HCW Biologics Inc. 10-Q

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, 2025 included in the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2026 (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. (“HCW Biologics” or the “Company”) is a clinical-stage biopharmaceutical company developing transformative fusion immunotherapeutics to treat diseases promoted by chronic inflammation. We have created novel compounds that represent a new class of drugs that we believe have the potential to fundamentally change the treatment of autoimmune disorders and other inflammatory diseases, cancer and senescence-associated dysplasia. In addition, we have begun commercialization of certain commercial-ready proprietary compounds for use as reagents to support the production of immunotherapeutics for the treatment of infectious diseases and cancer. By leveraging our extensive immunology expertise, we have developed fusion immunotherapeutics representing a new class of drug that we believe has the potential to fundamentally change the treatments for autoimmune diseases, cancer, senescence-associated dysplasia, and many other diseases promoted by chronic inflammation — and in doing so, improve patients’ quality of life and possibly extend longevity. HCW Biologics 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 receptor agonist) through pivotal trials. This blockbuster immunotherapeutic treatment for cancer was sold to ImmunityBio, Inc. in 2017 in a $1.0 billion acquisition. In April 2024, Anktiva® was approved by the U.S. Food and Drug Administration for its first indication, the treatment of BCG-Unresponsive Non-Muscle Invasive Bladder Cancer in combination with BCG. 30 Business Highlights Reverse Stock Split The Company completed a one-for-six reverse stock split on June 30, 2026 (the “Reverse Stock Split”). All share amounts and price per share amounts discussed herein reflect the Reverse Stock Split. Financing May 2026 Sale of Common Stock, Pre-Funded Warrants and Common Stock Warrants On May 21, 2026, the Company completed a $4.0 million private placement with a group of existing stockholders, in which the Company sold 474,496 units, each of which consisted of one share of Common Stock, or a Pre-Funded Warrant in lieu thereof, and a Common Stock Warrant to purchase one share of Common Stock. Net proceeds to the Company after placement agent commissions and offering costs were $3.5 million. On June 18, 2026, the SEC declared effective a resale registration statement on Form S-1 (File No. 333-296577) covering the resale of shares of Common Stock and warrants issued in this private placement. Investors included a single institutional investor and certain of our directors and executive officers. Scott Garrett, Chairman of our board of directors, purchased $250,000 of securities, Hing C. Wong, our Founder and Chief Executive Officer, purchased $160,000 of securities, and Rebecca Byam, our Chief Financial Officer, purchased $20,000 of securities. Such purchases were made on the same terms and conditions as those offered to other investors. On June 22, 2026, the holder exercised all Pre-Funded Warrants issued in this transaction to purchase 403,322 shares of Common Stock for $0.0001 per share. July 2026 Sale of Units Comprised of Common Stock, Pre-Funded Warrants and Rights to Receive Common Stock Warrants Subsequent to June 30, 2026, on July 29, 2026, the Company completed a private placement with certain accredited investors in which the Company sold 618,682 units, each unit consisting of one share of Common Stock, or a Pre-Funded Warrant in lieu thereof, and (ii) the right to receive one Common Stock Warrant upon, and subject to, stockholder approval of the issuance of such Common Stock Warrants, which approval the Company is obligated to seek pursuant to the terms of the purchase agreement. Gross proceeds of the offering were approximately $1.6 million before deducting offering expenses. Hing C. Wong, Ph.D., our Founder and Chief Executive Officer, Scott Garrett, Chairman of our board of directors, and Lee Flowers, our Senior Vice President of Business Development, participated in the private placement on the same terms and conditions as the other investor. Preparing for Business Development Transaction for Commercial-Ready Reagents Two of our internally-developed, multi-cytokine fusion protein molecules, HCW9201 and HCW9206, were licensed to AlloTera Therapeutics in 2020. During 2025, AlloTera Therapeutics was refocusing its clinical development programs, and the Company agreed to a suspension of the AlloTera Therapeutics License. On May 21, 2026, the Company elected to terminate the AlloTera Therapeutics License according to the terms provided in the suspension agreement. We are positioning HCW9206 and HCW9201 as commercial-ready reagents for use in supporting the manufacture of cell-based immunotherapeutics to treat cancer and infectious diseases. The extensive research done in collaboration with the Albert Einstein College of Medicine showed that HCW9206 and similar molecules developed by the Company appear to support more efficient production of CAR-T cells that keep fighting disease longer. We intend to enter into a commercialization partnership with a biopharmaceutical manufacturing company in the second half of 2026. 31 Since inception in December 2020, the Company has recognized $16.2 million in revenue derived from the AlloTera Therapeutics License, including upfront license fees in cash and shares of AlloTera Therapeutics common stock, purchases of the Company’s inventory of certain molecules needed for manufacturing, and purchases of materials for its clinical trials. In addition, the Company received over $1.8 million in reimbursements for its R&D expenses. The upfront license fee is nonrefundable, and as such, the Company retains ownership of the 2.2 million shares of AlloTera Therapeutics common stock. Settlement of Accounts Payable Obligations The Company continues to strengthen its balance sheet through repayment and restructuring of obligations. In the three months ended June 30, 2026, the Company settled $2.8 million of overdue accounts payable, including $1.1 million owed to B&I Contractors, Inc. (“B&I”) and $1.7 million owed to Eirgenix. Settlement terms fully resolved all amounts claimed to be owed by the Company to these vendors. In the three months ended June 30, 2026, the Company paid Eirgenix $620,000 and paid B&I $512,655. In the six months ended June 30, 2026, the Company paid Eirgenix $1,240,000 and paid B&I $865,655. Nasdaq Compliance On June 26, 2025, the Company received formal notice from The Nasdaq Stock Market LLC (“Nasdaq”) that the Company is in compliance with Listing Rule 5550(b)(1) (the “Equity Rule”). On June 29, 2026, the Company received written notice from the Nasdaq Listing Staff that the Nasdaq Hearings Panel found that the Company had regained compliance with the Bid Price Rule, subject to certain restrictions. The Company will be subject to a Mandatory Panel Monitor until June 17, 2027. See Part II, Item 1, “Legal Proceedings – Other Matters.” Clinical Development Preliminary Human Data Readout for Phase 1 Clinical Study Evaluating HCW9302 as Monotherapy in Alopecia Areata On June 16, 2026, the Company disclosed a preliminary human data readout for the Phase 1 clinical study evaluating HCW9302 in patients with alopecia areata. The Company believes that based on the human data readout and extensive preclinical studies, HCW9302 is potentially a best-in-class IL-2 based treatment for autoimmune diseases by expanding and activating regulatory T cells. Preliminary results indicate that HCW9302 is well tolerated, with no dose-limiting toxicities or significant known IL-2-treatment-related adverse effects, including no reported incidence of capillary leak syndrome, cytokine release syndrome, or increase in blood eosinophil counts. The readout was for two dose cohorts in a dose-escalating study. All patients, including the first dose cohort at one (1) microgram/kg body weight and the second dose cohort at three (3) micrograms/kg body weight, received a single subcutaneous dose of HCW9302 monotherapy. In the second dose cohort, all three participants showed preliminary indications of improvement in their Severity of Alopecia Tool (“SALT”) scores. These three participants, all with mild alopecia, showed a ≥25% reduction in SALT scores compared to baseline at four and/or nine weeks after dosing. Treatment of patients in the third dose cohort (i.e., eight (8) micrograms/kg body weight) is underway and evaluation of correlative study endpoints is ongoing. There were no reported incidences of capillary leak or cytokine release syndromes associated with high dose intravenous IL-2 therapy. Additionally, HCW9302 treatment did not increase blood eosinophil counts, another serious side effect commonly associated with IL-2 therapy. All reported HCW9302 treatment emergent adverse events were mild in severity and self-limiting and resolved without medical intervention. The most common side effect was temporary injection-site reaction. Dosing of the third dose cohort is underway at eight (8) micrograms/kg body weight. The Company has not reported any dose limiting toxicities in the patients treated to date. Patient enrollment continues to be strong, and the Company has added a third clinical site to the study. The full Phase 1 human data readout for the HCW9302 study remains on track to be released in the fourth quarter of 2026. Primary endpoints are safety and a recommended Phase 1 dose. Working with collaborators, the Company is conducting ancillary studies to supplement this data. 32 Milestone for HCW11-018b, Leading Product Candidate in Company’s Tetravalent T-Cell Engager Program The Company requested a Type B (pre-IND application) meeting with the U.S. Food and Drug Administration (“FDA”) to discuss the development and regulatory strategy for its investigational lead product candidate, HCW11-018b, a tetravalent T-cell engager (“TCE”) constructed with the Company’s proprietary TRBC drug development platform. The Company would like to reach agreement with FDA on requirements for a clinical study before we submit an IND application to evaluate HCW11-018b in cancer. This clinical trial is on track to initiate in the first half of 2027, provided we secured FDA authorization. HCW11-018b is intended to treat solid tumors and is administered by subcutaneous injection. In preclinical studies, it has shown the ability to target tissue factor-expressing cancer cells and activate CD3-positive effector T cells, while simultaneously reducing immunosuppression in the tumor microenvironment. Immunosuppression in the tumor microenvironment can limit effector T-cell infiltration and antitumor activity in solid tumors, particularly in gynecologic and pancreatic cancers. The Company believes that our robust, streamlined, and cost-efficient manufacturing process will produce high-quality cGMP material to support clinical development. Our manufacturing process for HCW11-018b is based on high-producing recombinant CHO cell lines and a proprietary monoclonal antibody needed for the affinity purification process. This monoclonal antibody will be manufactured under GMP standards using a top-tier CDMO. TCEs have emerged as a potent therapeutic modality to treat cancer. First-generation TCEs represented a breakthrough in immunotherapy but they continue to face significant challenges, including limited antigen selection, poor efficacy in solid tumors, tolerability and safety concerns, and complex manufacturing processes. Extensive preclinical studies of HCW11-018b —including assessments of in vitro and in vivo potency, antigen specificity, pharmacokinetics, toxicity in nonhuman primates, and its therapeutic window — suggest that HCW11-018b may be able to overcome the limitations of earlier-generation TCEs. Trends and Uncertainties Inflationary Cost Environment, Geopolitical Risks and Other Macroeconomic Factors The Company’s operations have been affected by many headwinds, including inflationary pressures, tariffs, 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 securing materials needed for our operations, 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, 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. 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 autoimmune disorders, cancer and senescence-associated dysplasia. Since inception, our sole source of revenue is from license and clinical development supply agreements. AlloTera Therapeutics License The Company entered the AlloTera Therapeutics License at the end of 2020, and we entered a development supply agreement with them to provide it with clinical development materials needed for research and clinical development in the first quarter of 2021. On May 29, 2025, the Company agreed to a one-year suspension of the AlloTera Therapeutics License, while they assessed the strategic direction of their clinical development programs. On May 21, 2026, the Company elected to terminate the AlloTera Therapeutics License according to the terms of the suspension agreement. The Company has launched a commercial-ready program to commercialize the two molecules formerly licensed to AlloTera Therapeutics as reagents to support the manufacturing process of cell-based immunotherapies for cancer and infectious diseases. 33 The Company will continue to hold the upfront, nonrefundable license fee from AlloTera Therapeutics, including the in-kind payment of 2.2 million shares of their common stock. Trimmune License On November 17, 2025, the Company and Beijing Trimmune Biotech Co., Ltd. (“Trimmune”) entered into an Amended and Restated License, Research and Co-Development Agreement (“Trimmune License”) following the assignment of the original License, Research and Co-Development Agreement, which includes an exclusive license to HCW11-006 for in vivo applications (“WY Biotech License”) from WY Biotech Co., Ltd. to Trimmune. The parties restructured the terms of the original WY Biotech License to include the assignment of rights to Trimmune and an option to license HCW9302 for in vivo applications in China or Asia. The Company retained its Opt-In Rights for the Americas market, which we may exercise after Trimmune completes its first Phase 1 clinical study. On March 16, 2026, the Company received the full nonrefundable upfront license fee, consisting of $3.5 million in gross cash proceeds, or $2.9 million net of taxes, and a transferable minority equity ownership interest in Trimmune with a fair value of $3.5 million, whereupon the transaction was deemed closed and the contract was binding. The Company elected to use the measurement alternative under ASC 321-10-35-2 to account for the investment in Trimmune shares — cost less impairment, with adjustment for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. In addition to the upfront license fee and Opt-In Rights, the Company is eligible to receive additional development milestone payments and double-digit royalties on future product sales. Further, in the event Trimmune elects to exercise its option to license HCW9302 in China or Asia, the Company will receive additional consideration. None of these elements met the threshold for recognition under Topic 606 as of June 30, 2026. Operating Expenses Our operating expenses are reported as research and development expenses and general and administrative expenses. 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. 34 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 General and administrative expenses consist primarily of employee-related expenses for executive, legal, finance, accounting, human resources and other administrative personnel, as well as professional fees (including legal, audit and tax services), insurance costs, facilities expenses, and other public company compliance costs. 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 (Recoveries), Net The Company was involved in an Arbitration and related Complaint that were dismissed with prejudice as of December 31, 2024. See Part II, Item 1, “Legal Proceedings – Arbitration, Settlement and General Release.” In the Settlement Agreement, the Company retained exclusive rights to HCW9302 and certain other molecules. The Company anticipates that it will continue to incur legal expenses for patent filings and other matters to protect our intellectual property rights and remain in compliance with the terms of the Settlement Agreement. Indirect Tax Expense and Income Tax Expense When Trimmune paid the full nonrefundable upfront license fee on March 16, 2026, the Chinese government withheld income taxes of $330,186, which the Company recognized as an expense in the six months ended June 30, 2026 in the accompany condensed statements of operations. Interest Expense Interest expense includes interest paid on debt. This includes interest due on the Cogent Bank loan, Secured Notes issued by the Company and accretion of original issue discount and accretion of debt issuance costs. 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. During the three months ended June 30, 2025, certain noteholders agreed to restructure $6.6 million of the principal amount of Secured Notes issued by the Company, including the accumulated accretion of a fixed bonus payable on Maturity Date, and convert to equity. Noteholders who purchased notes for $325,000 did not elect to convert their Secured Notes. The Secured Notes bear interest at an annual rate of 9%, payable quarterly in arrears. They are also entitled to a fixed bonus, payable on the Maturity Date of August 31, 2026, which is accreted on a straight-line basis. 35 On May 8, 2025, the Company issued a $150,000 promissory note with a personal guarantee from the Company’s Founder and Chief Executive Officer, which has an original issue discount of $75,000 which is accreted on a straight-line basis from the date of issuance to the Maturity Date of February 7, 2026 (the “Secured Promissory Note”). The Company repaid $225,000 on February 6, 2026. Change in Fair Value of Investment and Contingent Liability The Company received 2.2 million shares of AlloTera Therapeutics as an in-kind payment for a nonrefundable license fee in December 2020. In the second quarter of 2025, the Company elected to account for its shares of AlloTera Therapeutics, previously accounted for under the measurement alternative, at fair value determined using financial valuation techniques and market information available. In May 2025, the Company entered two transactions to restructure and convert debt. The terms of conversion gave the converting Secured Noteholders and holders of Convertible Bridge Notes the right to a portion of the proceeds upon the sale or liquidation of the Company’s AlloTera Therapeutics shares, if such an event occurs, giving rise to a contingent liability. The Company derives the fair value of the contingent liability according to the fair value measured for underlying the AlloTera shares. The Company remeasures the change in fair value of the AlloTera shares and related contingent liability in earnings. Gain on Extinguishment of Liability From time to time, the Company restructures liabilities and debt obligations to strengthen our balance sheet. When the Company settles the obligation for less than the recorded carrying value, we recognize a gain on debt extinguishment or extinguishment of a liability in earnings during the period in which it is settled. Change in Fair Value of Warrant Liability As a result of the modification of existing warrants that may be exercised to purchase up to 503,402 shares of Common Stock to lower the strike price from $14.46 to $3.633 per share, the Company classified these warrants as a warrant liability and recognized it at fair value on the date of the modification as of March 31, 2026. On June 15, 2026, the Company’s stockholders approved the repricing of these warrants at the Annual Meeting of Stockholders. The Company recognized the change in fair value of the warrant liability through the period ended June 15, 2026. With the resolution of the contingency for settlement, these warrants were reclassified to equity as of June 15, 2026. 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. 36 R esults of Operations Three Months Ended June 30, Six Months Ended June 30, 2025 2026 2025 2026 Revenues: Revenues $ 6,550 $ 135,568 $ 11,615 $ 6,678,569 Cost of revenues (5,240 ) (229,455 ) (9,292 ) (240,526 ) Gross Profit 1,310 (93,887 ) 2,323 6,438,043 Operating expenses: Research and development 1,226,824 1,203,352 2,705,536 2,461,300 General and administrative 2,096,021 1,870,375 4,302,301 3,703,652 Legal expenses (recoveries), net 142,542 (1,325 ) (1,596,951 ) 5,525 Indirect tax expense - - - 198,146 Total operating expenses 3,465,387 3,072,402 5,410,886 6,368,623 Operating income (loss) (3,464,077 ) (3,166,289 ) (5,408,563 ) 69,420 Interest expense (228,714 ) (100,541 ) (505,853 ) (209,815 ) Change in fair value of warrant liability - (2,443,335 ) - (1,775,992 ) Change in fair value of investment, net 1,748,688 - 1,748,688 - Gain on extinguishment of liability - 483,383 - 483,383 Other income, net 16,373 7,551 41,122 16,439 Net loss before income taxes (1,927,730 ) (5,219,231 ) (4,124,606 ) (1,416,565 ) Income tax expense - - - (330,186 ) Net loss $ (1,927,730 ) $ (5,219,231 ) $ (4,124,606 ) $ (1,746,751 ) Comparison of the Three Months ended June 30, 2025 and June 30, 2026 Revenues For the three months ended June 30, 2025, there was $6,550 of revenue the Company derived from ancillary services such as drug storage and insurance related to the winddown of the AlloTera Therapeutics License during the one-year suspension period that began on May 29, 2025. For the three months ended June 30, 2026, there was $135,568 of revenue related to the completion of some of the services required under the Service Performance Obligation for the Trimmune License, primarily for supporting Trimmune with building a master cell bank. For remaining services under the Service Performance Obligation as of June 30, 2026, the Company recognized a contractual liability of $348,270 in deferred revenue in the accompanying condensed balance sheet. Research and Development Expenses The following table summarizes our research and development expenses for the three months ended June 30, 2025 and June 30, 2026: Three Months Ended June 30, 2025 2026 $ Change % Change Salaries, benefits and related expenses $ 778,440 $ 761,312 $ (17,128 ) (2 )% Manufacturing and materials 33,986 27,073 (6,913 ) (20 )% Preclinical expenses 146,948 158,917 11,969 8 % Clinical trials 110,935 101,246 (9,689 ) (9 )% Other expenses 156,515 154,804 (1,711 ) (1 )% Total research and development expenses $ 1,226,824 $ 1,203,352 $ (23,472 ) (2 )% Research and development expenses decreased by $23,472, or 2%, from $1.2 million for the three months ended June 30, 2025 to $1.2 million for the three months ended June 30, 2026. The decrease was primarily due to decreases in salaries, benefits and related taxes and clinical trial expenses. 37 Salaries, benefits, and related expenses decreased by $17,128, or 2%, from $778,440 for the three months ended June 30, 2025 to $761,312 for the three months ended June 30, 2026. This decrease was primarily attributable to decreases of $24,900 in salaries, benefits and related taxes and $15,448 in expense for stock-based compensation, partially offset by an increase of $23,220 in costs associated with employee benefits. Manufacturing and materials expense decreased by $6,913, or 20%, from $33,986 for the three months ended June 30, 2025 to $27,073 for the three months ended June 30, 2026. In the three months ended June 30, 2025, the Company had produced and vialed the product necessary for the clinical trials for HCW9302. In the three months ended June 30, 2026, the Company focused on internal development and preparation for the creation of master cell banks to generate its TRBC-based lead product candidates. Expenses associated with preclinical activities increased by $11,969, or 8%, from $146,948 for the three months ended June 30, 2025 to $158,917 for the three months ended June 30, 2026. In the three months ended June 30, 2025, the Company incurred costs to complete development of intellectual property required for the technology being licensed to Trimmune. In the three months ended June 30, 2026, the Company focused on IND-enabling activities required to prepare HCW11-018b, the Company’s tetravalent T-cell engager, for a Phase 1 clinical trial in cancer. The Company will continue to incur preclinical expenses for IND-enabling studies for HCW11-018b as well as HCW11-040, the second-generation immune checkpoint inhibitor in the coming year. The Company intends to file an IND-application to seek authorization to evaluate HCW11-018b in a Phase 1 clinical study in patients with cancer in the first half of 2027, and an IND-application to seek authorization to evaluate HCW11-040 in bronchopulmonary dysplasia, a chronic lung disease primarily affecting premature infants, in the second half of 2027. Expenses associated with clinical activities decreased by $9,689, or 9%, from $110,935 for the three months ended June 30, 2025 to $101,246 for the three months ended June 30, 2026. The decrease was primarily attributable to decreases of $51,301 for consulting and outsourced R&D services and $10,961 for IRB fees and clinical site start-up expenses, partially offset by increases of $47,767 in patient fees and $4,806 for software licenses and data management. We anticipate that clinical expenses will increase in the coming year due to the continuation of clinical trials to evaluate HCW9302 in autoimmune indications and the initiation of a Phase 1 clinical study to evaluate HCW11-018b in cancer. Other expenses, which include overhead allocations, decreased by $1,711, or 1%, from $156,515 for the three months ended June 30, 2025 to $154,804 for the three months ended June 30, 2026. This decrease is primarily attributable to a $7,617 decrease in the allocation of depreciation for scientific equipment, partially offset by an increase of $5,908 in rent, utilities and other office expenses. General and Administrative Expenses The following table summarizes our general and administrative expenses for the three months ended June 30, 2025 and June 30, 2026: Three Months Ended June 30, 2025 2026 $ Change % Change Salaries, benefits and related expenses $ 765,539 $ 523,466 $ (242,073 ) (32 )% Professional services 496,641 504,837 8,196 2 % Facilities and office expenses 111,740 103,883 (7,857 ) (7 )% Accretion of fixed bonus upon maturity of Secured Notes 102,248 14,413 (87,835 ) NM Depreciation 59,160 49,994 (9,166 ) (15 )% Rent and occupancy expense 62,528 45,887 (16,641 ) (27 )% Other expenses 498,165 627,895 129,730 26 % Total general and administrative expenses $ 2,096,021 $ 1,870,375 $ (225,646 ) (11 )% NM = Not meaningful General and administrative expenses decreased $225,646, or 11%, from $2.1 million for the three months ended June 30, 2025 to $1.9 million for the three months ended June 30, 2026. The decrease is primarily attributable to decreases in compensation expense for stock-based compensation and accretion of fixed bonus upon maturity of Secured Notes, offset by an increase of expenses for financing related activities. 38 Salaries, benefits and related expenses decreased by $242,073, or 32%, from $765,539 for the three months ended June 30, 2025 to $523,466 for the three months ended June 30, 2026. The decrease is primarily attributable to decreases of $261,638 in compensation expense for stock-based compensation and $10,000 in compensation for the Board of Directors, partially offset by an increase of $16,495 in employee benefits. In the second quarter of 2025, Gary M. Winer resigned from the Board of Directors in the second quarter of 2025, and the seat remains vacant. Professional services increased by $8,196, or 2%, from $496,641 for the three months ended June 30, 2025 to $504,837 for the three months ended June 30, 2026. The increase is primarily attributable to an increase of $63,862 in professional fees related to corporate legal fees, audit fees, tax advisory fees and technical accounting advisory fees, partially offset by a decrease of $58,209 related to patent filings and other legal activity performed for our intellectual property portfolio. Facilities and office expenses decreased by $7,857, or 7%, from $111,740 for the three months ended June 30, 2025 to $103,883 for the three months ended June 30, 2026. The decrease is primarily due to a decrease of $7,182 for fees paid for licenses, software and IT services. Throughout 2024, the Company issued $6.9 million of Secured Notes. The terms of the Secured Notes were amended on July 2, 2024 to include a fixed bonus payment in the event that the Secured Notes were repaid on their Maturity Date of August 30, 2026. On May 7, 2025, $6.6 million of the principal of the Secured Notes and the balance of their accumulated accretion for the fixed bonus payment due on the Maturity Date converted to equity. As of June 30, 2026, the Company continues to hold $325,000 of principal of the Senior Notes. In the three months ended June 30, 2025 and 2026, the Company recognized $102,248 and $14,413, respectively, for the expense for accretion of the fixed bonus payable upon Maturity Date. Other expenses increased by $129,730, or 26%, from $498,165 for the three months ended June 30, 2025 to $627,895 for the three months ended June 30, 2026. The increase is primarily attributable to increases of $147,121 in costs associated with financing activities, $49,702 in taxes and $14,623 in travel-related expenses, partially offset by a decrease of $79,518 in insurance premiums. Legal Expenses (Recoveries), Net In the three months ended June 30, 2025 and 2026, the Company recognized $142,542 net expenses and $1,325 net recovery, respectively. Interest Expense In the three months ended June 30, 2025 and 2026, the Company recognized interest expense of $228,714 and $100,541, respectively, including the following items which were reported within Interest expense on the condensed statements of operations: ● For the three months ended June 30, 2025 and 2026, $92,569 and $90,657 in cash for interest, respectively, related to the 2022 Loan, which were recognized as an expense in both periods. ● For the three months ended June 30, 2025 and 2026, $67,324 and $7,292 in interest expense, respectively, related to the Secured Notes. ● For the three months ended June 30, 2025 and 2026, $14,722 and nil, respectively, in accretion expense for original issue discount of the Secured Promissory Note which was repaid on February 6, 2026. ● For the three months ended June 30, 2025 and 2026, $2,592 of amortization of debt issuance costs related to the 2022 Loan in each period. ● For the three m onths ended June 30, 2025, the Company recognized $51,507 in other costs. Change in Fair Value of Investment and Contingent Liability There was a net change in the fair value of the Company’s investment in AlloTera Therapeutics shares of common stock and the related contingent liability of $1.8 million in the three months ended June 30, 2025. There was no change in fair value for the shares or the contingent liability in the three months ended June 30, 2026. 39 Gain on Extinguishment of Liability In the three months ended June 30, 2026, the Company paid $1.2 million in cash to settle a $1.7 million obligation owed to Eirgenix, a CDMO, resulting in a gain on extinguishment of debt of $483,383. Change in Fair Value of Warrant Liability In the three months ended June 30, 2026, the Company recognized a change in fair value of $2.4 million. On June 15, 2026, the underlying warrants were reclassified to permanent equity. Other Income, Net Other income, net had a de minimis decrease from $16,373 for the three months ended June 30, 2025 to $7,551 for the three months ended June 30, 2026. Comparison of the Six Months ended June 30, 2025 and June 30, 2026 Revenues For the six months ended June 30,2025, $11,615 of revenue was recognized in the condensed statements of operations for ancillary services such as drug storage and insurance provided during the winddown of the AlloTera Therapeutics License. The one-year suspension period began on May 29, 2025. For the six months ended June 30, 2026, $6.7 million of revenue was recognized in the condensed statements of operation which was mainly attributable to the closing of the Trimmune License transaction and transfer of Licensed IP. In addition, there was $135,568 of revenue recognized upon the completion of some of services required under the Service Performance Obligation, primarily for supporting Trimmune in building a master cell bank. The Company recognized $348,270 of deferred revenue for the contract liability for the remaining services required under the Service Performance Obligation as of June 30, 2026. Research and Development Expenses The following table summarizes our research and development expenses for the six months ended June 30, 2025 and June 30, 2026: Six Months Ended June 30, 2025 2026 $ Change % Change Salaries, benefits and related expenses $ 1,479,546 $ 1,539,698 $ 60,152 4 % Manufacturing and materials 296,783 17,114 (279,669 ) (94 )% Preclinical expenses 324,060 376,483 52,423 16 % Clinical trials 298,755 228,777 (69,978 ) (23 )% Other expenses 306,392 299,228 (7,164 ) (2 )% Total research and development expenses $ 2,705,536 $ 2,461,300 $ (244,236 ) (9 )% Research and development expenses decreased by $244,236, or 9%, from $2.7 million for the six months ended June 30, 2025 to $2.5 million for the six months ended June 30, 2026. This decrease was primarily attributable to a decrease in expenses related to manufacturing and materials and clinical trials, partially offset by increases in salaries, benefits and related expenses. Salaries, benefits, and related expenses increased by $60,152, or 4%, from $1.5 million for the six months ended June 30, 2025 to $1.5 million for the six months ended June 30, 2026. This increase is primarily attributable to increases of $62,500 for salaries and payroll taxes and $31,804 for employee benefits, partially offset by a decrease of $24,316 for compensation expense related to stock-based compensation. 40 Manufacturing and materials expense decreased by $279,669, or 94%, from $296,783 for the six months ended June 30, 2025 to $17,114 for the six months ended June 30, 2026. In the six months ended June 30, 2025, activities were related to completing the manufacturing of the high producing cell-line of HCW9101, used in the manufacturing process for some of our immunotherapeutics. In the six months ended June 30, 2026, costs were incurred for ancillary services such as storage and insurance. Expenses associated with preclinical activities increased by $52,423, or 16%, from $324,060 for the six months ended June 30, 2025 to $376,483 for the six months ended June 30, 2026. In the six months ended June 30, 2025, expenses were incurred primarily in connection with further testing and research with collaborators for HCW9302. In the six months ended June 30, 2026, activities were primarily related to the Company’s IND-enabling studies for HCW11-018b, in preparation for an IND application to obtain authorization from the FDA to evaluate HCW11-018b in patients with cancer. Expenses associated with clinical activities decreased by $69,978, or 23%, from $298,755 for the six months ended June 30, 2025 to $228,777 for the six months ended June 30, 2026, primarily due to a decrease of $135,832 in fees for consultation, R&D collaborations and professional fees, partially offset by increases of $56,415 for patient fees and $14,014 for software licenses and data management. In the six months ended June 30, 2025, activities were focused on additional studies with collaborators and start up fees related to opening clinical sites in preparation for the initiation of the Phase 1 clinical trial to evaluate HCW9302 in an autoimmune disease. In the six months ended June 30 2026, the Company completed the first two cohorts of a dose-escalating trial and provided a preliminary readout of human data from the clinical trial. The Company had two active clinical sites as of June 30, 2026, and will soon be opening a third clinical site in the third quarter of 2026. Other expenses, which include overhead allocations, decreased by $7,164, or 2%, from $306,392 for the six months ended June 30, 2025 to $299,228 for the six months ended June 30, 2026. The decrease in other expenses is primarily attributable to the decrease of $19,889 in the allocation of depreciation. General and Administrative Expenses The following table summarizes our general and administrative expenses for the six months ended June 30, 2025 and June 30, 2026: Six Months Ended June 30, 2025 2026 $ Change % Change Salaries, benefits and related expenses $ 1,554,026 $ 1,046,820 $ (507,206 ) (33 )% Professional services 951,008 989,975 38,967 4 % Facilities and office expenses 206,068 216,796 10,728 5 % Accretion of fixed bonus upon maturity of Secured Notes 375,308 28,826 (346,482 ) NM Depreciation 120,398 103,870 (16,528 ) (14 )% Rent expense 112,278 87,049 (25,229 ) (22 )% Other expenses 983,215 1,230,316 247,101 25 % Total general and administrative expenses $ 4,302,301 $ 3,703,652 $ (598,649 ) (14 )% NM = Not meaningful General and administrative expenses related to the ordinary course of business decreased by $598,649, or 14%, from $4.3 million for the six months ended June 30, 2025 to $3.7 million for the six months ended June 30, 2026. The decrease in other expenses is primarily attributable to decreases in salaries and benefits and accretion of the fixed bonus payable on maturity of Secured Notes, partially offset by increases in indirect (VAT) taxes and expenses incurred in connection with financing activities. Salaries, benefits and related expenses decreased by $507,206, or 33%, from $1.5 million for the six months ended June 30, 2025 to $1.0 million for the six months ended June 30, 2026. The decrease is primarily attributable to a $518,395 decrease in the compensation expense related to stock-based compensation. 41 Professional services increased by $38,967, or 4%, from $951,008 for the six months ended June 30, 2025 to $989,975 for the six months ended June 30, 2026. The increase is primarily attributable to a $104,280 increase in fees paid for corporate legal fees, audit services, technical accounting advice, tax services, as well as the costs related to maintaining compliance with SEC and Nasdaq listing requirements, partially offset by a decrease of $65,451 in legal fees related to patents and legal activities performed in connection with our intellectual property portfolio. Facilities and office expenses increased by $10,728, or 5%, from $206,068 for the six months ended June 30, 2025 to $216,796 for the six months ended June 30, 2026. The increase is primarily due to increases of $14,716 in repairs, maintenance and general office expenses and $9,978 in IT services, partially offset by a decrease of $15,324 in software licenses and other data management services. In the six months ended June 30, 2025, the Company recognized an expense of $375,308 for accretion of the fixed bonus payment. On May 7, 2025, $6.6 million of the principal of the Secured Notes and the balance of the accumulated fixed bonus payable on the Maturity Date were restructured and converted to equity. Upon conversion, accretion of the fixed bonus payable on the Maturity Date ceased as the right to a fixed bonus was forfeited upon conversion to equity. The Company continues to hold a principal balance of $325,000 of Secured Notes. In the six months ended June 30, 2026, the Company recognized an expense of $28,826 for the accretion of the fixed bonus payable on the Maturity Date for the remaining Secured Notes that were not restructured. Other expenses increased by $247,101, or 25%, from $983,215 for the six months ended June 30, 2025 to $1.2 million for the six months ended June 30, 2026. The increase is primarily attributable to increases of $204,166 related to expenses for financing costs, $191,798 for annual franchise taxes and $32,301 for travel-related expenses, partially offset by decreases of $175,343 for insurance premiums. Legal Expenses (Recoveries), Net For the six months ended June 30, 2025, the Company reported a contra expense of $1.6 million for legal expenses (recoveries), net, reflecting a $2.0 million insurance recovery and legal fees of $397,470. For the six months ended June 30, 2026, the Company reported an expense of $5,525 for legal expenses (recoveries), net. Interest Expense In the six months ended June 30, 2025 and 2026, the Company recognized interest expense of $505,853 and $209,815, respectively, including the following items which were reported within Interest expense on the condensed statements of operations: ● For the six months ended June 30, 2025 and 2026, $183,604 and $179,849 in cash for interest, respectively, related to the 2022 Loan, which were recognized as an expense in both periods. ● For the six months ended June 30, 2025 and 2026, $220,558 and $14,505 in interest expense, respectively, related to the Secured Notes. ● For the six months ended June 30, 2025 and 2026, $14,722 and $10,278 in accretion expense for original issue discount of the Secured Promissory Note which was repaid on February 6, 2026. ● For the six months ended June 30, 2025 and 2026, $5,183 for amortization of debt issuance costs related to ● the 2022 Loan in each period. ● For the six months ended June 30, 2025, the Company recognized $8,961 for amortization of debt issuance costs related to the Secured Notes. ● For the six months ended June 30, 2025 and 2026, the Company recognized $72,825 in other costs. Change in Fair Value of Investment and Contingent Liability There was a net change in the fair value of investment in AlloTera shares and the related contingent liability of $1.8 million in the six months ended June 30, 2025. There was no change in fair value in the six months ended June 30, 2026. 42 Gain on Extinguishment of Liability In the six months ended June 30, 2026, the Company paid $1.2 million in cash to settle a $1.7 million obligation owed to Eirgenix, a CDMO, resulting in a gain on extinguishment of debt of $483,383. Change in Fair Value of Warrant Liability In the six months ended June 30, 2026, the Company recognized a change in fair value of a warrant liability of $1.8 million. On June 15, 2026, the underlying warrants were reclassified to permanent equity. Other Income, Net The change in Other income, net was de minimis, from $41,122 for the six months ended June 30, 2025 and $16,439 for the six months ended June 30, 2026. Liquidity and Capital Resources Sources of Liquidity As of June 30, 2026, the Company had a cash and cash equivalents of $741,324. The Company has not generated any revenue from commercial product sales of its internally developed immunotherapeutic products. During its development activities, the Company has sustained operating losses, experienced negative operating cash flows and negative working capital position and expects to continue to incur operating losses for the foreseeable future. Since inception to June 30, 2026, the Company incurred cumulative net losses of $107.5 million. From inception to June 30, 2026, the Company has funded operations primarily through the sale of equity securities; issuance of Senior Notes; revenues generated from the Company’s exclusive worldwide licenses to develop and commercialize certain internally-developed molecules, and sale clinical materials for research and clinical studies for our licensees. On March 16 2026, the Trimmune License transaction closed upon receipt of the full upfront license fee. For the three and six months ended June 30, 2026, the Company recognized revenues of $135,568 and $6.7 million, respectively. The upfront, nonrefundable license fee included a transferable minority equity interest in Trimmune. Since Trimmune is a private company, there is limited ability to liquidate these shares at this time. On May 21, 2026, the Company elected to terminate its exclusive worldwide license with AlloTera Therapeutics. With these reacquired rights, the Company is launching the formerly licensed molecules as commercial-ready reagents to use to support more cost-effective and efficient manufacturing for cell-based immunotherapies for cancer and infectious diseases. Our strategy is to commercialize the reagents in partnership with a biopharmaceutical manufacturing company in a business development transaction, such as a joint venture or license. The Company will retain the 2.2 million shares of AlloTera Therapeutics received as an in-kind payment for a portion of the nonrefundable upfront license fee. AlloTera Therapeutics is a pivotal-stage cell therapy company focused on bringing off-the-shelf CAR-T therapies to patients with T-cell cancers. In the three months ended June 30, 2026, the Company completed a $4.0 million offering, which provided $3.5 million in net proceeds after commission and offering costs we are responsible for. Investors who participated in this round were existing stockholders, including officers and directors of the Company. Scott Garrett, Chairman of our board of directors, purchased $250,000 of securities, Hing C. Wong, our Founder and Chief Executive Officer, purchased $160,000 of securities, and Rebecca Byam, our Chief Financial Officer, purchased $20,000 of securities. Such purchases were made on the same terms and conditions as those offered to other investors. On December 30, 2025, the Company entered a settlement agreement with Cooley related to legal fees incurred in connection with the defense of Dr. Wong. As a result of that agreement, the Company, Dr. Wong and Cooley agreed to settle a $7.5 million obligation for $2.0 million in cash and contingent payments up to $5.5 million upon achievement of certain triggering events, all of which were deemed to be remote as of December 31, 2025. In accordance with the terms of the settlement agreement, $500,000 was paid on December 31, 2025. Based on an amendment to the settlement agreement, the Company paid $750,000 on March 20, 2026, and will pay the remaining $750,000 upon the earlier of the completion of a financing for at least $4.0 million in gross proceeds or August 31, 2026. After this settlement, as of June 30, 2026, the Company has a liability of $5.4 million for remaining amounts owed for legal fees related to the Arbitration which continue to remain outstanding. 43 During the year ended December 31, 2025, certain subcontractors had filed mechanics liens related to unpaid invoices issued in connection with the construction and renovation of a property owned by the Company. 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 as part of their responses to the BE&K Complaint. To our knowledge as of the date hereof, 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 Complaint) 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 cases have been consolidated. The Company owes BE&K and other lien holders $2.2 million as of June 30, 2026 that was included within Accounts Payable in the accompanying condensed balance sheets. The court has set the BE&K matter for a five-day jury trial in December 2026. There will also be a pretrial conference on November 20, 2026. The Company intends to settle these claims prior to the pre-trial hearing. On June 26, 2026, as part of a settlement with B&I Contractors, Inc. (“B&I”), we received notice that B&I had filed a voluntary dismissal with prejudice of its crossclaims against us in the matter BE&K Building Group, LLC v. HCW Biologics Inc., et al. pending in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. The matter arose from a mechanics’ lien filed by B&I in connection with allegedly unpaid invoices relating to renovation work at our facility located at 3300 Corporate Way, Miramar, Florida, which is being renovated for future office and laboratory use. In connection with the settlement, B&I filed a final satisfaction of lien releasing a lien in the amount of approximately $1.1 million. The dismissal and satisfaction of lien completed the parties’ settlement and fully resolved all amounts claimed to be owed by us to B&I. There was no gain or loss on the settlement with B&I. On October 24, 2025, the Company was notified by Cogent Bank that it exercised its discretion to make a demand that the Company cure the defaults no later than thirty (30) days after receipt of this letter in strict compliance with Section 7.2(3) of the Loan Agreement by: (i) paying and discharging all of the Claims of Lien and causing satisfactions to be recorded in the Public Records of Broward County, Florida for all of the Claims of Lien, and (ii) resolving all litigation against the Borrower and the mortgaged property described in the Mortgage and causing such claims in the Foreclosure Actions to be dismissed and all related notices of lis pendens to be released. The Company and Cogent Bank are negotiating terms for a forbearance agreement to provide additional time for the Company to comply with the demands Cogent Bank made in their demand letter. As of June 30, 2026, the balance due under the Loan Agreement was $6.1 million. On May 26, 2026, we paid in full all amounts due under a settlement agreement with EirGenix, Inc. (“EirGenix”), our contract development and manufacturing organization, relating to manufacturing costs. Pursuant to the settlement agreement entered into on December 9, 2025, EirGenix agreed to accept $1.24 million in full satisfaction of approximately $1.7 million of outstanding amounts, provided payment was made by an agreed deadline. We paid $620,000 on March 3, 2026 and the remaining $620,000 on May 26, 2026. As a result, all obligations under the settlement agreement were satisfied and the related unpaid invoices and disputed credits were fully resolved. There was a gain on extinguishment of a liability of $483,383 recognized in the three and six months ended June 30, 2026 related to the settlement with Eirgenix. The accompanying condensed 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 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 June 30, 2026 was not alleviated. 44 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: ● cost and timing of buildout of the Company’s property for 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 Six Months Ended June 30, 2025 and June 30, 2026 The following table summarizes our cash flows for the six months ended June 30, 2025 and June 30, 2026: Six Months Ended June 30, 2025 2026 Cash used in operating activities $ (6,796,159 ) $ (5,541,364 ) Cash used in investing activities — — Cash provided by financing activities 4,560,549 4,330,224 Net decrease in cash and cash equivalents $ (2,235,610 ) $ (1,211,140 ) 45 Operating Activities Net cash used in operating activities was $6.8 million for the six months ended June 30, 2025 and $5.4 million for the six months June 30, 2026. Cash used by operating activities for the six months ended June 30, 2025 consisted primarily of net loss for the period of $4.1 million, a $1.7 million adjustment for unrealized gain on investment, a $560,590 decrease in Accounts receivable, a $2.8 million decrease in Accounts payable, and a $131,134 loss on conversion with a related party, partially offset by non-cash adjustments of $710,926 for depreciation and accretion expenses, $553,949 for compensation expenses related to stock-based compensation, and a $150,000 Commitment Fee paid in the Company’s Common Stock. Cash provided by operations includes a $2.0 million 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 – Arbitration, Settlement and General Release.” Cash used in operating activities for the six months ended June 30, 2026 consisted primarily of a net loss for the period of $1.7 million, noncash revenue in the form of an in-kind payment of a transferable minority equity interest in Trimmune recognized at the fair value of $3.5 million, $2.0 million of cash used to decrease Accounts payable and other liabilities, a gain on extinguishment of a liability of $483,383 and a $108,214 increase in prepaid expenses and other assets. The uses were partially offset by an increase of $348,270 in Deferred revenue related to contract liabilities under the Trimmune License and noncash adjustments, including a $1.8 million change in fair value of warrant liability, $269,144 for Depreciation and accretion and $11,239 for stock-based compensation. Investing Activities There was no cash used in or provided by investing activities for the six months ended June 30, 2025 and June 30, 2026, respectively. Financing Activities During the six months ended June 30, 2025, $4.6 million of cash provided by financing activities consisted of the following: ● $1.5 million of gross proceeds for the issuance of shares of the Company’s Common Stock. ● $5.0 million in gross proceeds for the issuance of Pre-Funded Warrants and Common Stock Warrants. ● $150,000 in gross proceeds upon the issuance of a promissory note secured by a personal guarantee by the Company’s Founder and Chief Executive Officer. ● $824,899 used for issuance costs. ● $63,385 used to repay debt. During the six months ended June 30, 2026, $4.3 million of cash provided by financing activities consisted of the following: ● $546,861 of proceeds for the issuance of shares of the Company’s Common Stock. ● $5.0 million in gross proceeds for the issuance of Pre-Funded Warrants which may be exercised to purchase shares of the Company’s Common Stock. ● $877,635 used for payment of issuance costs. ● $292,141 used to repay debt. 46 In the six months ended June 30, 2025, there were significant noncash transactions. The Company restructured $7.4 million of Secured Notes and accumulated accretion for a fixed bonus payable upon Maturity Date, in exchange for shares of Common Stock, warrants to exercise for Common Stock, and the right to receive proceeds upon the liquidation or sale of a portion of the Company’s shares of AlloTera Therapeutics common stock. Because this was a transaction with related parties, the gain from restructuring was recorded to additional paid-in capital for the period ended June 30, 2025. Also during this period, the Company closed on a $5.0 million financing in which it issued shares of the Company’s Common Stock, warrants to exercise to purchase shares of the Company’s Common Stock and repriced previously issued warrants with an existing stockholder of the Company. The Company estimated fair value of the securities issued and repriced warrants was $15.2 million. The difference between the gross proceeds and fair value was recognized as an equity dividend to investor, as this transaction was with an existing stockholder of the Company. The Company recorded a $10.2 million dividend to additional paid-in capital for the period ended June 30, 2025. In the six months ended June 30, 2026, the Company closed on two financing transactions for $5.5 million in which it issued shares of the Company Common Stock, warrants to exercise to purchase shares of the Company’s Common Stock to investors, including officers, directors and significant existing stockholders of the Company, and repriced previously issued warrants with an existing stockholder of the Company. The Company estimated fair value of the securities issued and repriced warrants was $17.1 million. The difference between the gross proceeds and fair value was recognized as an equity dividend to investors, as both transactions were with an existing stockholder of the Company. The Company recorded a $11.6 million dividend to investors within additional paid-in capital for the period ended June 30, 2026. 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 financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for more information. Earnings per Share The Company computes basic and diluted earnings per share using the two-class method because certain warrants the Company issued are a participating security that contractually participates with the Company’s Common Stock in any cash dividend or other distribution declared on the Common Stock on an as-converted basis (the “Participating Warrants”). These warrants do not have a contractual obligation to share in the Company’s losses. Under the two-class method, net income is allocated between Common Stockholders and the holders of the Participating Warrants based on their respective participation rights, and is computed using the more dilutive of (i) the two-class method with dilutive common share equivalents included in the denominator, with a corresponding reallocation of undistributed earnings, or (ii) the if-converted method, which adds preferred-as-converted shares to both the numerator (adding back preferred dividends) and the denominator. For periods in which the Company reports a net loss, no portion of the loss is allocated to the Participating Warrants. The Company reports distributed and undistributed allocations of earnings on a cumulative period basis in accordance with contractual participation rights. As of June 30, 2026, there were participating warrants outstanding that may be exercised to purchase up to 524,501 shares of Common Stock. 47 Basic loss per share is computed by dividing net loss attributable to Common Stockholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share gives effect to all potentially dilutive common shares outstanding during the period, including employee stock options and Common Stock Warrants, using the treasury stock method. Potentially dilutive securities, including warrants that may be exercised to purchase up to 1,411,870 shares of Common Stock and options that may be exercised to purchase up to 7,342 shares of Common Stock, are excluded from the diluted loss per share computation when their effect would be anti-dilutive. 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 As of December 31, 2026, the Company will cease to be an ‘emerging growth company’ as defined in the Jumpstart Our Business Startups Act of 2012. We expect to remain a nonaccelerated filer and smaller reporting company. The Company is currently assessing potential regulatory and operational changes that may be required as a result. See also Note 1 to our Annual Report.