Company: HCWB
Filing Date: 2025-04-07
Form Type: S-1
Source: 0001193125-25-073723
Chunk: 25

Company: HCW Biologics Inc.
Filing Date: 2025-04-07
Form: S-1
Chunk 25
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 financial statements or comply with applicable laws and regulations could be impaired, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our Common Stock.

Two of such material weaknesses were identified and reported in the Company’s Annual Report on Form
10-K for the year ended December 31, 2023. As the Company reported in a Current Report on Form 8-K filed with the SEC on May 1, 2024, we were a victim of a
criminal scheme involving the impersonation of a purchaser of Secured Notes. The scheme resulted in the misdirection of approximately $1.3 million held in Company accounts to a fraudulent account controlled by a third party and a default on a
legally binding commitment to purchase Secured Notes. As a result of the default and the related misdirection of funds, management re-evaluated the effectiveness of our disclosure controls and procedures and
internal control over financial reporting as of December 31, 2023. Based on this assessment, management identified material weaknesses in two areas, including the methods used to review, evaluate and accept financing proposals from investors
and lenders and the process used to enter unusual significant transactions. As a result of the material weakness to protect the Company’s assets from fraud committed by third parties, there was a $1.3 million loss recognized on the
Company’s audited financial statements.

As of September 30, 2024, the Company identified two additional material weaknesses in
internal controls over financing reporting related to the classification of the Cogent Loan and accounting for the Secured Notes. On August 15, 2022, the Company entered into the 2022 Loan Agreement with Cogent Bank, pursuant to which we
received $6.5 million in proceeds to purchase a building. The loan is secured by a first priority lien on the building. As of September 30, 2024, certain subcontractors have filed mechanics liens related to unpaid invoices issued in
connection with the Company’s construction and improvements on the building. The 2022 Loan Agreement contains a provision for a discretionary default in the event that the Company fails to pay sums due in connection with construction of any
improvements. The Company did not identify and account for the loan as Short-term debt, net, to reflect that the lender has the right to accelerate the loan under a discretionary default provision as of September 30, 2024.

The second material weakness identified as of September 30,