Company: HCWB
Filing Date: 2025-04-28
Form Type: DRS
Source: 0000950123-25-003769
Chunk: 28

Company: HCW Biologics Inc.
Filing Date: 2025-04-28
Form: DRS
Chunk 28
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 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, 2024, related to accounting for complex transactions. This involved
appropriately accounting for the Secured Notes and disclosing the amended terms that were executed during