Company: HCWB
Filing Date: 2025-03-28
Form Type: 10-K
Source: 0000950170-25-046724
Chunk: 116

Company: HCW Biologics Inc.
Filing Date: 2025-03-28
Form: 10-K
Item: Item 8
Chunk 116
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       A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of December 31, 2024, after consideration of all the evidence, both positive and negative, management has determined that a valuation allowance of $26.2 million is necessary to reduce the deferred tax asset to the amount that will more likely than not be realized. During the year ended December 31, 2024, the valuation allowance increased by $7.8 million. As of December 31, 2023 and 2024, the Company had available federal NOL carryforwards of $40.0 million and $62.2 million, respectively. The Company also has available state NOLs carryforwards of approximately $40.0 million and $62.3 million, as of December 31, 2023 and 2024, respectively.  The federal and state NOLs will carryforward indefinitely.  The Federal NOLs are available to offset 80% of taxable income. In addition, the Company had federal research and development credits carryforwards of $1.3 million and $1.5 million, as of December 31, 2023 and 2024, respectively, to reduce future federal income taxes, if any. These carryforwards expire from 2038 through 2044 and are subject to review and possible adjustment.                                                                                                                                                                                                                                                                                                            

120

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, (the Code), substantial changes in the Company’s ownership may limit the amount of net operating loss and research and development credit carryforwards that could be used annually in the future to offset taxable income.  A formal Section 382 study has not been completed to determine if an ownership change has occurred and if its net operating losses are subject to an annual limitation. Such annual limitations could affect the utilization of NOL and tax credit carryforwards in the future.   Effective for tax years beginning after December 31, 2021, Section 174 requires that research and experimental expenses (“R&E”) be capitalized and amortized. The amortization period is five years for domestic expenses and 15 years for foreign expenses. Since the Company has a significant amount of expenses that fall under the definition of R&E expenses, the change can materially affect the Company's tax provision. During the year