FibroBiologics, Inc.

December 31, 2024

1. Organization, Description of Business, and Liquidity

Organization and Business

FibroBiologics, Inc. (the “Company” or “FibroBiologics”) was originally formed as a limited liability company (“LLC”) under the laws of the State of Texas on April 8, 2021 (“Inception”) and then converted to a Delaware corporation on December 14, 2021. FibroBiologics is an early stage, cell therapy company headquartered in Houston, Texas, developing innovative treatments for chronic diseases using fibroblast cells. The Company’s primary focus is the initiation and progression of preclinical studies and clinical-stage U.S. Food and Drug Administration trials related to fibroblast treatments for Degenerative Disc Disease, Multiple Sclerosis, Cancer, Wound Healing, and other diseases. Prior to Inception, preclinical research and development related to these disease pathways took place under the parent company, SpinalCyte, LLC (the “Parent” or “FibroGenesis”).

Direct Listing

On January 31, 2024, the Company completed a direct listing of its common stock on Nasdaq (the “Direct Listing”). Upon completion of the Direct Listing, all outstanding shares of the Company’s Non-voting Common Stock, Series B Preferred Stock, and Series B-1 Preferred Stock automatically converted into shares of Voting Common Stock on a one-for-one basis, and all outstanding shares of the Company’s Series A Preferred Stock were canceled for no consideration.

Going Concern and Management’s Plan

The Company has incurred operating losses since Inception and expects such losses to continue in the future as it builds infrastructure, develops intellectual property, and conducts research and development activities. The Company has primarily relied on a combination of angel investors, private debt placements, convertible debt issuances, and sales of equity to funds its operations. As of December 31, 2024, the Company had an accumulated deficit of $35,518 thousand and cash and cash equivalents of $13,985 thousand. A transition to profitability will depend on the successful development, approval, and commercialization of product candidates and on the achievement of sufficient revenues to support the Company’s cost structure. The Company currently does not generate revenues and may never achieve profitability. Unless and until such time that revenue and net income are generated, the Company will need to continue to raise additional capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. As further described in Note 8, management entered into a share purchase agreement as of November 12, 2021. With the completion of the Company’s Direct Listing, this agreement provided the Company with access to additional liquidity through the termination of this agreement in December 2024. During 2024, the Company utilized this facility to raise a total of $10,424 thousand. As further described in Note 9, the Company entered into a Standby Equity Purchase Agreement in December 2024 and received net proceeds of $8,675 thousand for the issuance of $10,000 thousand of short-term convertible notes principal. Pursuant to the SEPA, the Company expects to receive the net proceeds from the $5,000 thousand third tranche of short-term convertible notes and may require the investor to purchase up to an additional $10,000 thousand of shares of Common Stock. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Segments

The Company adopted Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280) –Improvements to Reportable Segment Disclosures, as of January 1, 2024.

Operating segments are defined as components of an entity for which separate discrete financial information is made available and that is regularly evaluated by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company is a clinical-stage cell therapy company with a limited number of employees working on fibroblast-based targets. The Company’s operations are organized and reported as a single reportable segment, which includes all activities related to the discovery, development, and commercialization of its products. The Company’s CODM, its chief executive officer, reviews operating results on an aggregate basis and manages the operations as a single operating segment.

The accounting policies of the Company’s single operating and reportable segment are the same as those described in the summary of significant accounting policies. The measure of segment assets is reported on the balance sheets as total assets. The CODM evaluates performance and allocates resources based on net income (loss) that also is reported on the statements of operations as net loss, and cash used in operations. The significant expenses regularly reviewed by the CODM are consistent with those reported on the Company’s statement of operations, and expenses are not regularly provided to or reviewed on a more disaggregated basis for purposes of assessing segment performance and deciding how to allocate resources. Other segment items included in net loss primarily include changes in the fair value of the Company’s financial instruments, commitment fees, placement agent costs and a gain on the termination of the GEM facility.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding annual financial reporting.

Use of Estimates

The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of expenses during the reporting periods. These estimates are based on information available as of the date of the Financial Statements; therefore, actual results could differ from those estimates and assumptions. The most significant estimates include the liability classified instrument, warrant liability, SEPA put option liability, fair value of the short-term convertible note payable, and stock-based compensation.

Fair Value Option of Accounting

The Company has elected the option under ASC 825-10, Financial Instruments (“ASC 825”), to measure its Short-term convertible notes payable issued pursuant to a Standby Equity Purchase Agreement (see Note 9) at fair value. The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. When the fair value option is elected for an instrument, unrealized gains and losses for such instrument are reported in the Statements of Operations at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. These amounts are included in Other income/(expense) in the Statements of Operations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company has significant cash balances at financial institutions, which, throughout the year, regularly exceed the federally insured limit of $250 thousand. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations and cash flows.

Risks and Uncertainties

The Company is subject to certain risks and uncertainties, including, but not limited to, changes in any of the following areas that the Company believes could have a material adverse effect on the future financial position or results of operations: the timing of, and the Company’s ability to advance its current and future product candidates into and through clinical development; costs and timelines associated with the manufacture of clinical supplies of the Company’s product candidates; regulatory approval and market acceptance of its product candidates; performance of third-party contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”); competition from pharmaceutical companies with greater financial resources or expertise; protection of the intellectual property, litigation or claims against the Company based on intellectual property, or other factors; the need to obtain additional funding; and its ability to attract and retain employees necessary to support its growth. Disruption from the operations of CROs, CMOs or suppliers would likely have a negative impact on the Company’s business, financial position, and results of operations.

Cash and Cash Equivalents

Cash and cash equivalents consist of unrestricted cash balances and short-term, liquid investments with an original maturity date of three months or less at the time of purchase. The Company had $13,501 thousand and$0 cash equivalents as of December 31, 2024 and 2023, respectively.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets, generally three tofive years, and includes laboratory equipment that is recorded at cost and depreciated using the straight-line method over the estimated useful lives offive years. Depreciation expense is classified in either research and development expense or in general and administrative expense, depending upon the nature of the asset, in the accompanying Statements of Operations. When property and equipment assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheets and the resulting gain or loss is recorded in other income (loss) in the period realized. Maintenance and repairs are expensed as incurred.

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company will recognize an impairment loss only if the carrying amount is not recoverable through its undiscounted cash flows and measure any impairment loss based on the difference between the carrying amount and estimated fair value. There wereno such losses for the years ended December 31, 2024 and 2023.

Leases

The Company determines if an arrangement is a lease at inception. An arrangement is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If a lease is identified, classification is determined at lease commencement. Operating lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company’s leases do not provide an implicit interest rate and therefore the Company estimates its incremental borrowing rate to discount lease payments. The incremental borrowing rate reflects the interest rate that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term. Operating lease right-of-use (“ROU”) assets are based on the corresponding lease liability adjusted for any lease payments made at or before commencement, initial direct costs, and lease incentives. Renewals or early terminations are not accounted for unless the Company is reasonably certain to exercise these options. Operating lease expense is recognized and the ROU asset is amortized on a straight-line basis over the lease term.

Operating leases are included in operating lease right-of-use asset, operating lease liability, short-term, and operating lease liability, long-term on the Company’s Balance Sheets.

The Company has elected in accordance with Accounting Standards Codification (“ASC”) 842-20-25-2 an accounting policy to not record short-term leases, defined as those with terms of 12 months or less, on the Balance Sheets. Rent expense recorded under leases, for financial statement purposes, is recognized on a straight-line basis over the lease term based on the most recent contractual terms available.

Fair Value Measurements

ASC 820,Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the assets or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tiered value hierarchy that distinguishes between the following:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates, and yield curves.

Level 3 - Unobservable inputs for the asset or liability (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Derivatives

Derivative financial instruments, including the Liability instrument, are recorded at fair value on the Balance Sheets. Liability classified derivatives are remeasured at their fair value at each reporting date, with decreases or increases in the fair value recognized as other gain or loss, respectively, within the Statement of Operations. Equity classified derivatives are not remeasured at each reporting date. If a liability classified derivative becomes eligible for reclassification to an equity classified derivative, any gains or losses recognized up to the point of reclassification are not reversed.

Research and Development

Research and development costs are charged to expense as incurred. Research and development costs consist of costs incurred in performing research and development activities, including salaries and bonuses, scientist recruiting costs, employee benefits, facilities costs, laboratory supplies, manufacturing expenses, preclinical expenses, research materials, and consulting and other contracted services. Costs for certain research and development activities are recognized based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the Financial Statements as prepaid or accrued research and development.

Marketing and Advertising Costs

Marketing and advertising costs to promote the company and its product candidates are expensed as incurred. Marketing and advertising expenses were $574 thousand and $354 thousand for the years ended December 31, 2024 and 2023, respectively.

Patent Costs

As the Company continues to incur costs to obtain market approval of patented technology, patent costs are expensed as incurred in general, administrative and other expense in the Statements of Operations. Costs include fees to renew or extend the term of recognized intangible assets, patent defense costs, and patent application costs. Management will continue to expense such costs until market approval is obtained through regulatory approval by the appropriate governing body.

Income Taxes

The Company is a C corporation, and accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized.

Under the provisions of ASC 740-10,Income Taxes, the Company evaluates uncertain tax positions by reviewing against applicable tax law all positions taken by the Company with respect to tax years for which the statute of limitations is still open. ASC 740-10 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company recognizes interest and penalties related to the liability for unrecognized tax benefits, if any, as a component of the income tax expense line in the accompanying Statements of Operations.

Stock-Based Compensation

The Company recognizes compensation costs related to stock options granted to employees and nonemployees based on the estimated fair value of the awards on the date of grant and recognizes expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. Forfeitures are recognized as they occur. The fair value of stock options is estimated on the date of grant using a Black-Scholes option pricing model which requires management to apply judgment and make estimates, including:

Emerging Growth Company

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, an EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies; however, the Company may adopt new or revised accounting standards early if the standard allows for early adoption.

In addition, the Company will utilize other exemptions and reduced reporting requirements provided to EGCs by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, an EGC is not required to, among other things, (i) provide an auditor’s attestation report on the company’s system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-EGC public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), or (iv) disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

Recently Adopted Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280) –Improvements to Reportable Segment Disclosures (ASU 2023-07), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and by extending the disclosure requirements to entities with a single reportable segment. Effective January 1, 2024, the Company adopted the new standard on a retrospective basis for annual periods, and interim periods beginning for the first quarter of 2025. The Company does not believe the impact of the new guidance and related codification improvements had a material impact to its segment reporting disclosures or its financial position, results of operations and cash flows.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) –Improvements to Income Tax Disclosures (ASU 2023-09), which is intended to improve the transparency of income tax disclosures by greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The standard is effective for public companies for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-09 may have on its financial statements.

In November 2024, the FASB issued ASU No 2024-03 – Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) –Disaggregation of Income Statement Expenses (ASU 2024-03), which is intended to require more detailed disclosures about specified categories of expenses (including employee compensation, depreciation, and amortization) included in certain expense captions presented on the face of the income statement. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to all prior periods presented in the financial statements. The Company is in the process of evaluating the impact of this new guidance on its financial statements.

3. Net Loss per Share Attributable to Common Stockholders

The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company:

The weighted average number of shares outstanding for the year ended December 31, 2023, is based upon the non-voting common stock shares issued on August 18, 2022. The weighted average number of shares outstanding for the year ended December 31, 2024 is based upon the non-voting common stock shares issued on August 18, 2022, the conversion of all outstanding shares of non-voting common stock, Series B Preferred Stock and Series B-1 Preferred Stock into voting common stock upon completion of the Direct Listing on January 31, 2024, and the issuance of 2,593,650 shares of common stock to GEM Global Yield LLC SCS, or GEM, during the year ended December 31, 2024.

As further described in Note 12, the Company agreed to pay to FibroGenesis 15% of the gross proceeds from any equity investments in FibroBiologics prior to an Initial Public Offering (“IPO”), Direct Listing or Sale of the Company to eliminate upon the occurrence of such event the Series A Preferred Stock and its $35 million liquidation preference. This redemption of preferred stock created a derivative liability that exceeded the net Parent Investment of $1,461 thousand by $1,112 thousand, and is reflected here as a reduction of the amount available to common stockholders in the calculation of earnings per share for the year ended December 31, 2023.

As further described in Note 9, the Company issued $10,000 thousand of principal in short-term convertible notes during December 2024. As of December 31, 2024, the estimated number of shares of common stock that would have been issued upon conversion was 4,810,238 shares. For the years ended December 31, 2024 and 2023, the Company reported net losses and, accordingly, potential common shares were not included since such inclusion would have been anti-dilutive. As a result, the Company’s basic and diluted net losses per share are the same because it generated a net loss in all periods presented.

4. Property and Equipment

Property and equipment, net consist of the following:

The useful life of Laboratory equipment isfive years, and the useful life of Computer equipment, software, and other isthree years, for deprecation. Depreciation expense was $157 and $47 thousand for the years ended December 31, 2024 and 2023, respectively.

5. Fair Value of Financial Instruments

As of December 31, 2022, the Company measured its derivative liability related to the conversion option feature in the 2022 Notes at fair value. As of December 31, 2023, the 2022 Notes had been converted, which eliminated the $538 thousand derivative liability.

As of December 31, 2023, the Company measured its liability instrument to investors under the Share Purchase Agreement, as further described in Note 8, at $7,236 thousand. This liability instrument was comprised of a warrant liability and a forward contract liability, both of which were contingent upon an IPO event, and is classified within Level 3 of the value hierarchy because the liability was based upon a valuation model that used inputs and assumptions including potential outcomes, interest rates, probabilities, and timing. The Company completed its Direct Listing on January 31, 2024, which qualified as an IPO event, and bifurcated the liability instrument into its separate Warrant liability and Forward contract liability components. The fair value of the Warrant liability to be issued upon completion of the Direct Listing on January 31, 2024 was $20,963 thousand, and this fair value decreased to $1,851 thousand at December 19, 2024, prior to termination. The fair value of the Forward contract liability was de minimis at January 31, 2024 and December 19, 2024, prior to termination.

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy:

The following table summarizes the activity related to Level 3 financial liabilities for the year ended December 31, 2024:

As of December 31, 2023, the liability instrument included the contingent warrant liability and the contingent put option (forward contract) liability as a single unit of account. The liability instrument value was determined using a Black-Scholes valuation model and management’s assumption of a 50% likelihood as of December 31, 2023, of becoming a public company prior to the expiration of the Stock Purchase Agreement. Inputs used in the Black-Scholes valuation model included an estimated number of warrants, an assumed common stock share price of $15.00 per share, thefive-year time to maturity, a 0% dividend yield, an annual risk-free interest rate of 3.84% for thefive-year time to maturity, and an assumed annualized volatility of 96% based on comparable companies with a five-year history of stock prices.

Upon completion of the Direct Listing on January 31, 2024, the warrant liability and the forward contract liability were no longer contingent and were bifurcated out of the liability instrument and treated as separate units of account. As of January 31, 2024, the warrant liability value for the warrant issued to GEM Yield Bahamas Limited (“GYBL”) was determined using a Monte Carlo simulation and Black-Scholes valuation model. Inputs used in the Black-Scholes valuation model included the 1,299,783 warrants issued to GYBL, the closing bid price of $29.10 per share on January 31, 2024, thefive-year time to maturity, a 0% dividend yield, an annual risk-free interest rate of 3.67% for thefive-year time to maturity, and an assumed annualized volatility of 100% based on comparable companies with a five-year history of stock prices. As of December 19, 2024, just prior to cancellation, the warrant liability value for the warrant issued to GYBL was determined using a Monte Carlo simulation and Black-Scholes valuation model. Inputs used in the Black-Scholes valuation model included the 1,299,783 warrants issued to GYBL, the closing bid price of $2.03 per share on December 19, 2024, thefour-year time to maturity, a 0% dividend yield, an annual risk-free interest rate of 4.36% for the five-year time to maturity, and an assumed annualized volatility of 100% based on comparable companies with a five-year history of stock prices.

As further described in Note 9, the Company issued short-term convertible notes payable on December 20, 2024 and December 30, 2024 with a total principal balance of $10,000 thousand and recorded those notes at their initial fair values totaling $9,288 thousand. The total of their fair values at December 31, 2024 was $9,168 thousand. The fair values of these notes were determined using a Monte Carlo simulation valuation model. Assumptions used in the valuation models at issuance on December 20, 2024 and December 30, 2024 included the closing bid price of $2.25 and $2.24, respectively, a term ofone year, an annual risk-free rate of 4.2% and 4.1%, respectively, and a volatility of 60%. Assumptions used in the valuation model at December 31, 2024 for both notes included the closing bid price of $2.00, a term ofone year, an annual risk free rate of 4.1%, and a volatility of 60%.

As further described in Note 9, the Company entered into a Standby Equity Purchase Agreement (SEPA) on December 20, 2024 and recorded a put option liability for the Company’s right to require the investor to purchase up to an additional $10,000 thousand of shares of Common Stock by delivering written notice to the investor. As of December 20, 2024 and December 31, 2024, the fair value of the SEPA put option liability was $460 thousand. The fair value of this SEPA put option liability was determined using a Monte Carlo simulation valuation model. Inputs used in the model included a stock price of $2.25 per share, a 96% purchase price, Company Advance Notice Date of January 1, 2026, Expected Settlement Date of January 4, 2026, Expected Advance Amount of $5,000 thousand, a simulation term of 1.04 years, volatility of 120%, and a 4.23% risk-free rate.

The carrying amounts of cash and cash equivalents, prepaid expenses, other current assets, accounts payable, accrued expenses, and Parent company payable and receivable approximate their fair values due to their short-term maturities.

Other than those transfers noted in the table above, there were no transfers in or out of Level 1, Level 2 or Level 3 assets and liabilities for the years ended December 31, 2024 and 2023.

6. Convertible Notes Payable

The Company entered into multiple convertible promissory note agreements in December 2021 (collectively, the “2021 Notes”).

At the inception of the 2021 Notes, and at December 31, 2021 and 2022, the Company determined that an embedded derivative for the conversion feature did not meet the criteria because it met the “indexed to the entity’s own stock” exception per the guidance in ASC 815-10-15-74(a) and therefore was not required to be bifurcated from the host instrument.

The Company issued additional convertible promissory notes between January and April 2022 with a total principal amount of $4,300 thousand and a one-year maturity (collectively, the “2022 Notes”). The 2022 Notes may be converted at the lesser ofa) a 15% discount to the offering price of the Company’s common stock in the event of an initial public offering of the Company or b) the quotient of $200,000 thousand divided by total equity interests prior to the dilution from the offering. The conversion option feature in the 2022 Notes was evaluated in accordance with ASC 815, and a derivative liability for the $538 thousand estimated fair value of the conversion option was recorded at the time the notes were issued and as of December 31, 2022. An offsetting discount on the issuance of the notes was recorded and is being amortized to interest expense over the expected life of the 2022 Notes.

The interest expense, excluding amortization of the discount recorded on the 2022 Notes, on the 2021 and 2022 Notes for the year ended December 31, 2023, was $65 thousand.

In February 2023, the Company converted the principal and interest on $3,700 thousand of principal value of the 2022 Notes into 799,603 shares of Series “B” Preferred Stock. In April 2023, the Company converted the principal and interest on $1,300 thousand of principal value of the 2021 Notes and $300 thousand of principal value on the 2022 Notes into 353,713 shares of Series “B” Preferred Stock. In September 2023, the Company converted the principal and interest on $300 thousand of principal value of the 2022 Notes into 66,077 shares of Series “B” Preferred Stock. No interest was outstanding and included within accounts payable and accrued expenses at December 31, 2023.

7. Stockholders’ Equity/(Deficit) and Net Parent Investment

**Authorized Capital -**As of December 31, 2024 and 2023, the Company authorized 10,000,000 and 20,000,000, respectively, preferred stock shares. As of December 31, 2023, the Company had issued 8,750,000 Series A Preferred Stock shares to FibroGenesis, which were tendered pursuant to the formation of the Company in exchange for the contribution of certain in-process research and development and patent assets through Patent Assignment and Intellectual Property Cross-License Agreements. The Series A Preferred Stock shares had the right to vote and ranked prior to non-voting common stock and common stock with respect to payment of dividends and distributions and upon liquidation, dissolution, winding-up or otherwise. In addition, the Series “A” Preferred Stock had a liquidation preference equal to $35,000 thousand to be allocated among the holders of the Series “A” Preferred Stock shares in the event of a liquidation, dissolution, or winding-up of the Company, which was subsequently eliminated as part of the ROFN Agreement as further described below, and each share of Series “A” Preferred Stock could be converted into one share of common stock at any time at the election of the holder of such shares of Series “A” Preferred Stock. Unless otherwise elected by the holder(s), a merger or consolidation in which the Company is not the majority surviving entity or the sale of all or substantially all of the assets of the corporation would be a deemed liquidation event. The Company has also authorized 62,500,000 shares of non-voting common stock, and has issued during the year ended December 31, 2022, a total of 28,230,842 shares. In August 2022, the Company issued 28,179,592 shares of non-voting common stock to its Parent, which in turn distributed the shares to its members. This issuance of non-voting common stock was accounted for as stock split and no proceeds were received by the Company. The Company also issued to its board of directors, a consultant, and an employee an additional 51,250 total shares in 2022 and recorded $168 thousand of expense for the issuance of these shares, which was based upon a third-party valuation of the shares at the time of issuance.

In December 2022, the Company amended its Certificate of Incorporation to authorize 2,500,000 shares of Series “B” Preferred Stock. The Series “B” Preferred Stock had a liquidation preference after Series “A” Preferred Stock and prior to Common Stock and Non-Voting Common Stock. The Series “B” Preferred Stock had voting rights and would automatically convert into Common Stock upon closing of an IPO transaction, as defined in the Company’s Amended and Restated Certificate of Incorporation.

In January 2023, to reflect the ROFN Agreement with its Parent, as further discussed in Note 12, the Company amended its Certificate of Incorporation to a) make the Series “B” Preferred Stock liquidation preference equal to Series “A” Preferred Stock, and b) to provide that upon IPO, Direct Listing, or Sale of the Company, the Series “A” Preferred Stock would be canceled for no consideration.

In March 2023, the Company accepted a stock subscription to purchase shares of Series B Preferred Stock for $10,000 thousand and recorded a stock subscription payable for the full amount of the $10,000 thousand of proceeds received in March 2023. The stock subscription payable as of March 31, 2023, was subsequently eliminated in April 2023 when the Company issued the shares of Series B Preferred Stock to the shareholder.

In April 2023, the Company amended its Certificate of Incorporation to authorize 10,000,000 shares of Common Stock, increase the number of authorized Series “B” Preferred Stock shares up to 5,000,000 shares, and to authorize 5,000,000 shares of Series “B-1” Preferred Stock with liquidation preference equal to the Series “A” and “B” Preferred Stock. The Series “B-1” Preferred Stock had voting rights and would automatically convert into Common Stock upon closing of an IPO transaction, as defined in the Company’s Amended and Restated Certificate of Incorporation.

In October 2023, the Company amended and restated its certificate of incorporation with the State of Delaware to increase to 100,000,000 shares its authorized shares of voting common stock, par value $0.00001 per share, reduce to 30,000,000 shares its authorized shares of non-voting common stock, par value $0.00001 per share, and authorize 2,500 shares of Series C Preferred Stock, par value $0.00001 per share. The Series C Preferred Stock ranked senior to common stock and non-voting common stock and junior to the Series A Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock upon liquidation, dissolution, winding-up or otherwise. The Series C Preferred Stock had no voting rights prior to an IPO, and 13,000 votes per share upon closing of an IPO. The Series C Preferred Stock is not entitled to dividends, has a liquidation preference of $18.00 per share, subject to adjustment, may be converted 1:1 at any time at the option of the holder into common stock, and upon closing of an IPO, would, if transferred, automatically convert 1:1 into common stock.

In January 2024, the Company issued 2,500 shares of Series C Preferred Stock to its CEO, who in turn granted a proxy to the Board of Directors to vote these shares as outlined in the amended and restated certification of incorporation.

On January 31, 2024, the Company completed its Direct Listing, which qualified as an IPO transaction. As a result of the IPO, the outstanding Series A Preferred Stock shares were canceled for no consideration and the outstanding Series B Preferred Stock, Series B-1 Preferred Stock, and non-voting common stock shares were all converted 1:1 into shares of voting common stock. In addition, the Series C Preferred Stock voting rights increased from none to 13,000 votes per share and, if transferred, these shares will automatically convert 1:1 into common stock.

In August 2024, the Company amended and restated its certificate of incorporation with the State of Delaware to eliminate its non-voting common stock, Series A Preferred Stock, Series B Preferred Stock, and Series B-1 Preferred Stock, and to reduce to 10,000,000 shares its authorized preferred stock, par value $0.00001 per share, of which 2,500 shares are designated as Series C Preferred Stock.

8. Share Subscription Agreement

On November 12, 2021, the Company entered into a Share Purchase Agreement with certain investors for the sale of up to $100,000 thousand of common stock (the “Aggregate Limit”). This agreement is contingent upon the Company achieving a public listing of its common stock. Major terms of the agreement include a commitment fee of 2% of the Aggregate Limit, which is due no later than one year after public listing even if no drawdowns are taken, and five-year warrants issued to the investors at the time of public listing to purchase common stock shares equal to 4% of the total equity interests of the Company at the lesser of a) the price per share at the time of the public listing or b) the quotient of $700,000 thousand divided by the total number of equity interests (fully diluted common shares). The Company may request a drawdown, or sale of common stock shares to the investors, over the five-year term of this agreement following the public listing unless terminated earlier. The amount of the drawdowns requested is limited by the trading volumes of the Company’s common stock shares over the 30-day period preceding the drawdown, and the price per share is equal to 90% of the average price per share over that same period. A 1% fee must be paid to the investors if the Company is sold in a private sale transaction rather than completing a public listing of its shares.

After completion of its public listing on January 31, 2024, and during the three months ended March 31, 2024, the Company sold a total of 227,057 shares of common stock for $2,819 thousand of net proceeds through the Share Purchase Agreement.

Upon completion of its public listing the Company recorded a payable of $2,000 thousand for the commitment fee obligation due under the Share Purchase Agreement within one year, and expensed the $1,941 thousand remaining amount of the commitment fee at March 31, 2024.

On June 27, 2024, the Company issued 3,000,000 shares of Common Stock to facilitate a Draw Down Notice under the Share Purchase Agreement. The Company recorded upon issuance a $1,410 thousand fair value of the forward contract liability for its requirement to sell up to 3,000,000 shares to the investor at 90% of the average closing price per share during the Draw Down Period based upon the number of shares, the closing price per share of $4.66 on June 27, 2024, and the 10% discount to be provided to the investor purchasing the shares from the Company. The fair value of the forward contract liability was remeasured to $638 thousand at July 11, 2024, upon receipt of the Closing Notice from GEM, based upon the 840,000 shares accepted, the $4.85 closing price per share, and a net purchase price per share of $4.09 after the 10% discount provided to the investor, and the forward contract liability was eliminated. GEM returned 560,000 shares to the Company, which canceled those shares, and the remaining 1,600,000 shares were retained by GEM to facilitate a subsequent Draw Down Notice.

On July 12, 2024, the Company issued a Draw Down Notice for 1,600,000 shares. The Company recorded upon issuance a $758 thousand fair value of the forward contract liability for its requirement to sell up to 1,600,000 shares to the investor at 90% of the average closing price per share during the Draw Down Period based upon the number of shares, the closing price per share of $4.74 on July 12, 2024, and the 10% discount to be provided to the investor purchasing the shares from the Company. The fair value of the forward contract liability was remeasured to a $286 thousand asset at August 26, 2024, upon receipt of the Closing Notice from GEM, based upon the 100,000 shares accepted, the $1.65 closing price per share, and a net price per share of $4.51 after the 10% discount provided to the investor, and the forward contract liability was eliminated. GEM returned 500,000 shares to the Company, which canceled those shares, and the remaining 1,000,000 shares were retained by GEM to facilitate a subsequent Draw Down Notice.

On September 12, 2024, the Company issued a Draw Down Notice for 1,000,000 shares. The Company recorded upon issuance a $325 thousand fair value of the forward contract liability for its requirement to sell up to 1,000,000 shares to the investor at 90% of the average closing price per share during the Draw Down Period based upon the number of shares, a price per share of $3.25, based on the floor price of $3.25 per share because the closing price was lower than the floor price on September 12, 2024, and the 10% discount to be provided to the investor purchasing the shares from the Company. Upon receipt of an initial Closing Notice from GEM on September 26, 2024, the fair value of the portion of the forward contract liability covered by the Closing Notice was remeasured to $57 thousand at, based upon the 258,836 shares accepted, the $3.14 price per share, and a net price per share of $2.93 after the 10% discount provided to the investor, and that portion of the forward contract liability was eliminated. The September 12, 2024, Draw Down Notice remained open for 741,164 shares. The fair value of the of the remaining portion of the forward contract liability was remeasured at September 30, 2024, based on the remaining 741,164 shares, a price per share of $3.25, based on the floor price of $3.25 per share because the closing price was lower than the floor price on September 30, 2024, and the 10% discount to be provided to the investor purchasing the shares from the Company.

On October 18, 2024, the Company received a Closing Notice from GEM for 15,683 shares and remeasured the fair value of the forward contract liability based upon the 15,683 shares accepted, the $3.23 price per share, and a net price per share of $2.91 after the 10% discount provided to the investor, and the forward contract liability was eliminated. GEM returned 700,000 shares to the Company, which canceled those shares, and the remaining 25,481 shares were retained by GEM to facilitate a subsequent Draw Down Notice.

On December 19, 2024, the Company entered into a side letter agreement to terminate this share subscription agreement, including termination of the remaining commitment fee liability and the warrant liability. The Company issued 1,152,074 shares of Common Stock, which included the remaining 25,481 shares held by GEM pursuant to the September 12, 2024 Draw Down Notice, at a fixed purchase price of $2.17 per share, for total consideration of $2,500 thousand for this termination and recorded a gain of $1,214 thousand, which is the amount by which the combined fair values of the commitment fee liability and warranty liability exceeded the fair value of the shares issued.

9. Standby Equity Purchase Agreement

On December 20, 2024, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with a certain investor. Pursuant to the SEPA, the investor will advance to the Company, subject to the satisfaction of certain conditions, a total principal amount of $15,000 thousand, which will be evidenced by short-term convertible notes, in three tranches. The short-term convertible notes will accrue interest on the outstanding principal balance at an annual rate equal to 0%, which will increase to an annual rate of 18% upon the occurrence of an event of default for so long as such event remains uncured. The short-term convertible notes will mature on December 20, 2025, which may be extended at the option of the Company to January 19, 2026 by paying an extension fee of $100,000, and to February 18, 2026 by paying an additional extension fee of $100,000. The maturity date may also be extended at the option of the investor.

The Company received net proceeds of $4,300 thousand on December 20, 2024 from the first tranche of short-term convertible notes with $5,000 thousand principal (the “First Note”). The Company received net proceeds of $4,375 thousand on December 30, 2024 from the second tranche of short-term convertible notes with $5,000 thousand principal (the “Second Note”). The third tranche has not yet been received. The Company has elected to account for the short-term convertible notes under the fair value option in accordance with ASC 825-10-15-4, and Note 5 includes further discussion of their fair values.

The First Note is convertible at a conversion price equal to the lower of (i) $2.41 per share or (ii) 94% of the lowest daily VWAP during the five consecutive trading days immediately preceding the conversion date (but no lower than the “floor price” then in effect, subject to adjustment from time to time.

The Second Note is convertible at a conversion price equal to the lower of (i) $2.84 per share or (ii) 94% of the lowest daily VWAP during the five consecutive trading days immediately preceding the conversion date (but no lower than the “floor price” then in effect, subject to adjustment from time to time.

Pursuant to the SEPA, and subject to certain conditions, the Company will have the right, from time to time, until December 20, 2026, to require the investor to purchase up to an additional $10,000 thousand of shares of Common Stock by delivering written notice to the investor.

The Company paid the investor a structuring fee of $25 thousand, which was expensed immediately, and agreed to pay the investor a commitment fee totaling $250 thousand (the “Commitment Fee”), which was expensed immediately and included in accrued liabilities at December 31, 2024.

The SEPA was accounted for as a liability under ASC 815 because it includes an embedded put option and an embedded forward option. The put option was recognized at inception and the forward option will be recognized upon the issuance of a notice for the sale of the Company’s Common Stock. The fair value of the derivative liability related to the embedded put option was estimated at $460 thousand at inception of the agreement on December 20, 2024, and at December 31, 2024. The $460 thousand SEPA put option liability as of December 31, 2024 is recognized as a current liability on the balance sheet. The estimated issuance date fair value is presented as a single line item within other income (expense) in the accompanying statements of operations under the caption Change in fair value of SEPA put option liability. The embedded forward option was deemed to have no value at December 31, 2024 because there were no notices for the sale of the Company’s Common Stock as of December 31, 2024.

10. Income Taxes

A reconciliation of the income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

The components of the Company’s net deferred tax assets are as follows:

As a result of generating net operating losses during the years ended December 31, 2024 and 2023, the Company hadno income tax expense for years ended December 31, 2024 and 2023. As of December 31, 2024, the Company had U.S. federal net operating loss (“NOL”) carryforwards of $3,292 thousand and state NOL carryforwards of $321 thousand. The federal NOL carries forward indefinitely and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years.

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (“R&E”) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under Internal Revenue Code (“IRC”) Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the United States must be amortized over a 5-year period if incurred, and R&E expenses incurred outside the United States must be amortized over a 15-year period. R&E activities are broader in scope than qualified research activities considered under IRC Section 41 (relating to the research tax credit). For the year ended December 31, 2024, the Company performed an analysis based on available guidance and determined that it will continue to be in a loss position even after the required capitalization and amortization of its R&E expenses. The Company will continue to monitor this issue for future developments, but it does not expect R&E capitalization and amortization to require it to pay cash taxes now or in the near future. The Company has included the impact of this provision, which results in a deferred tax asset of approximately $1,273 thousand as of December 31, 2024.

Management has evaluated the positive and negative evidence bearing upon the realizability of the Company’s net deferred tax assets and has determined that it is more likely than not that the Company will not recognize the benefits of the net deferred tax assets. As a result, the Company has recorded a full valuation allowance at December 31, 2024 and 2023. The Company will continue to assess the realizability of its deferred tax assets going forward and will adjust the valuation allowance as needed.

As of December 31, 2024 and 2023, the Company hadno uncertain tax positions. The Company recognizes both interest and penalties associated with unrecognized tax benefits as a component of income tax expense. The Company has not recorded any interest or penalties for unrecognized tax benefits since its inception, and no taxes are due.

11. Leases, Commitments and Contingencies

The Company expanded the scope and extended for six months the term for the remaining lease for temporary lab and office space on July 1, 2022, then further expanded the scope on August 1, 2022, and October 7, 2022, which increased the monthly license fee to $15 thousand per month. In January 2023, the Company extended this lease for an additional six months and it expired at the end of June 2023. This lease for temporary lab and office space was accounted for as a short-term lease.

In October 2022, the Company entered into a lease agreement for office space with a term of 62 months, which expires on November 30, 2027. This lease will be accounted for as an operating lease under the ASC 842 guidance for lease accounting. A right-of-use lease asset and lease liability of $2,293 thousand each were recorded at inception of the lease term using a discount rate of 7.5%.

In June 2023, the Company entered into a new lease for temporary lab and office space for its research operations. This lease has a term of 12 months and monthly rent of $6 thousand and will be accounted for as a short-term lease. This lease commenced in August 2023. In September 2023, the Company entered into an amendment of this lease for additional space, and the monthly rent increased to $7 thousand. In March 2024, the Company entered into a second amendment of this lease for additional space, and effective April 1, 2024, the monthly rent increased to $8 thousand. In July 2024, the Company signed an amendment of this lease, effective August 1, 2024, to extend the term for an additional 12 months, and the monthly rent decreased to $7 thousand.

Rent expense for the years ended December 31, 2024 and 2023, was $629 thousand and $685 thousand, respectively. As of December 31, 2024 and 2023, noncancelable lease payments under operating leases were $1,385 thousand and $2,017 thousand, respectively, and noncancelable lease payments under short-term leases were $52 thousand and $45 thousand, respectively.

Maturities of operating lease liability as of December 31, 2024, were as follows:

12. Related Party Transactions

In July 2022, the Company loaned $300 thousand to the Parent on a one-year note bearing no interest. In April 2023, FibroGenesis repaid in full the $300 thousand Parent company receivable.

As described in Note 7, the Company acquired from FibroGenesis certain in-process research and development and patent assets through Patent Assignment and Intellectual Property Cross-License Agreements. The Patent Assignment Agreement transferred the right, title, and interest in and to certain patents from FibroGenesis to the Company for further development. The Intellectual Property Cross-License Agreement grants to the Company exclusive rights to patents owned by FibroGenesis in a limited field of use, which includes the diagnosis, treatment, prevention, and palliation of a) spinal diseases, disorders, or conditions, b) cancer, c) orthopedics diseases, disorders or conditions, and d) multiple sclerosis.

In January 2023, the Company entered into an Agreement Regarding Right of First Negotiation (“ROFN Agreement”) with its Parent, FibroGenesis. In exchange for FibroGenesis’ consent to amend the Certificate of Incorporation to a) eliminate upon IPO, Direct Listing, or Sale of the Company the Series A Preferred Stock $35,000 thousand liquidation preference, b) make the Series B Preferred Stock liquidation preference equal to Series “A” Preferred Stock, and c) to provide that upon IPO, Direct Listing, or Sale of the Company Series A Preferred Stock will be canceled for no consideration, FibroBiologics agreed to pay to FibroGenesis 15% of the gross proceeds from any equity investments in FibroBiologics prior to an IPO, Direct Listing or Sale of the Company. In addition, FibroBiologics will receive a five-year right of first negotiation if FibroGenesis decides to license externally any of its technology. During the year ended December 31, 2023, the Company amended its Certificate of Incorporation to reflect these changes, recorded a derivative liability of $2,573 thousand for the expected future payments to FibroGenesis, and paid $323 thousand to FibroGenesis for 15% of the gross proceeds from equity issued by the Company in December 2022. Based on its relationship to Series A Preferred Stock as described above, the derivative liability was recorded first against the net Parent Investment and then to Additional paid-in capital after the net Parent Investment was eliminated. During the year ended December 31, 2023, the Company raised gross proceeds of $16,418 thousand from equity issuances and paid $2,322 thousand of these proceeds to FibroGenesis. Amounts paid in excess of the derivative liability are recorded as other loss in the Statements of Operations. There wasno derivative liability as of December 31, 2024 and 2023. There was a payable of $0 and $141 thousand, respectively, to FibroGenesis as of December 31, 2024 and 2023.

13. Share-Based Compensation

The Company adopted on August 10, 2022, and the stockholders approved on August 18, 2022, the 2022 Stock Plan (the “Plan”). The Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other stock awards. The Plan, through the grant of stock awards, is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and provide a means by which the eligible recipients may benefit from increases in value of the common stock. In September 2022, the Company issued a total of 101,250 options with a strike price of $3.28 per share to employees, directors, and scientific advisory board members under this Plan. In February 2023, the Company issued a total of 3,689,750 options with a strike price of $2.28 per share to employees and directors under this Plan. In August 2023, a total of 2,500 options with a strike price of $3.28 per share were forfeited. In March 2024, the Company issued 216,875 options with a strike price of $13.00 per share to employees under this Plan. In June 2024, the Company issued 6,875 options with a strike price of $6.73 per share to employees under this Plan. In August 2024, the Company issued 25,000 options with a strike price of $1.73 per share to directors under this Plan. In November 2024, a total of 255,825 options with a weighted average strike price of $2.50 per share were forfeited. In October 2024, the Company issued 25,000 options with a strike price of $2.83 per share to an employee under this plan. In December 2024, the Company issued 758,739 options with a strike price of $2.36 per share to employees under this plan. Generally, awards granted by the Company vest over four years and have an exercise price equal to the estimated fair value of the common stock as determined by the board of directors with consideration given to contemporaneous valuations of the Company’s common stock prepared by an independent third-party valuation firm for options granted prior to public listing or the closing bid price on the date of grant for options granted after public listing.

As of December 31, 2024 and 2023, respectively, there were 7,934,836 shares and 8,711,500 shares available for future issuance under the Plan.

Stock-based compensation expense is recognized in the Statements of Operations as follows:

In addition to the $2,174 thousand stock-based compensation expense for stock options, a $45 thousand stock-based compensation expense was recognized for the grant of 2,500 shares of Series C Preferred Stock to the CEO during the year ended December 31, 2024.

Unrecognized stock-based compensation costs related to unvested awards and the weighted-average period over which the costs are expected to be recognized as of December 31, 2024, are as follows:

A summary of the Company’s stock option activity is as follows:

The fair value of stock options granted to employees, directors, and consultants was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions:

The weighted-average grant date fair value of the options granted during the years ended December 31, 2024 and 2023 was $3.82 per share and $1.80 per share, respectively.

14. Subsequent Events

On March 10, 2025, the Company executed a new lease for 10,693 square feet located in Houston, Texas to be used in its research and development efforts. This lease commences on April 1, 2025, terminates on May 31, 2031, and specifies initial base and additional rent totaling $32 thousand per month.

On January 7, 2025, the Company satisfied the Commitment Fee by issuing 118,991 shares of its Common Stock to thei nvestor at a $2.1010 price per share.

On January 23, 2025, the investor converted $900 thousand in principal amount of the Second Note and the Company issued to the investor 552,113 shares of Common Stock at a $1.6301 conversion price per share.

On January 27, 2025, the investor converted $500 thousand in principal amount of the Second Note and the Company issued to the investor 317,238 shares of Common Stock at a $1.5761 conversion price per share.

On January 29, 2025, the investor converted $500 thousand in principal amount of the Second Note and the Company issued to the investor 334,336 shares of Common Stock at a $1.4955 conversion price per share.

On February 7, 2025, the investor converted $1,100 thousand in principal amount of the Second Note and the Company issued to the investor 732,941 shares of Common Stock at a $1.5008 conversion price per share.

On February 21, 2025, the investor converted $250 thousand in principal amount of the Second Note and the Company issued to the investor 232,169 shares of Common Stock at a $1.0768 conversion price per share.

On March 4, 2025, the investor converted $350 thousand in principal amount of the Second Note and the Company issued to the investor 361,794 shares of Common Stock at a $0.9674 conversion price per share.