Company: HCWB
Filing Date: 2025-04-16
Form Type: 424B3
Source: 0001193125-25-082835
Chunk: 25

Company: HCW Biologics Inc.
Filing Date: 2025-04-16
Form: 424B3
Chunk 25
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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 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