UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

(Mark One)

☒
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2021~~

2022

☐
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number:

001-40591

HCW Biologics Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware		82-5024477
( State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2929 N. N. Commerce Parkway Miramar, Florida		33025
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: ~~(954)~~ (954) 842–2024

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

~~Trading~~

~~Symbol(s)~~

Name of each exchange
on which registered

Common Stock, par value $0.0001 per share

HCWB

~~HCWB~~

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of

1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.


Large accelerated filer	☐	☐	Accelerated filer	☐

Non-accelerated filer	☒	☒	Smaller reporting company	☒

Emerging growth company	☒	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

As of August

~~13,~~

~~2021,~~ 10, 2022, the registrant had ~~35,723,996~~35,833,135 shares of common stock, $0.0001 par value per share, outstanding.

~~Table of Contents~~


		Page		~~Page~~
PART I.		FINANCIAL INFORMATION	1		1
Item 1.		Financial Statements	1		1
		Unaudited condensed interim financial statements as of and for the three ~~months~~ and six months ended June 30, ~~2020~~2021 and June 30, ~~2021:~~ 2022:
		Balance sheets	1		1
		Statements of operations	2		2
		Statements of changes in redeemable preferred stock and stockholders’ ~~deficit~~(deficit) equity	3		3
		Statements of cash flows	4		4
		Notes to financial statements	5		5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	12		11
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	22		25
Item 4.		Controls and Procedures	22		26
PART II.		OTHER INFORMATION	23		27
Item 1.		Legal Proceedings	23		27
Item 1A.		Risk Factors	23		27
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	23		27
Item 3.		Defaults Upon Senior Securities	23		27
Item 4.		Mine Safety Disclosures	23		27
Item 5.		Other Information	23		27
Item 6.	Exhibits	~~Exhibits~~ 24			28
Signatures		25		29

~~Table of Contents~~

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

HCW Biologics Inc.

Condensed Balance Sheets

December 31,

June 30,


2020

2021


(unaudited)

ASSETS

Current assets:

Cash and cash equivalents
   $ 8,455,834 $ 5,050,851
Accounts receivable, net
   2,500,000 50,000
Prepaid expenses
   538,306 862,498
Deferred offering costs    0   3,189,000
Other current assets
   654,528 893,971


Total current assets
   12,148,668 10,046,320
Investment
   1,599,750 1,599,750
Property and equipment, net
   1,649,668 1,387,324


Total assets
   $ 15,398,086 $ 13,033,394


LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

Liabilities

Current liabilities:

Accounts payable
   $ 155,343 $ 996,880
Accrued liabilities and other current liabilities
   845,741 3,172,545


Total current liabilities
   1,001,084 4,169,425
Commitments and contingencies (Note 7)

Redeemable preferred stock:

Series A, $0.0001 par value; 14,738,948 shares authorized and 6,316,691 shares issued at December 31, 2020 and June 30, 2021
   6,140,792 6,333,842
Series B, $0.0001 par value; 28,029,449 shares authorized and 12,012,617 shares issued at December 31, 2020 and June 30, 2021
   13,680,306 14,118,483
Series C, $0.0001 par value; 18,181,818 shares authorized and 5,439,112 shares issued at December 31, 2020 and June 30, 2021
   11,294,301 11,651,350


Total redeemable preferred stock
   31,115,399 32,103,675


Stockholders’ deficit:

Common stock:

Class B convertible, $0.0001 par value; 10,000,000 shares authorized and 4,285,714 shares issued at December 31, 2020 and June 30, 2021
   429 429
Class A, $0.0001 par value; 74,950,215 shares authorized and 507,680 shares issued at December 31, 2020; 74,950,215 shares authorized and 669,886 shares issued at June 30, 2021
   51 67
Accumulated deficit
   (16,718,877 ) (23,240,202 )


Total stockholders’ deficit
   (16,718,397 ) (23,239,706 )


Total liabilities, redeemable preferred stock and stockholders’ deficit
   $ 15,398,086 $ 13,033,394


	December 31,			June 30,
	2021			2022
				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	11,730,677		$	15,420,331
Short-term investments		24,983,520			16,993,523
Accounts receivable, net		133,000			346,934
Prepaid expenses		2,196,557			1,397,497
Other current assets		1,436,616			470,021
Total current assets		40,480,370			34,628,306
Investments		11,522,050			11,302,870
Property and equipment, net		1,119,091			913,734
Other assets		393,318			563,512
Total assets	$	53,514,829		$	47,408,422
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current liabilities:
Accounts payable	$	223,664		$	296,207
Accrued liabilities and other current liabilities		2,097,925			848,340
Total current liabilities		2,321,589			1,144,547
Other liabilities		0			98,447
Total liabilities		2,321,589			1,242,994
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock:
Common, $0.0001 par value; 250,000,000 shares authorized and 35,768,264 shares issued at December 31, 2021; 250,000,000 shares authorized and 35,823,923 shares issued at June 30, 2022		3,577			3,582
Additional paid-in capital		81,827,006			82,366,957
Accumulated deficit		(30,637,343	)		(36,205,111	)
Total stockholders’ equity		51,193,240			46,165,428
Total liabilities and stockholders’ equity	$	53,514,829		$	47,408,422

See accompanying notes to the unaudited condensed interim financial statements.

HCW Biologics Inc.

Condensed Statements of Operations

(Unaudited)

Three Months Ended

June 30,

Six Months Ended
June 30,


2020

2021

2020

2021

Operating expenses:

Research and development
   $ 2,068,783 $ 1,673,163 $ 3,747,207 $ 4,002,976
General and administrative
   711,224 1,077,830 1,429,792 2,160,190


Total operating expenses
   2,780,007 2,750,993 5,176,999 6,163,166


Loss from operations
   (2,780,007 ) (2,750,993 ) (5,176,999 ) (6,163,166 )
Interest and other income, net
   1,522 631 23,000 568,808


��

Net loss
   $ (2,778,485 ) $ (2,750,362 ) $ (5,153,999 ) $ (5,594,358 )
Less: cumulative preferred dividends earned in the period
   (279,786 ) (482,662 ) (559,573 ) (960,020 )


Net loss available for distribution to common stockholders
   $ (3,058,271 ) $ (3,233,024 ) $ (5,713,572 ) $ (6,554,378 )


Net loss per share, basic and diluted
   $ (0.65 ) $ (0.66 ) $ (1.21 ) $ (1.34 )
Weighted average shares outstanding, basic and diluted
   4,725,083 4,921,121 4,721,313 4,880,496


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2022			2021			2022
Revenues:
Revenues	$	0		$	454,000		$	—		$	3,571,545
Cost of revenues		0			(287,200	)		—			(1,615,276	)
Net revenues		0			166,800			—			1,956,269

Operating expenses:
Research and development	$	1,673,163		$	1,969,882		$	4,002,976		$	3,759,558
General and administrative		1,077,830			1,707,995			2,160,190			3,588,597
Total operating expenses		2,750,993			3,677,877			6,163,166			7,348,155
Loss from operations		(2,750,993	)		(3,511,077	)		(6,163,166	)		(5,391,886	)
Interest and other income (loss), net		631			516			568,808			(175,882	)
Net loss	$	(2,750,362	)	$	(3,510,561	)	$	(5,594,358	)	$	(5,567,768	)
Less: cumulative preferred dividends earned in the period		(482,662	)		0			(960,020	)		—
Net loss available for distribution to common stockholders	$	(3,233,024	)	$	(3,510,561	)	$	(6,554,378	)	$	(5,567,768	)
Net loss per share, basic and diluted	$	(0.66	)	$	(0.10	)	$	(1.34	)	$	(0.16	)
Weighted average shares outstanding, basic and diluted		4,921,121			35,814,482			4,880,496			35,796,257

See accompanying notes to the unaudited condensed interim financial

~~statements~~

statements.

HCW Biologics Inc.

Condensed Statements of Changes in Redeemable Preferred Stock and Stockholders’ ~~Deficit~~

(Deficit) Equity

For the Six Months Ended June 30, ~~2020~~2021 and ~~2021~~

June 30, 2022

(Unaudited)

Redeemable Preferred Stock

Stockholders’ Deficit


Series A

Series B

Series C

Common Stock

Additional

Paid-In

Capital

Accumulated
Deficit

Total

Stockholders’

Deficit


Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Balance, December 31, 2019
6,316,691 $ 5,792,302 12,012,617 $ 12,883,859 0

$ 0

4,717,542 $ 472 $ 0

$ (9,676,766 ) $ (9,676,294 )
Stock-based compensation
—   —   —   —   —   —   —   76 —   76
6% cumulative dividends on
redeemable preferred stock
—   86,646 —   193,140 —   0

—   —   (76 ) (279,710 ) (279,786 )
Accretion of issuance costs
—   —   —   7,857 —   —   —   —   —   —   —
Net loss
—   —   —   —   —   —   —   —   —   (2,375,514 ) (2,375,514 )

Balance, March 31, 2020

6,316,691

5,878,948

12,012,617

13,084,856

0


0


4,717,542

472

0


(12,331,990
)

(12,331,518
)

Issuance of Class A Common
Stock upon exercise of
stock options

—

—

—

—

—

—

20,742

2 2,304

—

2,306
Stock-based compensation

—

—

—

—

—

—

—

—

9,515

—

9,515
6% cumulative dividends on redeemable preferred stock

—

86,646

—
193,140

—
—

—

—

(11,819 ) (267,967 ) (279,786
)
Accreation of issuance costs

—

—

—

3,929 —   —

—

—

—

—

—
Net loss
—   —   —   —   —   —   —   —   —   (2,778,485 ) (2,778,485 )

Balance, June 30, 2020

6,316,691

$
5,965,594

12,012,617

$
13,281,925

0


$
0


4,738,284

$
474

$
0


$
(15,378,442
)

$
(15,377,968
)



















Redeemable Preferred Stock

Stockholders’ Deficit


Series A

Series B

Series C

Common Stock

Additional

Paid-In

Capital

Accumulated
Deficit

Total

Stockholders’

Deficit


Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Balance, December 31, 2020
6,316,691 $ 6,140,792 12,012,617 $ 13,680,306 5,439,112 $ 11,294,301 4,793,394 $ 480 $ 0

$ (16,718,877 ) $ (16,718,397 )
Issuance of Class A Common Stock upon exercise of stock options

—

—

—

—

—

—

88,706 8 13,377

—
13,385
Stock-based compensation

—

—

—

—

—

—

—

—

641 —   641
6% cumulative dividends on redeemable preferred stock

—

95,992 —   213,971 —   167,395 —

—

(14,018 ) (463,340 ) (477,358 )
Accretion of issuance costs

—

—

—

3,929

—

10,200 —

—

—

—

—
Net loss
—   —   —   —   —   —   —   —   —   (2,843,996 ) (2,843,996 )

Balance, March 31, 2021

6,316,691

6,236,784

12,012,617

13,898,206

5,439,112

11,471,896

4,882,100

488

0


(20,026,213
)

(20,025,725
)

Issuance of Class A Common Stock upon exercise of stock options

—

—

—

—

—

—

73,500 8 9,457
—

9,465
Stock-based compensation

—

—

—

—

—

—

—

—

9,578
—

9,578
6% cumulative dividends on redeemable preferred stock

—

97,058
—

216,348
—

169,256
—

—

(19,035 ) (463,627 ) (482,662 )
Accreation of issuance costs

—

—

—

3,929

—

10,198
—

—

—

—

—

Net loss

—

—

—

—

—

—

—

—

—

(2,750,362 ) (2,750,362 )
Balance, June 30, 2021

6,316,691

$
6,333,842

12,012,617

$
14,118,483

5,439,112

$
11,651,350

4,955,600

$
496

$
0

$
(23,240,202
)

$
(23,239,706
)


	Redeemable Preferred Stock													Stockholders’ Deficit
	Series A					Series B				Series C				Common Stock				Additional Paid-In			Accumulated			Total Stockholders’
	Shares		Amount			Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Deficit
Balance, December 31, 2020		6,316,691	$	6,140,792			12,012,617	$	13,680,306		5,439,112	$	11,294,301		4,793,393	$	480	$	—		$	(16,718,877	)	$	(16,718,397	)
Issuance of Class A Common Stock upon exercise of stock options		—		—			—		—		—		—		88,702		8		13,377			—			13,385
Stock-based compensation		—		—			—		—		—		—		—		—		641			—			641
6% cumulative dividends on redeemable preferred stock		—		95,992			—		213,971		—		167,395		—		—		(14,018	)		(463,340	)		(477,358	)
Accretion of issuance costs		—		—	0		—		3,929		—		10,200		—		—		—			—			—
Net loss		—		—			—		—		—		—		—		—		—			(2,843,996	)		(2,843,996	)
Balance, March 31, 2021		6,316,691	$	6,236,784			12,012,617	$	13,898,206		5,439,112	$	11,471,896		4,882,095	$	488	$	—		$	(20,026,213	)	$	(20,025,725	)
Issuance of Class A Common Stock upon exercise of stock options		—		—			—		—		—		—		73,505		8		9,457			—			9,465
Stock-based compensation		—		—			—		—		—		—		—		—		9,578			—			9,578
6% cumulative dividends on redeemable preferred stock		—		97,058			—		216,348		—		169,256		—		—		(19,035	)		(463,627	)		(482,662	)
Accretion of issuance costs		—		—			—		3,929		—		10,198		—		—		—			—			—
Net loss		—		—			—		—		—		—		—		—		—			(2,750,362	)		(2,750,362	)
Balance, June 30, 2021		6,316,691	$	6,333,842			12,012,617	$	14,118,483		5,439,112	$	11,651,350		4,955,600	$	496	$	—		$	(23,240,202	)	$	(23,239,706	)


	Redeemable Preferred Stock												Stockholders’ Equity
	Series A				Series B				Series C				Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance, December 31, 2021		—	$	—		—	$	—		—	$	—		35,768,264	$	3,577	$	81,827,006	$	(30,637,343	)	$	51,193,240
Issuance of Class A Common Stock upon exercise of stock options		—		—		—		—		—		—		11,225		1		2,272		—			2,273
Stock-based compensation		—		—		—		—		—		—		—		—		260,348		—			260,348
Net loss		—		—		—		—		—		—		—		—		—		(2,057,207	)		(2,057,207	)
Balance, March 31, 2022		—	$	—		—	$	—		—	$	—		35,779,489	$	3,578	$	82,089,626	$	(32,694,550	)	$	49,398,654
Issuance of Class A Common Stock upon exercise of stock options		—		—		—		—		—		—		44,434		4		5,996		—			6,000
Stock-based compensation		—		—		—		—		—		—		—		—		271,335		—			271,335
Net loss		—		—		—		—		—		—		—		—		—		(3,510,561	)		(3,510,561	)
Balance, June 30, 2022		—	$	—		—	$	—		—	$	—		35,823,923	$	3,582	$	82,366,957	$	(36,205,111	)	$	46,165,428

See accompanying notes to the unaudited condensed interim financial statements.

HCW Biologics Inc.

Condensed Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,


2020

2021

Cash flows from operating activities:

Net loss
   $ (5,153,999 ) $ (5,594,358 )
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization
   306,011 323,897
Gain on extinguishment of debt
   —   (567,311 )
Changes in operating assets and liabilities:

Accounts receivable
   —   2,450,000
Prepaid expenses and other assets
   215,081 (563,436 )
Accounts payable and other liabilities
   488,273 1,470,966


Net cash used in operating activities
   (4,144,634 ) (2,480,242 )
Cash flows from investing activities:

Purchases of property and equipment
   (45,076 ) (23,279 )


Net cash used in investing activities
   (45,076 ) (23,279 )
Cash flows from financing activities:

Proceeds from issuance of common stock
   2,306 22,850
Offering
costs
   —   (924,312 )


Net cash provided by
(used in)
financing activities
   2,306 (901,462 )
Net changes in cash and cash equivalents
   (4,187,404 ) (3,404,983 )
Cash and cash equivalents at the beginning of the period
   7,355,834 8,455,834


Cash and cash equivalents at the end of the period
   $ 3,168,430 $ 5,050,851


Non-cash
operating, investing and financing activities:

Purchases of property and equipment included in accounts payable and accrued liabilities
   $ 88,579 $
—



Cumulative dividends earned and accrued in the reporting period
   $ 559,573 $ 960,020


PPP loan forgiveness
   $ —   $ 567,311


Offering
costs
   $ —   $ 2,264,688


	Six Months Ended June 30,
	2021			2022
Cash flows from operating activities:
Net loss	$	(5,594,358	)	$	(5,567,768	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		313,679			292,363
Stock-based compensation		10,218			531,683
Gain on extinguishment of debt		(567,311	)		0
Unrealized loss on investments, net		0			209,337
Reduction in the carrying amount of right-of-use asset		0			836
Changes in operating assets and liabilities:
Accounts receivable		2,450,000			(213,934	)
Prepaid expenses and other assets		(563,436	)		1,863,759
Accounts payable and other liabilities		1,470,966			(1,347,729	)
Operating lease liability		0			(50,545	)
Net cash used in operating activities		(2,480,242	)		(4,281,998	)
Cash flows from investing activities:
Purchases of property and equipment		(23,279	)		(36,461	)
Proceeds for sale or maturities of short-term investments		0			7,999,840
Net cash (used in) provided by investing activities		(23,279	)		7,963,379
Cash flows from financing activities:
Proceeds from issuance of common stock		22,850			8,273
Offering costs		(924,312	)		0
Net cash (used in) provided by financing activities		(901,462	)		8,273
Net changes in cash and cash equivalents		(3,404,983	)		3,689,654
Cash and cash equivalents at the beginning of the period		8,455,834			11,730,677
Cash and cash equivalents at the end of the period	$	5,050,851		$	15,420,331
Non-cash operating, investing and financing activities:
Cumulative dividends earned and accrued in the reporting period	$	960,020		$	0
PPP loan forgiveness	$	567,311		$	0
Offering costs	$	2,264,688		$	0
Operating lease liabilities arising from obtaining right-of-use assets	$	0		$	269,134

See accompanying notes to the unaudited condensed interim financial statements.

HCW Biologics Inc.

Notes to Condensed Financial Statements

(Unaudited)

(

~~Unaudited~~

)

1. Organization and Summary of Significant Accounting Policies

Organization

HCW Biologics Inc. (the “Company”) is a ~~preclinical stage~~clinical-stage biopharmaceutical

company

focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic,

low-grade

inflammation and

age-related

diseases. The Company believes

age-related

low-grade

chronic inflammation, or “inflammaging,” is a significant contributing factor to several chronic diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases. The Company is located in Miramar, Florida and was incorporated in the state of Delaware in April 2018.

~~Reverse Stock Split~~

~~In June 2021, the Company’s board of directors and stockholders approved an amendment to the Company’s certificate of incorporation to effect a~~

~~3-for-7~~

reverse stock split for all issued and outstanding common stock, redeemable preferred stock, and stock options, that was effective on June 25, 2021 (the “Reverse Stock Split”). The number of authorized shares and the par values of the common stock and redeemable preferred stock were not adjusted as a result of the Reverse Stock Split. The accompanying condensed interim financial statements and notes to the condensed interim financial statements give retroactive effect to the Reverse Stock Split for all periods presented.

Liquidity

On December 24, 2020, the Company entered into the Exclusive Worldwide License Agreement with Wugen Inc. (“Wugen License”). As a result of this transaction, as of June 30, 2021, the Company holds a minority interest in Wugen carried at $1.6 million, the fair value on the effective date of the Wugen License.

~~The underlying shares of common stock is not currently traded on any public market and thus has limited marketability. During the six-month period ended June 30, 2021, the Company received payments of~~

~~$2.5~~

~~million due for payment under the terms of the Wugen License for performance obligations completed on the effective date.~~

As of June 30, ~~2021,~~2022, the Company had not generated any revenue from commercial product sales of its internally-developed immunotherapeutic ~~products.~~products for the treatment of cancer and other age-related diseases. In the course of its development activities, the Company has sustained operating losses and expects to continue to incur operating losses for the foreseeable future. Since inception, substantially all the Company’s activities have consisted of research, development, establishing large-scale cGMP production for clinical trials, and raising capital.

The Company's total revenues to date have been generated principally from its exclusive worldwide license with Wugen, Inc. (“Wugen”), pursuant to which Wugen licensed limited rights to develop, manufacture, and commercialize cell therapy treatments for cancer based on two of our internally-developed multi-cytokine fusion protein molecules, and its manufacturing and supply arrangement with Wugen. In the three months and six months ended June 30, 2022, the Company recognized revenues of $454,000 and $3.6 million, respectively, generated from the supply of clinical and research grade material to Wugen.

On July 19, 2021, the Company’s registration statement on Form S-1 for its initial public offering (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). On July 22, 2021, the Company closed its IPO with the sale of 7,000,000 shares of common stock, at a public offering price of $8.00 per share, resulting in net proceeds of approximately $49.2 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by the Company. The IPO met the provisions for mandatory conversion of all shares of redeemable preferred stock according to the designations for these securities. As a result of the conversion, the Company issued 23,768,416 shares of common stock to the former holders of redeemable preferred stock. In addition, as a result of conditions for mandatory conversion, the Company was relieved of its obligation to pay $2.8 million in cumulative dividends that were accrued and unpaid on the conversion date.

As of June 30, ~~2021~~

2022, the Company had cash and cash equivalents of ~~$5.1 million.~~$15.4 million, short-term investments of $17.0 million held in U.S. government-backed securities, and long-term investments of $9.7 million held in U.S. government-backed securities. Since inception to June 30, ~~2021,~~2022, the Company incurred cumulative net losses of ~~$20.7~~$33.5 million. Management expects to incur additional losses in the future to conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan. ~~HCW Biologics~~The Company intends to raise capital ~~through~~which may include the issuance of additional equity financing and/or third-party collaboration funding. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of some of its products.

Summary of Significant Accounting Policies

Basis of Presentation

Unaudited Interim Financial Information

The accompanying unaudited condensed interim financial statements as of June 30, ~~2021~~2022 and for the three months and six months ended June 30, ~~2020~~2021 and ~~2021~~2022 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to Article 10 of

Regulation S-X of

the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed interim financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows. The results for the three and six months ended June 30, 2021 and 2022 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period. The condensed balance sheet at December 31, ~~2020~~2021 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of

~~Table of Contents~~

the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed interim financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, ~~2020~~2021 which appear in the Company’s ~~registration statement~~Annual Report on Form

~~S-1~~

~~(File~~

~~No. 333-256510)~~

10-K filed for ~~its initial public offering (“IPO”) which was declared effective~~the year ended December 31, 2021 with the SEC on ~~July 19, 2021.~~

March 29, 2022 and in other filings with the SEC.

Revenue Recognition

The Company ~~recognizes revenue when its customer or collaborator obtains control of promised goods or services,~~accounts for revenues in ~~an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.~~

accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”). To determine revenue recognition for arrangements that ~~are~~fall within the scope of Topic 606, itthe Company performs the following five steps:

i.	~~identify the contract(s) with a customer;~~

~~ii.~~

~~identify the performance obligations in the contract;~~

~~iii.~~

~~determine the transaction price;~~

~~iv.~~

~~allocate the transaction price to the performance obligations within the contract; and~~

(i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when ~~(or as) the entity satisfies a performance obligation.~~

~~At contract inception, once the contract is determined to be within the scope of Topic 606 and~~ it is probable ~~of collection,~~that it will collect the consideration it is entitled to in exchange for the goods or services transferred to the customer.

At contract inception, the Company assesses the goods or services promised within ~~the~~each contract, ~~to determine~~determines those that are performance obligations, and assesses whether each promised good or service is a performance obligation. The promised goods or services in the Company’s arrangements may consist of a license, or options to license, the Company’s intellectual property and research, development, and manufacturing services.distinct. The Company may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.

The Company determines the transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

~~The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and~~ recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) ~~control is transferred to the customer and~~ the performance obligation is satisfied. To date, the Company's revenues have been generated exclusively from the Wugen License, which consists of licenses of intellectual property, cost reimbursements, upfront signing fees, milestone payments and royalties on future licensee’s product sales. In addition, the Company and Wugen have an agreement for the supply of clinical and research grade materials under which the Company also recognized revenues.

License Grants:

For out-licensing arrangements that include a grant of a license to the Company’s intellectual property, the Company considers whether the license grant is distinct from the other performance obligations ~~which consist of~~included in the arrangement. For licenses that are distinct, the Company recognizes revenues from nonrefundable, upfront payments and other ~~promises,~~consideration allocated to the license when the license term has begun and the Company ~~utilizes judgment~~has provided all necessary information regarding the underlying intellectual property to ~~assess~~ the ~~nature~~customer, which generally occurs at or near the inception of the ~~combined~~arrangement.

Milestone and Contingent Payments:

At the inception of the arrangement and at each reporting date thereafter, the Company assesses whether it should include any milestone and contingent payments or other forms of variable consideration in the transaction price using the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Since milestone and contingent payments may become payable to the Company upon the initiation of a clinical study or filing for or receipt of regulatory approval, the Company reviews the relevant facts and circumstances to determine when the Company should update the transaction price, which may occur before the triggering event. When the Company updates the transaction price for milestone and contingent payments, the Company allocates the changes in the total transaction price to each performance obligation in the agreement on the same basis as the initial allocation. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment, which may result in recognizing revenue for previously satisfied performance obligations in such period. The Company’s licensees will generally pay milestones payments subsequent to achievement of the triggering event.

Materials Supply:

The Company provides clinical and research grade materials so that licensees may develop products based on the licensed molecules. The Company plans to enter into commercialization supply agreements when licensees enter the commercial stage of their company. The amounts billed are recognized as revenue as the performance obligations are satisfied by the Company, once the Company determines that a contract exists.

On June 18, 2021, the Company entered into a master services agreement ("MSA") with Wugen for the supply of materials for clinical development of licensed products. The terms set forth in the MSA were not sufficient to meet all the requirements for the Company to determine ~~whether~~that a contact existed for a transaction. In order for a contract to exist, additional terms for each transaction require the ~~combined~~Company to enter into a statement-of-work ("SOW") for each purchase. Each of these transactions represents a single performance obligation that is satisfied over ~~time or at a point in time and, if over time, the appropriate method of measuring progress.~~time. The Company ~~evaluates~~recognizes revenue using an input method based on the ~~measure~~costs incurred relative to the total expected cost, which determines the extent of the Company's progress toward completion. As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgement to determine the progress towards completion. The Company reviews its estimate of the progress toward completion based on the best information available to recognize the cumulative progress toward completion as of the end of each reporting period, and makes revisions to such estimates, if ~~necessary, adjusts~~facts and circumstances change during each reporting period.

On March 14, 2022, the ~~measure~~Company entered into SOWs with Wugen for each of ~~performance~~the then-current and ~~related revenue recognition.~~

The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customerhistorical purchases of clinical and research grade materials under the ~~terms of~~MSA. As a ~~contract, a contract liability is recorded~~result, the Company determined that all requirements were met to qualify as ~~deferred revenue.~~

~~The Company did 0t recognize any revenues~~contracts under Topic 606 for the related transactions covered by these SOWs. For the three ormonths and six months ended June 30, ~~2020 or June 30, 2021.~~

2022, the Company recognized revenue related to sale of development supply materials to Wugen of $454,000 and $3.6 million, respectively.

Deferred Revenue

Deferred revenue represents amounts billed, or in certain cases yet to be billed, to the Company’s customer for which the related revenues have not been recognized because one or more of the revenue recognition criteria ~~have~~has not been met. The ~~current portion of~~Company had deferred revenue ~~represents the amount to be recognized within one year from the balance sheet date based on the estimated performance period~~ of ~~the underlying performance obligations. The long-term portion~~$1.8 million and $314,625 as of December 31, 2021 and June 30, 2022, respectively. All deferred revenue ~~represents amounts to be~~

~~recognized after one year.~~

~~As of June 30, 2021,~~balances are current ~~deferred revenue includes amounts of $696,625 allocated to the development supply agreement performance obligation under the Wugen License that is included~~liabilities and reported within Accrued liabilities and other current ~~liabilities. There was no long-term deferred revenue as of June 30, 2021.~~

liabilities in the accompanying condensed balance sheets.

~~Investment~~

Investments

The Company holds a minority interest in ~~Wugen. The underlying shares of common stock~~Wugen which is ~~not traded on any public market and thus has limited marketability. The Company does not have significant influence over the operating and financial policies of Wugen. As a result, the Company has~~ accounted for ~~this investment~~ using the measurement alternative whereby the investment is recorded at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same investee. No impairment ~~was recognized as~~has been recognized. As of December 31, 2021 and June 30, ~~2021.~~

~~Deferred Offering Costs~~

2022, the Company included $1.6 million for the investment in Wugen in Investments in the accompanying condensed balance sheets.

The Company ~~defers offering costs consisting~~invests net proceeds of ~~legal, accounting~~its IPO in bills and ~~other fees and costs directly attributable to its initial public offering (“IPO”). The deferred offering costs will be offset against~~notes issued by the ~~proceeds received upon the completion of the IPO. Deferred offering costs will be~~U.S. Treasury which are classified as ~~current or long term, depending on whether an IPO is expected to be completed within a~~

~~one-year~~

period. If offering expenses are paid prior to the completion of an IPO, they will be recorded in prepaid assets on the balance sheets until such time an IPO is completed. If an obligation is incurred but not settled prior to the IPO, the Company will recognize deferred offering costs as an accrued liability. In the event the IPO is terminated, all of the deferred offering costs will be expensed within the Company’s statements of operations.trading securities. As of June 30, ~~2021, there were approximately $3.2~~2022, the Company held $17.0 million ~~of current deferred offering costs, $924,312 of which~~in U.S. Treasury bills included in Short-term investments and $9.7 million in U.S. Treasury notes included in Investments in the accompanying condensed balance sheet.

Operating Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included ~~within Prepaid expenses, $307,312 of which are included within Accounts~~

~~ayable, and $2.0 million of which are included within~~in Other assets, Accrued liabilities and other current liabilities, and Other liabilities on its balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the ~~accompanying condensed balance sheet. There were 0long-term deferred offering~~present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs ~~as of June 30, 2021.~~incurred. The Company has a lease agreement with lease and non-lease components, which are accounted for separately.

Net Loss Per Share

Basic ~~net~~ loss per share ~~is calculated by dividing the net loss attributable to common stockholders, including both Class A and Class B common stock, by the weighted-average number~~ of common ~~shares outstanding for the period, without consideration of potential dilutive securities. Diluted net loss per share~~stock is computed by dividing ~~the~~ net loss attributable to common stockholders by the ~~sum of the weighted average~~weighted-average number of shares of common ~~shares plus the potential dilutive effects of potential dilutive securities~~stock outstanding during ~~the~~each period. ~~Potential dilutive securities are excluded from diluted earnings or~~Diluted loss per share ifof common stock includes the effect, if any, from the potential exercise of ~~such inclusion is anti-dilutive. The Company’s potentially dilutive securities, which include convertible redeemable preferred stock and outstanding~~ stock options ~~under~~and unvested shares of restricted stock, which would result in the ~~2019 Equity Incentive Plan (“2019 Plan”), have been excluded from the computation~~issuance of incremental shares of common stock. For diluted net loss per share, ~~as they would be anti-dilutive to~~ the weighted-average number of shares of common stock is the same for basic net loss per ~~share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding~~share due to the ~~Company’s~~fact that when a net loss ~~position.~~exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU

No. 2016-02,

Leases

(“ (“Topic 842”), which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.Company adopted Topic 842 ~~is effective for~~as of January 1, 2022. Effective March 1, 2022, the Company entered into noncancelable operating leases for its current location with a two-year term. These are the only leases in ~~the fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption~~scope of Topic 842 onor above the ~~Company’s financial statements and related disclosures.~~Company's capitalization threshold.

2. Accrued Liabilities and Other Current Liabilities

~~In May 2020, HCW Biologics Inc. received an SBA Paycheck Protection Loan (“PPP loan”) in the principal amount of $563,590.~~

As of December 31, ~~2020,~~2021, the Company had ~~$845,741~~a balance of $2.1 million in Accrued liabilities and other current liabilities, ~~primarily~~ consisting of ~~the PPP loan of $567,311, including principal~~$1.8 million related to deferred revenue, $48,750 related to manufacturing materials, $51,000 related to legal fees, and ~~accrued but unpaid interest, and accrued liabilities of $273,907.~~$50,000 for other expenses. On January 8, 2021, the Company received full loan forgiveness of ~~$567,311~~$567,311 for obligations related to the PPP loan. The Company accounted for the PPP loan as debt, and the loan forgiveness was accounted for as a debt extinguishment. The amount of loan and interest forgiven is recognized as a gain upon debt extinguishment and is reported within Interest and other income, net in the accompanying condensed statement of operations for the six months ended June 30, 2021.

As of June 30, ~~2021,~~2022, the Company had a balance of ~~$3.2 million~~$848,340 in Accrued liabilities and other current liabilities, consisting primarily of ~~$2.0 million related to deferred offering costs for the Company’s IPO, $696,625~~$314,625 related to deferred revenue, ~~and $315,855 in compensation-related accruals, including an accrual for a performance bonus~~$151,000 related to ~~the completion of the IPO.~~salary and benefits, $170,687 related to short-term lease liability, and $212,000 related to other current liabilities which were primarily accrued legal fees and clinical trials expenses.

3. Redeemable Preferred Stock

The Company’s redeemable preferred stock is convertible into shares of Class A common stock and earns cumulative dividends at a rate of 6% per annum and compound annually. The terms of the redeemable preferred stock provide for an adjustment to the conversion price upon the occurrence of certain transactions or events, such as stock splits,

~~split-up,~~

certain dividends, or distributions. Cumulative dividends accrue whether or not declared by the Board of Directors. Upon conversion, any accrued and unpaid dividends are forfeited. For the six months ended June 30,

On July 22, 2021, the Company ~~accrued cumulative~~closed on its IPO, and the requirements for mandatory conversion were met. All outstanding shares of Series A, Series B, and Series C Preferred Stock converted into an equal number of shares of common stock. As a result, the rights, preferences, and terms ascribed to these shares are no longer applicable. Cumulative dividends of ~~$960,020 which is included in~~$2.8 million accrued as of the ~~amounts reported for redeemable~~conversion date were forfeited and such forfeiture was recognized through Additional paid-in capital.

At December 31, 2021 and June 30, 2022, the Company has 10,000,000 shares of preferred stock ~~in the accompanying condensed balance sheet as of June 30, 2021. NaN dividends have been declared or paid as of June 30, 2021.~~

authorized and 0 shares issued.

4. Net Loss Per Share

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2022			2021			2022
Numerator:
Net loss	$	(2,750,362	)	$	(3,510,561	)	$	(5,594,358	)	$	(5,567,768	)
Less: cumulative preferred dividends earned in the period		(482,662	)		0			(960,020	)	$	—
Net loss available for distribution to common stock holders	$	(3,233,024	)	$	(3,510,561	)	$	(6,554,378	)	$	(5,567,768	)
Denominator:
Weighted-average common shares outstanding		4,921,121			35,814,482			4,880,496			35,796,257
Net loss per share, basic and diluted	$	(0.66	)	$	(0.10	)	$	(1.34	)	$	(0.16	)

Three Months Ended June 30,

Six Months Ended June 30,


2020

2021

2020

2021

Numerator:

Net loss
   $

(2,778,485 )    $

(2,750,362 )    $

(5,153,999 )    $

(5,594,358 )
Less: cumulative preferred dividends earned in the period
   (279,786 )    (482,662 )    (559,573 )    (960,020 )








Net loss available for distribution to common stock holders
   $ (3,058,271 )    (3,233,024 )    $ (5,713,572 )    (6,554,378 )








Denominator:

Weighted-average common shares outstanding
   4,725,083    4,921,121    4,721,313    4,880,496








Net loss per share, basic and diluted
   $ (0.65 )    $ (0.66 )    $ (1.21 )    $ (1.34 )

The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:


	At June 30,
	2021		2022
Redeemable Preferred Stock		23,768,416		0
Common stock options		579,858		1,924,317
Potentially diluted securities		24,348,274		1,924,317

At
June 30,


2020

2021

Redeemable Preferred stock
   18,329,308    23,768,420
Common stock options
   569,400    579,858




Potentially diluted securities
   18,898,708    24,348,278

5.	~~Fair Value of Financial Instruments~~

5. Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, U.S. government-backed securities with maturity dates up to one year, accounts payable and accrued liabilities, approximate fair value due to their short-term maturities.

Money market funds included in cash and cash equivalents ~~that~~and U.S. government-backed securities are measured at fair value based on quoted prices ~~that~~in active markets, which are ~~derived from observable market data are classified as~~considered Level 1 inputs. No transfers between levels occurred during the periods presented. The following table presents the Company’s assets which were measured at fair value at December 31, ~~2020~~2021 and June 30, 2022:

~~, 2021:~~


	At December 31, 2021:
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	9,506,499	$	0	$	0	$	9,506,499
Treasury bills		24,983,520		0		0		24,983,520
Treasury notes		9,922,300		0		0		9,922,300
Total	$	44,412,319	$	0	$	0	$	44,412,319


	At June 30, 2022:
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	14,402,855	$	0	$	0	$	14,402,855
Treasury bills		16,993,523		0		0		16,993,523
Treasury notes		9,703,120		0		0		9,703,120
Total	$	41,099,498	$	0	$	0	$	41,099,498

At December 31, 2020:


Level 1

Level 2

Level 3

Total

Assets:

Money market funds
   $ 6,752,266    $ —      $ —      $ 6,752,266








Total
   $ 6,752,266    $ —      $ —      $ 6,752,266

At June 30, 2021:


Level 1

Level 2

Level 3

Total

Assets:

Money market funds
   $ 3,379,887    $

—
      $

—
      $ 3,379,887








Total    $ 3,379,887    $
—
      $
—
      $ 3,379,887

6. Income Taxes

The Company computes its quarterly income tax expense/(benefit) by using a forecasted annual effective

tax

rate

and adjusts for any discrete items arising during the quarter. The Company did 0t0t have a provision for income taxes (current or deferred tax expense) as of December 31, 2021 and June 30, ~~2021 and December 31, 2020.~~2022. The Company will continue to maintain a ~~100%~~100% valuation allowance on total deferred tax assets. The Company believes it is more likely than not that the related deferred tax asset will not be realized. As a result, the Company’s effective tax rate will remain at ~~0.00%~~0.00% because no items ~~that are~~ either estimated or discrete items would impact the tax provision.

7. Commitments and Contingencies

Operating Leases

The Company has operating leases ~~its operating facilities~~for approximately 12,250 square feet of space located in Miramar, ~~Florida under~~

~~non-cancelable~~

~~operating lease agreements~~Florida. The leases have a two-year term which commenced on March 1, 2022 and will terminate on February 29, 2024. Upon the commencement of the leases, the Company used its incremental borrowing rate of 6.0% to determine the amounts to recognize for a ROU asset and a ~~short-term sublease agreement for additional office space. Rent expense is recognized for leases with increasing annual rents on a straight-line basis over the term~~lease liability. There are no obligations under finance leases.

The components of the ~~lease. The amount of rent~~lease expense ~~in excess of cash payments is classified as deferred rent. Lease incentives received are deferred and amortized over the term of the lease.~~

~~The future minimum payments for the lease and sublease agreements at June 30, 2021 were as follows:~~

2021 (remaining 6 months)
   $ 106,000
2022
   36,000


Total future minimum lease payments
   $

142,000

Rental expense, including common area maintenance costs, recognized by the Company was $46,182 of which $20,949 is included in research and development and $53,430 of which $28,607 is included in research and development for the three months and six months ended June 30, ~~2020 and 2021, respectively, in the accompanying condensed statements of operations.~~2022 were as follows:


	For the Three Months Ended June 30, 2022		For the Six Months Ended June 30, 2022
Operating lease cost	$	42,413	$	56,550

Rental expense, including common area maintenance costs, recognized by the Company was $92,073 of which $41,608 is included in research and development and $101,570 of which $51,752 is included in research and development

Supplemental cash flow information related to lease for the six months ended June 30, ~~2020~~2022 was as follows:


	For the Six Months Ended June 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows	$	69,643
Right-of-use assets obtained in exchange for lease obligations:
Operating lease	$	50,545

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


	As of June 30, 2022
Operating lease right-of-use assets	$	268,298
Other current liabilities	$	170,687
Operating lease liabilities, net of current portion		98,447
Total operating lease liabilities	$	269,134

As of June 30, 2022, the remaining lease payments were as follows:


2022 (remaining 6 months)	$	83,572
2023		171,322
2024		28,693
Total future minimum lease payments	$	283,587

For the three months ended June 30, 2021 and ~~2021,~~2022, rent expense recognized by the Company was $31,552 and $49,966 respectively, of which $14,623 and $25,149, respectively, is included in research and development in the accompanying condensed statements of ~~operations.~~

~~Manufacturing Commitment~~

operations. Certain comparative figures have been reclassified to conform to the current year presentation under Topic 842 for rent expense.

For the six months ended June 30, 2021 and 2022, rent expense recognized by the Company was $68,466 and $77,139, respectively, of which $34,790 and $32,834, respectively, is included in research and development in the accompanying condensed statements of operations. Certain comparative figures have been reclassified to conform to the current year presentation under Topic 842 for rent expense.

Contractual Commitments

The Company ~~entered into an agreement~~operates under the provisions of agreements with a third-party global contract development and manufacturer of biologics for the manufacture of the Company’s proprietary molecules for use in ~~its~~ clinical trials. At ~~June 30, 2020 and June 30,~~December 31, 2021, future payment obligations under

~~statements-of-work~~

such agreements were ~~NaNand $1.3 million, respectively.~~

~~In the three months ended~~$2.5 million. At June 30, ~~2020,~~

~~the Company was winding up several manufacturing activities that~~2022, future payment obligations under such agreements were started earlier in the year, including master cell bank production and characterization reports, analytical method qualification of product, multiple cGMP production runs, and some fill and finish for vials of clinical materials. In the three months ended June 30, 2021, the manufacturing of two molecules was ongoing. As of June 30, 2021, the Company retains the payment obligation for upcoming activities yet to be performed for some molecules, including cGMP production runs of different quantities, initiation of master cell bank production, and initiation of the fill/finish process.

$4.1 million.

Legal

~~As of August 13, 2021, management~~

Management has no knowledge of any pending or unasserted claims against the Company.

Other

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus

(COVID-19)

as a pandemic, which continues to spread throughout the United States and the world. The spread of

COVID-19

has caused significant volatility in the U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to

COVID-19,

as well as its impact on the U.S. and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations. The Company has encountered some delays in the commencement of clinical trials as a result of clinical sites experiencing COVID-related delays due to staffing shortages. In addition, the Company has encountered some delays in the completion of IND-enabling studies required by the Federal Drug Administration ("FDA") to support Investigational New Drug Applications ("IND") due to government-mandated measures taken as a result of COVID outbreaks.

8. Subsequent Events

Subsequent events have been evaluated through the date the financial statements were available to be issued. As of such date, there were no material subsequent events identified that required recognition or disclosure other than as disclosed below or in the footnotes herein.

~~Initial Public Offering~~

On ~~July 19, 2021,~~August 2, 2022, HCW Biologics was granted U.S. Patent No. 11,401,324 which contains claims for immunotherapeutic compounds comprised of a single-chain chimeric polypeptide with 2 target-binding domains on a scaffold made of an extracellular domain of human tissue factor.

On August 10, 2022, HCW Biologics committed to purchase a building located in Miramar, Florida for approximately $10.0 million, as the ~~Company’s registration statement~~Company's new headquarters. The Company received a commitment for a five-year term facility to finance the purchase, expansion, and improvement of property. An initial takedown equal to 65% of the purchase price will be funded on ~~Form~~

~~S-1~~

the closing date which is expected to be on August 15, 2022. The term facility may be increased to provide additional funding for ~~its IPO was declared effective~~expansion and improvements of the property; however, future borrowings are subject to full credit approval and due diligence by the Securities and Exchange Commission (the “SEC”). On July 22, 2021, the Company closed its IPO with the sale of 7,000,000 shares of common stock, at a public offering price of $8.00 per share, resulting in net proceeds of approximately $49.0 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by the Company.lender.

~~In addition, in connection with the closing of the IPO, all of the Company’s outstanding shares of redeemable preferred stock w~~

automatically converted into shares of common stock. As a result, there are no longer any shares of redeemable preferred stock outstanding. Accrued but unpaid cumulative dividends were forfeited upon conversion. NaN dividends had been paid as of July 19, 2021.

~~2021 Equity Incentive Plan~~

~~In June 2021, the Company’s board of directors and stockholders approved~~

~~the~~

~~2021 Equity Incentive Plan (the “2021 Plan”), to be effective the day prior to the effectiveness of the registration statement for an IPO. On July 18, 2021, the 2021 Plan became effective.~~

The 2021 Plan permits the grant of incentive stock options, nonstatutory stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”) and stock bonus awards (all such awards collectively, “stock awards”). A total of 2,400,000 new shares of common stock were approved to be initially reserved for issuance under the 2021 Plan. The number of shares reserved that are remaining in the 2019 Plan as of the effective date of the 2021 Plan will be added to the shares initially reserved under the 2021 Plan upon the effective date. In addition, the number of shares of common stock available for issuance under the 2021 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2022

~~in an amount equal to 2% of the outstanding shares of common stock on the last day of the prior fiscal year, or such number of shares determined by the Company’s board of directors.~~

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

(this “Quarterly Report on Form 10-Q”)and (ii) our audited financial statements and related notes and ~~management’s~~the discussion under the heading “Management's Discussion and ~~analysis~~Analysis of ~~financial condition~~Financial Condition and ~~results~~Results of ~~operations~~Operations” for the fiscal year ended December 31, 2021 included in ~~our final prospectus~~the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission or(the “SEC”) on March 29, 2022. Our historical results are not necessarily indicative of the ~~SEC, on July 21, 2021 pursuant to Rule 424(b)(4) under~~results that may be expected for any period in the ~~Securities Act of 1933, as amended, which we refer to as our Prospectus.~~future. Unless the context requires otherwise, references in this Quarterly Report on Form

10-Q

to the “Company,” “HCW Biologics,” “we,” “us” and “our” refer to HCW Biologics Inc. ~~In preparing the Management’s Discussion and Analysis below, we presume the readers have access to and have read the Management’s Discussion~~

~~and~~

~~Analysis in~~

~~our~~

~~Prospectus, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation~~

~~S-K.~~

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, plans and objectives of management for future operations, adequacy of our cash resources and working capital, impact of

COVID-19

pandemic on our research and development activities and business operations, 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,” ~~and~~ in our ~~Prospectus and~~Annual Report on Form 10-K, elsewhere 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

~~We are an innovative preclinical stage~~

HCW Biologics Inc. (“HCW Biologics,” “HCW,” the “Company,” or “we”) is a clinical-stage biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic,

low-grade

inflammation and

age-related

diseases. We believe

age-related,

chronic, low-grade

~~chronic~~ inflammation, or “inflammaging,” is a significant contributing factor to several ~~chronic~~ diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative ~~disease,~~diseases, and autoimmune ~~disease.~~diseases. 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 protein complexes, known as inflammasomes, in innate immune cells. These two elements share common mechanisms in promoting secretion of pro-inflammatory proteins and in many cases interact to drive senescence, and thus, inflammaging. Our novel approach is to eliminate senescent cells and the pro-inflammatory factors they secrete systemically through multiple pathways. We believe our approach has the potential to ~~provide an innovative~~fundamentally change the treatment of ~~these~~

age-related

diseases.

~~Our gateway indication~~

Senescence is ~~oncology. Advances~~a physiologic process important in ~~immuno-stimulatory~~promoting wound healing, tissue homeostasis, regeneration, embryogenesis, fibrosis regulation, and ~~anti-immunosuppressive therapeutics have revolutionized cancer treatment. Our~~tumorigenesis suppression. However, accumulation of senescent cells with a senescence-associated pro-inflammatory factors has been implicated as a major source of chronic sterile inflammation leading to many aging-related pathologies. Subcutaneous administration of our lead ~~molecule,~~drug candidate, HCW9218, ~~is designed with both of these functionalities – it rejuvenates~~activates Natural Killer ("NK") cells, innate lymphoid group-1, and CD8+ T cells, and neutralizes transforming growth factor beta ("TGF-β"). This bifunctionality gives HCW9218 the ~~immune system~~ability to reduce ~~senescence, and it captures~~

~~TGF-ß~~

~~to neutralize its immunosuppressive activity. We are preparing to submit an IND for~~senescent cells, that is function as a ~~Phase 1b/2 clinical trial in pancreatic cancer to evaluate HCW9218, which includes completing drug product testing and nonclinical animal toxicity/ pharmacokinetic studies,~~senolytic, as well as ~~finalizing~~eliminate senescence-associated pro-inflammatory factors, that is function as a senomorphic. As a result, HCW9218 has the ability to lower chronic inflammation and restore tissue homeostasis. HCW9218 reached the clinical ~~protocol. Pending~~stage of its development in the ~~submission and FDA acceptance~~first half of 2022, with the ~~IND to proceed, we expect to initiate this~~initiation of a

Phase 1 clinical trial by the end of 2021 after obtaining IRB approval of our clinical research, completing clinical site initiation, and finalizing clinical trial agreements. However, we have not submitted the IND for the planned trial, and we cannot provide any assurance that the FDA will authorize us to initiate our planned clinical trials on a timely basis, or at all. In the event that the FDA does not accept our IND, we may also be required to seek feedback, and the feedback may be unfavorable. In the event we do not receive feedback on a timely basis, or we are required to change the design of our clinical protocol or address other feedback, clinical development of our products would be delayed and our costs may increase. Moreover, if the FDA does not accept the IND we file, we may be required to conduct additional preclinical testing or other

~~IND-enabling~~

~~activities, which would result in further delay and additional costs.~~

~~We are initially developing HCW9218 as an injectable immunotherapeutic for patients with solid tumors. Our initial goal is~~Masonic Cancer Center to evaluate HCW9218 in ~~patients with cancer as we attempt~~the treatment of solid tumor cancers that progressed after standard-of-care treatment. The Company intends to ~~minimize the side effects of chemotherapy through stimulating anti-tumor effector immune cell responses, blocking~~

~~TGF-ß~~

immunosuppressive activity, eliminating chemotherapy-induced senescent cells in tumors and normal tissues (i.e., senolytic effect), and reducing SASP factor activity (i.e., senomorphic effect). We are leveraging extensive clinical expertise to structure clinical trials with clear, objective, and measurable endpoints. We expect to manage our clinical trials internally, relying on our

~~in-house~~

expertise in managing clinical trials conducted in collaboration with National Cancer Institute (NCI)-Designated Comprehensive Cancer Centers. Currently, we are engaged in preliminary discussions with seven leading institutions who have shown interest in participating in our clinical trials as clinical sites. We are presently working with the identified Principal Investigators from these institutions to establish clinical development strategies for our product candidates and to refine study protocols for pancreatic, ovarian, breast, prostate, and colorectal cancer trials. Because the discussions with these clinical sites and Principal Investigators are considered preliminary, we are not certain we will be successful in reaching an agreement with any or all of these institutions. The course of these discussions and whether we might need to identify alternative clinical sites could impact the start date for our clinical trials. Any delays in our clinical trials could increase our costs and slow down the development and approval process, which could harm our commercial prospects.

~~We plan to initiate~~open a Phase 1b/2 clinical trials for oncology indications in the second half of 2021, working with leading institutions affiliated with the National Cancer Institute, first in patients with pancreatic cancer, then expanding to patients with breast, ovarian, prostate, and colorectal cancers. The aim of these studies is to evaluate HCW9218 as an adjunct therapy to chemotherapy. In the pancreatic cancer trial, the Phase 1b portion will be a dose escalation study of HCW9218 as monotherapy in refractory patients with advanced pancreatic cancer. The Phase 2 portion of this clinical trial will include a cohort of patients receiving HCW9218 as monotherapy and a cohort of patients receiving HCW9218 as an adjunct to chemotherapy. Pending submission and FDA acceptance of the IND to proceed with a company-sponsored Phase 1b/2 clinical trial to evaluate HCW9218 in patients with advanced pancreatic cancer in the third quarter of 2022. We have cleared IRB review and most internal procedures at several National Cancer Institute ("NCI") designated Comprehensive Cancer Centers identified as clinical sites. As a result of COVID-related delays due to staffing shortages at clinical sites, we ~~plan~~were unable to ~~have an additional clinical~~commence this trial ~~to evaluate HCW9218~~earlier in the year. In both of these studies in solid ~~tumors with an investigator-sponsored IND. Our ability~~tumor cancers, we will be gathering additional data to ~~proceed with this trial depends on~~obtain insights for future phases of clinical trials, such as the ~~submission~~level of immune system reaction to HCW9218 and ~~acceptance~~incidence of ~~both INDs~~mucosal bleeding caused by the HCW9218 TGF-β trap. In addition, we expect that the human data from these two clinical trials in cancer will guide future development of HCW9218 for ~~our company-sponsored pancreatic~~other age-related pathologies. We believe that HCW9218 may represent a new class of safe and effective senolytic and senomorphic drugs for the treatment of a broad range of inflammaging indications, including cancer, ~~clinical trial and the investigator initiated solid tumor clinical trial~~metabolic dysfunctions, fibrosis-related pathologies, as well as ~~finalizing our agreement with~~neuro-inflammation and neurodegenerative diseases.

HCW9302 is another lead drug candidate which is designed to activate and expand regulatory T (“Treg”) cells to reduce senescence by suppressing the ~~sponsor. We~~activity of inflammasome-bearing cells and the inflammatory factors which they secrete. This molecule is a single-chain, IL-2-based fusion protein. Preclinical studies in mouse models have demonstrated the ability of HCW9302 to expand and activate Treg cells and reduce inflammation-related diseases, supporting the potential of HCW9302 to treat a wide variety of autoimmune and proinflammatory diseases, such as atherosclerosis. IND-enabling activities are currently ~~engaged~~ in ~~preliminary discussions with an institution that has expressed interest~~progress, but due to ~~be a sponsor~~COVID-related delays, the completion date for toxicology studies required by the Federal Drug Administration ("FDA") for an ~~IND using HCW9218 as an adjunct~~Investigational New Drug Application ("IND") is expected to ~~chemotherapy~~extend to the first half of 2023. If we are successful in ~~patients with solid tumors (breast, ovarian, prostate,~~completing IND-enabling activities and ~~colorectal cancers). However, these discussions are preliminary, and~~have no further delays in the expected schedule, we ~~may not succeed in reaching an agreement with this institution. Depending on the course of these discussions and whether we need~~continue to ~~seek an alternative sponsor for~~plan to file an IND ~~there could be a delay in initiating~~to obtain approval from the FDA for a Phase 1b/2 clinical trial to evaluate HCW9302 in an autoimmune disorder in the first half of 2023.

Recent Developments

•

On May 19, 2022, the Masonic Cancer Center, University of Minnesota, announced that they opened a new Phase 1 solid tumor cancer clinical trial and treated their first patient with HCW9218, inan injectable, bifunctional immunotherapeutic, developed by HCW Biologics Inc. This Phase 1, first-in-human clinical trial is enrolling patients that have advanced solid tumors with ~~solid tumors. Any delays in our clinical trials could increase our costs and slow down the development and approval process, which could harm our commercial prospects.~~progressive disease after prior chemotherapies.

~~We have combined our deep understanding~~•

On August 2, 2022, HCW Biologics was granted U.S. Patent No. 11,401,324 which contains claims for immunotherapeutic compounds comprised of ~~disease-related immunology~~a single-chain chimeric polypeptide with ~~our expertise in advanced protein engineering~~two target-binding domains on a scaffold made of an extracellular domain of human tissue factor. This patent provides protection for the underlying intellectual property on which the Company has based its lead product candidate, HCW9302. HCW Biologics has created an extensive patent portfolio with multiple families of patent applications that are directed to ~~internally develop our~~the TOBI (

~~issue fact~~

~~ased fus~~

~~on)~~TM discovery platform ~~for the design of immunotherapeutic drugs. This modular~~technology and ~~tunable technology has allowed us to generate a novel pipeline of internally-developed product candidates capable of activating~~its single-chain and targeting desired immune responses and blocking unwanted immunosuppressive activities. Using our TOBI platform, we have successfully developed molecules that can be administered by subcutaneous injectionmulti-chain chimeric polypeptides as well as ~~adoptive cell therapy approaches. We have selected two molecules~~methods of use of these polypeptides alone and in combination. This is the first U.S. patent issued of the Company’s 72 patent applications filed worldwide.

•

On August 10, 2022, HCW Biologics committed to purchase a 36,000 square foot building located in Miramar, Florida for approximately $10.0 million, as ~~our lead product candidates: HCW9218~~the Company's new headquarters. The Company received a commitment for a five-year term facility to finance the purchase, expansion, and ~~HCW9302. We have chosen these product candidates because we believe they have~~improvement of the ~~potential~~new location. An initial takedown equal to ~~become transformative immunotherapeutics,~~65% of the purchase price will be funded on the closing date which ~~can~~is expected to be ~~administered by subcutaneous injection.~~

Ason August 15, 2022. The term facility may be increased to provide additional funding for expansion and improvements of ~~June 30, 2021, we have funded our operations primarily with proceeds of $29.4 million from~~ the ~~sale~~property, however, future borrowings are subject to full credit approval and ~~issuance of redeemable preferred stock and to a lesser extent, the proceeds of upfront payments from an~~

~~out-license~~

agreement. We have incurred significant operating losses to date. Our cumulative net losses for the year ended December 31, 2020 and the six months ended June 30, 2021 were $15.1 million and $20.7 million, respectively. Our net losses for the three months ended June 30, 2020 and 2021 were $2.8 million and $2.8 million, respectively. Our net losses for the six months ended June 30, 2020 and 2021 were $5.2 million and $5.6 million, respectively. As of June 30, 2021, we had an accumulated deficit of $23.2 million and cash and cash equivalents of $5.1 million.

~~We expect to continue to incur significant expenses and operating losses for the foreseeable future, as we continue our clinical development activities, particularly if and as we:~~

~~Advance the development of our lead product candidate, HCW9218, and clinical trials for oncology, and if approved~~due diligence by the ~~FDA, commercialization;~~lender.

~~Advance preclinical development of other indications for HCW9218, including fibrotic indications;~~

~~Table of Contents~~

~~Advance the preclinical development of our second lead product candidate, HCW9302, for autoimmune diseases, such as alopecia areata, and metabolic diseases, such as Type 2 Diabetes;~~

~~Establish our own domestic manufacturing capability;~~

~~Maintain, expand, and protect our intellectual property portfolio;~~

~~Scale up our clinical and regulatory capabilities; and~~

~~Expand operational and management information systems as well as investor relations, legal, accounting, and audit services required to operate as a public company.~~

As a result of these anticipated expenditures, we will need substantial additional financing to support our continuing operations and pursuit of our clinical development strategy. Until such time as we can generate significant revenues from product sales, if ever, we expect to finance our operations through a combination of equity offerings, collaborations, strategic alliances,

~~co-development~~

~~deals, and~~

~~out-licensing~~

arrangements. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition, and we may need to significantly delay, reduce, or eliminate the development and commercialization of one or more of our product candidates.

Our IPO was effective on July 19, 2021, with net proceeds of $49.0 million. We believe that the net proceeds of the offering and our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for 24 months. We expect to continue to incur losses for the foreseeable future and will require additional financial resources to continue to advance our products and intellectual property. If we have based this estimate on assumptions that may prove to be wrong, we could exhaust our available capital resources sooner than we expect. See “Liquidity and Capital Resources.” Our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations and fund capital expenditure requirements. Because of the numerous risks and uncertainties associated with our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the preclinical and clinical development of our product candidates.

~~Recent Developments~~

As part of the preparations of becoming a public company, we brought on two new independent board members in May 2021. Mr. Scott Garrett serves as the chairman of our board and chairman of the compensation committee. His experience as a Chief Executive Officer and in other senior leadership positions with biomedical and diagnostics companies enables him to bring to our board of directors an operational perspective as well as valuable insights and experience. Mr. Rick Greene serves as the Chairman of the Audit Committee. His experience as a Chief Financial Officer and in other financial management and reporting, operations and business development positions in the healthcare industry enables him to bring financial expertise to our board of directors. We are committed to expanding the size of our Board of Directors to bring additional diversity and operational expertise.

~~In June 2021, the Company’s board of directors and stockholders approved an amendment to the Company’s certificate of incorporation to effect a~~

~~3-for-7~~

~~On July 19, 2021, the Company’s registration statement on Form~~

~~S-1~~

for its IPO was declared effective by the Securities and Exchange Commission (the “SEC”). On July 22, 2021, the Company closed its IPO with the sale of 7,000,000 shares of common stock, at a public offering price of $8.00 per share, resulting in net proceeds of approximately $49.0 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by the Company.

The IPO met the provisions for mandatory conversion of all shares of redeemable preferred stock according to the designations for these securities. As a result of the conversion, the Company will issue 23,768,420 shares of common stock to the former holders of redeemable preferred stock.

As of June 30, 2021, the Company completed regulatory good laboratory practice (GLP) toxicology studies on nonhuman primates and mice to understand the onset, degree of severity, and time length up to which a particular dose of a drug demonstrates any toxic effects. The Company will continue to complete

~~IND-enabling~~

~~activities for HCW9218 and prepare for the IND filing in the second half of 2021.~~

~~Table of Contents~~

~~The Company succeeded in executing our strategy to use pivotal publications to establish our leadership in oncology and~~

~~age-related~~

~~diseases in scientific and clinical communities. As of June 30, 2021, the Company had two articles published online in peer-reviewed journals:~~

~~An article published online by Cancer Immunology Research describing our platform: Becker-Hapak MK, et al. A Fusion Protein Complex Combines~~

~~IL-12,~~

~~IL-15,~~

~~and~~

~~IL-18~~

~~Signaling to Induce Memory-like NK Cells for Cancer Immunotherapy. July 9, 2021.~~

~~An article published online by Molecular Therapy on the characterization of our lead molecules, HCW9218: Liu B et al., Bifunctional~~

~~TGF-ß~~

~~Trap/IL-15~~

~~Protein Complex Elicits Potent NK Cell and CD8~~

~~T Cell Immunity Against Solid Tumors. June 03, 2021.~~

Trends and Uncertainties –

COVID-19

Pandemic

~~In March 2020, the World Health Organization declared the outbreak of a novel coronavirus~~

~~(COVID-19)~~

~~as a pandemic, which continues to spread throughout the United States and the world.~~

The spread of

COVID-19

and its numerous variants has caused significant volatility in the U.S. and international ~~markets.~~markets since March 2020. There is significant uncertainty around the breadth and duration of business disruptions related to

COVID-19,

as well as its impact on the U.S. and international economies and, as such, we are unable to determine how long it will impact our operations and if it will have a material impact onover time.

The extent to which the COVID-19 or outbreaks of its variants may affect our ~~operations.~~

~~The ultimate extent~~IND-enabling activities, clinical trials, business, financial condition, and results of ~~the impact of the~~

~~COVID-19~~

~~pandemic~~operations will depend on future developments, which are highly uncertain ~~including new information that may emerge concerning~~and cannot be predicted at this time, such as the ~~severity and expected~~potential spread of the vaccine/treatment-resistant disease, the duration of the

~~COVID-19~~

~~pandemic,~~ outbreaks, travel restrictions, and ~~public health~~actions to contain the outbreaks or treat their impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures, or business disruptions and the effectiveness of actions taken in the United States and other countries to contain ~~or prevent its spread, among others. Accordingly, we cannot fully predict~~and treat the ~~full extent~~disease. Future developments in these and other areas present material uncertainty and risk with respect to ~~which~~ our clinical trials, IND-enabling activities, buildout of our new headquarters, business, financial condition, and results of ~~operations will be affected. In particular, we have seen many clinical trial sites delay patient enrollment in clinical trials as a result of the~~

~~COVID-19~~

~~pandemic. Other required~~

~~IND-enabling~~

~~activities, such as toxicology studies, were slowed due to the volume of~~

~~COVID-19~~

~~related trials that have been initiated during the pandemic. The~~

~~COVID-19~~

~~pandemic or local outbreaks associated with the~~

~~COVID-19~~

pandemic could result in difficulty manufacturing our product candidates, securing clinical trial site locations, and securing critical vendors and consultants supporting our clinical trials. In addition, outbreaks or the perception of an outbreak near a clinical trial site location could impact our ability to enroll patients or to complete all scheduled physician visits for currently enrolled patients. These situations, or others associated with

~~COVID-19~~

pandemic, could cause delays in our clinical trial plans and could increase expected costs, all of which could have a material adverse effect on our business and its financial condition. At the current time, we are unable to quantify the potential effects of the

~~COVID-19~~

~~pandemic on our future~~ operations.

Components of our Results of Operation

Revenues

~~To date, we~~

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 ~~do not expect~~other age-related diseases. Our total revenues to ~~generate~~date have been generated principally from our Wugen License and MSA with Wugen. See Note 1 to our condensed interim financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for these definitions and more information.

We derive revenue from ~~product~~a license agreement granting rights to Wugen to further develop and commercialize products based on two of our proprietary molecules. Consideration under our contract included a nonrefundable upfront payment, development, regulatory and commercial milestones, and royalties based on net sales ~~for the foreseeable future. Until that occurs, our sole source~~ of ~~revenue will be derived from~~

~~out-licenses,~~

~~collaborative agreements, and~~

~~co-development~~

~~deals.~~

~~We have~~approved products. Additionally, HCW Biologics retained ~~the~~ 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 ~~terms of~~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. As

Performance obligations relating to the granting a license and delivery of ~~June 30, 2021, we entered into a master services agreement related to a development supply agreement to provide cGMP~~licensed product and

~~non-cGMP~~

~~grade licensed molecules based on industry-standard terms. We have not finalized any statements of work under~~ R&D know-how were satisfied when transferred upon the master services agreement, which will specify the performance obligations required to be completed by the Company for supplies ordered by Wugen. We also intend to enter into a supply agreement with Wugen for commercial supply when commercialization commences. In future periods, under the termsexecution of the Wugen License ~~we may be eligible~~on December 24, 2020. The Company recognized revenue for the related consideration at a point in time. The revenues recognized from for a transaction to ~~receive additional cash payments~~supply clinical and research grade materials entered into under the MSA and covered by a SOW, represents one performance obligation that ~~will be recognized as~~is satisfied over time. The Company recognizes revenue ~~including~~generated for supply of material for clinical development ~~and commercialization milestones and single-digit royalties~~using an input method based on ~~annual net sales~~the costs incurred relative to the total expected cost, which determines the extent of ~~licensed products.~~

the Company's progress toward completion.

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.

~~Table of Contents~~

•

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

•

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. ~~We expect~~See “Risk Factors -- Risks Related to the Development and Clinical Testing of Our Product Candidates,” in our ~~research and development expenses will increase substantially~~Annual Report on Form 10-K for the ~~foreseeable future as we continue to invest in research and development activities related to developing our lead product candidates, advance into later stages~~year ended December 31, 2021 filed with the SEC for a discussion of development, begin to conduct larger clinical trials, expand our product pipeline, continue to maintain, expand, protect, and enforce our intellectual property portfolio, and establish our own manufacturing capabilities. In particular, we expect our research and development expenses will increase substantially as we progress to Phase 2 and Phase 2/3 clinical trials for our lead product candidates, primarily due to the increased size and duration of later-stage clinical trials.

~~The duration, costs, and timing~~some of the ~~clinical~~risks and uncertainties associated with the development and commercialization of our product ~~candidates are highly uncertain and will depend on a variety of factors, including, but not limited to:~~

~~Number and scope of preclinical and~~

~~IND-enabling~~

~~studies;~~

~~Successful and timely patient enrollment in, and completion of, clinical trials;~~

~~Per subject trial costs;~~

~~Number of trials required for regulatory approval;~~

~~Number of sites included in the trials;~~

~~Number of subjects needed for each trial;~~

~~Cost and timing of manufacturing of cGMP materials for clinical trials;~~

~~Receipt of regulatory approvals from applicable regulatory authorities;~~

~~Establishing commercial manufacturing capabilities; and~~

~~Costs to maintain, defend, and enforce our intellectual property rights.~~

~~A change~~candidates.Any changes in the outcome of any of these ~~variables~~risks and uncertainties with respect to the development of ~~any of~~ our product candidates in preclinical and clinical development could ~~significantly~~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, auditing and tax services, facilities administrative costs, and other expenses.

We expect that our general and administrative expenses will be higher in the foreseeable future. We anticipate increased expenses relating to our operations as a public company, including increased costs for the hiring of additional personnel, and for payment to outside consultants, including lawyers and accountants, to comply with additional regulations, corporate governance, internal control and similar requirements applicable to public companies, as well as increased costs for insurance.

Interest and Other Income ~~(Expense)~~(Loss), Net

~~Other~~

Interest and other income, ~~(expense),~~ net consists of interest earned on our cash, cash equivalents, unrealized gains and losses related to our investments in U.S. government-backed securities, other income related to

non-operating

activities, and other

non-operating

expenses.

~~Table of Contents~~

Results of Operations


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2022			2021			2022
Revenues:
Revenues	$	—		$	454,000		$	—		$	3,571,545
Cost of revenues		—			(287,200	)		—			(1,615,276	)
Net revenues		—			166,800			—			1,956,269
Operating expenses:
Research and development		1,673,163			1,969,882			4,002,976			3,759,558
General and administrative		1,077,830			1,707,995			2,160,190			3,588,597
Total operating expenses		2,750,993			3,677,877			6,163,166			7,348,155
Loss from operations		(2,750,993	)		(3,511,077	)		(6,163,166	)		(5,391,886	)
Interest and other income (loss), net		631			516			568,808			(175,882	)
Net loss	$	(2,750,362	)	$	(3,510,561	)	$	(5,594,358	)	$	(5,567,768	)

Comparison of the Three Months ended June 30, ~~2020~~2021 and June 30, ~~2021~~

~~Revenue~~

2022

Revenues

On June 18, 2021, the Company entered into a ~~master services agreement~~MSA with Wugen ~~related to~~for the supply of materials for clinical development of licensed ~~molecules~~products. The terms set forth in the MSA were not sufficient to meet all the requirements for ~~use~~the Company to determine that a contract exists. In order for a contract to exist, additional terms are needed that must be set forth in ~~research and clinical development. The~~a SOW. Until March 14, 2022, the Company has not ~~finalized~~entered into any ~~statements of work, which will specify the performance obligations required~~SOWs for transactions to ~~be completed by~~supply Wugen with clinical and research grade materials, and all amounts received for such transactions were recorded as deferred revenue. On March 14, 2022, the Company entered into SOWs with Wugen for ~~supplies ordered by Wugen. The standalone selling price~~each of the then-current and historical purchases of clinical and research grade materials under the MSA. As a result, the Company determined that all requirements were met for these ~~materials has been determined using industry-standard “cost plus” terms for supply agreements.~~

~~In the three months ended~~transactions to qualify as contracts under Topic 606. As of June 30, 2021, the Company did not recognize any revenue for supply of clinical and research grade materials, since we ~~continued to receive orders from Wugen for research and clinical grade materials.~~did not have a contract in place. For the three months ended June 30, ~~2021, we~~2022, the Company recognized ~~$457,188~~$454,000 of revenues in the unaudited condensed statement of operation that appears elsewhere in this Quarterly Report.

For any transactions to supply materials for clinical development for which a SOW has not been finalized, revenue is not recognized because one or more of the criteria for revenue recognition has not been met, in which case, the Company records deferred ~~revenue,~~revenue. There were $696,625 of short-term deferred revenues as of June 30, 2021. As of June 30, 2022, there were $314,625 of short-term deferred revenues included within ~~accrued~~Accrued liabilities and other current liabilities on the ~~unaudited~~audited condensed balance sheet ~~as of June 30, 2021~~ that appears elsewhere in this Quarterly Report. ~~Deferred revenue represents the payments received in advance of the satisfaction of performance obligations for delivery and acceptance of research and clinical grade materials.~~

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended June 30, ~~2020~~2021 and June 30, ~~2021:~~

Three Months Ended
June 30,


2020

2021

$ Change

% Change

Salaries, benefits and related expenses
   $ 711,410    $ 775,782    $ 64,372    9 %
Manufacturing and materials
   897,526    313,402    (584,124 )    -65 %
Preclinical expenses
   305,553    318,595    13,042    4 %
Clinical trials
   23,003    107,587    84,584    368 %
Other expenses
   131,291    157,797    26,506    20 %







Total research and development expenses

$
2,068,783


$
1,673,163


$
(395,620
)
   -19 %

2022:


	Three Months Ended June 30,
	2021		2022		$ Change			% Change
Salaries, benefits and related expenses	$	775,782	$	802,033	$	26,251			3	%
Manufacturing and materials		313,402		304,329		(9,073	)		(3	)%
Preclinical expenses		318,595		599,520		280,925			88	%
Clinical trials		107,587		83,939		(23,648	)		(22	)%
Other expenses		157,797		180,061		22,264			14	%
Total research and development expenses	$	1,673,163	$	1,969,882	$	296,719			18	%

Research and development expenses ~~decreased $395,620,~~increased $296,719, or ~~19%~~18%, from ~~$2.1 million for the three months ended June 30, 2020 to~~ $1.7 million for the three months ended June 30, ~~2021. The decrease~~2021 to $2.0 million for the three months ended June 30, 2022. This increase was primarily due ~~primarily~~ to ~~a decline in expenses related to manufacturing activities, offset for~~ an increase in ~~salaries, benefits and related expenses,~~ preclinical ~~and clinical activities, and other~~ expenses.

Salaries, benefits, and related expenses increased by ~~$64,372,~~$26,251, or 9%3%, from ~~$711,410 for the three months ended June 30, 2020 to~~ $775,782 for the three months ended June 30, ~~2021. The increase was due primarily~~2021 to an increase in salaries and wages resulting from an addition of three scientists in the three months ended June 30, 2020 versus the three months ended June 30, 2021. Salaries and wages increased by $68,785 and health insurance costs increased by $19,075, offset by reimbursement of certain expenses under the terms of the Wugen License.

~~Table of Contents~~

~~Manufacturing and materials expense decreased $584,124, or 65%, from $897,526~~$802,033 for the three months ended June 30, ~~2020~~2022. This increase was primarily attributable to an $88,222 increase in salaries and wages , a $29,242 increase in health insurance costs, and a $12,319 increase in compensation expense related to stock-based compensation. These increases were partially offset by a reimbursement from Wugen for certain expenses incurred under the terms of the Wugen License that was $94,667 greater for the three months ended June 30, 2022 versus the comparable period in 2021.

Manufacturing and materials expense decreased by $9,073, or 3%, from $313,402 for the three months ended June 30, ~~2021. In~~2021 to $304,329 for the three months ended June 30, 2020, our manufacturing activities related to two molecules: (1) HCW9101, an affinity ligand we use in our manufacturing process, and (2) HCW9201, a clinical-stage molecule subject to the Wugen License. We received final master cell bank production and characterization reports, completed preparation for drug testing, and successfully completed GMP manufacturing runs in multiple quantities. In addition, the fill/finish and testing for HCW9201 was also completed.

2022. In the three months ended June 30, 2021, ~~the~~ manufacturing activities focused ~~more~~ on our lead molecules, HCW9218 and HCW9302. For HCW9218, we finalized a 200L GMP run ~~and~~as well as initiated the fill/finish ~~process. We are in the~~ process ofand final testing ~~the drug in order to~~for product release ~~materials~~ for clinical ~~trials to evaluate HCW9218 in pancreatic cancer.~~trials. For HCW9302, we initiated master cell bank production and completed a ~~test~~scale-up run of GMP materials.

In the three months ended June 30, 2022, costs were primarily from the initiation of a 1000L GMP run for HCW9218. Looking ahead for the remainder of 2022, costs are expected to be primarily associated with several procedures required to finalize production of HCW9302, including GMP process closeout through finalization of reports, fill/finish activities, as well as drug substance and drug product release testing. In addition, we will complete the 1000L GMP manufacturing run and fill/finish activities for HCW9218 that was initiated in the second quarter of 2022.

Expenses associated with preclinical activities increased by ~~$13,042,~~$280,925, or 4%88%, from ~~$305,553 for the three months ended June 30, 2020 to~~ $318,595 for the three months ended June 30, ~~2021. The increase is due primarily~~2021 to an increase in expenses for R&D outsourcing arrangements and experimental materials, offset by a decrease in toxicology expenses. Preliminary test results for the toxicology studies for HCW9218 are available to the Company, and based on these results we are preparing our IND application to evaluate HCW9218 in a pancreatic cancer trial. We may continue to deal with COVID-related delays which may impact the expected completion date for the toxicology final report for HCW9218, a requirement for filing our IND for the Phase 1b/2 clinical trial to evaluate HCW9218 in pancreatic cancer. Nonhuman primate testing is completed, and a preliminary report is expected in Q3 2021 which will allow us to prepare our IND filing. We continue to target the initial IND filing for the pancreatic cancer trial in the 2H 2021, with clinical trials to begin late this year. For our other lead molecule, HCW9302, we are currently designing a multi-dose nonhuman primate toxicology study, and we are targeting the initiation of this study in late 2021. This study will last several months. Currently, we expect the toxicology study for HCW9302 to be completed in the 1H 2022. If we succeed in doing so, we would be in position to prepare and file our IND to evaluate HCW9302 in alopecia areata in

~~mid-2022.~~

~~Expenses associated with clinical activities increased by $84,854, or 368%, from $23,003~~$599,520 for the three months ended June 30, ~~2020~~2022. In the three months ended June 30, 2021, expenses were related primarily to the cost of toxicology studies and experimental materials for IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9218 in difficult-to-treat solid tumor cancers. In the three months ended June 30, 2022, expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9302 in an autoimmune indication, alopecia areata.

Expenses associated with clinical activities decreased by $23,648, or 22%, from $107,587 for the three months ended June 30, ~~2021. The increase is due primarily~~2021 to ~~an increase in expenses for collaborations and outsourcing.~~

~~Other expenses, which includes overhead allocations, increased by $26,506, or 20%, from $131,291~~$83,939 for the three months ended June 30, ~~2020~~2022. We anticipate expenses related to clinical activities will increase substantially in the future. HCW9218, our lead drug candidate, entered clinical stage in the first half of 2022, upon the initiation of an Investigator-sponsored Phase 1 clinical trial at the Masonic Cancer Center, University of Minnesota for a dose escalation study of HCW9218 as a monotherapy in solid tumors, such as breast, ovarian, prostate and colorectal cancers. The trial is designed to identify the maximum tolerated dose for future evaluation. Depending on the toxicities observed in the treated patients, between 12 and 24 patients may be enrolled. For a Company-sponsored pancreatic study, we plan to enroll up to 24 patients in several NCI-designated Comprehensive Cancer Centers, with the primary objectives of the study being to determine safety, maximum tolerated dose, and the recommended Phase 2 dose. We anticipate patient enrollment for this trial to commence in the third quarter of 2022. Due to COVID-related delays at the clinical sites we identified to participate in this trial, we were unable to initiate the pancreatic clinical trials earlier in the year. In both of these studies, we will be gathering additional data to obtain further insights for future phases of clinical trials, such as immune system reaction to HCW9218 and incidence of mucosal bleeding caused by the HCW9218 TGF-β trap.

Other expenses, which include overhead allocations, increased by $22,264, or 14%, from $157,797 for the three months ended June 30, ~~2021.~~2021 to $180,061 for the three months ended June 30, 2022. The increase ~~is due~~in other expenses were primarily attributable to ~~higher expenses for repairs and maintenance as well as~~ an increase of $21,248 in ~~the allocations for rent expense.~~

travel and travel-related activities to attend scientific conferences.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended June 30, ~~2020~~2021 and June 30, ~~2021:~~

Three Months Ended
June 30,


2020

2021

$ Change

% Change

Salaries, benefits and related expenses
   $ 402,661    $ 611,008    $ 208,347    52 %
Professional services
   138,882    274,875    135,993    98 %
Facilities and office expenses
   56,600    67,691    11,091    20 %
Depreciation
   56,672    61,083    4,411    8 %
Rent expense
   25,233    24,823    (410 )    -2 %
Other expenses
   31,176    38,350    7,174    23 %







Total general and administrative expenses

$
711,224


$
1,077,830


$
366,606

   52 %

2022:


	Three Months Ended June 30,
	2021		2022		$ Change			% Change
Salaries, benefits and related expenses	$	611,008	$	743,842	$	132,834			22	%
Professional services		274,875		287,199		12,324			4	%
Facilities and office expenses		67,691		113,254		45,563			67	%
Depreciation		61,083		16,940		(44,143	)		(72	)%
Rent expense		24,823		35,298		10,475			42	%
Other expenses		38,350		511,462		473,112		NM
Total general and administrative expenses	$	1,077,830	$	1,707,995	$	630,165			58	%

NM - Not meaningful.

General and administrative expenses increased ~~$366,606,~~$630,165, or ~~52%~~58%, from ~~$711,224~~$1.1 million for the three months ended June 30, 2021 to ~~$1,077,830~~$1.7 million for the three months ended June 30, ~~2021. The~~2022. This increase was primarily due to an increase of $473,112 in other expenses resulting from increased insurance costs associated with being a public company. There was also an increase of $132,834 in salaries, ~~brought about by~~benefits and related expenses as a ~~salary increase in 2021 and a performance bonuses related~~result of stock-based compensation expense associated with an equity award to the CEO upon completion of the ~~IPO. Professional services~~IPO and an increase for Board compensation under our non-employee director compensation program, which was more than offset by a decrease of $195,750 in performance bonuses for the same period. Facilities and office expenses increased by $45,563, or 67%, primarily due to ~~legal services required~~an increase in software license fees. Depreciation decreased by $44,143 primarily due to a decrease of $27,382 in amortization for ~~patent filings.~~

~~Table~~leasehold improvements and a decrease of ~~Contents~~

$14,128 for accretion of issuance costs.

Comparison of the Six Months ~~Ended~~ended June 30, ~~2020~~2021 and June 30, ~~2021~~

2022

Revenues

There was no revenue for the six months ended June 30, 2021. For the six months ended June 30, 2022, the Company recognized $3.6 million of revenues in the unaudited statements of operations included elsewhere in this Quarterly Report. All revenues were generated under the MSA with Wugen. Revenue

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

For those transactions for which revenues were not recognized because one or more of the criteria for revenue recognition had not been met under Topic 606, the Company recorded deferred revenue. There were $696,625 of short-term deferred revenues as of June 30, 2021, ~~we recognized $696,625~~and $314,625 of short-term deferred ~~revenue,~~revenues as of June 30, 2022 included within ~~accrued~~Accrued liabilities and other current liabilities on the unaudited condensed balance sheet as of June 30, 2021. This was an increase of $457,188 over the amount recognized as of March 31, 2021. Deferred revenue represents the payments received in advance of the satisfaction of performance obligations for delivery and acceptance of research and clinical grade materials.

liabilities.

Research and Development Expenses

The following table summarizes our research and development expenses for the six months ended June 30, ~~2020~~2021 and June 30, ~~2021:~~

Six Months Ended
June 30,


2020

2021

$ Change

% Change

Salaries, benefits and related expenses
   $ 1,441,683    $ 1,472,753    $ 31,070    2 %
Manufacturing and materials
   1,449,798    1,075,454    (374,344 )    -26 %
Preclinical expenses
   531,514    994,937    463,423    87 %
Clinical trials
   64,239    157,553    93,314    145 %
Other expenses
   259,973    302,279    42,306    16 %







Total research and development expenses

$
3,747,207


$
4,002,976


$
255,769

   7 %

2022:


	Six Months Ended June 30,
	2021		2022		$ Change			% Change
Salaries, benefits and related expenses	$	1,472,753	$	1,574,981	$	102,228			7	%
Manufacturing and materials		1,075,454		521,957		(553,497	)		(51	)%
Preclinical expenses		994,937		1,112,637		117,700			12	%
Clinical trials		157,552		194,716		37,164			24	%
Other expenses		302,280		355,267		52,987			18	%
Total research and development expenses	$	4,002,976	$	3,759,558	$	(243,418	)		(6	)%

Research and development expenses ~~increased by $255,769,~~decreased $243,418, or 7%6%, from ~~$3.7~~$4.0 million for the six months ended June 30, ~~2020~~2021 to ~~$4.0~~$3.8 million for the ~~sixth~~six months ended June 30, ~~2021. The increase~~2022. This decrease was primarily due ~~primarily~~ to ~~the increase in preclinical activities, offset by~~ a $553,497 decrease in manufacturing and materials expenses and offset by a $117,700 increase in preclinical expenses.

Salaries, benefits, and related expenses increased by ~~$31,070,~~$102,228, or 2%, for the six months ended June 30, 2020 compared with the six months ended June 30, 2021. The change was primarily due to an increase of $91,918 in salaries and bonuses and an increase of $27,971 for Company-sponsored employee health insurance costs, offset by a $100,000 reimbursement of certain expenses as required under the terms of the Wugen License.

~~Manufacturing and materials expense decreased by $374,344, or 26%~~7%, from $1.5 million for the six months ended June 30, ~~2020~~2021 to ~~$1.1~~$1.6 million for the six months ended June 30, ~~2021. In sixth~~2022. This increase was primarily attributable to a $156,035 increase in salaries and wages, a $42,084 increase in health insurance costs, and an increase of $21,556 in compensation expense related to stock-based compensation. These increases were partially offset by a reimbursement from Wugen for certain expenses incurred under the terms of the Wugen License that was $110,000 greater for the six months ended June 30, ~~2020, we began to initiate manufacturing activities~~2022 versus the comparable period in 2021.

Manufacturing and materials expense decreased by $553,497, or 51%, from $1.1million for ~~five internally-developed molecules. As of~~the six months ended June 30, ~~2020, we accomplished several milestones~~2021 to $521,957 for two molecules, HCW9101 and HCW9201: (1) Master Cell Bank production and characterization reports; (2) Preparation for drug testing, and (3) cGMP manufacturing runs in multiple quantities. In addition, the ~~fill/finish and testing was completed for HCW9201.~~

six months ended June 30, 2022. Manufacturing and materials expenses in the six months ended June 30, 2021 resulted from activities related to establishing master cell banks for several molecules, effecting a technology transfer to our contract manufacturer required for internally-developed manufacturing processes, and successfully completing multiple cGMP production runs for our molecules. For HCW9218, we successfully completed cGMP manufacturing runs in multiple quantities and initiated the fill/finish ~~process. We are in the~~ process ofand testing ~~the drug in order to release materials~~ for ~~clinical trials to evaluate HCW9218 in pancreatic cancer.~~product release. For HCW9302, we had initiated master cell bank production and completed a ~~test~~scale-up run of cGMP-grade material.

In the six months ended June 30, 2022, costs were primarily from HCW9302 technology transfer and development process closeout through finalization of reports and the project initiation. In addition, we initiated a 1000L GMP run for HCW9218.

Expenses associated with preclinical activities increased ~~$463,423,~~by $117,700, or ~~87%~~12%, from ~~$531,514~~$1.0 million for the six months ended June 30, ~~2020~~2021 to ~~$994,937~~$1.1 million for the six months ended June 30, ~~2021. The majority of these costs~~2022. In the six months ended June 30, 2021, expenses were ~~attributable~~related primarily to the cost of toxicology ~~study~~studies and experimental materials for IND-enabling activities required to ~~complete~~prepare our ~~application for an~~ IND for ~~Phase 1b/2~~ clinical trials to evaluate HCW9218 in ~~pancreatic cancer.~~

difficult-to-treat solid tumor cancers. In the six months ended June 30, 2022, expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9302 in an autoimmune indication, alopecia areata.

Expenses associated with clinical activities increased ~~$93,314,~~$37,164, or ~~145%~~24%, from ~~$64,239~~$157,552 for the six months ended June 30, ~~2020~~2021 to ~~$157,553~~$194,716 for the six months ended June 30, ~~2021.~~2022. We anticipate expenses related to clinical activities will increase substantially in the future. HCW9218, our lead drug candidate, entered clinical stage in the first half of 2022, upon the initiation of an Investigator-sponsored Phase 1 clinical trial at the Masonic Cancer Center, University of Minnesota for a dose escalation study of HCW9218 as a monotherapy in solid tumors, such as breast, ovarian, prostate and colorectal cancers. The ~~majority~~trial is designed as a dose escalation study of HCW9218 to identify the maximum tolerated dose for future evaluation. Depending on the toxicities observed in the treated patients, between 12 and 24 patients may be enrolled. We anticipate patient enrollment for a Company-sponsored Phase 1b clinical trial to evaluate HCW9218 in advanced pancreatic cancer to commence in the third quarter of 2022. For the pancreatic study, we plan to enroll up to 24 patients in several NCI-designated Comprehensive Cancer Centers, with the primary objectives of the study being to determine safety, maximum tolerated dose, and the recommended Phase 2 dose. We anticipate patient enrollment for this trial to commence in the third quarter of 2022. Due to COVID-related delays at the NCI-designated Comprehensive Cancer Centers we identified as clinical sites to participate in this trial, we were unable to initiate the pancreatic clinical trials earlier in the year. In both of these studies, we will be gathering additional data to obtain further insights for future phases of clinical trials, such as immune system reaction to HCW9218 and incidence of mucosal bleeding caused by the HCW9218 TGF-β trap.

Other expenses, which include overhead allocations, increased by $52,987, or 18%, from $302,280 for the six months ended June 30, 2021 to $355,367 for the six months ended June 30, 2022. The increase ~~was~~in other expenses is due primarily attributable to ~~the costs~~an increase of ~~a collaboration with Washington University. Professional fees for outside services also contributed~~$28,681 in travel and travel-related activities to ~~this increase.~~

~~Table~~attend scientific conferences and an increase of ~~Contents~~

$16,878 in building repairs and maintenance.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the six months ended June 30, ~~2020~~2021 and June 30, ~~2021:~~

Six Months Ended
June 30,


2020

2021

$ Change

% Change

Salaries, benefits and related expenses
   $ 796,736    $ 1,110,230    $ 313,494    39 %
Professional services
   283,836    668,499    384,663    136 %
Facilities and office expenses
   120,853    127,416    6,563    5 %
Depreciation
   116,056    127,725    11,669    10 %
Rent expense
   50,466    49,819    (647 )    -1 %
Other expenses
   61,845    76,501    14,656    24 %







Total general and administrative expenses

$
1,429,792


$
2,160,190


$
730,398

   51 %

2022:


	Six Months Ended June 30,
	2021		2022		$ Change			% Change
Salaries, benefits and related expenses	$	1,110,230	$	1,458,128	$	347,898			31	%
Professional services		668,501		746,363		77,862			12	%
Facilities and office expenses		127,415		213,933		86,518			68	%
Depreciation		127,725		52,545		(75,180	)		(59	)%
Rent expense		49,818		65,277		15,459			31	%
Other expenses		76,501		1,052,351		975,850		NM
Total general and administrative expenses	$	2,160,190	$	3,588,597	$	1,428,407			66	%

NM - Not meaningful

General and administrative expenses increased ~~$730,398, or 51%, from~~ $1.4 million, ~~for the six months ended June 30, 2020 to~~or 66%, from $2.2 million for the six months ended June 30, ~~2021. This is~~2021 to $3.6 million for the six months ended June 30, 2022. The increase was primarily due to ~~increases~~an increase of $61,936 in salaries, benefits and related expenses, ~~and professional fees. The~~an increase ~~in salaries, benefits, and~~of $499,909 related ~~expenses is primarily attributable~~ to ~~performance-based bonuses earned in connection~~stock-based compensation expense associated with ~~entering~~an equity award to the ~~Wugen License and~~CEO upon completion of the IPO, and an increase of $83,214 for Board compensation under our ~~IPO.~~ non-employee director compensation program offset by a reduction in performance bonuses.

Professional services increased ~~primarily due to legal services required~~$77,862 or 12%, from $668,501 for ~~patent filings.~~

We expect to incur increasing general and administrative expenses as a result of operating as a public company, including expenses for SEC reporting, investor relations, additional insurance requirements, and other administrative expenses. We expect to increase our administrative function to support the growth in our business and public company reporting requirements.

~~Other Income (Expense), Net~~

~~For~~ the six months ended June 30, ~~2020~~2021 to $746,363 for the six months ended June 30, 2022, primarily due to a $169,138 increase for corporate legal services, a $117,082 increase in expenses for other professional services, such as auditing, and ~~2021,~~a $93,156 increase in other ~~income (expenses), net~~consulting services, such as investor relations advisory services. These increases were partially offset by a decrease of $301,514 in fees for legal services related to patent filings. Other expenses increased by ~~$545,808~~$1.0 million, from $76,501 for the six months ended June 30, 2021 to $1.1 million for the six months ended June 30, 2022. The increase is primarily due to ~~the forgiveness of the PPP loan and accrued interest.~~

an increase in insurance costs associated with being a public company.

Liquidity and Capital Resources

Sources of Liquidity

~~Since inception, we have funded our operations primarily from the issuance of redeemable preferred stock, and as of~~

The Company closed an IPO on July ~~19,~~22, 2021, ~~an IPO. From our inception~~resulting in ~~2018 to July 19, 2021, the effective date of our IPO, we raised~~ net proceeds of approximately ~~$83.6~~$49.2 million, ~~including $49.0 million of net proceeds from~~after deducting underwriting discounts and commissions and offering expenses paid by the ~~IPO.~~Company. As of June 30, ~~2021,~~2022, we had cash and cash equivalents of ~~$5.1~~$15.4 million, short-term investments in U.S. government-backed securities of $17.0 million, and long-term investments in U.S. government-backed securities of $9.7 million. ~~After giving effect~~

On August 10, 2022, HCW Biologics committed to purchase a 36,000 square foot building located in Miramar, Florida for approximately $10.0 million, as the Company's new headquarters. The Company received a commitment for a five-year term facility for the purchase, expansion, and improvement of the property, secured by the building. An initial takedown equal to 65% of the purchase price will be funded on the closing date which is expected to be on August 15, 2022. Amounts borrowed under the term facility have a fixed interest rate of 5.75%, with interest only payments required for the first year and 25-year amortization thereafter. The term facility may be increased to provide additional funding for expansion and improvements of the property; however, future borrowings are subject to full credit approval and due diligence by the lender. With our remaining IPO proceeds and the financing commitment for the purchase of the Company's new headquarters, we estimate ~~that~~ we ~~will~~ have adequate capital to ~~meet~~fund operations and complete of the buildout of our ~~operating expenses, capital expenditure requirements, and contractual obligations for a period~~new headquarters to the end of ~~at least 24 months following the date our most recent financial statements were issued.~~

2023.

We have based our projections of operation expenses ~~and capital expenditure~~ requirements on assumptions that may prove to be incorrect, and we may use all of our available capital sooner than we expect. Because of the numerous risks and uncertainties associated with the clinical development and commercialization of immunotherapeutics, we are unable to estimate the exact amount of capital requirements to pursue these activities. Our funding requirements will depend on many factors, including, but not limited to:

•

~~Timing,~~timing, progress, costs, and results of our ongoing preclinical studies and clinical trials of our immunotherapeutic products;

•

~~Impact~~impact of

COVID-19

on the timing and progress of our IND-enabling activities, clinical trials and our ability to identify and enroll patients;

•

~~Costs,~~costs, timing, and outcome of regulatory review of our product candidates;

•

~~Number~~number of trials required for regulatory approval;

•

~~Whether~~whether we enter into any collaboration or

co-development

agreements and the terms of such agreements;

•

~~Effect~~effect of competing technology and market developments;

•

~~Cost~~cost of maintaining, expanding, and enforcing our intellectual property rights;

•

cost and timing of buildout of new headquarters, including risks of cost overruns and delays, and ability to obtain additional bank financing under existing term facility, if needed; and

•

~~Costs~~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.

~~Table of Contents~~

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, ~~2020~~2021 and June 30, ~~2021~~

2022

The following table summarizes our cash flows for the six months ended June 30, ~~2020~~2021 and ~~2021:~~

Six Months Ended
June 30,


2020

2021

Cash used in operating activities
   $ (4,144,634 )    $ (2,480,242 )
Cash used in investing activities
   (45,076 )    (23,279 )
Cash provided by (used in) financing activities
   2,306    (901,462 )




Net decrease in cash and cash equivalents

$
(4,187,404
)

$
(3,404,983
)

June 30, 2022:


	Six Months Ended June 30,
	2021			2022
Cash used in operating activities	$	(2,480,242	)	$	(4,281,998	)
Cash (used in) provided by investing activities		(23,279	)		7,963,379
Cash (used in) provided by financing activities		(901,462	)		8,273
Net (decrease) increase in cash and cash equivalents	$	(3,404,983	)	$	3,689,654

Operating Activities

Net cash used in operating ~~was $4.1 million and~~activities were $2.5 million for the six months ended June 30, ~~2020~~2021 and ~~June 30, 2021, respectively.~~

~~Cash used in operating activities~~$4.3 million for the six months ended June 30, 2020 consisted primarily of a net loss of $5.2 million, offset by cash provided by an decrease of $215,081 in prepaid expenses and other assets, an increase of $488,273 in accounts payable and other liabilities, and a noncash adjustment of $306,011 for depreciation and amortization.

2022, respectively.

Cash used in operating activities for the six months ended June 30, 2021 consisted primarily of a net loss of $5.6 million, as well as $567,311 from extinguishment of debt and $563,436 resulting from an increase in prepaid expenses and other assets. These were offset by cash provided from operating activities resulting from a $2.5 million decrease in accounts receivable, a $1.5 million increase in accounts payable, and a noncash adjustment of $323,897 ~~for~~primarily related to depreciation and amortization. The decrease in accounts receivable reflects collection of the $2.5 million cash payment due from Wugen under the terms of the Wugen License. The increase in accounts payable and other liabilities reflects the costs related to our ~~IPO, which closed on July 22, 2021.~~

~~Investing Activities~~

~~During~~IPO.

Cash used in operating activities for the six months ended June 30, ~~2020~~2022 consisted primarily of a net loss of $5.6 million, as well as $1.5 million of cash used in operations, resulting from a $1.3 million decrease in accounts payable and ~~2021, cash~~other liabilities and a $213,934 increase in accounts receivable. Cash provided by operations consisted primarily of $1.9 million arising from a decrease in prepaid expenses and other assets and adjustments for noncash charges, including $292,363 for depreciation and amortization and $531,683 for compensation expense related to stock-based compensation.

Investing Activities

Cash used in investing activities ~~reflects~~for the six months ended June 30, 2021 consisted of purchase of scientific lab equipment and general office equipment.

Cash provided by investing activities for the six months ended June 30, 2022, consisted of $8.0 million of cash provided when short-term investments reached maturity, offset by $36,461 of cash used to purchase equipment.

Financing Activities

During the six months ended June 30, ~~2020~~

~~and~~ 2021, cash provided by financing activities resulted from the issuance of common stock upon exercise of vested employee stock options, partially offset by offering ~~costs.~~

~~On July 19, 2021,~~costs associated with our IPO. During the ~~Company’s registration statement on Form~~

~~S-1~~

~~for its IPO was declared effective~~six months ended June 30, 2022, cash provided by ~~the Securities and Exchange Commission (the “SEC”). On July 22, 2021, the Company closed its IPO with the sale of 7,000,000 shares~~financing activities is due to issuance of common stock ~~at a public offering price~~upon exercise of ~~$8.00 per share, resulting in net proceeds of approximately $49.0 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by the Company.~~

~~Emerging Growth Company Status~~

The JOBS Act permits us, as an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies and thereby allows us to delay the adoption of those standards until those standards would apply to private companies.

We have elected to use this extended transition period under the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our commonvested employee stock ~~less attractive to investors.~~

~~Table of Contents~~

options.

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 ~~the accounting principles generally accepted in the United States of America.~~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

For the year ended December 31, 2020, we adopted provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“Topic 606”). Under Topic 606, we

We recognize revenue ~~when our customer obtains control~~under the guidance of ~~promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.~~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.

~~Identification~~

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 on Form 10-K for the ~~Contracts~~year ended December 31, 2021, which was filed with the ~~Customers~~

~~We evaluate every contract to determine whether it in its entirety or in part represents a contract with a customer, or a collaboration agreement and, based~~SEC on ~~this determination, apply appropriate accounting guidance.~~

We account for a contract with a customer that is within the scope of Topic 606 when all of the following criteria are met: (i) the arrangement has been approved by the parties and the parties are committed to perform their respective obligations, (ii) each party’s rights regarding the goods or services to be transferred can be identified, (iii) the payment terms for the goods or services to be transferred can be identified, (iv) the arrangement has commercial substance, and (v) collection of substantially all of the consideration to which we will be entitled in exchange for the goods or services that will be transferred to the customer is probable.

~~Identification of the Performance Obligations~~

The promised goods or services in our collaboration and option arrangements consist of research and development services. The arrangements also have options for additional items (i.e., license rights). Options are considered to be marketing offers and are to be accounted for as separate contracts when the customer elects such options, unless we determine the option provides a material right which would not be provided without entering into the contract. The determination as to whether such options are material rights requires significant management judgment, and management considers factors such as other similar arrangements, market data, and the terms of the contractual arrangement to make such conclusion.

Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer. Promised goods or services are considered distinct when: (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, we consider factors such as the stage of development of the underlying intellectual property, the capabilities of our customer to develop the intellectual property on their own, and whether the required expertise is readily available.

~~Determination of the Transaction Price~~

We estimate the transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, we evaluate the amount of the potential payments and the likelihood that the payments will be received. We utilize either the most likely amount method or expected value method to estimate the transaction price based on which method better predicts the amount of consideration expected to be received. If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price.

~~Table of Contents~~

All contingent future payments, which include research, development, regulatory, and sales-based royalty payments, have not been considered in the initial analysis, as they are contingent upon option(s) being exercised or are subject to significant risk of achievement.

~~Allocation of Transaction Price~~

We allocate the transaction price based on the estimated standalone selling price. We must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. We utilize key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration related to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts we would expect to receive for satisfying each performance obligation.

~~Recognition of Revenue~~

We assessed the Wugen License and determined this was a transaction with a customer and should be accounted for under Topic 606. There are five performance obligations contained in the Wugen License. Two are related to supply agreements that have not been finalized, and we will assess revenue recognition when these agreements are completed. The three performance obligations remaining are: (1) exclusive worldwide license, (2) vials of HCW9201, and (3) transfer of R&D

~~know-how.~~

~~The estimated transaction price for performance obligations that have been satisfied as of December 31, 2020 is $4.1 million. This is the first time we have entered into an~~

~~out-license~~

arrangement and the first time the Company has established prices for its goods and services. Accordingly, the standalone selling price of the various performance obligations is uncertain, and we determined that an observable standalone selling price is not available for the identified performance obligations under the Wugen License. Where a standalone selling price is not directly observable, then we will estimate the standalone selling price considering market conditions, entity-specific factors, and information about the customer that is reasonably available. The process for determining a standalone selling price involves significant judgment and includes consideration of multiple factors, including assumptions related to the market opportunity and the time needed to commercialize a product candidate pursuant to the relevant license, estimated direct expenses, and other costs.

~~We first determined the standalone selling price at $2.5 million for the vials of HCW9201 and the R&D~~

~~know-how.~~

~~The prices were determined based on developing the~~

~~know-how~~

~~and the costs incurred in producing the vials. The standalone selling price for the license was determined using the residual approach and was priced at $1.6 million.~~

~~As of December 31, 2020, we recorded $2.5 million in accounts receivable, as the cash payment for the sale of the~~

~~non-financial~~

~~assets were due after the reporting period. The Company records amounts as accounts receivable when the right to consideration is deemed unconditional.~~

~~Fair Value Measurements~~

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between fair value measurements based on market data (observable inputs), and those based on our own assumptions (unobservable inputs). This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

~~Level 1: Observable inputs such as quoted prices in active markets;~~

~~Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and~~

~~Level 3: Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions.~~

~~Table of Contents~~

~~Fair Value~~

Under the Wugen License, we received shares of common stock of Wugen on the effective date of the Wugen License. We estimated that the fair value of the stock was $1.6 million. As the common stock of Wugen is not currently publicly traded, the fair value was determined based on inputs other than a public market price. We relied primarily on the most recent third-party financing completed by Wugen. In addition, we considered the results of a third-party valuation assessment. Since our ownership interest in Wugen is less than 20% and we do not have significant influence over the operations of Wugen, we account for these securities as a cost method investment. We will carry this investment at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same investee. In the event that a public market becomes available for the common stock of Wugen in the future and the shares are freely tradeable, we will recognize changes in fair value according to the market price in other income in the statements of operations.

~~Research and Development Costs~~

Research and development costs are expensed as incurred and include salaries, benefits, and other operating costs such as outside services, supplies, and allocated overhead expenses. We may perform research and development for our own internally-developed drug candidates and technology development or for certain third parties under collaborative arrangements. For our internally-developed drug candidates and our internal technology development programs, we invest own funds without reimbursement from a third party. Where we perform research and development activities under a clinical joint development collaboration, we record the partner’s share of collaboration expenses as a reduction to research and development expense when reimbursement amounts are due under the agreement.

We record an accrued expense for the estimated costs of our contract manufacturing activities performed by third parties. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to vendors. Payments under the contracts include upfront payments and milestone payments, which depend on factors such as the achievement of the completion of certain stages of the manufacturing process. For purposes of recognizing expense, we assess whether the production process is sufficiently defined to be considered the delivery of a good, as evidenced by predictive or contractually required yields in the production process, or the delivery of a service, where processes and yields are developing and less certain. If we consider the process to be the delivery of a good, we recognize the expense when the drug product is delivered, or otherwise bears risk of loss. If we consider the process to be the delivery of a service, the expense is recognized based on its best estimates of the contract manufacturer’s progress towards completion of the stages in the contracts. We recognize and amortize upfront payments and accrue liabilities based on the specific terms of each arrangement. Arrangements may provide upfront payments for certain stages of the arrangement and milestone payments for the completion of certain stages, and, accordingly, may result in advance payments for services that have not been completed or goods not delivered and liabilities for stages where the contract manufacturer is entitled to a milestone payment.

Advance payments for goods or services that will be used or rendered for future research and development activities are capitalized as prepaid expenses and recognized as expense as the related goods are delivered or the related services are performed. We base our estimates on the best information available at the time. However, additional information may become available to us which may allow us to make a more accurate estimate in future periods. In this event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain. Such increases or decreases in cost are generally considered to be changes in estimates and will be reflected in research and development expenses in the period identified.

~~Stock-based Compensation~~

~~We maintain a stock-based compensation plan as a long-term incentive for employees,~~

~~non-employees,~~

~~and directors. The plan allows for grants of incentive stock options,~~

~~non-qualified~~

~~stock options, and other forms of equity awards. We have granted options with service-based and performance-based vesting conditions.~~

We measure our stock-based awards granted to employees and directors based on the estimated fair value of the option on the date of grant (grant date fair value) and recognize compensation expense over the vesting period. Compensation expense is recorded as either research and development or general and administrative expenses in the statements of operations based on the function to which the related services are provided. Forfeitures are accounted for as they occur. We estimate grant date fair value using the Black-Scholes option-pricing model.

For stock option grants with service-based and performance-based vesting, stock-based compensation expense represents the portion of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards on a straight-line basis, net of estimated forfeitures. For options that vest upon the achievement of performance milestones, the Company estimates the vesting period based on the evaluation of the probability of achievement of each respective milestone and the related estimated date of achievement.

~~Table of Contents~~

In determining the fair value of the stock-based awards, we use the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and its determination generally requires significant judgment. These assumptions include, but are not limited to:

~~Expected term~~

—The expected term of stock options with service-based vesting is determined using the “simplified” method, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data.

~~Expected volatility~~

—Since there is no trading history for our common stock, the expected volatility was estimated based on the historical equity volatility for comparable publicly traded biotechnology companies. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

~~Risk-free interest rate~~

~~—The risk-free interest rate is based on the U.S. Treasury Bond in effect at the time of grant for periods corresponding with the expected term of the exit event.~~

~~Dividend yield~~

~~—The expected dividend yield is 0% because the Company has not historically paid, and does not expect, for the foreseeable future, to pay a dividend on its common stock.~~

~~Determination of the Fair Value of Our Common Stock~~

As there has been no public market for our common stock historically prior to this offering, the estimated fair value of our common stock has been determined by our board of directors as of the date of each option grant, with input from management, considering a third-party valuation of common stock and our board of directors’ assessment of additional objective and subjective third-party financing events and other factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. Prior to this offering, for third-party valuations performed in connection with the valuation of our common stock, we used the Black-Scholes option-pricing model. Third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting Practice Aid entitled,

~~Valuation of Privately-Held-Company Equity Securities Issued as Compensation~~

In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, which may be as a date later than the most recent third-party valuation date, including:

~~the prices at which we sold shares of redeemable preferred stock and the superior rights and preferences of the redeemable preferred stock relative to our common stock at the time of each grant;~~

~~the progress of our research and development programs, including the status of preclinical and planned clinical trials for our product candidates;~~

~~our stage of development and commercialization and our business strategy;~~

~~external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;~~

~~our financial position, including cash on hand, and our historical and forecasted performance and operating results;~~

~~the lack of an active public market for our common stock and our redeemable preferred stock;~~

~~the likelihood of achieving a liquidity event, such as an initial public offering (“IPO”), or a sale of our company considering prevailing market conditions; and~~

~~the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.~~

~~Table of Contents~~

For financial reporting purposes, it is our policy to perform a contemporaneous valuation when a material number of stock awards or options are granted. As a private company, we relied primarily on the evidence of third-party financings to support valuation of common stock. The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change, and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

After the completion of this offering, our board of directors will determine the fair value of each share of underlying common stock based on its closing price as reported on the date of grant according to the quoted market price on the primary stock exchange on which our common stock is traded.

~~Income Taxes~~

We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. In evaluating our valuation allowance, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance.

As of December 31, 2019 and 2020, we had available federal net operating loss (“NOL”) carryforwards of $9.1 million and $14.8 million, respectively. We also had available state NOLs carryforwards of approximately $9.1 million and $15.2 million, as of December 31, 2019 and 2020, respectively. The Federal and State NOLs will carryforward indefinitely and be available to offset up to 100% of taxable income for taxable years before 2021 and 80% of taxable years starting after 2020.

Under Sections 382 and 383 of the Code, substantial changes in our ownership may limit the amount of NOL and research and development credit carryforwards that could be used annually in the future to offset taxable income. The tax benefits related to future utilization of federal and state NOL carryforwards, credit carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period. We have not completed a Section 382/383 analysis under the Code regarding the limitation of NOL and credit carryforwards. If a change in ownership were to have occurred, the annual limitation may result in the expiration of NOL carryforwards and credits before utilization.

We record unrecognized tax benefits as liabilities or reduce the underlying tax attribute, as applicable, and adjust them when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

March 29, 2022.

Recent Accounting Pronouncements

See Note 1 to our unaudited condensed interim financial statements appearing elsewhere in this Quarterly Report for more information about recent accounting pronouncements.

~~Available information~~

Our corporate website address is www.hcwbiologics.com. We use the investor relations page of our website for purposes of compliance with Regulation FD and as a routine channel for distribution of important information, including news releases, analyst presentations, financial information and corporate governance practices. Our filings with the SEC are posted on our website and available free of charge as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. The SEC’s website, www.sec.gov, contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Quarterly Report on Form

~~10-Q~~

~~is not incorporated by reference in this Form~~

~~10-Q~~

~~unless expressly noted. Further, the Company’s references to website URLs are intended to be inactive textual references only.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk related to changes in interest rates. ~~As of June 30, 2021, we had cash and cash equivalents of $5.1 million consisting of bank deposits and monies in a money market fund.~~ On July 22, 2021, we closed on our ~~initial~~ IPO and invested our proceeds in U.S. Treasury securities. As of June 30, 2022, we had cash and cash equivalents of $15.4 million, short-term investments in U.S. government-backed securities of $17.0 million, and long-term investments in U.S. government-backed securities of $9.7 million. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. We are exposed to market risk related to the marketability of our ~~investment in~~ Wugen common ~~stock.~~stock reported within Investments in the accompanying condensed balance sheet. Until such time as these shares become publicly traded, we will have limited access to ~~liquidity.~~

~~Table of Contents~~

liquidity for these securities.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended or the Exchange Act, is recorded, communicated to our management to allow timely decisions regarding required disclosure, summarized and reported within the time periods specified in the ~~SEC’s~~SEC's rules and forms. Any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its ~~judgment~~judgement in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules

13a-15(e)

and

15d-15(e)

under the Exchange Act, as of June 30, ~~2021.~~2022. Based on that evaluation, the CEO and CFO have concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the ~~quarter~~three months ended June 30, ~~2021, that~~2022, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in litigation relating to claims arising out of our operations. We are not currently a party to any material legal proceedings. We may, however, be involved in material legal proceedings in the future. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed by us in our Annual Report on Form 10-K for the ~~Prospectus~~year ended December 31, 2021 filed ~~by us~~ with the SEC on ~~July 21, 2021.~~March 29, 2022. The risk factors included in the ~~Prospectus~~Form 10-K continue to apply to us and describe risks and uncertainties that could cause actual results to differ materially from the results expressed or implied by the forward-looking statements contained in this Quarterly Report on Form

10-Q.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

None.

Issuer Repurchases of Equity Securities

None.

Use of Proceeds

~~On July 19, 2021, our registration statement on Form~~

~~S-1~~

~~(File~~

~~No. 333-258025)~~

~~was declared effective by~~

Through June 30, 2022, we have used approximately $7.1 million of the ~~SEC for~~net proceeds from our IPO. At the closing of the offering on July 22, 2021, we sold 7,000,000 shares of common stock, at an IPO price of $8.00 per share and received gross proceeds of $56.0 million, which resulted in net proceeds to us of approximately $49.0 million, after deducting underwriting discounts and commissions of approximately $3.9 million and offering-related transaction costs of approximately $3.2 million. None of the expenses associated with the IPO were paid to directors, officers, persons owning ten percent or more of any class of equity securities, or to their associates, or to our affiliates. EF Hutton, division of Benchmark Investments, LLC acted as sole book-running manager and Revere Securities LLC acted as

~~co-manager~~

~~for the offering.~~

There has been no material change in the ~~planned~~ use of proceeds ~~from our IPO from that~~ described in the final prospectus filed by us with the SEC on July 21, 2021.

Item 3. Defaults Upon Senior Securities.

Not Applicable.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

~~Table of Contents~~

Item 6. Exhibits.

The exhibits filed or furnished as part of this Quarterly Report on

Form 10-Q

are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.

~~Exhibit~~

~~Number~~

~~Incorporated by Reference~~

~~Filed~~

~~Herewith~~

~~Description~~

~~Form~~

~~Date~~

~~Number~~

31.1*

Exhibit

Number

Incorporated by Reference

Filed
Herewith

Description

Form

Date

Number

10.1**†

Purchase and Sale Agreement, by and between HCW Biologics Inc. and Wai 3300Corporate Way, LLC, dated May 27, 2022.

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following materials from the Company’s Quarterly Report on Form

10-Q

for the quarter ended June 30, ~~2020,~~2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Balance Sheets as of December 31, 2021 and June 30, ~~2020~~2022 (unaudited) ~~and December 31, 2019; (ii) the Condensed Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019;~~; (ii) the Condensed Statements of Operations for the three months and six months ended June 30, ~~2020~~2021 (unaudited) and ~~2019~~June 30, 2022 (unaudited); (iv) the Condensed Statements of Stockholders’ Equity ~~as of~~for the three and six months ended June 30, ~~2020~~2021 (unaudited) and June 30, ~~2019~~2022 (unaudited); (v) the Condensed Statements of Cash Flows for the six months ended June 30, ~~2020~~2021 (unaudited) and ~~2019~~June 30, 2022 (unaudited); and (vi) the notes to ~~Unaudited Interim~~the Condensed Financial ~~Statements.~~Statements (unaudited).

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*

This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange ~~Act~~

Act.

The exhibits and schedules to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant agrees to furnish supplementally copies of any such exhibits and schedules to the SEC upon request.

†

Certain information in this document has been excluded pursuant to Item 601(b)(10) of Regulation S-K. Such excluded information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant agrees to furnish supplementally such information to the SEC upon request.

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		~~HCW Biologics Inc.~~

	HCW Biologics Inc.

Date: August ~~13, 2021~~12, 2022	By:	~~By:~~	/s/ Hing C. Wong
			Hing C. Wong
			Chief Executive Officer
			(Principal Executive Officer)

Date: August ~~13, 2021~~12, 2022	By:	~~By:~~	/s/ Rebecca Byam
			Rebecca Byam
			Chief Financial Officer
			(Principal Financial and Accounting Officer)


	December 31,			June 30,
	2020			2021
				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	8,455,834		$	5,050,851
Accounts receivable, net		2,500,000			50,000
Prepaid expenses		538,306			862,498
Deferred offering costs		0			3,189,000
Other current assets		654,528			893,971

Total current assets		12,148,668			10,046,320
Investment		1,599,750			1,599,750
Property and equipment, net		1,649,668			1,387,324

Total assets	$	15,398,086		$	13,033,394

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Liabilities
Current liabilities:
Accounts payable	$	155,343		$	996,880
Accrued liabilities and other current liabilities		845,741			3,172,545

Total current liabilities		1,001,084			4,169,425
Commitments and contingencies (Note 7)
Redeemable preferred stock:
Series A, $0.0001 par value; 14,738,948 shares authorized and 6,316,691 shares issued at December 31, 2020 and June 30, 2021		6,140,792			6,333,842
Series B, $0.0001 par value; 28,029,449 shares authorized and 12,012,617 shares issued at December 31, 2020 and June 30, 2021		13,680,306			14,118,483
Series C, $0.0001 par value; 18,181,818 shares authorized and 5,439,112 shares issued at December 31, 2020 and June 30, 2021		11,294,301			11,651,350

Total redeemable preferred stock		31,115,399			32,103,675

Stockholders’ deficit:
Common stock:
Class B convertible, $0.0001 par value; 10,000,000 shares authorized and 4,285,714 shares issued at December 31, 2020 and June 30, 2021		429			429
Class A, $0.0001 par value; 74,950,215 shares authorized and 507,680 shares issued at December 31, 2020; 74,950,215 shares authorized and 669,886 shares issued at June 30, 2021		51			67
Accumulated deficit		(16,718,877	)		(23,240,202	)

Total stockholders’ deficit		(16,718,397	)		(23,239,706	)

Total liabilities, redeemable preferred stock and stockholders’ deficit	$	15,398,086		$	13,033,394


	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2021			2020			2021

Operating expenses:
Research and development	$	2,068,783		$	1,673,163		$	3,747,207		$	4,002,976
General and administrative		711,224			1,077,830			1,429,792			2,160,190

Total operating expenses		2,780,007			2,750,993			5,176,999			6,163,166

Loss from operations		(2,780,007	)		(2,750,993	)		(5,176,999	)		(6,163,166	)
Interest and other income, net		1,522			631			23,000			568,808
		��
Net loss	$	(2,778,485	)	$	(2,750,362	)	$	(5,153,999	)	$	(5,594,358	)
Less: cumulative preferred dividends earned in the period		(279,786	)		(482,662	)		(559,573	)		(960,020	)

Net loss available for distribution to common stockholders	$	(3,058,271	)	$	(3,233,024	)	$	(5,713,572	)	$	(6,554,378	)

Net loss per share, basic and diluted	$	(0.65	)	$	(0.66	)	$	(1.21	)	$	(1.34	)
Weighted average shares outstanding, basic and diluted		4,725,083			4,921,121			4,721,313			4,880,496


	At June 30,
	2020		2021
Redeemable Preferred stock		18,329,308		23,768,420
Common stock options		569,400		579,858

Potentially diluted securities		18,898,708		24,348,278


	At December 31, 2020:
	Level 1		Level 2		Level 3		Total
Assets:


Money market funds	$	6,752,266	$	—	$	—	$	6,752,266

Total	$	6,752,266	$	—	$	—	$	6,752,266

	At June 30, 2021:
	Level 1		Level 2		Level 3		Total

Assets:
Money market funds	$	3,379,887	$	—	$	—	$	3,379,887

Total	$	3,379,887	$	—	$	—	$	3,379,887


2021 (remaining 6 months)	$	106,000
2022		36,000

Total future minimum lease payments	$	142,000