HCW Biologics(HCWB) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed interim financial statements of HCW Biologics Inc. for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, financial instruments, debt, equity transactions, and commitments Condensed Balance Sheets The balance sheet shows a decrease in total assets and a significant reduction in total liabilities, leading to a substantial improvement in stockholders' deficit from December 31, 2024, to June 30, 2025 Condensed Balance Sheets | Metric | December 31, 2024 | June 30, 2025 (Unaudited) | Change | % Change | | :-------------------------------- | :------------------ | :------------------------ | :------- | :------- | | Total assets | $30,236,578 | $28,909,636 | $(1,326,942) | -4.39% | | Total liabilities | $37,006,750 | $28,961,608 | $(8,045,142) | -21.74% | | Total stockholders' deficit | $(6,770,172) | $(51,972) | $6,718,200 | -99.23% | | Cash and cash equivalents | $4,674,572 | $2,438,962 | $(2,235,610) | -47.82% | | Investments | $1,599,751 | $3,348,438 | $1,748,687 | 109.31% | | Accounts payable | $22,332,261 | $19,354,476 | $(2,977,785) | -13.33% | Condensed Statements of Operations The company experienced a significant reduction in net loss for both the three and six months ended June 30, 2025, compared to the prior year, primarily driven by lower legal expenses and an unrealized gain on investment, despite a sharp decline in revenues Condensed Statements of Operations | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2025 | Change | % Change | | :--------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Revenues | $618,854 | $6,550 | $(612,304) | -98.94% | | Net revenues | $180,411 | $1,310 | $(179,101) | -99.28% | | Research and development | $2,029,186 | $1,226,824 | $(802,362) | -39.54% | | General and administrative | $1,594,193 | $2,096,021 | $501,828 | 31.48% | | Legal expenses (recoveries), net | $10,393,042 | $142,542 | $(10,250,500) | -98.63% | | Net loss | $(15,280,191) | $(1,927,730) | $13,352,461 | -87.39% | | Net loss per share, basic and diluted | $(16.16) | $(6.79) | $9.37 | -57.98% | | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Change | % Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Revenues | $1,745,566 | $11,615 | $(1,733,951) | -99.33% | | Net revenues | $795,158 | $2,323 | $(792,835) | -99.71% | | Research and development | $4,152,470 | $2,705,536 | $(1,446,934) | -34.84% | | General and administrative | $3,160,285 | $4,302,301 | $1,142,016 | 36.14% | | Legal expenses (recoveries), net | $14,812,076 | $(1,596,951) | $(16,409,027) | -110.78% | | Net loss | $(22,748,253) | $(4,124,606) | $18,623,647 | -81.87% | | Net loss per share, basic and diluted | $(24.25) | $(9.86) | $14.39 | -59.34% | Condensed Statements of Changes in Stockholders' Equity (Deficit) Stockholders' deficit significantly decreased from $(6,770,172) at January 1, 2025, to $(51,972) at June 30, 2025, primarily due to substantial increases in additional paid-in capital from equity issuances and debt conversions, partially offset by net losses and an equity dividend to an investor Condensed Statements of Changes in Stockholders' Equity (Deficit) | Metric | January 1, 2025 | June 30, 2025 | | :-------------------------- | :-------------- | :------------ | | Common Stock (Amount) | $111 | $215 | | Additional Paid-In Capital | $93,785,854 | $104,628,555 | | Accumulated Deficit | $(100,556,137) | $(104,680,742) | | Total Stockholders' Deficit | $(6,770,172) | $(51,972) | - Issuance of Common Stock, pre-funded warrants, and common stock warrants, along with debt extinguishment through equity, significantly increased Additional Paid-In Capital[18] - An equity dividend of $10,153,799 was recognized to an investor during the six months ended June 30, 2025[18] Condensed Statements of Cash Flows Net cash used in operating activities decreased, while cash provided by financing activities also decreased, resulting in a net decrease in cash and cash equivalents for the six months ended June 30, 2025, compared to the prior year Condensed Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Net cash used in operating activities | $(8,466,076) | $(6,796,159) | $1,669,917 | | Net cash (used in) provided by investing activities | $(111,142) | $0 | $111,142 | | Net cash provided by financing activities | $6,143,431 | $4,560,549 | $(1,582,882) | | Net decrease in cash and cash equivalents | $(2,433,787) | $(2,235,610) | $198,177 | - Noncash financing activities in H1 2025 included extinguishment of $7.4 million restructured debt, issuance of $3.96 million in common stock/warrants for debt extinguishment, a $3.48 million gain on debt extinguishment with related parties, and a $10.15 million equity dividend to an investor[21] Notes to Condensed Interim Financial Statements The notes provide detailed disclosures on the company's organization, significant accounting policies, financial health (including going concern), debt obligations, equity transactions, and legal and contingent matters, offering crucial context to the condensed financial statements 1. Organization and Summary of Significant Accounting Policies This note outlines the company's biopharmaceutical focus, the impact of a reverse stock split, and the ongoing substantial doubt about its ability to continue as a going concern, while also detailing key accounting policies including revenue recognition, fair value measurements, and the treatment of investments and equity instruments - HCW Biologics Inc. is a biopharmaceutical company developing immunotherapies for age-related diseases, incorporated in Delaware in April 2018[23] - A one-for-forty (1:40) reverse stock split was effective on April 11, 2025, retrospectively applied to all financial statements[24][25] - The company has incurred cumulative net losses of $102.0 million since inception to June 30, 2025, and management concluded that substantial doubt exists about its ability to continue as a going concern[27][38][39] - The Wugen License was suspended for one year (until May 29, 2026), allowing HCWB to seek alternate licensees for ex vivo use of licensed molecules[28][53] - WY Biotech is obligated to pay a $7.0 million upfront license fee by September 30, 2025, for HCW11-006, but revenue recognition is deferred until collectability is probable[29][148][149] - The company extinguished $7.7 million of debt through restructuring ($7.4 million Secured Notes) and conversion ($270,000 unsecured promissory notes) to equity, with related gains/losses recorded to additional paid-in capital due to related party involvement[30][71][73] - The company raised $11.9 million in gross proceeds from two equity offerings in November 2024 and May 2025, involving common stock and warrants[35] - An Equity Purchase Agreement with Square Gate Capital Master Fund allows the company to sell up to $20.0 million in common stock over 36 months, with a $150,000 commitment fee expensed[36][94][97][102] - The company regained compliance with Nasdaq listing rules (Equity Rule, bid price, public float, market value of publicly held shares) as of June 26, 2025, but remains under a 'Panel Monitor' until June 23, 2026[37] Revenue from Wugen (YoY Change) | Period | 2024 Revenue | 2025 Revenue | Change | % Change | | :-------------------- | :----------- | :----------- | :------- | :------- | | Three Months Ended June 30 | $618,854 | $6,550 | $(612,304) | -98.94% | | Six Months Ended June 30 | $1,745,566 | $11,615 | $(1,733,951) | -99.33% | - The investment in Wugen was re-measured at fair value as of June 30, 2025, resulting in an unrealized gain recognized in earnings[54] 2. Accrued Liabilities and Other Current Liabilities Accrued liabilities and other current liabilities increased from $981,940 at December 31, 2024, to $1.1 million at June 30, 2025, with notable changes in property taxes and legal fees Accrued Liabilities and Other Current Liabilities | Category | December 31, 2024 | June 30, 2025 | | :---------------------------------- | :------------------ | :------------ | | Total Accrued liabilities and other current liabilities | $981,940 | $1,100,000 | | Construction expenses | $422,000 | $422,000 | | Manufacturing expenses | $49,000 | $52,000 | | Legal fees | $155,000 | $193,000 | | Clinical expenses | $121,000 | $127,000 | | Salary expenses | $202,000 | $180,000 | | Property taxes | — | $87,000 | 3. Debt, Net The company's debt structure saw significant changes, including the Cogent Bank loan being reclassified as short-term due to potential acceleration, a substantial portion of Senior Secured Notes converted to equity, and new promissory notes issued, some with personal guarantees. A contingent liability was recognized for the right to receive Wugen share proceeds - The $6.5 million Cogent Bank loan, secured by property, had $6.3 million principal outstanding as of June 30, 2025, and was reclassified as Short-term debt due to a discretionary default provision related to unpaid construction invoices[63][64][65] - As of June 30, 2025, $325,000 of Senior Secured Notes remained outstanding, bearing 9% annual interest and maturing on August 30, 2026. $6.6 million of these notes were extinguished via conversion to equity on May 7, 2025[66] - A troubled debt restructuring extinguished $7.4 million of Secured Notes (including $860,462 accumulated accretion) for $4.0 million in common stock, warrants, and rights to Wugen share proceeds, resulting in a $3.5 million gain recorded to additional paid-in capital due to related party involvement[71] - Unsecured convertible promissory notes totaling $270,000 were converted to 36,242 shares of Common Stock and rights to Wugen share proceeds on May 15, 2025, resulting in a $131,134 loss recorded to additional paid-in capital[72][73] - A $150,000 promissory note was issued on May 8, 2025, with a $75,000 original issue discount, secured by a personal guarantee from the CEO, maturing February 7, 2026[74] - A contingent liability of $1.7 million was recorded as of June 30, 2025, for the right of converted noteholders to receive proceeds from the liquidation or sale of a portion of the company's Wugen shares, measured at fair value[75] 4. Sale of Common Stock and Warrants The company completed two significant equity financings in November 2024 and May 2025, raising gross proceeds through the issuance of common stock, pre-funded warrants, and common stock warrants. The May 2025 financing also involved repricing existing warrants, leading to a deemed equity dividend - May 2025 Equity Financing: Raised approximately $5.0 million gross proceeds by issuing 158,000 shares of Common Stock and pre-funded warrants for 513,140 shares, along with 1,342,280 Common Stock Warrants (exercise price $7.45)[76][77][78] - In May 2025, existing warrants to purchase 167,925 shares (issued in November 2024) were repriced from $41.20 to $7.45 per share, resulting in a $10.2 million deemed equity dividend to the institutional investor[78][89] - As of June 30, 2025, all Pre-Funded Warrants from the May 2025 offering (513,140 shares) were exercised[81] - November 2024 Equity Financing: Raised approximately $6.9 million gross proceeds by issuing 104,000 shares of Common Stock and pre-funded warrants for 63,925 shares, along with 167,925 Common Stock Warrants (initial exercise price $41.20)[83][84][85] - All Pre-Funded Warrants from the November 2024 offering (63,925 shares) were exercised on November 20, 2024[88] 5. Preferred Stock As of December 31, 2024, and June 30, 2025, the Company had 10,000,000 shares of preferred stock authorized but no shares issued - 10,000,000 shares of preferred stock authorized; no shares issued as of December 31, 2024, and June 30, 2025[91] 6. Net Loss Per Share The net loss per share significantly decreased for both the three and six months ended June 30, 2025, compared to the prior year, primarily due to a lower net loss and an increase in weighted-average shares outstanding Net Loss Per Share | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to Common Stockholders | $(15,280,191) | $(12,081,529) | $(22,748,253) | $(14,278,405) | | Weighted-average common shares outstanding | 945,585 | 1,780,113 | 938,087 | 1,448,502 | | Net loss per share, basic and diluted | $(16.16) | $(6.79) | $(24.25) | $(9.86) | - Potentially dilutive securities (stock options and warrants) were excluded from diluted EPS calculation due to anti-dilutive effect from net loss[92] 7. Standby Equity Purchase Agreement The company entered into a Standby Equity Purchase Agreement (SEPA) with Square Gate Capital, allowing it to sell up to $20.0 million in common stock over 36 months. The SEPA is accounted for as an asset/liability at fair value, with a $150,000 commitment fee and issuance costs expensed - Entered SEPA with Square Gate Capital on February 20, 2025, allowing sale of up to $20.0 million in common stock over 36 months[94] - A $150,000 commitment fee was paid in common stock and expensed as of March 31, 2025[97][102] - The SEPA does not qualify for equity classification and is measured at fair value (zero at inception), with changes recognized in net income[100] - No draws were made under the SEPA as of June 30, 2025, but subsequent draws occurred, and the agreement was amended for intraday trading[103][128] 8. Fair Value of Financial Instruments The company measures certain financial instruments at fair value, classifying money market funds as Level 1 inputs and investments (Wugen shares) and contingent liabilities as Level 3 inputs using the adjusted enterprise value method Fair Value of Financial Instruments | Category | Level 1 (June 30, 2025) | Level 3 (June 30, 2025) | Total (June 30, 2025) | | :------------------ | :---------------------- | :---------------------- | :-------------------- | | Money market funds | $2,124,762 | — | $2,124,762 | | Investments | — | $3,348,438 | $3,348,438 | | Contingent Liability | — | $(1,748,356) | $(1,748,356) | | Total | $2,124,762 | $1,600,082 | $3,724,844 | - Investments and contingent liability are measured at fair value using the adjusted enterprise value method (Level 3 inputs)[105] 9. Income Taxes The company maintained a 100% valuation allowance on deferred tax assets, resulting in a 0.00% effective tax rate for the periods presented, and does not expect recent tax legislation to have a material impact - No provision for income taxes (current or deferred) as of December 31, 2024, and June 30, 2025[106] - Maintains a 100% valuation allowance on total deferred tax assets, resulting in a 0.00% effective tax rate[106] - Preliminary analysis suggests the One Big Beautiful Bill Act will not materially affect financial statements[126] 10. Segment Reporting HCW Biologics operates as a single reportable segment focused on life science, specifically developing immunotherapies for age-related diseases. The CEO, as CODM, reviews aggregate financial information and preclinical/clinical data to allocate resources - Operates as one reportable segment: life science, focused on novel immunotherapies for chronic inflammation and age-related diseases[41][109] - The Chief Executive Officer acts as the chief operating decision maker (CODM), reviewing financial information and preclinical/clinical data on an aggregate basis[41][109][112] - No product revenue from commercial sales as of June 30, 2025; significant operating losses are expected to continue[111] 11. Commitments and Contingencies The company faces various commitments and contingencies, including operating lease obligations, contractual commitments for manufacturing, a $1.3 million loss from a fraudulent scheme, and ongoing legal proceedings related to construction liens and a settled arbitration. Macroeconomic factors also pose significant uncertainties - The company has a one-year operating lease for its Miramar, Florida facility, expiring February 28, 2026, accounted for as a short-term lease exemption[116] - Contractual commitments include $34,200 for third-party manufacturing services expected in 2025[118] - Recognized a $1.3 million nonoperating loss in Q2 2024 due to a criminal fraudulent scheme involving misdirection of funds[119][187] - A confidential Settlement Agreement and Release was entered on July 13, 2024, resolving arbitration and legal complaints with ImmunityBio, with no monetary payments required between parties[33][123][186][271] - Ongoing legal actions include complaints from BE&K Building Group and Fisk Electric Company regarding unpaid construction invoices and mechanics liens on the company's manufacturing facility[32][124][156][274] - The company is engaged in discussions with law firms to arrange a payment plan for $12.3 million in legal fees incurred but not yet paid as of June 30, 2025[34][124][208][229] - Operations are affected by inflationary pressures, high interest rates, global supply chain disruptions, and geopolitical tensions, impacting material procurement, employee costs, and borrowing costs[125][171] 12. Subsequent Events Subsequent events include the enactment of the One Big Beautiful Bill Act (tax legislation), a draw on the Equity Purchase Agreement, a motion for summary judgment in a legal case, an amendment to the Equity Purchase Agreement for intraday trading, and a notification of late filing for the 10-Q - The One Big Beautiful Bill Act was enacted on July 4, 2025; preliminary analysis indicates no material financial impact[126] - On July 22, 2025, the company submitted a Put Notice to Square Gate for 5,000 shares, settled on July 25, 2025, for $19,803 net[127] - On August 8, 2025, B&I Contractors, Inc. filed a motion for summary judgment regarding a construction lien[127] - On August 14, 2025, the Equity Purchase Agreement with Square Gate was amended to allow for intraday trading[128] - On August 15, 2025, the company filed a 'Notification of Late Filing' for its Form 10-Q[129] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operational results, and future outlook, detailing its biopharmaceutical focus, recent business highlights, trends, uncertainties, and critical accounting policies, while acknowledging ongoing liquidity challenges despite recent capital raising and debt restructuring efforts Forward-Looking Statements This section cautions readers that the report contains forward-looking statements regarding future operations, financial position, product development, and market conditions, which are subject to known and unknown risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements about future results, business strategy, product approvals, R&D costs, clinical trial success, cash resources, and economic conditions[132] - These statements are based on current expectations and projections and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially[132][133] Overview HCW Biologics is a clinical-stage biopharmaceutical company focused on developing immunotherapies to treat diseases driven by chronic inflammation, particularly age-related conditions (inflammaging) and cancer. The company utilizes two drug discovery platforms, TOBI™ and TRBC, and aims to develop novel senotherapeutic drugs - HCW Biologics is a clinical-stage biopharmaceutical company developing immunotherapies for diseases promoted by chronic inflammation, especially age-related and senescence-associated diseases[134] - The company believes chronic inflammation ('inflammaging') is a significant factor in cancer, autoimmune, and neurodegenerative diseases[135] - HCWB has two drug discovery platforms: TOBI™ (Tissue factOr-Based fusIon) for multi-functional fusion proteins and the newly developed TRBC (T-cell Receptor β Chain constant region) platform for multi-specific cytokines, immune checkpoint inhibitors, and immune-cell engagers[138][142] - The company's lead product candidates are considered a novel immunotherapeutic approach and a clinically promising new class of senotherapeutic drugs[137] Business Highlights Recent business highlights include strategic financing activities, the suspension of the Wugen License, progress with the WY Biotech License, a $5.0 million equity offering, settlement of $7.7 million in debt, regaining Nasdaq compliance, and advancements in clinical development for HCW9302, HCW9206, T-cell engagers, and immune checkpoint inhibitors - Financing strategy includes capital raising through securities issuance and out-licensing non-core assets[141] - The Wugen License was suspended for one year (ending May 29, 2026) at Wugen's request, allowing HCWB to seek alternate licensees for ex vivo use of HCW9201 and HCW9206[145] - WY Biotech elected to proceed with its exclusive worldwide license for HCW11-006, obligating a $7.0 million upfront license fee, with payment extended to September 30, 2025[148] - A $5.0 million equity offering closed on May 15, 2025, with an existing institutional investor, which included repricing existing warrants and resulted in a $10.2 million deemed equity dividend[150] - The company settled $7.7 million of debt (including $7.4 million Secured Notes and $270,000 unsecured promissory notes) through restructuring and conversion to equity, strengthening the balance sheet[151][152] - HCWB regained compliance with all Nasdaq listing rules by June 26, 2025, but remains under a 'Panel Monitor' until June 23, 2026[153][154] - FDA cleared IND for HCW9302, initiating a Phase 1 clinical trial for moderate-to-severe alopecia areata in Q3 2025[158] - HCW9206, a proprietary fusion protein, showed high effectiveness in generating CAR-Ts for immunotherapy, with a GMP master cell bank established and a drug master file filed with the FDA as an ex vivo reagent. The company is seeking a commercial partner[160][161][162][163] - Developed second-generation multi-specific T-cell engagers and pembrolizumab-based immune checkpoint inhibitors using the TRBC platform for solid tumors (e.g., pancreatic, ovarian cancer), planning to seek partners in Q3 2025[164][166][167][168][170] Trends and Uncertainties The company's operations are significantly impacted by macroeconomic headwinds, including inflationary pressures, high interest rates, global supply chain disruptions, and geopolitical tensions, affecting costs, clinical trials, and facility buildout, with management employing mitigation strategies despite unpredictable future disruptions - Operations are affected by inflationary pressures, high interest rates, global supply chain disruptions (Middle East, Russia-Ukraine, China-Taiwan), and U.S. trade policies[171] - These headwinds impact material procurement, costs for manufacturing/laboratory facilities, employee recruitment/retention, and borrowing costs[171] - Management strategies include product redesign, alternate sourcing, and budgeting contingencies, but the extent and duration of disruptions are highly unpredictable[171] Components of our Results of Operation This section details the components of the company's financial results, including revenues primarily from licensing agreements, operating expenses (R&D, G&A, legal), nonoperating loss from a fraudulent scheme, interest expense, unrealized gain on investment, and other income. It highlights the significant decline in Wugen-related revenues and the impact of legal settlements on expenses - No commercial product sales revenue; primary revenue source has been the Wugen License and Master Services Agreement[173] - Wugen License suspended on May 30, 2025, for one year, impacting future revenue from this source[174] - WY Biotech License upfront fee of $7.0 million not recognized as revenue due to collectability uncertainty, payment extended to September 30, 2025[177] - Research and development expenses include employee costs, manufacturing, preclinical, clinical trials, and overhead, expected to increase substantially with product candidate development[179][180][181] - General and administrative expenses cover employee costs, professional services (audit, legal, tax), facilities, and compliance, expected to increase as clinical programs build[182][183] - Legal expenses primarily relate to the settled arbitration with ImmunityBio, which incurred significant costs in prior periods[184][186] - A $1.3 million nonoperating loss was recognized in H1 2024 due to a criminal fraudulent scheme[187] - Unrealized gain on investment of $1.7 million recognized in H1 2025 from re-measuring Wugen shares at fair value[189][213][234] Results of Operations The company experienced a significant reduction in net loss for both the three and six months ended June 30, 2025, compared to the prior year. This improvement was primarily driven by a substantial decrease in legal expenses and an unrealized gain on investment, despite a sharp decline in revenues and an increase in general and administrative costs Comparison of the Three Months ended June 30, 2024 and June 30, 2025 For the three months ended June 30, 2025, revenues plummeted by 98.94% YoY, while R&D expenses decreased by 40%. G&A expenses rose by 31%, and legal expenses saw a dramatic 98.63% reduction. The company recorded a $1.7 million unrealized gain on investment, leading to an 87.39% decrease in net loss Comparison of the Three Months ended June 30, 2024 and June 30, 2025 | Metric | June 30, 2024 | June 30, 2025 | Change | % Change | | :--------------------------------- | :------------ | :------------ | :------- | :------- | | Revenues | $618,854 | $6,550 | $(612,304) | -98.94% | | Research and development expenses | $2,029,186 | $1,226,824 | $(802,362) | -39.54% | | General and administrative expenses | $1,594,193 | $2,096,021 | $501,828 | 31.48% | | Legal expenses (recoveries), net | $10,393,042 | $142,542 | $(10,250,500) | -98.63% | | Interest expense | $(159,666) | $(228,714) | $(69,048) | 43.25% | | Unrealized gain on investment | $0 | $1,748,688 | $1,748,688 | NM | | Net loss | $(15,280,191) | $(1,927,730) | $13,352,461 | -87.39% | - R&D decrease primarily due to a 95% decline in manufacturing and materials expenses and a 43% decrease in preclinical expenses, partially offset by a 70% increase in clinical trial expenses[194][196][197][198] - G&A increase driven by a 116% rise in professional services (audit, accounting, SEC/Nasdaq compliance, patents) and $102,248 in accretion of fixed bonus for Secured Notes[201][202][204][206] Comparison of the Six Months ended June 30, 2024 and June 30, 2025 For the six months ended June 30, 2025, revenues decreased by 99.33% YoY, while R&D expenses decreased by 35%. G&A expenses increased by 36%, and legal expenses showed a significant recovery due to an insurance reimbursement. The company recorded a $1.7 million unrealized gain on investment, leading to an 81.87% decrease in net loss Comparison of the Six Months ended June 30, 2024 and June 30, 2025 | Metric | June 30, 2024 | June 30, 2025 | Change | % Change | | :--------------------------------- | :------------ | :------------ | :------- | :------- | | Revenues | $1,745,566 | $11,615 | $(1,733,951) | -99.33% | | Research and development expenses | $4,152,470 | $2,705,536 | $(1,446,934) | -34.84% | | General and administrative expenses | $3,160,285 | $4,302,301 | $1,142,016 | 36.14% | | Legal expenses (recoveries), net | $14,812,076 | $(1,596,951) | $(16,409,027) | -110.78% | | Interest expense | $(159,666) | $(505,853) | $(346,187) | 216.82% | | Unrealized gain on investment | $0 | $1,748,688 | $1,748,688 | NM | | Net loss | $(22,748,253) | $(4,124,606) | $18,623,647 | -81.87% | - R&D decrease primarily due to a 78% decline in manufacturing and materials expenses and a 40% decrease in preclinical expenses[216][218][219] - G&A increase driven by a 26% rise in salaries/benefits (excluding prior year waiver), 63% increase in professional services, and $375,308 in accretion of fixed bonus for Secured Notes[222][223][224][225][227] - Legal expenses shifted from $14.8 million expense in H1 2024 to a $1.6 million contra expense in H1 2025, primarily due to a $2.0 million insurance reimbursement for Dr. Wong's defense costs[229] Liquidity and Capital Resources As of June 30, 2025, the company had $2.4 million in cash and cash equivalents, leading to substantial doubt about its ability to continue as a going concern. Despite raising $11.9 million in equity and restructuring $7.7 million in debt, management concluded that current financing plans are insufficient to alleviate this doubt. Future liquidity relies on successful clinical trial initiations, licensing agreements, and continued access to public markets through equity issuances - As of June 30, 2025, principal liquidity was $2.4 million in cash and cash equivalents, leading to substantial doubt about going concern[236] - Raised $11.9 million from two equity financings and extinguished $7.7 million of debt through restructuring/conversion to equity[236] - Management concluded that financing plans are not probable enough to alleviate substantial doubt about going concern, and may need to revise business plan or curtail operations[237][245] - Key strategies for future liquidity include initiating HCW9302 clinical trials, securing licensing agreements (e.g., for HCW9206), and utilizing the $20.0 million Standby Equity Purchase Agreement with Square Gate[237][239][240] - The company faces $12.3 million in unpaid legal fees as of June 30, 2025, and ongoing legal actions related to its biologics manufacturing facility construction[242][243][244] - Funding requirements are highly uncertain and depend on clinical development progress, regulatory approvals, collaboration agreements, intellectual property costs, and facility buildout[246][247] Comparison of the Cash Flows for the Six Months Ended June 30, 2024 and June 30, 2025 Net cash used in operating activities decreased by $1.7 million, while net cash provided by financing activities decreased by $1.6 million, resulting in a net decrease in cash and cash equivalents of $2.2 million for the six months ended June 30, 2025. Significant noncash financing transactions included debt restructuring and an equity dividend Comparison of the Cash Flows for the Six Months Ended June 30, 2024 and June 30, 2025 | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Cash used in operating activities | $(8,466,076) | $(6,796,159) | $1,669,917 | | Cash (used in) provided by investing activities | $(111,142) | $0 | $111,142 | | Cash provided by financing activities | $6,143,431 | $4,560,549 | $(1,582,882) | | Net decrease in cash and cash equivalents | $(2,433,787) | $(2,235,610) | $198,177 | - Operating cash outflow decreased due to lower net loss, partially offset by a decrease in accounts payable and an unrealized gain on investment[249][251] - Financing cash inflow decreased due to lower proceeds from common stock issuance and higher issuance costs, despite new proceeds from pre-funded warrants and a promissory note[253] - Significant noncash financing activities in H1 2025 included restructuring $7.4 million of debt and a $10.2 million equity dividend to an investor[254] Critical Accounting Policies, Significant Judgements and Use of Estimates The company's financial statements rely on management's estimates and judgments, particularly in revenue recognition under Topic 606 and the accounting for its Standby Equity Purchase Agreement (SEPA). The SEPA is treated as an asset or liability at fair value, with related fees expensed, due to its equity-linked nature not qualifying for equity classification - Revenue recognition follows ASC Topic 606, requiring a five-step model and significant judgment, especially regarding collectability and distinct performance obligations[256] - The Standby Equity Purchase Agreement (SEPA) is classified as an asset or liability and measured at fair value, with changes recognized in net income, because it does not qualify for equity classification[258] - Consideration provided to the investor at SEPA inception exceeding fair value is expensed, and issuance/transaction costs are recognized in earnings[259][267] Recent Accounting Pronouncements This section refers to Note 1 of the Annual Report for information on recent accounting pronouncements - Refer to Note 1 of the Annual Report for information on recent accounting pronouncements[261] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is interest rate sensitivity, affecting its cash and cash equivalents. Additionally, the marketability of its Wugen common stock investment poses a risk due to limited liquidity until the shares become publicly traded - Primary market risk exposure is interest rate sensitivity, affecting cash and cash equivalents[262] - Marketability of Wugen common stock investment is a risk due to limited liquidity until publicly traded[262] Item 4. Controls and Procedures As of June 30, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures were effective. The section acknowledges the inherent limitations of internal controls, which can only provide reasonable assurance, and reports no material changes in internal control over financial reporting during the quarter - As of June 30, 2025, the CEO and CFO concluded that disclosure controls and procedures were effective[264] - Internal controls, by nature, provide only reasonable, not absolute, assurance and can be circumvented[265] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[266] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section details the resolution of a significant arbitration and legal complaint with ImmunityBio through a confidential settlement, which involved mutual releases and intellectual property transfers. It also addresses ongoing legal actions related to construction liens and complaints from contractors regarding the company's manufacturing facility - A confidential Settlement Agreement and Release was entered on July 13, 2024, resolving arbitration and legal complaints with ImmunityBio, involving mutual general releases and no monetary payments[271] - The settlement involved transferring ownership of certain TOBI-based intellectual property to ImmunityBio for oncology indications, while HCWB retained rights for non-oncology uses and ownership of HCW9302, HCW9206, and HCW9201[272][273] - Ongoing legal proceedings include complaints from BE&K Building Group and Fisk Electric Company, along with counterclaims and cross-claims, regarding unpaid invoices and mechanics liens related to the company's manufacturing facility construction[274] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report, and those risks continue to apply, potentially causing actual results to differ from forward-looking statements - No material changes to risk factors previously disclosed in the Annual Report[275] - Existing risk factors continue to apply and could cause actual results to differ materially from forward-looking statements[275] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company engaged in several unregistered sales and conversions of equity securities, including a $2.5 million common stock sale to officers and directors, the conversion of $6.6 million in Senior Secured Notes to common stock and warrants, and the issuance of unregistered warrants in a November 2024 offering. Additionally, commitment shares were issued to Square Gate Capital under an Equity Purchase Agreement - On February 20, 2024, sold 1,785,718 unregistered shares of common stock for $2.5 million to officers and directors at a 25% premium to market price[276] - As of October 31, 2024, issued $6.9 million in Senior Secured Notes, with $2.9 million purchased by officers and directors[279] - On May 7, 2025, $6.6 million principal of Senior Secured Notes was converted into 253,083 unregistered shares of common stock and warrants to purchase 126,540 shares, along with rights to Wugen share proceeds[286][287] - In November 2024, issued unregistered warrants to purchase 167,925 shares of common stock at $41.20 per share in a concurrent private placement, later repriced to $7.45 per share on May 15, 2025[288][289] - On March 12, 2025, issued 9,616 unregistered shares of common stock to Square Gate Capital as a $150,000 commitment fee under an Equity Purchase Agreement[290] - No issuer repurchases of equity securities occurred during the period[292] Item 3. Defaults Upon Senior Securities This section states that there are no applicable defaults upon senior securities - Not Applicable[293] Item 4. Mine Safety Disclosures This section states that there are no applicable mine safety disclosures - Not Applicable[294] Item 5. Other Information No directors or officers informed the company of the adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025 - No insider adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements reported by directors or officers during Q2 2025[295] Item 6. Exhibits This section lists all exhibits filed or furnished as part of this Quarterly Report on Form 10-Q, including various agreements, forms, and certifications, with details on their filing status and incorporation by reference - The Exhibit Index lists all exhibits filed or furnished with the Form 10-Q, including agreements, forms, and certifications[297][298][302] SIGNATURES The report is duly signed on behalf of HCW Biologics Inc. by its Founder and Chief Executive Officer, Hing C. Wong, and Chief Financial Officer, Rebecca Byam, on August 18, 2025 - The report is signed by Hing C. Wong (Founder and CEO) and Rebecca Byam (CFO) on August 18, 2025[304][305][306]