Company: HCWB
Filing Date: 2025-04-07
Form Type: S-1
Source: 0001193125-25-073723
Chunk: 26

Company: HCW Biologics Inc.
Filing Date: 2025-04-07
Form: S-1
Chunk 26
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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.

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

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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 include
development of a process for assessment and communication, as well as involvement of additional key stakeholders, such as members of our Board of Directors. In the fourth quarter of 2024, the Company enhanced its controls to evaluate triggering
events in debt and other financial instruments, to ensure the appropriate classification of obligations as current or noncurrent in the