costs for contract manufacturing are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the agreement, and the pattern of payments for goods and services will change depending on the material. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.
We expect research and development expenses to increase substantially for the foreseeable future as we continue the development of our product candidates. We cannot reasonably determine the nature, timing, and costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. Product candidates in later stages of development generally have higher development costs than those in earlier stages. See “Risk Factors -- Risks Related to the Development and Clinical Testing of Our Product Candidates,” in our Annual Report for a discussion of some of the risks and uncertainties associated with the development and commercialization of our product candidates. Any changes in the outcome of any of these risks and uncertainties with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries, related benefits, and stock-based compensation expense for employees in the executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include third-party costs such as insurance costs, fees for professional services, such as legal fees in the ordinary course of business, accounting advisors, auditing and tax services, facilities administrative costs, and other expenses.
We expect general and administrative expenses incurred in the normal course of business for other purposes, such as costs for recruitment and retention of personnel, service fees for consultants, advisors and accountants, as well as costs to comply with government regulations, corporate governance, internal control over financial reporting, insurance and other requirements for a public company, to continue to increase for the foreseeable future as we build our clinical programs.
Legal Expenses
Legal expenses include fees incurred by the Company in its own defense and that of Dr. Hing C. Wong, our Founder and Chief Executive Officer, with a legal matter brought against the Company and Dr. Wong by a former employer of Dr. Wong.
During the period ended December 31, 2022, Altor/NantCell initiated legal proceedings against Dr. Wong and the Company. On April 26, 2023, the parties stipulated that Altor/NantCell’s action against the Company would be consolidated with the Altor/NantCell arbitration demand against Dr. Wong. On April 27, 2023, the U.S. District Court for the Southern District of Florida (the “Court”) with jurisdiction over the lawsuit against the Company approved the parties’ stipulation and ordered the parties to arbitration. On May 1, 2023, Altor/NantCell filed a demand against the Company before JAMS. On May 3, 2023, Altor/NantCell dismissed the federal court action without prejudice and the Court ordered the case dismissed without prejudice and closed the case. Proceedings against the Company and Dr. Wong were consolidated in the arbitration before JAMS (the “Arbitration”). On March 26,
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2024, Altor/NantCell 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. The Arbitration hearing was held on May 20, 2024 to May 31, 2024, after which the parties entered into settlement negotiations.
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 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 a 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. The Arbitration and related Complaint were dismissed as of December 31, 2024.
Interest Expense
Interest expense includes interest paid on debt. This includes interest due on the Cogent Bank loan and Secured Notes issued by the Company.
Other Income, Net
Other income, net consists of interest earned on our cash, cash equivalents, unrealized gains and losses related to our investments in U.S. government-backed securities, and other income and expenses related to non-operating activities.
Results of Operations
Three Months Ended
March 31,
2024
2025
Revenues:
Revenues
$
1,126,712
$
5,065
Cost of revenues
(511,965
)
(4,052
)
Net revenues
614,747
1,013
Operating expenses:
Research and development
2,123,284
1,478,711
General and administrative
1,566,092
2,227,597
Legal expenses, net
4,419,034
(1,739,493
)
Total operating expenses
8,108,410
1,966,815
Loss from operations
(7,493,663
)
(1,965,802
)
Interest expense
—
(255,822
)
Other income, net
25,602
24,749
Net loss
$
(7,468,061
)
$
(2,196,875
)
Comparison of the Three Months ended March 31, 2024 and March 31, 2025
Revenues
The Company recognized revenues of $1.1 million and $5,065 for the three months ended March 31, 2024 and 2025, respectively. Revenues were derived exclusively from the sale of licensed molecules to Wugen. There were no deferred revenues as of March 31, 2024 or March 31, 2025.
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended March 31, 2024 and March 31, 2025:
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Three Months Ended
March 31,
2024
2025
$ Change
% Change
Salaries, benefits and related expenses
$
779,747
$
701,106
$
(78,641
)
(10
)%
Manufacturing and materials
576,301
262,798
(313,503
)
(54
)%
Preclinical expenses
285,091
177,111
(107,980
)
(38
)%
Clinical trials
266,640
187,820
(78,820
)
(30
)%
Other expenses
215,505
149,876
(65,629
)
(30
)%
Total research and development expenses
$
2,123,284
$
1,478,711
$
(644,573
)
(30
)%
Research and development expenses decreased by $644,573, or 30%, from $2.1 million for the three months ended March 31, 2024 to $1.5 million for the three months ended March 31, 2025. The decrease was primarily due to a decline in manufacturing and materials and preclinical expenses, but expenses in all categories declined.
Salaries, benefits, and related expenses decreased by $78,641, or 10%, from $779,747 for the three months ended March 31, 2024 to $701,106 for the three months ended March 31, 2025. This decrease was primarily attributable to decreases of $42,600 in salaries and $36,546 in employee benefits. Lower salaries can be attributed to maintaining the reduced headcount that resulted from a cost reduction program the Company put in place in the second quarter of 2024.
Manufacturing and materials expense decreased by $313,503, or 54%, from $576,301 for the three months ended March 31, 2024 to $262,798 for the three months ended March 31, 2025. In the three months ended March 31, 2024, costs were primarily attributable to the costs of production and materials related to manufacturing the high producing cell-line of HCW9101, which was substantially wrapped up prior to the three months ended March 31, 2025.
Expenses associated with preclinical activities decreased by $107,980, or 38%, from $285,091 for the three months ended March 31, 2024 to $177,111 for the three months ended March 31, 2025. In the three months ended March 31, 2024, toxicology and other IND-enabling studies were winding down, as we prepare to submit the IND application in the fourth quarter of 2024. The Company received clearance of its IND from FDA in the three months ended March 31, 2025.
Expenses associated with clinical activities decreased by $78,820, or 30%, from $266,640 for the three months ended March 31, 2024 to $187,820 for the three months ended March 31, 2025. In the three months ended March 31, 2024, the Company completed two clinical studies evaluating HCW9218 in cancer indications. The decline in expenses mainly consists of decreases in $57,656 in patient-related fees and $26,137 in collaborations, sponsorships and other professional fees, partially offset by an increase of $11,739 in other clinical trial costs for data management and similar activities.
Other expenses, which include overhead allocations, decreased by $65,629, or 30%, from $215,505 for the three months ended March 31, 2024 to $149,876 for the three months ended March 31, 2025. This decrease is primarily attributable to a $46,721 decrease allocation of depreciation for scientific equipment, a $16,824 decrease in expenses for equipment and supplies and a $6,437 decrease in travel and travel-related expenses, partially offset by a $4,351 increase in allocations for rent and utilities.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended March 31, 2024 and March 31, 2025:
Three Months Ended
March 31,
2024
2025
$ Change
% Change
Salaries, benefits and related expenses
$
521,610
$
788,490
$
266,880
51
%
Professional services
353,806
454,369
100,563
28
%
Facilities and office expenses
203,599
94,330
(109,269
)
(54
)%
Accretion of fixed bonus upon maturity of Senior Notes, net
—
273,059
273,059
NM
Depreciation
67,081
61,237
(5,844
)
(9
)%
Rent and occupancy expense
42,716
49,750
7,034
16
%
Other expenses
377,280
506,362
129,082
34
%
Total general and administrative expenses
$
1,566,092
$
2,227,597
$
661,505
42
%
27
General and administrative expenses increased $661,505, or 42%, from $1.6 million for the three months ended March 31, 2024 to $2.2 million for the three months ended March 31, 2025. The increase is primarily due to increases in salaries and benefits and the accretion expense related to the fixed bonus payment due to the holders of the Secured Notes, in the event they are repaid on the Maturity Date.
Salaries, benefits and related expenses increased by $226,880, or 51%, from $521,610 for the three months ended March 31, 2024 to $788,490 for the three months ended March 31, 2025. The increase can be explained by a contra-expense recognized in the three months ended March 31, 2024, as a result of a waiver of $293,159 for performance-based bonuses due to officers of the Company that were earned in 2022 and deferred until the time they were waived. Excluding this unusual adjustment, in the three months ended March 31, 2025, salaries, benefits and related expenses decreased by $26,279, or 3%, from $814,769 for the three months ended March 31, 2024 to $788,490 for the three months ended March 31, 2025. Decreases of $45,625 in salaries and related payroll expenses and $10,707 in employee benefits, were partially offset by an increase of $30,053 in stock-based compensation expenses.
Professional services increased by $100,563, or 28%, from $353,806 for the three months ended March 31, 2024 to $454,369 for the three months ended March 31, 2025. Professional services include corporate legal services, legal services for procuring patents, as well as other professional services, such as auditing and tax advisory fees. The increase is primarily attributable to a $146,281 increase in fees incurred for professional services such as technical accounting advisors, consultants to advise the Company on regaining compliance with all Nasdaq listing rules, audit fees, and tax advisory fees, partially offset by a decrease of $53,506 in legal services related to patents. As a result of the Settlement Agreement, the Company agreed to maintain certain patent protection for rights retained under the Settlement Agreement as well as new patents related to the TRBC drug discovery and development platform and compounds created using this platform.
Facilities and office expenses decreased by $109,269, or 54%, from $203,599 for the three months ended March 31, 2024 to $94,330 for the three months ended March 31, 2025, primarily due to decreases of $94,753 in fees paid for licenses, software and IT services and $14,516 in expenses for utilities and other services, such as electricity and waste disposal.
Other expenses increased by $129, 082, or 34%, from $377,280 for the three months ended March 31, 2024 to $506,362 for the three months ended March 31, 2025. The increase is primarily attributable a $116,999 increase in insurance-related costs.
Legal Expenses
In the three months ended March 31, 2024, the Company incurred $4.4 million in legal expenses in connection with the Arbitration. The Company incurred legal expenses on its own behalf and on behalf of Dr. Wong in preparation for the hearing, which took place in May 2024. The Arbitration was settled on July 13, 2024, and the Arbitration and related Complaint were dismissed with prejudice as of December 31, 2024.
In the three months ended March 31, 2025, the Company incurred $260,507 of legal expenses related to the Arbitration. We anticipate we will continue to incur expenses for the costs of remaining in compliance with the terms of the Settlement Agreement.
Interest Expense
On August 15, 2022, we entered into a loan and security agreement with Cogent Bank to partially fund our purchase of the property we acquired on that same date (the “2022 Loan”). We borrowed $6.5 million under this agreement. Amounts outstanding on the term loan accrue interest at a rate per annum equal to 5.75%. We were obligated to make interest-only payments on this loan from September 2022 through August 2023 and principal and interest payments in 48 equal monthly installments, based on a 25-year maturity schedule, commencing September 15, 2023. Related to the 2022 Loan, in the three months ended March 31, 2024, we paid $93,789 in cash for interest. For the three months ended March 31, 2024, interest was capitalized. For the three months ended March 31, 2025, we paid interest expense of $91,035 related to the 2022 Loan.
From March 31, 2024 to October 30, 2024, the Company issued $6.9 million in Secured Notes in multiple closings. The Senior Notes bear interest at an annual rate of 9%, payable quarterly in arrears. During the three months ended March 31, 2025, the Company incurred $153,234 interest expenses related to the Senior Notes. In addition, the Company recognized $11,553 for the accretion of debt issuance costs included with Interest expense on the condensed interim statement of operations.
Other Income, Net
Other income, net had a de minimis decrease from $25,602 for the three months ended March 31, 2024 to $24,749 for the three months ended March 31, 2025.
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Liquidity and Capital Resources
Sources of Liquidity
As of March 31, 2025, our principal source of liquidity was $1.1 million in cash and cash equivalents, including money market investments, and as a result, there was substantial doubt over whether the Company had sufficient capital to operate for the next twelve months from the issuance date of this Quarterly Report. We considered elements of our financing plan that were probable and likely to be implemented within the next year. While we have already begun to successfully execute our financing plan, including a $6.9 million financing in November 2024, a Equity Purchase Agreement that may allow the Company to sell shares to an Investor if certain conditions are met, and a license agreement with $7.0 million in minimum guarantees payments which the Company expects to receive in 2025, we concluded that remaining steps in our financing plan are not probable and thus they were not sufficient to include in our going concern analysis.
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 property at which the Company planned to build a facility to manufacture biologics and upgrade its research laboratory facilities. The loan is secured by a first priority lien on the property. As of March 31, 2025, certain subcontractors filed mechanics liens related to unpaid invoices issued in connection with construction of the Company’s 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 March 31, 2025, 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.
On January 22, 2025, the Company entered into a forbearance agreement with BE&K Building Group (“BE&K”), its general contractor, 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. As the Company reported in a Form 8-K, on April 17, 2025, the Company received a summons and a copy of a complaint filed by BE&K in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida (the “BE&K Complaint”). Other Defendants named in the BE&K Complaint who are subcontractors elected to file counterclaims and cross-claims in response thereto. Cogent Bank, also named as a Defendant in the BE&K Complaint, has not elected to take legal action at this time. In addition, on April 28, 2025, the Company received a summons and a copy of a complaint filed by Fisk Electric Company (which is a defendant in the BE&K Litigation) in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida (the “Fisk Complaint”) against the Company, BE&K, and the other defendants in the BE&K Complaint. The Company intends to respond in a timely fashion to the BE&K and Fisk Complaints and cross-claims.
As reported in the Company’s Form 8-K filed on July 18, 2024 and further described in Part II, Item 1. – “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 was 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. The Arbitration and related Complaint were dismissed on December 24, 2024. With the execution of the Settlement Agreement, we resolved the attendant uncertainties for the outcome of the Arbitration and additional complexities, and we launched our new financing plan.
In the accompanying condensed balance sheet as of March 31, 2025, the Company reported a balance of $12.4 million for legal fees incurred but not yet paid that were included within Accounts payable and an accrual of $10,000 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. In the three months ended March 31, 2025, the Company received a $2.0 million insurance payment, which was paid directly to the law firm that represented Dr. Wong for his defense during the Arbitration. The insurance payment is reported within Legal expenses, net in the condensed interim statement of operations.
A benefit of reaching a Settlement Agreement and concluding the Arbitration is a release from restrictions related to protection of privileged information, which hampered investor ability to conduct due diligence. As a result, we believe that other avenues of financing are now available to us, namely, capital-raising activities for equity and equity-like investments as well as business development transactions such as out-licensing agreements for rights for our proprietary molecules. However, there can be
29
no assurance of our success in our capital-raising activities. If we are not successful in raising additional capital, we have the ability to revise our business plan and reduce costs. If such revisions are insufficient, we may have to curtail or cease operations.
As the Company disclosed in the Form 8-K filed on March 19, 2025, the Company and WY Biotech Co., Ltd. (“WY Biotech”) agreed on the principal terms for an amendment to the WY Biotech License Agreement, an exclusive worldwide license agreement with WY Biotech for the rights to develop and commercialize one of HCWB’s preclinical product candidates, HCW11-006, for in vivo applications (the “Agreement”). Under the amended terms, 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. There were no other material changes to the Agreement. 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. The Company completed its performance obligation to deliver a report on the characterization of the licensed molecule on May 13, 2025. As agreed under the amended terms, WY Biotech has 30 days to study this report and elect whether to continue with the Agreement, as which time the Agreement will be binding and the full $7.0 million upfront license fee will be due.
On February 20, 2025, the Company entered into a Equity Purchase Agreement (the “Equity Purchase Agreement”) and a related Registration Rights Agreement with Square Gate Capital Master Fund, LLC - Series 4 (the “Investor”), pursuant to which the Company will have the right, but not the obligation, to sell to the Investor, and the Investor will have the obligation to purchase from the Company, up to $20.0 million (the “Maximum Commitment Amount”) 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. On March 12, 2025, the Company issued 384,615 shares of the Company’s Common Stock (subject to adjustment for the Reverse Stock Split) to the Investor in payment of the Commitment Fee (“Commitment Shares”). On April 16, 2025, the U.S. Securities and Exchange Commission (“SEC”) declared a registration statement effective to register the Commitment Shares and shares required to sell up to $40.0 million of the Company’s shares to the Investor, according to provisions of the Equity Purchase Agreement. In addition, this registration statement also registered the underlying shares for the warrant issued in November 2024, which gives the holder the right to exercise the warrant for 6,717,000 shares of common stock at an exercise price of $1.03 per share (subject to adjustment for the Reverse Stock Split).
In order to be able to optimize our financing strategy, the Company is focused on making progress to achieve full compliance with all Listing Rules for the Capital Markets tier. 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 for the Capital Markets tier. 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 and a clarifying amendment that the Company received on April 8, 2025, the Panel granted the Company’s request for continued listing on the Exchange on the Capital Markets tier, provided that the Company demonstrates compliance with the Bid Price Rule by April 28, 2025, and all other Exchange continued listing rules by June 16, 2025.
The Company achieved the following elements of plan to regain compliance with all Nasdaq listing rules:
After a Reverse Stock Split became effective on April 11, 2025, on April 28, 2025, the Company met compliance requirements for Listing Rule for Bid Price by maintaining its trading stock price at $1.00 or above for a period of 10 consecutive trading days.
As of the date of issuance of this Quarterly Report, the Company is in compliance with the Bid Price rule. We are making progress toward regaining and maintaining compliance with Nasdaq Listing Rule for the market value of listed securities under the alternative rule related to maintaining a minimum balance of $2.5 million in stockholders’ equity, through the following transactions:
• An increase of $2.0 million recognized on January 14, 2025, when the Company received a $2.0 million insurance reimbursement for legal fees incurred for the defense of Dr. Hing C. Wong, the Company’s Founder and Chief Executive Officer, in connection with the Arbitration.
• Potential access to $40.0 million through the issuance of shares of Common Stock under the ELOC Purchase Agreement which the Company entered with Square Gate Capital Master Fund LLC - Series 4 on February 20, 2025. Such shares were registered under a registration statement that became effective as of April 16, 2025. The Company has not issued any shares under the ELOC Purchase Agreement as of the date of issuance of this Quarterly Report.
30
• An net increase of $5.8 million resulting from the conversion of the Secured Notes. On May 1, 2025, the Company entered into a definitive conversion agreement with the holders of $6.6 million of the outstanding principal of the Secured Notes, to convert the Secured Notes for shares of the Company’s Common Stock, warrants to exercise to purchase up to $3.3 million of shares of Common Stock, and a portion of the proceeds from the sale of the Company’s shares of Wugen common stock, if and when such an sale occurs. The conversion was completed on May 7, 2025.
• The Company issued equity securities to raise proceeds of $5.0 million on May 15, 2025. Thereafter, the Convertible Bridge Notes with outstanding principal of $270,000 will convert into common stock at a price of $7.45 per share, according to the terms of the agreement. See further discussion below.
On May 15, 2025, the Company completed a $5.0 million follow-on offering of an aggregate of 671,140 units at a purchase price of $7.45 per unit priced at-the-market under Nasdaq rules. Each unit consisted of one share of Common Stock or one Pre-Funded Warrants to purchase one share of Common Stock, with two warrants, each of which can be exercised for one share of Common Stock for $7.45 per share. In addition, the Company entered into a privately negotiated agreement with the holder of certain existing outstanding warrants to purchase up to 167,925 shares of common stock (the “Existing Warrants”) to reduce the exercise price of such Existing Warrants from $41.20 per share to $7.45 per share.
On May 13, 2025, the Company delivered a technology transfer report to WY Biotech. Since November 2024 when we signed the WY Biotech License, the data generated from our internal research and external collaborators indicate that HCW-11-006 exhibits an unusual capacity for stimulating and expanding murine and human immune cells in vitro against tumor cells. We intend to co-author a pivotal publication that will be submitted to a top-tier, peer-reviewed scientific journal in the second quarter of 2025. We expect WY Biotech to elect to continue, in which case the Company will recognize $7.0 million in revenues in June 2025.
In addition to equity financings, a key strategy in our financing plan is identifying candidates in our sizeable molecule portfolio would be appropriate to develop through business development transactions, especially out-licensing. In the second quarter of 2025, we intend to begin our search for an appropriate partner to commercialize our Immune-Cell Engagers, including T-Cell Engagers, created using our TRBC drug discovery and development platform. However, if the Company is not successful in raising additional capital through these activities, management may need to revise its business plan and reduce costs. If such revisions are insufficient, the Company may have to curtail or cease operations.
The accompanying condensed interim 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 condensed interim financial statements, without additional funding or financial support. After considering management’s plan for financing and funds raised that are probable to occur within one year, as well as that the Company expects to continue to incur losses from operations for the foreseeable future, management concluded that the substantial doubt that existed in its going concern analysis as of March 31, 2025 was not alleviated.
Because of the numerous risks and uncertainties associated with the clinical development and commercialization of immunotherapeutics, we are unable to estimate the exact amount of capital requirements to pursue these activities. Our funding requirements will depend on many factors, including, but not limited to:
• timing, progress, costs, and results of our ongoing preclinical studies and clinical trials of our immunotherapeutic products;
• costs, timing, and outcome of regulatory review of our product candidates;
• number of trials required for regulatory approval;
• whether we enter into any cooperative, collaboration or co-development agreements and the terms of such agreements;
• whether we raise additional funding through bank loan facilities, other debt arrangements, out-licensing or joint ventures, cooperative agreements or strategic collaborations;
• effect of competing technology and market developments;
• cost of maintaining, expanding, and enforcing our intellectual property rights;
• impact of future arbitration, litigation, regulatory inquiries, or investigations, as well as costs to indemnify our officers and directors against third-party claims related to our patents and other intellectual property:
31
• cost and timing of buildout of the Company’s new manufacturing and laboratory facilities, including manufacturing for biologics and upgraded research and development facilities, including risks of cost overruns and delays, and ability to obtain additional financing, if needed;
• impact of legal actions taken by BE&K and other lien holders related to foreclosure and other claims; and
• costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive regulatory approval.
A change in the outcome of any of these or other factors with respect to the clinical development and commercialization of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures.
Comparison of the Cash Flows for the Three Months Ended March 31, 2024 and March 31, 2025
The following table summarizes our cash flows for the three months ended March 31, 2024 and March 31, 2025:
Three Months Ended
March 31,
2024
2025
Cash used in operating activities
$
(3,603,870
)
$
(3,513,856
)
Cash used in investing activities
(129,709
)
—
Cash provided by (used in) financing activities
4,222,554
(53,103
)
Net increase (decrease) in cash and cash equivalents
$
488,975
$
(3,566,959
)
Operating Activities
Net cash used in operating activities were $3.6 million for the three months ended March 31, 2024 and $3.5 million for the three months March 31, 2025.
Cash used in operating activities for the three months ended March 31, 2024 consisted primarily of net loss for the period of $7.5 million, partially offset by cash provided by operations from a $2.5 million increase from Accounts payable and other liabilities, a $631,873 decrease in Accounts receivable, and a $302,640 decrease in Prepaid expenses and other assets. Further offsets were provided by noncash adjustments arising from an addback of $243,501 for depreciation and amortization and an addback of $244,685 from stock-based compensation.
Cash used by operating activities for the three months ended March 31, 2025 consisted primarily of net loss for the period of $2.2 million, as well as cash used due to an decrease of $398,447 in Accounts payable and other liabilities, an increase of $257,894 in Prepaid expenses and other assets, and a $2.0 million payment for legal fees, as a result of an insurance reimbursement for legal fees incurred on behalf of Dr. Hing Wong, the Company’s Founder and Chief Executive Officer, for his defense costs associated with the Arbitration, in prior periods, which was paid directly to the law firm involved. See Part II, Item 1, “Legal Proceedings.” The uses were partially offset by cash provided by operations, which consisted of a $494,708 decrease in Account receivable and noncash adjustments of $419,010 for Depreciation, amortization and accretion, $275,642 for stock-based compensation and $150,000 for a Commitment Fee paid in shares of the Company’s Common Stock.
Investing Activities
Cash used by investment activities for the three months ended March 31, 2024 consisted of $129,709 used for purchases of property and equipment. There was no cash used in or provided by investment activities in the three months ended March 31, 2025.
Financing Activities
During the three months ended March 31, 2024, the $4.2 million of cash provided by financing activities consisted of an increase arising from a $2.5 million private placement of the Company’s common stock and cash received from the issuance of $1.8 million of Secured Notes. Subsequent to March 31, 2024, a check for the remaining $250,000 cleared to bring the total of cash received from the issuance of Secured Notes to $2.0 million. The increase in cash provided by financing activities were partially offset by a $29,706 decrease arising from debt repayment.
During the three months ended March 31, 2025, the $53,103 of cash used by financing activities consisted primarily of $32,460 for a debt repayment and $22,297 for issuance of Common Stock.
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Critical Accounting Policies, Significant Judgements and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed interim financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgements and estimates.
Revenue Recognition
We recognize revenue under the guidance of Topic 606. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of Topic 606, we perform the following five steps: (i) identification of the contract(s) with the customer, (ii) identification of the promised goods or services in the contract and determination of whether the promised goods or services are performance obligations, (iii) measurement of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer. See Note 1 to our condensed interim financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for more information.
Other than the above, there have been no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies, Significant Judgements and Use of Estimates” in our Annual Report.
Recent Accounting Pronouncements
See Note 1 to our Annual Report.