ACTUATE THERAPEUTICS INC

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

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

For the Nine Months Ended September 30, 2024

-Continued-

For the Nine Months Ended September 30, 2023

Condensed Consolidated Statement of Cash Flows

For The Three and Nine Months Ended September 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 (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 Company’s 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 offering expenses of approximately $3.7 million 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 the Company’s 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 (see Note 9).

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.

Authorized Capital

In addition, effective upon the closing of the Company’s IPO, the Company’s authorized capital consists of 200,000,000 shares of common stock, $0.000001 par value per share, and 10,000,000 shares of preferred stock, $0.000001 par value per share.

Basis of Presentation

The accompanying unaudited condensed financial statements as of September 30, 2024 and for the three and nine months ended September 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 nine months ended September 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 September 30, 2024, the Company had cash and cash equivalents of $13,523,449 and working capital of $5,765,371. 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 nine months ended September 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 14, 2024 and September 12, 2024, the Company received net proceeds of approximately $18.9 million and $3.1 million upon the closing of 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 its 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 capitalized as deferred offering costs all direct and incremental legal, professional, accounting and other third-party fees incurred in connection with the Company’s IPO. Deferred offering costs were offset against IPO proceeds upon the closing of the IPO. Upon closing of the Company’s IPO in August 2024, deferred offering costs of $1,931,189 were transferred to additional paid-in capital to offset the IPO proceeds. The Company hadno deferred offering costs as of September 30, 2024 and December 31, 2023. As of September 30, 2024, unpaid offering costs of $105,912 were included in accounts payable and $3,500 were included in other accrued expenses in the accompanying unaudited condensed consolidated balance sheets.

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 Note 5) and the Redeemable Convertible Preferred Stock Warrant Liability (see Note 9) were carried at fair value until the closing of the IPO 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 period until the conversion or payment of the Related Party Convertible Notes Payable balance. 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 were 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 were 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 incorporated assumptions and estimates. The Company assessed these assumptions and estimates at each financial reporting period as additional information impacting the assumptions was obtained. Assumptions in the models included but were 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 were based on significant inputs that were not observable in the market and represented a Level 3 measurement (see Note 5). The change in fair value related to accrued interest was 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 $400,000 recorded during the nine months ended September 30, 2024 represented 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, and the increased probability-weighted IPO scenario. In connection with the closing of the Company’s IPO on August 14, 2024, the Related Party Convertible Notes Payable were converted into common stock and no amounts are outstanding as of September 30, 2024 (see Note 5).

Redeemable Convertible Preferred Stock

The Company recorded 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 was 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 could become redeemable at the option of the holders of at least a majority of the then outstanding preferred shares. The Company did not adjust 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 prior to conversion 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 (see Note 9) required liability classification and accounting as the underlying Redeemable Convertible Preferred Stock was considered contingently redeemable and could have obligated the Company to transfer assets to the holders at a future date upon occurrence of a deemed liquidation event. The warrants were recorded at their estimated fair value upon issuance and were 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 adjusted the warrant liability for changes in estimated fair value until the earlier of the exercise, conversion, 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 (see Note 8) then in effect for the underlying Redeemable Convertible Preferred Stock. Accordingly, the Redeemable Convertible Preferred Stock Warrants were remeasured upon the closing of the IPO and marked to market to their fair value before being reclassified to equity.

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 and restricted stock units (RSUs) 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 did 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

As of September 30, 2024, there were no financial assets or liabilities carried at fair value which were not equivalent to cost. The following table summarizes the Company’s liabilities measured at fair value as of December 31, 2023:

Information pertaining to the changes in the estimated fair value of the Redeemable Convertible Preferred Stock Warrant Liability in connection with the Company’s outstanding warrants to purchase Series B Redeemable Convertible Preferred Stock and Series C Redeemable Convertible Preferred Stock for the nine months ended September 30, 2024 is described in Note 9.

**4. OTHER ACCRUED EXPENSES **

Other accrued expenses as of September 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 a current member and a former member of the board of directors of the Company and a majority shareholder, which notes accrued interest at a rate of 7% per annum and would mature on August 16, 2024, as amended (“Maturity Date”). Principal and accrued interest were 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 completed a financing of at least $5,000,000 in gross proceeds (“Qualified Financing”) or closed the Company’s first firm commitment underwritten initial public offering of its common stock before the Maturity Date, the Related Party Convertible Notes Payable were to 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 did not occur prior to the Maturity Date, then on or after the Maturity Date, the holder could 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.

Prior to the closing of the Company’s IPO, the fair value of the Related Party Convertible Notes Payable was estimated at each reporting period 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.

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 its common stock upon the conversion of the Related Party Convertible Notes Payable, including accrued interest thereon, at a conversion price of $6.40 per share, representing 80% of the IPO price of $8.00 per share. The Related Party Convertible Notes Payable was marked to market to its fair value on the conversion date before being reclassified to equity. The aggregate fair value at the time of conversion was calculated by multiplying the number of shares of common stock issued upon conversion by the fair value per share on the conversion date, which was the closing price of the Company’s common stock on the Nasdaq Global Market on the closing date of the IPO.

The following table sets forth the changes in the estimated fair value of the Company’s Related Party Convertible Notes Payable for the nine months ended September 30, 2024:

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 (who now serves as the Company’s Chief Operating Officer), and (b) an exclusive license to all results obtained by Andrew Mazar and his collaborators at Northwestern on the use of glycogen synthase kinase-3 beta (“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 nine months ended September 30, 2024, the Company incurred minimum royalty expenses to UIC in the aggregate amount of $0 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 nine months ended September 30, 2023, the Company incurred patent and minimum royalty expenses to UIC in the aggregate amount of $0 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 is due and payable in two installments: (i) 50% was due within 30 days following the closing of the Company’s IPO; and (ii) 50% is due 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 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 $72,649 as of September 30, 2024, of which amount, $70,957 is classified as current and $1,692 is classified as non-current, and are included in the accompanying unaudited condensed consolidated balance sheet. At December 31, 2023, accrued interest to UIC was $130,041, which is included in the accompanying consolidated balance sheet.

8. STOCKHOLDERS’ DEFICIT

Authorized and Issued Capital

Effective upon the closing of the Company’s IPO, the Company’s authorized capital consists of 200,000,000 shares of common stock, $0.000001 par value per share, and 10,000,000 shares of preferred stock, $0.000001 par value per share. As of September 30, 2024 and December 31, 2023, there were 19,531,636 and 1,690,760 shares of common stock issued and outstanding, respectively.

Prior to the closing of the Company’s IPO, the Company’s authorized capital consisted 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 had designated multiple series of redeemable convertible preferred stock (“Redeemable Convertible Preferred Stock”) that were converted into common stock upon the closing of the IPO.

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 automatically converted 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

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

Immediately prior to the closing of the Company’s IPO, Redeemable Convertible Preferred Stock was comprised of the following:

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 was as follows:

Dividends

The holders of Redeemable Convertible Preferred Stock were 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 nine months ended September 30, 2024 and the year ended December 31, 2023, no dividends had been declared or paid.

Conversion

Effective upon the closing of the IPO, each share of Redeemable Convertible Preferred Stock converted 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 was 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 August 14, 2024 (the closing date of the IPO) 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.

Voting Rights

Prior to conversion, the holders of Redeemable Convertible Preferred Stock had 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 had full voting rights and powers equal to the voting rights and powers of the holders of common stock, was entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Company, and was entitled to vote, together with holders of common stock, with respect to any matter upon which holders of common stock had the right to vote.

Redemption and Balance Sheet Classification

Prior to conversion, the Redeemable Convertible Preferred Stock was recorded outside permanent equity because, while it was not mandatorily redeemable, it would become redeemable at the option of the holders upon the occurrence of certain deemed liquidation events that were considered not solely within the Company’s control.

Reserved Shares

As of September 30, 2024, the Company reserved the following shares of common stock for issuance upon the (i) exercise of outstanding warrants, (iv) exercise of issued and outstanding stock option awards and restricted stock unit awards, and (v) to reserve the remaining shares available for grant under the 2024 Stock Incentive Plan (“2024 Plan”):

9. WARRANTS

As of September 30, 2024, the following warrants to purchase up to 255,599 shares of common stock were outstanding:

Warrants Issued Under IPO

Upon the closing of the Company’s 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. The Underwriter Warrants met the criteria for equity classification and were recorded as a component of additional paid-in capital at the time of issuance.

Redeemable Convertible Preferred Stock Warrants and 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 (“Series C Redeemable Convertible Preferred Stock Warrants” or “Series C Warrants”). The warrants were to 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 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 (“Series B Redeemable Convertible Preferred Stock Warrants” or “Series B Warrants”). 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 were to 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 Company remeasured the fair value of the Series B Warrants and Series C Warrants at the end of each reporting period, with any adjustments being recorded as a component of other income (expense) in the accompanying unaudited condensed consolidated statements of operations.

Upon the closing of the IPO on August 14, 2024, the Series B Warrants issued at an exercise price of $5.27 per share (in-the-money warrants) were automatically exercised and settled on a cashless basis for shares of our Series B Redeemable Convertible Preferred Stock, and such shares of Series B Redeemable Convertible Preferred Stock were subsequently converted into 26,070 shares of our common stock. The fair value at the time of settlement of $238,540 was calculated by multiplying the number of shares of common stock issued upon settlement by the fair value per share on the settlement date, which was the closing price of the Company’s common stock on the Nasdaq Global Market on the closing date of the IPO. Upon the settlement of the in-the-money warrants, the Company recorded a gain on settlement of $343,240 on August 14, 2024. In addition, upon the closing of the IPO, the remaining out-of-the money Series B Warrants and Series C Warrants were amended in July 2024 to become exercisable for the same number of shares of common stock with an exercise price of $10.55 and $9.42 per share, respectively, and exercisable for a period of two years after the closing date of the IPO or through August 13, 2026.

The estimated fair value of the warrant liability for the Series B Warrants and Series C Warrants was $0 and $988,049 as of September 30, 2024 and December 31, 2023, respectively (see Note 3). The following table sets forth the changes in the estimated fair value of the warrant liability in connection with the Company’s Series B Warrants and Series C Warrants for the nine months ended September 30, 2024:

During the three months ended September 30, 2024, the decrease in fair value of the in-the-money Series B Warrants was $3,280 and during the nine months ended September 30, 2024, the increase in fair value of the in-the-money Series B Warrants was $96,050. Prior to settlement and as of December 31, 2023, the fair value of the in-the-money Series B Warrants was determined using the Black-Scholes valuation model with the following assumptions:

The out-of-the money Series B Warrants and Series C Warrants were remeasured upon the closing of the IPO and marked to market to its aggregate fair value of $485,172 before being reclassified to equity. During the three and nine months ended September 30, 2024, the decrease in fair value of the out-of-the-money Series B Warrants and Series C Warrants was $190,671 and $17,147, respectively. The fair value of the out-of-the money Series B Warrants and Series C Warrants as of the closing date of the IPO and December 31, 2023 was determined using the Black-Scholes valuation model with the following assumptions:

10. EQUITY COMPENSATION PLANS

Stock Incentive Plans

In connection with the Company’s IPO, our board of directors adopted and our stockholders approved our 2024 Plan, which became effective on August 12, 2024, the effective date of the registration statement for the Company’s IPO. The purpose of the 2024 Plan is to enhance the Company’s ability to attract, retain and motivate individuals by providing these individuals with equity ownership and incentive opportunities. 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 2024 Plan, including stock options grants, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and other awards. 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 the closing of the IPO. In addition, the number of shares of common stock available for issuance under the 2024 Plan is subject to an annual increase on the first day of each calendar year beginning on January 1, 2025 and ending on and including January 1, 2034 equal to the lesser of (i) 5% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of common stock as determined by the Board. As of September 30, 2024, there were 2,402,362 shares available for grant under the 2024 Plan.

In addition, the Company had previously adopted the 2015 Stock Incentive Plan (the “2015 Plan”). As of September 30, 2024, there were 393,346 stock options outstanding and 77,105 unvested RSAs outstanding under the 2015 Plan. Upon the effective date of the 2024 Plan on August 12, 2024, there were no remaining shares available for grant under the 2015 Plan.

Restricted Stock Awards

There were no RSAs granted during the nine months ended September 30, 2024. At September 30, 2024, the total estimated unrecognized compensation cost related to unvested service-based RSAs and unvested performance based RSAs was approximately $131,000 and $42,000, respectively. The unrecognized cost related for service-based RSAs is expected to be recognized over the remaining weighted average vesting period of 0.44 years. The unrecognized cost related to performance-based RSAs will be recognized ratably over the performance period based upon the probable number of shares expected to vest. As of September 30, 2024, there was no expense recorded for the outstanding performance-based RSAs.

The following summarizes our RSAs transaction activity for the nine months ended September 30, 2024:

Restricted Stock Units

Upon the closing of the IPO, we granted 544,111 RSUs to our president and chief executive officer pursuant to his employment agreement. At September 30, 2024, the total estimated unrecognized compensation cost related to unvested RSUs was approximately $4,652,000. This cost is expected to be recognized over the remaining weighted average vesting period of 1.41 years.

The following summarizes our RSUs transaction activity for the nine months ended September 30, 2024:

Stock Options

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

As of September 30, 2024, total unrecognized stock-based compensation cost related to stock options was approximately $2,776,000. This cost is expected to be recognized over the weighted average remaining period of 1.74 years.

The following table provides the assumptions used in determining the estimated fair value of stock option awards granted during the nine months ended September 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 nine months ended September 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 periods 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 outstanding stock options, unvested RSAs, unvested RSUs, and outstanding warrants 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 August 12, 2024, we issued to Bios Clinical Opportunity Fund, LP, a fund affiliated with a current member and a former member 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.

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 (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 of 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 nine months ended September 30, 2024 and 2023, we incurred $719,489 and $619,546, 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 September 30, 2024 and December 31, 2023, we had an outstanding balance owed to PBL of $67,588 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 the date these 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 herein.