ACTUATE THERAPEUTICS INC

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

For the Six Months Ended June 30, 2024

For the Six Months Ended June 30, 2023

Condensed Consolidated Statement of Cash Flows

For The Three and Six Months Ended June 30, 2024 and 2023 (unaudited)

Actuate Therapeutics, Inc. (the “Company”) was incorporated in the State of Delaware on January 16, 2015. The Company is a clinical-stage biopharmaceutical company focused on developing novel therapies for the treatment of cancers through the inhibition of glycogen synthase kinase-3 (“GSK-3”). The Company’s lead investigational product, elraglusib (formerly 9-ING-41), is a small molecule that is designed to enter cancer cells and block the function of the enzyme GSK-3β, thereby causing the death of the cancer cells and the regulation of anti-tumor immunity.

The Company has a 100%-owned Irish subsidiary, Actuate Therapeutics Limited, that is currently dormant.

The Company operates as a semi-virtual biopharmaceutical company with expertise in preclinical and clinical development. In addition, the Company contracts with highly experienced development, manufacturing, regulatory, and clinical consultants located in offices throughout the United States of America (“U.S.”), Europe and Canada.

Reverse Stock Split

On May 31, 2024, the Company’s board of directors approved a 1-for-1.8 reverse stock split of its issued and outstanding shares of common stock and stock option awards, which was effected on June 7, 2024. All issued and outstanding shares of common stock (including outstanding restricted stock awards), stock option awards and per share data have been adjusted in these unaudited condensed consolidated financial statements, on a retrospective basis, to reflect the reverse stock split for all periods presented. The par value of the common stock and preferred stock was not adjusted as a result of the reverse stock split.

The shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. In addition, the conversion ratios for each series of the Company’s Redeemable Convertible Preferred Stock (as defined below) (see Note 8), which automatically converted into shares of common stock upon the closing of the Company’s initial public offering (“IPO”), were proportionally adjusted. Stockholders entitled to fractional shares as a result of the reverse stock split were rounded up to the nearest whole share.

Initial Public Offering

On August 14, 2024, the Company completed the closing of its IPO of 2,800,000 shares of common stock at an initial offering price to the public of $8.00 per share, before the underwriters discount of $0.56 per share. Additionally, the underwriters exercised their option (“Overallotment Option”) to purchase an additional 420,000 shares at the same price of $8.00 per share less the underwriters discount on September 12, 2024. The common shares began trading on the Nasdaq Global Market on August 13, 2024, under the symbol “ACTU”. The Company received net proceeds of approximately $22 million, after deducting discounts and commissions and other estimated offering expenses of approximately $3.7 million, in exchange for the issuance of 3,220,000 shares of common stock of the Company, including shares issued under the Overallotment Option.

Upon the closing of IPO and Overallotment Option, we issued the underwriters warrants to purchase up to 161,000 shares of common stock, representing 5% of the shares of common stock issued under the IPO and Overallotment Option, at an exercise price of $10.00 per share (“Underwriter Warrants”), representing 125% of the initial offering price. The Underwriter Warrants are not exercisable prior to February 8, 2025 (or 180-days from the effective date of the registration statement), and expire on August 12, 2027. The Underwriter Warrants can only be exercised on a cash basis through November 11, 2025 and only on a cashless basis on November 12, 2025 and thereafter.

In addition, the Company’s Redeemable Convertible Preferred Stock (see Note 8), Related Party Convertible Notes Payable (as defined below) (see Note 5) and in-the-money warrants to purchase the Company’s Redeemable Convertible Preferred Stock (see Note 9) converted into or were automatically exercised for, as applicable, common stock immediately prior to the closing of the IPO.

Basis of Presentation

The accompanying unaudited condensed financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period. The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2023 included in its final prospectus filed with the SEC on August 13, 2024 pursuant to Rule 424(b)(4).

Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Going Concern and Management’s Plans

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of June 30, 2024, the Company had cash and cash equivalents of $351,709 and a working capital deficit of $19,523,311. The Company has not generated any revenue and has incurred recurring operating losses since inception. The Company expects to continue to incur losses for the foreseeable future and therefore, the Company’s ability to continue its operations is highly dependent on its ability to raise additional capital to fund its future operations.

During the six months ended June 30, 2024, the Company issued convertible promissory notes for aggregate principal amount of $5,500,000 to a related party (the “Related Party Convertible Notes Payable”) in exchange for proceeds of $5,500,000, which automatically converted into 884,427 shares of common stock upon the closing of the IPO (see Note 5). On August 12, 2024, we issued to Bios Clinical Opportunity Fund, LP, a fund affiliated with two members of the board of directors of the Company and a majority shareholder, a promissory note in the principal amount of $200,000 (“August Note”) (see Note 13). The August Note accrued interest at a rate of 7% per annum and was due and payable on the earlier of (i) the closing of the IPO or (ii) August 16, 2024. The August Note was paid in full on August 14, 2024, including accrued interest thereon. On August 14, 2024 and September 12, 2024, the Company received net proceeds of approximately $18.9 million and $3.1 million from the IPO and Overallotment Option, respectively, after deducting discounts and commissions and other estimated offering expenses of approximately $3.5 million and $0.2 million, respectively.

Management anticipates, based on currently proposed plans and assumptions, that our cash and cash equivalents on hand will not satisfy the Company’s operational and capital requirements through twelve months from the issuance date of these unaudited condensed consolidated financial statements. As the Company continues to pursue its business plan, it expects to finance its operations through equity offerings, debt financings, or other capital sources, including potential future collaborations, licenses, and other similar arrangements. However, there can be no assurance that any additional financing or strategic arrangements will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it may be necessary to significantly reduce its scope of operations to reduce the current rate of spending through actions such as the need to delay, limit, reduce or terminate its product development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself, which could have a material adverse effect on the Company’s business, results of operations or financial condition. Based on the above matters, we have concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern for a year from the date the financial statements were issued.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2023 included in its final prospectus filed with the SEC on August 13, 2024 pursuant to Rule 424(b)(4). Since the date of such audited consolidated financial statements, there have been no changes to the Company’s significant accounting policies, except as noted below.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions, and judgements that affect the reported amounts of assets, liabilities, expenses, and related disclosures in the accompanying notes. The Company bases its estimates, assumptions and judgements on historical experience when available and on various factors that it believes to be reasonable under the circumstances as of the date of the accompanying unaudited condensed consolidated financial statements including the fair value of common stock, fair value of the warrant liability, fair value of Related Party Convertible Notes Payable, stock-based compensation expense, accrued expenses (including accrued expenses related to research and development (“R&D”) as described below), and the recoverability of the Company’s net deferred tax assets and related valuation allowance. In addition, other factors may affect estimates, including the expected business and operational changes, the sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from the estimates and assumptions used in the preparation of the accompanying unaudited condensed consolidated financial statements under different assumptions or conditions.

Accrued Expenses Related to R&D Expenses

As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate our R&D expenses as of each balance sheet date. This process involves reviewing open contracts, including clinical site contracts, and communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our R&D expenses as of each balance sheet date based on facts and circumstances known to us at that time. The significant estimates in our R&D expenses include the costs incurred for services performed by our vendors in connection with services for which we have not yet been invoiced. We base our expenses related to R&D activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with contractors and vendors that conduct R&D on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. Advance payments for goods and services that will be used in future R&D activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Deferred Offering Costs

The Company capitalizes as deferred offering costs all direct and incremental legal, professional, accounting and other third-party fees incurred in connection with the Company’s IPO. The deferred offering costs will be offset against the IPO proceeds upon the closing of the IPO. As of June 30, 2024, the Company had $1,181,139 in deferred offering costs, of which $58,736 was included in accounts payable and $936,673 was included in other accrued expenses in the accompanying unaudited condensed consolidated balance sheets. There wereno deferred offering costs at December 31, 2023.

Fair Value of Financial Instruments

Authoritative guidance requires disclosure of the fair value of financial instruments. The Company applies fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The carrying amount of certain of the Company’s financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities, approximate their estimated fair values primarily due to the short-term nature of the instruments or based on information obtained from market sources and management estimates. The Related Party Convertible Notes Payable (see Notes 3 and 5) and the Redeemable Convertible Preferred Stock Warrant (as defined below) liability (see Notes 3 and 9) are carried at fair value based on unobservable market inputs. The Company measures the fair value of certain of its financial liabilities on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value which is not equivalent to cost will be classified and disclosed in one of the following three categories:

***Fair Value Option of Accounting for Related Party Convertible Notes Payable ***

When financial instruments contain various embedded derivatives which may require bifurcation and separate accounting of those derivatives apart from the entire host instrument, if eligible, ASC 825,Financial Instruments (“ASC 825”) allows issuers to elect the fair value option (“FVO”) of accounting for those instruments. The FVO may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. The FVO allows the issuer to account for the entire financial instrument at fair value with subsequent remeasurements of that fair value recorded through the statements of operations at each reporting date. A financial instrument is generally eligible for the FVO if, amongst other factors, no part of the convertible, or contingently convertible, instrument is classified in stockholders’ equity.

Based on the eligibility assessment discussed above, the Company concluded that its Related Party Convertible Notes Payable are eligible for the FVO and accordingly elected to apply the FVO to its Related Party Convertible Notes Payable in accordance with ASC 825. Accordingly, the Related Party Convertible Notes Payable are measured at fair value on their issuance dates and remeasured at estimated fair value at the end of each reporting period with changes in fair value recognized as a component of other income (expense) in the unaudited condensed consolidated statements of operations. The primary reason for electing the fair value option was to address simplification and cost-benefit considerations that result from accounting for hybrid financial instruments at fair value in their entirety versus bifurcation of the embedded derivatives from the debt hosts.

The estimated fair values of the Related Party Convertible Notes Payable are determined using valuation models that incorporate assumptions and estimates. The Company assesses these assumptions and estimates at each financial reporting period as additional information impacting the assumptions is obtained. Assumptions in the models include but are not limited to equity value, volatility, time to a conversion event, risk-free rate and scenario weightings. The fair value measurements of the Related Party Convertible Notes Payable are based on significant inputs that are not observable in the market and represent a Level 3 measurement (see Notes 3 and 5). The change in fair value related to accrued interest is also included within the single line of change in fair value of Related Party Convertible Notes Payable in the unaudited condensed consolidated statements of operations.

In addition, in certain circumstances, the estimated fair value at issuance may be greater than the face value at issuance. The loss on issuance of the Related Party Convertibles Notes Payable of $200,000 and $400,000 recorded during the three and six months ended June 30, 2024 represents the difference between the estimated fair value of the Related Party Convertible Notes Payable and the gross proceeds received on the issuance date based on the assumptions, including the proximity in time to the anticipated IPO, the discount on conversion of the Related Party Convertible Notes Payable (see Notes 3 and 5), and the increased probability-weighted IPO scenario.

Redeemable Convertible Preferred Stock

The Company records all shares of Redeemable Convertible Preferred Stock at their respective fair values on the dates of issuance, net of issuance costs. Redeemable Convertible Preferred Stock is recorded outside of permanent equity because while it is not mandatorily redeemable, in certain events considered not solely within the Company’s control, such as a merger, acquisition, or sale of all or substantially all of the Company’s assets, each referred to as a “deemed liquidation event,” the Redeemable Convertible Preferred Stock will become redeemable at the option of the holders of at least a majority of the then outstanding preferred shares. The Company has not adjusted the carrying value of the Redeemable Convertible Preferred Stock to its liquidation preference because a deemed liquidation event obligating the Company to pay the liquidation preference to holders of shares of Redeemable Convertible Preferred Stock did not occur as of June 30, 2024 and was subsequently not triggered upon the closing of the Company’s IPO when all shares of Redeemable Convertible Preferred Stock converted into shares of common stock.

Redeemable Convertible Preferred Stock Warrants

The Company’s Redeemable Convertible Preferred Stock Warrants require liability classification and accounting as the underlying Redeemable Convertible Preferred Stock is considered contingently redeemable and may obligate the Company to transfer assets to the holders at a future date upon occurrence of a deemed liquidation event. The warrants are recorded at their estimated fair value upon issuance and are subject to remeasurement to estimated fair value at each balance sheet date, with changes in the estimated fair value recognized as a component of other income (expense) in the accompanying unaudited condensed consolidated statements of operations. The Company will continue to adjust the warrant liability for changes in estimated fair value until the earlier of the exercise or expiration of the Redeemable Convertible Preferred Stock Warrants. In July 2024, the Redeemable Convertible Preferred Stock Warrants were amended to provide that if underlying Redeemable Convertible Preferred Stock Warrants were out-of-the-money based on the initial public offering price in the IPO, the out-of-the-money Redeemable Convertible Preferred Stock Warrants would convert into warrants to purchase common stock with an exercise price per share that reflected the Conversion Ratio (as defined below) then in effect for the underlying Redeemable Convertible Preferred Stock (see Note 9).

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, Redeemable Convertible Preferred Stock, convertible notes payable, warrants to purchase Redeemable Convertible Preferred Stock, unvested restricted stock awards (“RSAs”), and outstanding stock options are considered to be potentially dilutive securities (see Note 11).

Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the Redeemable Convertible Preferred Stock and common stock subject to repurchase are considered participating securities. The Redeemable Convertible Preferred Stock does not have a contractual obligation to share in the Company’s losses, and unvested RSAs subject to repurchase is considered an unvested stock-based compensation award for accounting purposes. As such, the net loss is attributed entirely to common stockholders. Because the Company has reported a net loss for the reporting periods presented, the diluted net loss per common share is the same as basic net loss per common share for those periods.

Recently Issued Accounting Standards

Accounting standards not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The guidance includes the requirements that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, the title and position of the chief operating decision maker, and an explanation of how the chief operating decision maker uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The guidance also requires that a public entity that has a single reportable segment provide all the disclosures required by the guidance and all existing segment disclosures in ASC 280,Segment Reporting. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in the guidance retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the impact that this guidance may have on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance includes the requirement that public business entities, on an annual basis, disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). It also requires that all entities disclose, on an annual basis, the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received) and requires that all entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. Lastly, the guidance eliminates the requirement for all entities to disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months or make a statement that an estimate of the range cannot be made. For public business entities, the guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The guidance should be applied on a prospective basis. Retrospective application is permitted. The Company is currently evaluating the impact that this guidance may have on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06,Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40). The guidance simplifies the accounting for certain financial instruments, eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments, and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. It also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity and amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. The guidance is effective for public business entities that meet the definition of a Securities and Exchange Commission filer, excluding entities eligible to be smaller reporting companies as defined by the Securities and Exchange Commission, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted the guidance as of January 1, 2024 with no material impact on the Company’s unaudited condensed consolidated financial statements upon adoption.

3. FAIR VALUE MEASUREMENTS

The following table summarizes the Company’s liabilities measured at fair value as of June 30, 2024 and December 31, 2023:

The following table sets forth the changes in the aggregate estimated fair value of the warrant liability in connection with the Company’s warrants to purchase Series B Redeemable Convertible Preferred Stock (“Series B Redeemable Convertible Preferred Stock Warrants”) and Series C Redeemable Convertible Preferred Stock (“Series C Redeemable Convertible Preferred Stock Warrant”):

The Series B Redeemable Convertible Preferred Stock Warrant liability was valued using the following assumptions using the Black-Scholes valuation model as of June 30, 2024 and December 31, 2023:

The Series C Redeemable Convertible Preferred Stock Warrant liability was valued using the following assumptions using the Black-Scholes valuation model as of June 30, 2024 and December 31, 2023:

The following table sets forth the changes in the aggregate estimated fair value of the Company’s Related Party Convertible Notes Payable for the six months ended June 30, 2024 (see Note 5):

The fair value of the Related Party Convertible Notes Payable was estimated using a scenario-weighted binomial lattice model to calculate equity values at different points in time leading up to a conversion event. Assumptions in the model include but are not limited to the following: equity value, conversion price, accrued interest, volatility, risk-free interest rate, dividend yield, time to a conversion event, and scenario weightings. Accrued interest on the Related Party Convertible Notes Payable was included in the determination of the estimated fair value as of June 30, 2024.

**4. OTHER ACCRUED EXPENSES **

Other accrued expenses as of June 30, 2024 and December 31, 2023 consisted of the following:

5. RELATED PARTY CONVERTIBLE NOTES PAYABLE

On February 20, 2024, March 27, 2024, and May 8, 2024, the Company issued convertible promissory notes in the amount of $3,000,000, $1,500,000, and $1,000,000, respectively, to Bios Clinical Opportunity Fund, LP, a fund affiliated with two members of the board of directors of the Company and a majority shareholder, which notes accrue interest at a rate of 7% per annum and mature on August 16, 2024, as amended (“Maturity Date”). Principal and accrued interest are due and payable on the Maturity Date, subject to an automatic conversion upon a Qualified Financing (as defined below) or the Company’s first firm commitment underwritten initial public offering of its common stock or at the option of the holder, convertible into shares of Series C Redeemable Convertible Preferred Stock.

In the event the Company either completes a financing of at least $5 million in gross proceeds (“Qualified Financing”) or closes the Company’s first firm commitment underwritten initial public offering of its common stock before the Maturity Date, the Related Party Convertible Notes Payable will automatically convert into (i) in the case of a Qualified Financing, that number of shares of capital stock issued in such Qualified Financing (the “Qualified Financing Securities”) equal to the quotient obtained by dividing the outstanding principal amount of the Related Party Convertible Notes Payable plus all accrued and unpaid interest thereon by eighty percent (80%) of the per share price at which shares are to be sold in such Qualified Financing or (ii) in the case of an initial public offering, such number of shares of common stock equal to the outstanding principal amount of the Related Party Convertible Notes Payable plus all accrued and unpaid interest thereon, divided by eighty percent (80%) of the initial public offering price.

In the event a Qualified Financing or an initial public offering does not occur prior to the Maturity Date, then on or after the Maturity Date, the holder may elect to either (i) convert the Related Party Convertible Notes Payable into such number of shares of Series C Redeemable Convertible Preferred Stock equal to the principal amount plus the accrued but unpaid interest thereon divided by $7.848 or (ii) elect that the Related Party Convertible Notes Payable become fully due and payable in cash.

Transaction fees of the related party in the amount of $50,000 that were withheld by the related party were expensed as incurred in accordance with ASC 825.

In connection with the closing of the Company’s IPO on August 14, 2024, the Company issued Bios Clinical Opportunity Fund, LP 884,427 shares of common stock of the Company upon the conversion of the Related Party Convertible Notes Payable, including accrued interest thereon.

6. COMMITMENTS AND CONTINGENCIES

Legal

The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation may have a material adverse effect on its business and financial condition. To the Company’s knowledge, the Company is not subject to any pending legal proceedings.

Indemnities and Guarantees

We have made certain indemnities and guarantees, under which we may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions. We indemnify our officers and directors to the maximum extent permitted under the laws of the State of Delaware. The duration of these indemnities and guarantees varies and, in certain cases, is indefinite. These indemnities and guarantees do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities and guarantees in the accompanying unaudited condensed consolidated balance sheets.

7. LICENSES AND AGREEMENTS

Northwestern License Agreement

On March 31, 2015, the Company entered into an Exclusive License Agreement with Equity (the “Northwestern License Agreement”) with Northwestern University (“Northwestern”). Pursuant to the Northwestern License Agreement, Northwestern granted the Company (a) a nonexclusive license to certain technical information developed in the laboratory of Andrew Mazar, and (b) an exclusive license to all results obtained by Andrew Mazar and his collaborators at Northwestern on the use of the GSK-3β (formerly 9-ING-41) and related compounds used for the treatment of cancer and combination therapies. In consideration of the license granted pursuant to the Northwestern License Agreement, the Company granted Northwestern 27,778 shares of the Company’s common stock, representing 5% of the Company’s capital stock on a fully diluted basis on the date of grant. In addition, the Company granted Northwestern the right to participate in future offerings of the Company’s capital securities on the same terms as offered to those participating in the offering. In 2019, Northwestern’s right to participate in future offerings expired.

UIC License Agreement

On April 6, 2015, the Company entered into an Exclusive License Agreement with Equity (the “UIC License Agreement”) with The Board of Trustees of the University of Illinois (“UIC”), whereby, UIC granted the Company (a) an exclusive, nontransferable license, with the right to sublicense under UIC’s rights in the Patent Rights (as defined in the UIC License Agreement), and (b) a non-exclusive, non-transferable license, with the right to sublicense, to use UIC’s rights in the Technical Information (as defined in the UIC License Agreement) within the Territory and the Field as each such term is defined in the UIC License Agreement. In consideration of the license granted under the UIC License Agreement, the Company issued 46,528 shares of the Company’s common stock to UIC, which represented 5% of the Company’s capital stock on a fully diluted basis at the time of issuance, as defined in the UIC License Agreement, and agreed to pay UIC (i) development milestones of up to $1.25 million, of which, up to $0.25 million is due upon the progress of clinical trials and $1.0 million is due upon the initiation of commercial sales (ii) annual minimum royalty payments of $5,000 beginning on the third anniversary year of the UIC License Agreement and increasing to $15,000 in year four, $35,000 in year five, and $50,000 in year six and each year thereafter, (iii) royalty on net sales for product covered under the Patent Rights in the low single digits with a 50% reduction in royalties for products solely utilizing Technical Information, (iv) a declining percentage of sublicensing revenue based on the escalating stage of development upon a sublicensing event, and (v) the reimbursement of all patent and related expenses incurred by UIC covering the Patent Rights. For the three and six months ended June 30, 2024, the Company incurred minimum royalty expenses to UIC in the aggregate amount of $50,000 and $50,000, respectively, which amounts were included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations. For the three and six months ended June 30, 2023, the Company incurred patent and minimum royalty expenses to UIC in the aggregate amount of $50,000 and $55,524, respectively, which amounts were included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

In addition, the Company entered into a sublicense and collaboration agreement dated August 28, 2017 with an unrelated entity that was covered under the UIC License Agreement, which sublicense agreement was later terminated on January 31, 2018. Under the UIC License Agreement, the Company owed UIC a certain percentage of amounts received under the sublicense agreement in the amount of $449,990. The Company paid UIC 10% of the sublicense fees in the amount of $44,999 and the remaining unpaid balance of $404,991 (“Deferred Amount”) was originally due and payable to UIC in two installments: 50% due and payable on the one-year anniversary from the first commercial sale and 50% due on the second-year anniversary from the first commercial sale. The Deferred Amount is treated as debt and continues to accrue interest at a rate of five percent (5%) per annum, representing the prime rate as of the date of the agreement plus 1%.

On July 16, 2024, the Company and UIC entered an amendment to the UIC License Agreement (“UIC Amendment”). Pursuant to the UIC Amendment, accrued interest of $140,193 as of June 30, 2024 is due and payable in two installments: (i) 50% due within 30 days following the closing of the Company’s IPO; and (ii) 50% within 30 days following the first anniversary of the closing of the IPO. Thereafter, interest will be paid annually within 30 days following the second anniversary of the closing of the IPO and annually thereafter. In addition, the UIC Amendment provides for payment of the Deferred Amount and any accrued interest thereon upon the first to occur of (i) termination of the UIC License Agreement by the Company, (ii) the Company ceases development of the licensed UIC technology, (iii) the Company consummates a Change in Control (as defined in the UIC License Agreement), (iv) the Company sublicenses the licensed technology or the developed product, (v) the one-year anniversary following approval of a new drug application (“NDA”) of a licensed product, or (vii) the Company executes a partnership agreement with any entity resulting in the payment to us above a specified milestone amount or the Company secures cumulative financing equal to or exceeding $200 million. In addition, the UIC Amendment provides that to the extent the Company secures equity financing equal to or exceeding $85 million through its IPO or otherwise, 50% of the Deferred Amount is due and payable within 30 days. The remaining 50% of the Deferred Amount shall be due and payable upon the first to occur of any of the events noted above in clauses (i) through (vii). Finally, the UIC Amendment provides that for as long as the Company or a sublicensee is selling the licensed product, the Company will pay all consideration provided for in the original UIC License Agreement and described above until the last to expire market exclusivity date, the period of which for all products in a jurisdiction will not exceed a total of seven (7) years beginning with the date regulatory approval is granted for the first licensed product in the jurisdiction, and such obligation will survive termination of the UIC License Agreement.

Interest payable to UIC was $140,193 as of June 30, 2024, of which, $70,097 is classified as current and $70,096 is due and payable in September 2025, and are included in the accompanying unaudited condensed consolidated balance sheet. At December 31, 2023, accrued interest was $130,041, which is included in the accompanying consolidated balance sheet.

8. STOCKHOLDERS’ DEFICIT

The Company’s authorized capital as of June 30, 2024 consists of 38,108,584 shares of common stock, $0.000001 par value per share, and 33,463,018 shares of preferred stock, $0.000001 par value per share, of which, the Company has designated multiple series of redeemable convertible preferred stock (“Redeemable Convertible Preferred Stock”).

In addition, effective upon the closing of the Company’s IPO, the Company's authorized capital consisted of 200 million shares of common stock, $0.000001 par value per share, and 10 million shares of preferred stock, $0.000001 par value per share.

Reverse Stock Split

On May 31, 2024, the Company’s board of directors approved a 1-for-1.8 reverse stock split of its issued and outstanding shares of common stock and stock option awards, which was effected on June 7, 2024. All issued and outstanding shares of common stock (including outstanding RSAs), stock option awards and per share data have been adjusted in these unaudited condensed consolidated financial statements, on a retrospective basis, to reflect the reverse stock split for all periods presented. The par value of the common stock and Preferred Stock was not adjusted as a result of the reverse stock split.

The shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. In addition, the conversion price for each series of the Company’s Redeemable Convertible Preferred Stock, which will automatically convert into shares of common stock upon the closing of the IPO, were proportionally adjusted. Fractional shares resulting from the reverse stock split were rounded up to the nearest whole share.

Redeemable Convertible Preferred Stock

As of June 30, 2024, the Redeemable Convertible Preferred Stock was comprised of the following:

On August 14, 2024, the Company’s Redeemable Convertible Preferred Stock converted into 13,710,379 shares of common stock concurrently with the closing of the Company’s IPO.

As of December 31, 2023, the Redeemable Convertible Preferred Stock was comprised of the following:

The rights, preferences, privileges and restrictions granted to or imposed on the Company’s Redeemable Convertible Preferred Stock or the holders thereof are as follows:

Dividends

The holders of Redeemable Convertible Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefore, prior and in preference to any declaration or payment of any dividend to the common stockholders, at the rate of 8.0% per annum on each of the Series A, Series B-1, Series B-2, Series B-3, Series B-4, and Series C original issue prices, payable when, and if declared by the Board. Such dividends shall be cumulative and if less than the full amount of dividends payable on the Redeemable Convertible Preferred Stock if declared and paid, any such payments shall be made ratably among the holders of the Redeemable Convertible Preferred Stock in proportion to the total amount each holder would be entitled to receive if the full amount of dividends payable on the Redeemable Convertible Preferred Stock had been declared. During the six months ended June 30, 2024 and the year ended December 31, 2023, no dividends had been declared or paid.

Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event (as defined in the certificate of incorporation), the holders of shares of Redeemable Convertible Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to one times the original issue price, plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up of the Company or deemed liquidation event, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of Redeemable Convertible Preferred Stock the full amount to which they shall be entitled, the holders of shares of Redeemable Convertible Preferred Stock shall share ratable in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Conversion

Each share of Redeemable Convertible Preferred Stock is convertible into that number of shares of common stock based on the conversion ratio of 0.555555 shares of common stock per share of Redeemable Convertible Preferred Stock (“Conversion Ratio”). The Conversion Ratio is determined by dividing the applicable initial purchase price (the “Initial Purchase Price”) of such share by the applicable Conversion Price. The Conversion Price for each series of Redeemable Convertible Preferred Stock as of June 30, 2024 and December 31, 2023 were as follows: Series A - $3.6000; Series B-1 - $6.5874; Series B-2 - $6.8855; Series B-3 - $7.2000; Series B-4 - $7.5240; and Series C - $7.8480, which reflects the 1-for-1.8 reverse stock split discussed above.

The Conversion Ratio is also subject to adjustment upon the occurrence of certain events, including issuances of shares of common stock at a price, exercise price, or conversion price lower than the Conversion Prices of the preferred stock, unless waived by a majority of the holders of the series of Redeemable Convertible Preferred Stock.

Voting Rights

The holders of Redeemable Convertible Preferred Stock shall have the right to one vote for each whole share of common stock into which such Redeemable Convertible Preferred Stock could then be converted. With respect to such vote, the holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock, shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Company, and shall be entitled to vote, together with holders of common stock, with respect to any matter upon which holders of common stock have the right to vote.

Redemption and Balance Sheet Classification

The Redeemable Convertible Preferred Stock is recorded within temporary equity because, while it is not mandatorily redeemable, it will become redeemable at the option of the holders upon the occurrence of certain deemed liquidation events that are considered not solely within the Company’s control.

Common Stock

As of June 30, 2024, there were 38,108,584 shares of common stock authorized, of which,1,690,760 shares were issued and outstanding as of June 30, 2024 and December 31, 2023.

The voting, dividend, and liquidation rights of the holders of common stock are subject to and qualified by the rights, powers and preferences of the holders of the preferred stock.

Reserved Shares

As of June 30, 2024, the Company reserved the following shares of common stock for issuance upon the (i) conversion of the outstanding Redeemable Convertible Preferred Stock, (ii) conversion of Related Party Convertible Notes Payable, (iii) exercise of outstanding Redeemable Convertible Preferred Stock Warrants, (iv) exercise of issued and outstanding stock options, and (v) to reserve the remaining shares available for grant under the 2015 Stock Incentive Plan (“2015 Plan”):

9. WARRANTS

Redeemable Convertible Preferred Stock Warrant Liability

On June 30, 2023, in connection with issuance of the Series C Redeemable Convertible Preferred Stock, the Company issued the placement agent warrants to purchase 18,223 shares of Series C Redeemable Convertible Preferred Stock at an exercise price of $9.42 per share. The warrants terminate at the earlier of (i) five (5) years from the issuance date, (ii) the consummation of a change of control, or (iii) upon the first closing of an initial public offering of the Company’s common stock. The warrants have a net exercise provision under which the holders could, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the Company’s stock at the time of exercise of the warrants after deduction of the aggregate exercise price. The warrants contain provisions for adjustment of the exercise price and number of shares issuable upon the exercise of warrants in the event of certain stock dividends, stock splits, reorganizations, reclassifications, and consolidations. The initial estimated fair value of the warrants of $93,863 was calculated using the Black-Scholes valuation model (see Note 3) and recorded as a reduction to Redeemable Convertible Preferred Stock and a corresponding increase in the warrant liability.

On September 7, 2018, in connection with convertible promissory note payable agreements, the Company agreed to issue the noteholders warrants to purchase shares of Series B-1 Redeemable Convertible Preferred Stock. Warrants to purchase 76,376 shares of Series B-1 Redeemable Convertible Preferred Stock were issued at an exercise price of $5.27 per share and warrants to purchase 76,376 shares of Series B-1 Redeemable Convertible Preferred Stock were issued at an exercise price of $10.55 per share. The warrants terminate at the earlier of (i) ten (10) years from the issuance date, (ii) the consummation of a change of control, or (iii) upon the first closing of an initial public offering of the Company’s common stock. The warrants have a net exercise provision under which the holders could, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the Company’s stock at the time of exercise of the warrants after deduction of the aggregate exercise price. The warrants contain provisions for adjustment of the exercise price and number of shares issuable upon the exercise of warrants in the event of certain stock dividends, stock splits, reorganizations, reclassifications, and consolidations. The initial estimated fair value of the warrants of $805,292 was recorded on the closing date of a private placement in April 2019, representing the initial date the warrants could be measured.

The Series B-1 and Series C warrants had an aggregate estimated fair value of $1,260,903 and $988,049 as of June 30, 2024 and December 31, 2023, respectively (see Note 3). Changes in the estimated fair value of the warrant liability were recognized as a component of other income (expense) in the accompanying unaudited condensed consolidated statements of operations.

Upon the closing of the Company’s IPO on August 14, 2024, the Series B-1 warrants issued at an exercise price of $5.27 per share (in-the-money warrants) were automatically exercised on a cashless basis for shares of our Series B-1 Redeemable Convertible Preferred Stock, and such shares of Series B-1 Redeemable Convertible Preferred Stock were subsequently converted into 26,070 shares of our common stock based on the initial public offering price of $8.00 per share of common stock. The remaining Series B-1 warrants and Series C warrants (out-of-the money warrants) were amended in July 2024 to become exercisable for shares of common stock with an exercise price of $10.55 and $9.42 per share, respectively, for a period of two years after the closing date of the IPO or through August 13, 2026.

10. EQUITY COMPENSATION PLAN

The 2015 Stock Incentive Plan (the “2015 Plan”) provides for the grant of incentive stock options, non-qualified stock options and RSAs. As of June 30, 2024, there were 2,039,203 shares authorized under the 2015 Plan, of which,496,801 shares remained available for grant. All of the Company’s employees, as well as all of the Company’s non-employee directors and other consultants, advisors and other persons who provide services to the Company are eligible to receive incentive awards under the 2015 Plan.

RSAs

There wereno RSAs granted during the six months ended June 30, 2024. At June 30, 2024, the total estimated unrecognized compensation cost related to non-vested RSAs was approximately $239,000. This cost is expected to be recognized over the remaining weighted average vesting period of 0.78 years.

The following summarizes our RSAs transaction activity for the six months ended June 30, 2024:

Stock Options

The following summarizes our stock option transaction activity for the six months ended June 30, 2024:

As of June 30, 2024, total unrecognized stock-based compensation cost related to stock options was approximately $587,000. This cost is expected to be recognized over the remaining weighted average vesting period of 3.21 years.

The following table provides the assumptions used in determining the estimated fair value of stock option awards granted during the six months ended June 30, 2024:

The following table summarizes the stock-based compensation expense recorded in the accompanying unaudited condensed consolidated statements of operations during the three and six months ended June 30, 2024 and 2023:

The Company has not recognized and does not expect to recognize in the near future, any tax benefit related to employee stock-based compensation expense as a result of the full valuation allowance related to its net deferred tax assets.

11. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

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

The potential dilutive effect of Redeemable Convertible Preferred Stock and Related Party Convertible Notes outstanding during the period are calculated using the if-converted method assuming the conversion of underlying instruments as of the earliest period reported or at the date of issuance, if later, but are excluded if their effect is anti-dilutive. The potential dilutive effect of options, unvested RSAs, and warrants outstanding during the period are calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive.

The number of whole shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect were as follows:

12. RELATED PARTY TRANSACTIONS

On February 20, 2024, March 27, 2024, and May 8, 2024, the Company issued convertible promissory notes in the amount of $3,000,000, $1,500,000, and $1,000,000, respectively, to Bios Clinical Opportunity Fund, LP, a fund affiliated with two members of the board of directors of the Company and a majority shareholder (see Note 5).

During 2018, the Company entered into a master service agreement with Pacific BioPharma Logistics, Inc. (“PBL”) to provide clinical support related to the packaging, labeling, kitting, storage, distribution and inventory for the Company’s investigational products. Mr. Richard Kenley, Vice President of Manufacturing for the Company (but not an “executive officer” of the Company, as defined under Rule 3b-7 of the Securities Exchange Act of 1934, as amended), is an unpaid advisor for PBL and his spouse is a shareholder in PBL. During the six months ended June 30, 2024 and 2023, we incurred $546,892 and $397,278, respectively, in services provided by PBL, which amounts are included in research and development expense in the accompanying unaudited condensed consolidated statements of operations. As of June 30, 2024 and December 31, 2023, we had an outstanding balance owed to PBL of $94,569 and $52,206, respectively, which amounts are included in accounts payable in the accompanying unaudited condensed consolidated balance sheets.

13. SUBSEQUENT EVENTS

The Company has evaluated all subsequent events and transactions through September 24, 2024, the date the unaudited condensed financial statements were issued, to ensure these financial statements include appropriate disclosure of events both recognized in the financial statements and events which occurred but were not recognized in the financial statements. The Company has concluded that no subsequent event has occurred that requires disclosure, except as described below.

Short-term Promissory Note

On August 12, 2024, we issued to Bios Clinical Opportunity Fund, LP, a fund affiliated with two members of the board of directors of the Company and a majority shareholder, a promissory note in the principal amount of $200,000 (“August Note”) in exchange for net proceeds of $200,000. The August Note accrued interest at a rate of 7% per annum and was due and payable on the earlier of (i) the closing of the IPO or (ii) August 16, 2024. The August Note was paid in full on August 14, 2024, including accrued interest thereon.

IPO

On August 14, 2024, the Company completed the closing of its IPO of 2,800,000 shares of common stock at an initial offering price to the public of $8.00 per share, before the underwriters discount of $0.56 per share. Additionally, the underwriters exercised their Overallotment Option to purchase an additional 420,000 shares at the same price of $8.00 per share less the underwriters discount on September 12, 2024. The common shares began trading on the Nasdaq Global Market on August 13, 2024, under the symbol "ACTU". The Company received net proceeds of approximately $22 million, after deducting discounts and commissions and other estimated offering expenses of approximately $3.7 million, in exchange for the issuance of 3,220,000 shares of common stock of the Company, including shares issued under the Overallotment Option.

Upon the closing of IPO and Overallotment Option, we issued the Underwriters Warrants to purchase up to 161,000 shares of common stock, representing 5% of the shares of common stock issued under the IPO and Overallotment Option, at an exercise price of $10.00 per share, representing 125% of the initial offering price. The Underwriter Warrants are not exercisable prior to February 8, 2025 (or 180-days from the effective date of the registration statement), and expire on August 12, 2027. The Underwriter Warrants can only be exercised on a cash basis through November 11, 2025 and only on a cashless basis on November 12, 2025 and thereafter.

In addition, the Company’s Redeemable Convertible Preferred Stock (see Note 8), Related Party Convertible Notes Payable (see Note 5) and in-the-money warrants to purchase the Company’s Redeemable Convertible Preferred Stock (see Note 9) converted into or were automatically exercised for, as applicable, common stock immediately prior to the closing of the IPO.

2024 Stock Incentive Plan

In connection with the IPO, our board of directors adopted and our stockholders approved our 2024 Stock Incentive Plan (the “2024 Plan”), which became effective on August 12, 2024, the effective date of the registration statement for the Company’s IPO. Up to 3,316,444 shares of common stock were reserved for future issuance under the 2024 Plan, which number included 496,801 shares of common stock reserved for issuance under the 2015 Plan as of June 30, 2024 (see Note 10).

Of the shares of common stock reserved for issuance under the 2024 Plan, upon the closing of the IPO, the Company granted (i) our president and chief executive officer 544,111 restricted stock units (“RSUs”) pursuant to his employment agreement and (ii) our chief financial officer stock options to purchase up to 234,971 shares of common stock pursuant to his employment agreement at an exercise price equal to the initial public offering price of $8.00 per share, and (iii) our non-employee directors options to purchase an aggregate of 135,000 shares of common stock with an exercise price of the initial public offering price of $8.00 per share.

Authorized Capital

In addition, effective upon the closing of the Company’s IPO, the Company's authorized capital consists of 200 million shares of common stock, $0.000001 par value per share, and 10 million shares of preferred stock, $0.000001 par value per share.