Actuate Therapeutics, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Actuate Therapeutics, Inc. included in Part I Item 1 of this Quarterly Report on Form 10-Q (“Quarterly Report” or “Report”) and with our audited consolidated financial statements and the related notes thereto for the year ended December 31, 2024, filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2025.

This discussion and analysis contains forward-looking statements reflecting our management’s current expectations that involve risks, uncertainties and assumptions. See the section entitled “Cautionary Note Regarding Forward-Looking Statements.” Our actual results and the timing of events may differ materially from those described in or implied by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this Report, particularly those set forth under “Risk Factors.”

Business Overview

We are a clinical stage biopharmaceutical company focused on developing therapies for the treatment of high impact, difficult to treat cancers through the inhibition of glycogen synthase kinase-3 (“GSK-3”). We are developing elraglusib (formerly 9-ING-41), an ATP-competitive small molecule that is designed to enter cancer cells and block the function of the enzyme glycogen synthase kinase-3 beta (“GSK-3β”), a master regulator of complex biological signaling cascades, including those mediated by oncogenes, that lead to tumor cell survival, growth, migration, and invasion. We believe that the blockade of GSK-3β signaling ultimately results in the death of the cancer cells and the regulation of anti-tumor immunity.

We have exclusively licensed a portfolio of GSK-3 inhibitors developed in a collaboration between The Board of Trustees of the University of Illinois-Chicago (“UIC”) and Northwestern University (“NU”). Elraglusib is the lead investigational product in our portfolio and is being evaluated in a Phase 2 trial in patients with metastatic pancreatic ductal adenocarcinoma (“mPDAC”), our most advanced clinical indication to date. We are also advancing a Phase 1/2 clinical trial in refractory pediatric malignancies, including Ewing sarcoma (“EWS”).

Elraglusib represents a broad opportunity for us to potentially initiate and advance multiple drug development programs around our lead asset based on data emerging from completed or ongoing Phase 1/2 trials and non-clinical biological, cellular, and animal data. Animal tumor model data, Phase 1/2 clinical data and AI-based computational approaches have identified a number of areas of unmet clinical need in cancer where elraglusib may play an interventional role, including pancreatic, metastatic melanoma, lung, colon, breast, renal, and ovarian cancer, leukemias and lymphomas, as well as some pediatric cancers including Ewing sarcoma, neuroblastoma and pediatric leukemias.

Our lead clinical program, referred to as Actuate-1801, is an intravenous (“IV”) injection solution of elraglusib (“Elraglusib Injection”) that we are evaluating for the treatment of first-line mPDAC. In addition, Elraglusib Injection is also being evaluated in a Phase 1/2 clinical trial in refractory pediatric malignancies and the data from this study (Actuate-1902) identified Ewing sarcoma as a potential second indication for further development of Elraglusib Injection.

We have developed several oral dosage forms of elraglusib, which we believe will allow us to expand the number of cancer indications that we are able to target and allow us to further explore more convenient dose delivery options for patients. A clinical candidate tablet, the Elraglusib Oral Tablet, has been selected for further development and we are planning a Phase 1 study (Actuate-2401) to identify the maximum tolerated dose (“MTD”) and recommended Phase 2 dose (“RP2D”) for Elraglusib Oral Tablet in patients with advanced, refractory adult cancers subject to future funding.

Since our inception in 2015, we have focused substantially all of our resources on organizing and staffing our Company, business planning, raising capital, establishing and maintaining our intellectual property portfolio, conducting research, preclinical studies, and clinical trials, establishing arrangements with third parties for the manufacture of elraglusib, and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales since inception.

We have incurred significant operating losses and negative cash flows from operations since our inception. Our net losses were $27,285,328 and $24,744,620 for the years ended December 31, 2024 and 2023, respectively, and $6,317,024 and $8,296,059 for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, we had an accumulated deficit of $138,696,873. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and operating losses in the foreseeable future, and we anticipate these losses will increase substantially as we continue our development of, seek regulatory approval for, and potentially commercialize elraglusib, and potentially seek to discover and develop additional product candidates, utilize third parties to manufacture elraglusib, hire additional personnel, expand and protect our intellectual property, and incur additional costs associated with being a public company. If we obtain regulatory approval for elraglusib, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we do not become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce or terminate our operations.

As of March 31, 2025, we had cash and cash equivalents of $3,889,405. Based on our current operating plan, we estimate that our existing cash and cash equivalents as of the date of this Report will not satisfy the Company’s operational and capital requirements beyond the second quarter of fiscal year 2025.

Also, we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for elraglusib or any future product candidates, which we expect will take a number of years and may never occur. As a result, we need substantial additional funding to support our continuing operations and pursue our business strategy. Until such time we can generate significant revenue from product sales, if ever, we expect to finance our operations through equity offerings, debt financings, or other capital sources, including potential future collaborations, licenses, and other similar arrangements. As we seek additional financing in the near term, we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements or arrangements as, and when needed, we may delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves, or even cease operations.

Recent Developments

Committed Equity Facility

On March 27, 2025, the Company entered into a common stock purchase agreement (the “Committed Equity Facility”) with B. Riley Principal Capital II (“B. Riley”) giving the Company the right, but not the obligation, to sell to B. Riley over a 36-month period up to the lesser of (i) $50 million of newly issued shares of our common stock and (ii) 3,904,374 shares of the Company’s common stock (see Note 8 to the accompanying unaudited consolidated financial statements). The price per share of common stock sold to B. Riley is determined by reference to the volume weighted average price of the Company’s common stock as defined within the Committed Equity Facility less a 3% discount, subject to certain limitations and conditions. The total net proceeds that the Company will receive under the Committed Equity Facility will depend on the frequency and prices at which the Company sells common stock to B. Riley. However, there can be no assurance that the Company will be able to raise sufficient proceeds under the Committed Equity Facility or any additional financing will be available to the Company on acceptable terms, if at all.

Components of Our Results of Operations

Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.

Research and Development Expenses

Research and development expenses consist primarily of external and internal costs incurred in performing clinical and preclinical development activities. Our external research and development costs primarily consists of the cost incurred under agreements with hospitals to treat and monitor patients enrolled in our clinical trials, contract research organizations (“CRO”) and contract manufacturers, consultants and other third parties to conduct and support our clinical trials and preclinical studies. Our internal research and development costs primarily include research and development personnel-related expenses such as employee compensation, employer taxes, group insurance benefits, and stock-based compensation.

We expense research and development costs as incurred. We currently only have one product candidate, elraglusib. Therefore, since our inception, substantially all of our research and development costs were related to the development of elraglusib. We track research and development expenses on an aggregate basis and not on an indication-by-indication or treatment setting-by-treatment setting basis.

Although research and development activities are central to our business model, the successful development of elraglusib and any future product candidates is highly uncertain. There are numerous factors associated with the successful development of any product candidate such as elraglusib, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased number of patients and duration of later-stage clinical trials. As a result, we expect our research and development expenses will increase substantially in connection with our ongoing and planned clinical and preclinical development activities in the near term and in the future, provided we are able to raise additional capital. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of elraglusib and any future product candidates. Our future research and development expenses may vary significantly based on a wide variety of factors such as:

• the results of our clinical trials and preclinical studies of elraglusib and any future product candidates we may choose to pursue, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities;
• per patient trial costs;
• the number of trials required for approval;
• the number of sites included in the trials and the number of countries in which the trials are conducted;
• the number of patients that participate in the trials, the drop-out or discontinuation rates of patients, and the length of time required to enroll eligible patients;
• the number of doses that patients receive;
• the potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
• the cost and timing of manufacturing elraglusib and any future product candidates;
• the costs, if any, of obtaining third-party drugs for use in our combination trials;
• the extent of changes in government regulation and regulatory guidance;
• the efficacy and safety profile of elraglusib and any future product candidates;
• the timing, receipt, and terms of any approvals from applicable regulatory authorities; and
• the extent to which we establish additional collaboration, license, or other arrangements.

A change in the outcome of any of these variables with respect to the development of elraglusib or any future product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related expenses such as employee compensation, benefits, and stock-based compensation, for our personnel in executive and other administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters and professional fees paid for accounting, auditing, consulting and tax services, as well as other costs such as insurance costs, board of director fees, investor and public relations, and travel expenses.

We anticipate our general and administrative expenses will increase in the future as we expand our operations, including increasing our headcount to support our continued research and development activities and preparing for later-stage clinical trials and potential commercialization of elraglusib. We also anticipate we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance, and investor and public relations expenses associated with operating as a public company.

Other Income (Expense)

Change in Fair Value of Warrant Liability

The Company previously had outstanding warrants that required liability classification. The warrants were recorded at fair value upon issuance and were subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in other income (expense), net. The warrant liabilities were remeasured upon the closing of the Company’s initial public offering (“IPO”) and marked to market to its fair value before being reclassified to equity.

Loss on Issuance of Related Party Convertible Notes Payable; Change in Estimated Fair Value of Related Party Convertible Notes Payable

Upon issuance of certain notes payable, we elected to apply the fair value option in accordance with Accounting Standards Codification (“ASC”) 825, Financial Instruments. In certain circumstances, the estimated fair value at issuance may be greater than the principal amount at issuance. The fair value of these notes payable was estimated at each reporting period while outstanding. These notes payable were converted into common stock upon the closing of the IPO in August 2024.

Interest Expense

Interest expense represents interest owed to UIC under our license agreement with UIC, whereby UIC agreed to defer amounts owed to UIC under a former sublicense agreement in the amount of $404,991.

Interest Income

Interest income represents interest earned on our cash and cash equivalents at the then prevailing market rates.

Results of Operations

Comparison of the Three Months Ended March 31, 2025 and 2024:

The following table summarizes our results of operations for the three months ended March 31, 2025 and 2024:

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended March 31, 2025 and 2024:

The decrease in research and development expenses of $3,640,111 for the three months ended March 31, 2025 compared to the same prior year period was primarily due to (i) a decrease in external clinical trial expenses of $3,263,791 mostly related to lower patient fees and CRO costs associated with fewer patients on study during the current period related to the randomized Phase 2 mPDAC trial (Actuate-1801 Part 3B), (ii) a decrease in preclinical and biomarker studies in the current period of $212,387 due to fewer contracted studies in the current period, and (iii) a decrease of $151,652 in Chemistry Manufacturing & Control (“CMC”) related costs primarily due to the timing of drug product manufacturing to support ongoing and planned clinical trials.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2025 and 2024:

The increase in general and administrative expenses of $2,232,441 for the three months ended March 31, 2025 compared to the same prior year period was primarily due to (i) an increase in personnel-related expenses of $1,227,031 mostly due to an increase in non-cash stock-based compensation expense of $920,917 related to awards granted to employees, non-employee members of the board of directors, and consultants of the Company combined with an increase in payroll and related expenses of $306,114 primarily related to the hiring of the Company’s chief financial officer in June 2024, a current period increase in base salaries for certain administrative employees and an increase in bonus expense, (ii) an increase in other expenses of $583,438 primarily due to an increase in the cost of directors and officer insurance, board fees, investor relation fees, and other public company expenses, and (iii) an increase in professional and consulting fees of $421,972 primarily related to increased general corporate legal fees associated with operating as a public company during the current quarter combined with an increase in consulting fees associated with finance and accounting support.

Other Income (Expense)

Other income (expense), net, for the three months ended March 31, 2025 and 2024 is comprised of the following:

• Change in fair value of warrant liability — During the three months ended March 31, 2024, we recognized an increase in fair value of the warrant liability of $32,515 based on the estimated fair value of warrant liability using the Black-Scholes valuation model at March 31, 2024, which amount is included in other income (expense) in the accompanying unaudited condensed consolidated financial statements. As of December 31, 2024, there were no Redeemable Convertible Preferred Stock Warrants outstanding and no related warrant liability.
• Loss on issuance of related party convertible notes payable at fair value — The loss on issuance of the Related Party Convertible Notes Payable of $200,000 for the three months ended March 31, 2024 represents the difference between the estimated fair value of the Related Party Convertible Notes Payable on the issuance date and the principal amount on the issuance date based on the valuation assumptions.
• Change in estimated fair value of Related Party Convertible Notes Payable — The change in the estimated fair value of the Related Party Convertible Notes Payable of $300,000 for the three months ended March 31, 2024 represents the difference between the estimated fair value at issuance and the estimated fair value at March 31, 2024.
• Interest expense — Interest expense for the three months ended March 31, 2025 and 2024 represents interest accrued on amounts owed under a license agreement with UIC, whereby UIC agreed to defer amounts payable to UIC under a former sublicense agreement in the amount of $404,991 in exchange for an interest-bearing license payable.
• Interest income — Interest income for the three months ended March 31, 2025 and 2024 represents interest earned on cash and cash equivalents based on the prevailing market rates. The increase in interest income for the three months ended March 31, 2025 compared to the same prior year period is primarily due to a higher average cash balance on hand compared to the same prior year period.

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Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from operations. We expect to incur significant expenses and operating losses in the foreseeable future as we advance the clinical development of elraglusib and any future product candidates. As of March 31, 2025, we had cash and cash equivalents of $3,889,405.

Future Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue our development of, seek regulatory approval for, and potentially commercialize elraglusib and potentially seek to discover and develop and/or license or acquire additional product candidates, conduct our ongoing and planned clinical trials and preclinical studies, continue our research and development activities, utilize third parties to manufacture elraglusib, hire additional personnel, expand and protect our intellectual property, and incur additional costs associated with being a public company.

Cash used to fund our operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding prepaid expenses, accounts payable, and other accrued expenses. The timing and amount of our funding requirements will depend on many factors, including:

• the costs and timing of, including invoicing for, clinical trials and preclinical studies of elraglusib and any future product candidates we may choose to pursue, including the costs of modification to clinical development plans based on feedback that we may receive from regulatory authorities and any third-party products used as combination agents in our clinical trials;
• the costs, timing and outcome of regulatory meetings and reviews of elraglusib or any future product candidates, including requirements of regulatory authorities in any additional jurisdictions in which we may seek approval for elraglusib and any future product candidates;
• the costs of obtaining, maintaining, enforcing and protecting our patents and other intellectual property and proprietary rights;
• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal control over financial reporting;
• the costs associated with hiring additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, CMC, quality and commercial personnel;
• the timing and payment of milestone, royalty or other payments we must make pursuant to our existing and potential future license or collaboration agreements with third parties;
• the costs and timing of establishing or securing sales and marketing capabilities if elraglusib or any future product candidate is approved;
• our ability to achieve sufficient market acceptance, coverage, and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
• our ability and strategic decision to develop future product candidates other than elraglusib, and the timing of such development, if any;
• the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; and
• costs associated with any products or technologies that we may in-license or acquire.

Based on our current operating plan, we estimate that our existing cash and cash equivalents as of the date of this Quarterly Report will not satisfy the Company’s operational and capital requirements beyond the second quarter of fiscal year 2025.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through equity offerings, debt financings, or other capital sources, including current or potential future collaborations, licenses, and other similar arrangements. As we seek additional financing in the near future, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent we raise additional capital through the sale of equity or convertible debt securities, stockholders’ ownership interest in our common stock will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions, engaging in acquisition, merger or collaboration transactions, selling or licensing our assets, making capital expenditures, redeeming our stock, making certain investments or declaring dividends. If we raise additional funds through collaborations or license agreements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity, debt, or other financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves, or even cease operations.

On March 27, 2025, we entered into a Committed Equity Facility with B. Riley giving us the right, but not the obligation, to sell to B. Riley over a 36-month period up to the lesser of (i) $50 million of newly issued shares of our common stock and (ii) 3,904,374 shares of the Company’s common stock (see Note 7 to the accompanying unaudited condensed consolidated financial statements). The price per share of common stock sold to B. Riley is determined by reference to the volume weighted average price of the Company’s common stock as defined within the Committed Equity Facility less a 3% discount, subject to certain limitations and conditions. The total net proceeds that we will receive under the Committed Equity Facility will depend on the frequency and prices at which the Company sells common stock to B. Riley. However, there can be no assurance that we will be able to raise sufficient proceeds under the Committed Equity Facility or any additional financing will be available to us on acceptable terms, if at all. In addition, our ability to raise additional capital may be adversely impacted by global economic conditions, disruptions to, and volatility in, the financial markets in the United States and worldwide. 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, which could have a material adverse effect on the Company’s business, results of operations or financial condition.

Material Cash Requirements for Known Contractual and Other Obligations

Research and Development Costs

We are continuing to invest in our elraglusib clinical trials and have entered into contractual obligations with each clinical trial site. Each contract shall continue until the completion of the trial at that site. Our clinical trial costs are dependent on, among other things, the size, number and length of our clinical trials.

Other Capital Requirements and Additional Royalty Obligations.

We enter into agreements in the normal course of business with various vendors, which are generally cancellable upon notice. Payments due upon cancellation typically consist only of payments for services provided or expenses incurred, including non-cancellable obligations of service providers, up to the date of cancellation.

Cash Flow Summary

The following table provides a summary of our cash flows for the three months ended March 31, 2025 and 2024:

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Cash Flows From Operating Activities

Three Months Ended March 31, 2025 — Net cash used in operating activities for the three months ended March 31, 2025 consisted of our net loss of $6,317,024, which amount was offset by (i) non-cash stock-based compensation expense of $1,125,101, (ii) an increase in accrued interest on license payable of $5,063, and (iii) cash provided by a net change in operating assets and liabilities of $568,120.

Three Months Ended March 31, 2024 — Net cash used in operating activities for the three months ended March 31, 2024 consisted of our net loss of $8,296,059, which amount was offset by (i) non-cash stock-based compensation expense of $148,206, (ii) a non-cash increase in the fair value of our warrant liability of $32,515, (iii) a loss on issuance of related party convertible notes payable at fair value of $200,000, (iv) the change in estimated fair value of related party convertible notes payable of $300,000 at March 31, 2024, (v) an increase in accrued interest on license payable of $5,076, and (vi) cash provided by a net change in operating assets and liabilities of $2,362,680.

Cash Flows From Financing Activities

Three Months Ended March 31, 2025 — During the three months ended March 31, 2025, net cash used in financing activities consisted of deferred offering costs paid during the current period related to the Company’s Committed Equity Facility entered into on March 27, 2025.

Three Months Ended March 31, 2024 — During the three months ended March 31, 2024, net cash provided by financing activities consisted of net proceeds received from the issuance of the Related Party Convertible Notes Payable of $4,500,000, which amount was offset by deferred offering costs paid during the period in the amount of $142,770 associated with this offering. The deferred offering costs were offset against the proceeds upon the consummation of this offering.

Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to the accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report, we believe the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Research and Development Expenses and Related Accrued Expenses

In accordance with authoritative guidance, the Company charges research and development costs to operations as incurred. Research and development expenses consist primarily of personnel and related costs, external costs of outside vendors engaged in clinical trial activities, contract manufacturers, consultants and other third parties to conduct and support our clinical trials and preclinical studies.

As part of the process of preparing our consolidated financial statements, we are required to estimate our research and development 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 research and development expenses as of each balance sheet date based on facts and circumstances known to us at that time. The significant estimates in our research and development 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 research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with contractors and vendors that conduct research and development 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 research and development 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

Stock-Based Compensation

We periodically grant equity-based payment awards in the form of restricted common stock awards (“RSAs”), restricted stock units (“RSUs”), and stock options to employees, directors, consultants and non-employees and record stock-based compensation expense for awards of stock-based payments based on their estimated fair value at the grant date.

The estimated fair value of service-based RSAs and RSAs are measured at the grant date based on the estimated fair market value of the Company’s common stock on the date of grant and is recognized as expense over the requisite service period, which is generally the awards’ vesting period. The estimated fair value of performance-based RSAs is measured at the grant date based on the estimated fair value of shares expected to be earned at the end of the performance period and is recognized as expense ratably over the performance period based upon the probable number of shares expected to vest.

We account for the grant of stock options based on the estimated fair value of the underlying option using the Black-Scholes valuation model on the date of grant and recognized as expense in the consolidated statement of operations on a straight-line basis over the requisite service period, which is the vesting period. The Black-Scholes valuation model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return and the estimated fair value of the underlying common stock on the date of grant. Prior to the IPO, we regularly engaged a third-party valuation specialist to assist with estimates related to the valuation of the Company’s common stock. Post IPO, the fair value of our common stock is determined based on the closing price of our common stock as reported on the date of grant on the primary stock exchange on which our common stock is traded.

We classify stock-based compensation expense in the unaudited condensed consolidated statements of operations in the same manner in which the award recipients’ payroll costs are classified or in which the award recipients’ service payments are classified. We recognize forfeitures related to stock-based compensation awards as they occur. We expect to continue to grant equity-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recent Accounting Pronouncements

A description of recently issued accounting standards that may potentially impact our financial position, results of operations, and cash flows is included in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the SEC on March 13, 2025, and in Note 2 to our unaudited condensed consolidated financial statements for the three months ended March 31, 2025, included elsewhere in this Quarterly Report.

Emerging Growth Company Status and Smaller Reporting Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act permits an emerging growth company such as ours to take advantage of an extended transition period to comply with new or revised accounting standards. We have elected to avail ourselves of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (i) irrevocably elect to opt out of such extended transition period or (ii) no longer qualify as an emerging growth company. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. We will continue to remain an emerging growth company until the earliest of the following: (1) the last day of the fiscal year following the fifth anniversary of the date of the completion of the IPO; (2) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1.235 billion; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

We are also a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

As a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this item.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, as of March 31, 2025, the end of the period to which this quarterly report relates, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including the President and Chief Executive Officer and the Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2025, our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you decide to invest in our common stock, you should carefully consider all the information within this Quarterly Report, including the information contained in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our condensed consolidated financial statements and the related notes contained in Part I, Item 1 within this Quarterly Report. In addition, you should carefully consider the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 13, 2025 (“Annual Report”), as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, results of operations, financial condition, liquidity, and prospects could be materially and adversely affected. In that case, the trading price of our common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, results of operations, financial condition, and prospects.

Other than set forth below, there have been no material changes to our risk factors disclosed in Part I, Item 1A, of our Annual Report.

Risks Related to Our Financial Condition and Capital Requirements

Our financial condition raises substantial doubt as to our ability to continue as a going concern.

As of March 31, 2025, we had $3,889,405 in cash and cash equivalents and working capital deficit of $4,905,390. Based on our current operating plan, we estimate that our existing cash and cash equivalents as of the date of this Report will not satisfy the Company’s operational and capital requirements beyond the second quarter of fiscal year 2025.

We have incurred and expect to continue to incur significant costs in the development of our sole drug candidate, elraglusib. Our unaudited condensed consolidated financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business; however, our current liabilities exceed our assets as of March 31, 2025. To date, we have not generated product revenues from our activities and have incurred substantial operating losses. We expect that we will continue to generate substantial operating losses for the foreseeable future, if and until, we are able complete development and potentially receive approval of our product candidate. We expect to continue to fund our operations primarily through utilization of our current financial resources and we will require additional funding of capital in the near term.

These conditions raise substantial doubt about our ability to continue as a going concern. Additionally, our independent registered public accounting firm included in its audit opinion for the year ended December 31, 2024 an explanatory paragraph that there is substantial doubt as to our ability to continue as a going concern. We plan to address these conditions by raising funds from public or private offerings of equity or debt securities and other funding sources, which may include our Committed Equity Facility. However, there can be no assurance that such funding will be available to us, or will be obtained on terms favorable to us or will provide us with sufficient funds to meet our objectives. If we are unable to raise capital in the near term or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts, or even curtail or cease operations.

In addition, the reaction of investors to the inclusion of a going concern statement by our auditors and our potential inability to continue as a going concern may materially adversely affect our ability to raise new capital or enter into partnerships. The perception that we may not be able to continue as a going concern may also make it more difficult to operate our business due to concerns about our ability to meet our contractual obligations. If we become unable to continue as a going concern, we may have to liquidate our assets and the value we receive for our assets in liquidation or dissolution could be significantly lower than the value reflected in our unaudited condensed consolidated financial statements, and it is likely that investors will lose all or a part of their investment.

We will require substantial additional capital to finance our operations in the near term, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our development programs, commercialization efforts or curtail or cease operations.

The development of biopharmaceutical product candidates, including conducting preclinical studies and clinical trials, is a very time-consuming, capital-intensive and uncertain process. Our operations have consumed substantial amounts of cash since inception. We expect our expenses to substantially increase in connection with our ongoing activities, particularly as we conduct our ongoing and planned clinical trials of elraglusib and potentially seek regulatory approval for elraglusib and any future product candidates we may develop. In addition, if we are able to progress elraglusib through development and commercialization, which we may never do, we expect to be required to make milestone and royalty payments pursuant to various license or collaboration agreements with third parties. If we obtain regulatory approval for elraglusib or any future product candidates, which may never occur, we also expect to incur significant commercialization expenses related to product manufacturing, marketing, sales, and distribution. Because the outcome of any clinical trial or preclinical study is highly uncertain, we cannot reliably estimate the actual amount of capital necessary to successfully complete the development and commercialization of elraglusib or any future product candidates. Furthermore, we incur additional costs associated with operating as a public company.

Based on our current operating plan, we believe that our existing cash and cash equivalents will not be sufficient to fund our operations beyond the second quarter of fiscal year 2025.

Our estimates and assumptions regarding our operating costs may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our operating plans and other demands on our cash resources may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned.

Our existing capital will not be sufficient to complete development of elraglusib in any form, or any future product candidates, and we require substantial capital in order to advance elraglusib and any future product candidates through clinical trials, regulatory approval and commercialization. Accordingly, we will need to obtain substantial additional funding in the near term, and expect that such funding requirements will be in addition to any proceeds resulting from the sale of shares under the Committed Equity Facility, in connection with our continuing operations. Our ability to raise additional funds may be adversely impacted by global economic conditions, disruptions to, and volatility in, the credit and financial markets in the United States and worldwide, and diminished liquidity and credit availability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. We expect to finance our cash needs through public or private equity or debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Attempting to secure additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop elraglusib or any future product candidates.

Our future capital requirements will depend on many factors, including without limitation:

• the initiation, type, number, scope, progress, expansions, results, costs and timing of, and invoicing for, clinical trials and preclinical studies of elraglusib and any future product candidates we may choose to pursue, including the costs of modification to clinical development plans (including an increase in the number, size, duration and/or complexity of a trial) based on feedback that we may receive from regulatory authorities and any third-party products used as combination agents in our clinical trials;
• the costs and timing of manufacturing for elraglusib or any future product candidate, including commercial manufacturing at sufficient scale and encountering higher than expected costs to manufacture our current and future active pharmaceutical ingredients, if any product candidate is approved, including as a result of inflation, any supply chain issues or component shortages;

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• slower than expected progress in developing elraglusib or a future product candidate, including without limitation, additional costs caused by such program delays;
• the costs, timing and outcome of regulatory meetings and reviews of elraglusib and developing certain formulations of elraglusib or any future product candidates in any jurisdictions in which we or our current or any future collaborators may seek approval for elraglusib or any future product candidates;
• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal control over financial reporting;
• the timing and payment of milestone, royalty or other payments we must make pursuant to our existing and potential future license or collaboration agreements with third parties;
• the costs and timing of establishing or securing sales and marketing capabilities and commercial compliance programs if elraglusib or any future product candidate is approved;
• higher than expected personnel, consulting or other costs, such as adding personnel or industry expert consultants or pursuing the licensing/acquisition of additional assets;
• higher than expected costs to obtain, maintain, enforce and protect our patents and other intellectual property and proprietary rights;
• our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
• our ability and strategic decision to develop future product candidates other than elraglusib, and the timing of such development, if any;
• patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;
• the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; and
• our ability to raise sufficient funds when, and if, required.

Conducting clinical trials and preclinical studies and potentially identifying future product candidates is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and commercialize elraglusib or any future product candidates. If approved, elraglusib and any future product candidates may not achieve commercial success. We expect that our commercial revenue, if any, will initially be derived from sales of elraglusib, which we do not expect to be commercially available for several years, if at all. Commercial success in the United States may depend upon acceptance and coverage by federal healthcare program and third-party payors, and it can be time consuming and costly to demonstrate that any of our products should be covered.

Accordingly, in the near term, we intend to seek and will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all, including as a result of financial and credit market deterioration or instability, market-wide liquidity shortages, geopolitical events or otherwise. If we are unable to raise capital in the near term or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts, or even curtail or cease operations. Even if we secure necessary financing in the near term, we expect to continue to require substantial funding as the timing for and ability to generate sufficient funds from operations will remain uncertain until such time as we are able to progress elraglusib through development and potential commercialization.

Risks Related to Our Reliance on Third Parties

Unfavorable tariffs could increase the cost of drug substance of elraglusib used in clinical trials and potential commercialization, if approved, which could adversely affect our business, financial condition or results of operations.

We rely upon a single company located in China to manufacture the drug substance (“DS”) for our sole product candidate, elraglusib. The U.S. government has made statements and taken certain actions that may lead to changes in U.S. and international trade policies towards China and other countries. It remains unclear what additional actions, if any, will be taken by the U.S. or other governments with respect to international trade agreements, the imposition of tariffs on our dug substance imported into the United States, tax policy related to international commerce, or other trade matters. We are monitoring changes and developments in international trade policy and assessing the potential impact of these and other trade policy changes on our business operations.

If any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular, if the U.S. government, or other governments take retaliatory trade actions due to the recent trade tensions, including U.S.-China trade tensions, such changes could have an adverse effect on our financial condition and results of operations.

Risks Related to the Committed Equity Facility

It is not possible to predict the actual number of shares we will sell under the Committed Equity Facility to B. or the actual gross proceeds resulting from those sales.

On March 27, 2025, we entered into the Committed Equity Facility with B. Riley, pursuant to which B. Riley has committed to purchase up to $50,000,000 of shares of our common stock, subject to certain limitations and conditions set forth in the Committed Equity Facility. The shares of our common stock that may be issued under the Committed Equity Facility may be sold by us to B. Riley at our discretion from time to time for a period of up to 36 months (unless the Committed Equity Facility is earlier terminated) beginning on the Commencement Date.

We have the right to control the timing and amount of any sales of our shares of common stock to B. Riley under the Committed Equity Facility. Sales of our common stock to B. Riley under the Committed Equity Facility will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to B. Riley all, some or none of the shares of our common stock that may be available for us to sell to B. Riley pursuant to the Committed Equity Facility.

Because the per share purchase price that B. Riley will pay for shares that we may elect to sell pursuant to the Committed Equity Facility will be determined by reference to the daily volume weighted average price, as defined (“VWAP”) on the applicable purchase date, it is not possible for us to predict the number of shares of common stock that we will sell to B. Riley under the Committed Equity Facility, the purchase price per share that B. Riley will pay for shares purchased from us under the Committed Equity Facility, or the aggregate gross proceeds that we will receive from those purchases by B. Riley under the Committed Equity Facility.

Although the Committed Equity Facility provides that we may sell up to an aggregate of $50,000,000 of our common stock to B. Riley, only 3,904,374 shares of our common stock were registered under the Securities Act for resale by B. Riley under the registration statement on Form S-1. If it becomes necessary for us to issue and sell to B. Riley under the Committed Equity Facility more than the 3,904,374 shares in order to receive aggregate gross proceeds equal to $50,000,000 under the Committed Equity Facility, we must first (i) obtain stockholder approval to issue shares of common stock in excess of the 3,904,374, if applicable, in accordance with applicable Nasdaq rules and (ii) file with the SEC one or more additional registration statements to register under the Securities Act the resale by B. Riley any such additional shares of our common stock we wish to sell from time to time under the Committed Equity Facility, which the SEC must declare effective, in each case before we may elect to sell any additional shares of our common stock to B. Riley under the Committed Equity Facility. Any issuance and sale by us under the Committed Equity Facility of a substantial number of shares of common stock in addition to the 3,904,374 shares of common stock registered for resale by B. Riley could cause additional substantial additional dilution to our stockholders. The number of shares of common stock ultimately offered for resale by B. Riley is dependent upon the number of shares of common stock we elect to sell to B. Riley under the Committed Equity Facility.

Investors who buy shares at different times will likely pay different prices.

Pursuant to the Committed Equity Facility, we will have discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold to B. Riley. If and when we do elect to sell shares of our common stock to B. Riley pursuant to the Committed Equity Facility, after B. Riley has acquired such shares, B. Riley may resell all, some or none of such shares at any time or from time to time in its discretion and at different prices. As a result, investors who purchase shares from B. Riley will likely pay different prices for those shares, and so may experience different levels of dilution, and in some cases substantial dilution, and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase from B. Riley as a result of future sales made by us to B. Riley at prices lower than the prices such investors paid for their shares previously. In addition, if we sell a substantial number of shares to B. Riley under the Committed Equity Facility, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with B. Riley may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales.

Our management team will have broad discretion over the use of the net proceeds from our sale of shares of common stock to B. Riley and you may not agree with how we use the proceeds and the proceeds may not be invested successfully.

Our management team will have broad discretion as to the use of the net proceeds from our sale of shares of common stock to B. Riley under the Committed Equity Facility and we could use such proceeds for purposes other than those initially contemplated. Accordingly, you will be relying on the judgment of our management team with regard to the use of those net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that, pending their use, we may invest those net proceeds in a way that does not yield a favorable, or any, return for us. The failure of our management team to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flows.

Sales of a substantial number of our securities in the public market by our existing stockholders could cause the price of our shares of common stock to fall.

B. Riley can resell up to 3,904,374 shares of common stock that we may, in our sole discretion, elect to sell to B. Riley from time to time during the term of the Committed Equity Facility. If all of the 3,904,374 shares offered for resale by B. Riley were issued and outstanding as of March 31, 2025, such shares would represent approximately 16.7% of the total number of outstanding shares of common stock as of March 31, 2025. Sales of a substantial number of our shares of common stock in the public market by B. Riley and/or by our other existing stockholders, or the perception that those sales might occur, could depress the market price of our shares of common stock and could impair our ability to raise capital through the sale of additional equity securities.