FibroBiologics, Inc.

March 31, 2025

1. Organization, Description of Business, and Liquidity

Organization and Business

FibroBiologics, Inc. (the “Company” or “FibroBiologics”) was originally formed as a limited liability company 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 wound healing, multiple sclerosis, degenerative disc disease, psoriasis and certain cancers, and potential human longevity applications including thymic involution reversal. Prior to Inception, preclinical research and development related to these disease pathways took place under the parent company, SpinalCyte, LLC (the “Parent”).

Direct Listing

On January 31, 2024, the Company completed a direct listing of its common stock, $0.00001 par value per share (“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 fund its operations. As of March 31, 2025, the Company had an accumulated deficit of $40,484 thousand and cash and cash equivalents of $8,667 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 unaudited condensed financial statements. As further described in Note 7, the Company entered into a Standby Equity Purchase Agreement in December 2024 with a certain investor (the “SEPA”) 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 unaudited condensed 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 Standards 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 condensed balance sheets as total assets. The CODM evaluates performance and allocates resources based on net income (loss) that also is reported on the condensed statements of operations as net loss, and cash used in operations as reported on the condensed statements of cash flows. The significant expenses regularly reviewed by the CODM are consistent with those reported on the Company’s condensed statements 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 Company’s share purchase agreement, dated November 12, 2021 (the “GEM SPA”), with GEM Global Yield LLC SCS (“GEM Global”) and GEM Yield Bahamas Limited (“GYBL”, and together with GEM Global, “GEM”).

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The accompanying unaudited condensed balance sheet as of March 31, 2025, unaudited condensed statements of operations for the three months ended March 31, 2025 and 2024, unaudited condensed statements of changes in stockholders’ equity/(deficit) for the three months ended March 31, 2025 and 2024, and unaudited condensed statements of cash flows for the three months ended March 31, 2025 and 2024, are unaudited. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the SEC on March 31, 2025, which contains the audited financial statements and notes thereto. The unaudited condensed financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of March 31, 2025, the results of operations for the three months ended March 31, 2025 and 2024, the unaudited condensed statements of changes in stockholders’ equity/(deficit) for the three months ended March 31, 2025 and 2024, and the unaudited condensed statements of cash flows for the three months ended March 31, 2025 and 2024. The December 31, 2024, condensed balance sheet included herein was derived from the audited financial statements, but it does not include all disclosures or notes required by GAAP for complete financial statements.

The financial data and other information disclosed in these notes to the unaudited condensed financial statements related to the three months ended March 31, 2025, are unaudited. Interim results are not necessarily indicative of results for an entire year or for any future period.

Use of Estimates

The preparation of the unaudited condensed 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 unaudited condensed 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 unaudited condensed 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 the SEPA (see Note 7) 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 $7,850 thousand and $13,501 thousand cash equivalents as of March 31, 2025 and December 31, 2024, 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 unaudited 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 three months ended March 31, 2025 and 2024.

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 unaudited condensed 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 unaudited condensed 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 unaudited condensed 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 unaudited condensed Statements 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 unaudited condensed 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 $150 thousand and $151 thousand for the three months ended March 31, 2025 and 2024, 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 unaudited condensed 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 unaudited condensed 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 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 three months ended March 31, 2024 is based upon the shares of our non-voting Common Stock 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 227,057 shares of Common Stock to GEM Global in February and March 2024.

As further described in Note 7, the Company issued $10,000 thousand of principal in short-term convertible notes during December 2024. During the three months ended March 31,2025, the Company issued 118,991 shares of Common Stock to satisfy the $250 thousand commitment fee payable, and $3,600 thousand of short-term convertible notes were converted into 2,530,591 shares of Common Stock. As of March 31, 2025, the estimated number of shares of Common Stock that would have been issued upon conversion of the remaining $6,400 thousand of principal was 6,867,571 shares of Common Stock. For the three months ended March 31, 2025 and 2024, 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 loss per share is the same 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 depreciation. Depreciation expense was $53 and $35 thousand for the three months ended March 31, 2025 and 2024, respectively.

5. Fair Value of Financial Instruments

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 three months ended March 31, 2025:

As further described in Note 7, 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 March 31, 2025 and December 31, 2024 was $5,839 thousand and $9,168 thousand, respectively. 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 March 31, 2025 for both notes included the closing bid price of $0.90, a term of 0.72 year, an annual risk free rate of 4.1%, and a volatility of 71%, and 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 7, the Company entered into the 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, December 31, 2024, and March 31, 2025 the fair value of the SEPA put option liability was $460 thousand, $460 thousand, and $543 thousand, respectively. The fair value of this SEPA put option liability was determined using a Monte Carlo simulation valuation model. For the valuations on December 20, 2024 and December 31, 2024, 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. For the valuation on March 31, 2025, inputs used in the model included a stock price of $0.90 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 0.76 years, volatility of 155%, and a 4.08% 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.

There were no transfers in or out of Level 1, Level 2 or Level 3 assets and liabilities for the three months ended March 31, 2025 and for the year ended December 31, 2024.

6. Stockholders’ Equity/(Deficit)

**Authorized Capital -**As of March 31, 2025 and December 31, 2024, the Company authorized 100,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, of which 2,500 were shares of Series C preferred stock.

In January 2024, the Company issued 2,500 shares of Series C Preferred Stock to its chief executive officer, 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 pursuant to the Company’s Amended and Restated Certificate of Incorporation. As a result of the Direct Listing, the outstanding shares of Series A Preferred Stock were canceled for no consideration and the outstanding shares of Series B Preferred Stock, Series B-1 Preferred Stock, and non-voting Common Stock 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.

7. Standby Equity Purchase Agreement

On December 20, 2024, the Company entered into the SEPA. 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 volume-weighted average price (“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). 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. The Company recognized a net loss of $180 thousand during the three months ended March 31, 2025 on these conversions into shares of Common Stock.

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

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, and at $543 thousand at March 31, 2025. The SEPA put option liability of $543 thousand and $460 thousand is recognized as a current liability on the balance sheet as of March 31, 2025 and December 31, 2024, respectively. The change in 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 March 31, 2025 and December 31, 2024 because there were no notices for the sale of the Company’s Common Stock as of March 31, 2025 and December 31, 2024.

8. Income Taxes

The Company did not record any tax provision or benefit for the three months ended March 31, 2025 and 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 March 31, 2025 and December 31, 2024.

9. Leases, Commitments and Contingencies

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.

In March 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 commenced on April 1, 2025, terminates on May 31, 2031, and specifies initial base and additional rent totaling $32 thousand per month.

Rent expense for the three months ended March 31, 2025 and 2024, was $170 thousand and $155 thousand, respectively. As of March 31, 2025, noncancelable lease payments under operating leases were $1,408 thousand and noncancelable lease payments under short-term leases were $56 thousand.

Maturities of operating lease liability as of March 31, 2025, were as follows:

10. 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. In March 2025, the Company issued 831,000 options with a strike price of $1.04 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 March 31, 2025 and December 31, 2024, respectively, there were 7,128,836 and 7,934,836 shares available for future issuance under the Plan.

Stock-based compensation expense is recognized in the condensed statements of operations as follows:

In addition to the $480 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 chief executive officer during the three months ended March 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 March 31, 2025, 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 three months ended March 31, 2025 and 2024 was $0.85 per share and $10.79 per share, respectively.

11. Subsequent Events

The Company terminated its lease for temporary lab and office space for its research operations, effective April 30, 2025.

On April 11, 2025, the investor converted $200,000 in principal amount of the Notes and the Company issued to the investor 263,643 shares of Common Stock at a $0.7586 conversion price per share.

On April 15, 2025, the investor converted $200,000 in principal amount of the Notes and the Company issued to the investor 263,643 shares of Common Stock at a $0.7586 conversion price per share.