HCW Biologics Inc. Fair Value Disclosure
3. Fair Value of Financial Instruments
The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, U.S. government-backed securities with maturity dates up to one year, accounts payable and accrued liabilities, approximate fair value due to their short-term maturities.
Money market funds included in cash and cash equivalents and U.S. government-backed securities are measured at fair value based on quoted prices in active markets, which are considered Level 1 inputs.
The Company measures its investment in shares of Wugen common stock and related contingent liability at fair value based on a combination of valuation techniques, consisting of the adjusted enterprise valuation method and the backsolve method, which are considered Level 3 inputs. No transfers between levels occurred during the periods presented.
The following table presents the Company’s assets and liabilities which were measured at fair value at December 31, 2024 and 2025:
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|
December 31, 2024 |
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|
Level 1 |
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|
Level 2 |
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|
Level 3 |
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|
Total |
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Assets: |
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|
|
|
|
|
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|
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Money market funds |
|
$ |
3,748,325 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,748,325 |
|
Total |
|
$ |
3,748,325 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,748,325 |
|
|
|
December 31, 2025 |
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|
|
Level 1 |
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|
Level 2 |
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|
Level 3 |
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|
Total |
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||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
1,607,009 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,607,009 |
|
Investment |
|
|
— |
|
|
|
— |
|
|
|
1,326,329 |
|
|
|
1,326,329 |
|
Liabilities: |
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|
|
|
|
|
|
|
|
|
|
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Contingent liability |
|
|
— |
|
|
|
— |
|
|
|
(692,531 |
) |
|
|
(692,531 |
) |
Total |
|
$ |
1,607,009 |
|
|
$ |
— |
|
|
$ |
633,798 |
|
|
$ |
2,240,807 |
|
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 31, 2026 | Showing above |
| 2024 | Mar 28, 2025 | |
| 2023 | Apr 1, 2024 | |
| 2022 | Mar 28, 2023 | |
| 2021 | Mar 29, 2022 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.