Company: HCWB
Filing Date: 2025-03-28
Form Type: 10-K
Source: 0000950170-25-046724
Chunk: 179

Company: HCW Biologics Inc.
Filing Date: 2025-03-28
Form: 10-K
Item: Item 1A
Chunk 179
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 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 the third quarter of 2024.  The Secured Notes were deemed to be a hybrid instrument, consisting of a debt host with embedded derivatives requiring bifurcation and accounting for separately.  Prior to correcting the initial accounting treatment for the Secured Notes, as amended, the Company neglected to identify and account for the embedded derivatives.  In addition, the disclosures for the Secured Notes would not have identified the embedded derivatives.  The aggregation of these factors could have resulted in a material misstatement in the Company’s financial statements.  For the reporting period ended September 30, 2024 and December 31, 2024, there was no impact to the financial statements related to correcting the accounting treatment for embedded derivatives.  Another amended term for the Secured Notes is a fixed bonus payment that holders will receive if the Secured Notes are repaid on the Maturity Date.  The Company determined that the fixed bonus payment should be accreted to the principal owed to holders over the term.  As of and for the three and nine months ended September 30, 2024, the Company did not accrete the fixed bonus payment.  Accretion during the reporting period ended September 30, 2024 did not materially misstate the amount owed to the holders.  Accretion was reported in the year ended December 31, 2024 and reported within Depreciation expense.  If the Company did not correct the accounting treatment for the accretion of the fixed bonus payment at maturity, we would understate our obligations.  Over the term, this could have resulted in a material misstatement in the Company’s financial statements.  

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In the year ended December 31, 2024, the Company implemented various steps to remediated these material weaknesses.  In the second quarter of 2024, a remediation plan was adopted to strengthen controls and procedures used by the Company to review and accept financial proposals, particularly where there are upfront payments and other forms of payments made by the Company to third parties.  These efforts