ACTUATE THERAPEUTICS, INC. (ACTU)

Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.

The following discussion and
analysis of the financial condition and results of our operations should be read together with the consolidated financial statements and
related notes of Actuate Therapeutics, Inc. included in Part II Item 8 of this Annual Report on Form 10-K (“Report”).

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. Subject to additional funding, several Phase 2 studies have been identified for further clinical development of Elraglusib
Oral Tablet based on data from the Actuate-1801 study in indications, including but not limited to, refractory, metastatic melanoma and
refractory, metastatic colorectal cancer.

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. As of December 31, 2024, we had an accumulated deficit of $132,379,849. Substantially all of
our net losses have resulted from costs incurred in connection with our research and development programs and, to a lesser extent, 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 December 31, 2024, we had
cash and cash equivalents of $8,641,622. 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 through twelve months from the
issuance date of the consolidated financial statements included in this Report.

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 will 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

IPO

On August 14, 2024, the Company
completed the closing of its IPO of 2,800,000 shares of common stock at an initial offering price to the public of $8.00 per share, before
the underwriters discount of $0.56 per share. Additionally, the underwriters exercised their 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 IPO and
Overallotment Option, we issued the underwriters warrants (“Underwriter Warrants”) to purchase up to 161,000 shares of common
stock, representing 5% of the shares of common stock issued under the IPO and Overallotment Option, at an exercise price of $10.00 per
share, representing 125% of the initial offering price. The Underwriter Warrants are not exercisable prior to February 8, 2025 (or 180-days
from the effective date of the registration statement), and expire on August 12, 2027. The Underwriter Warrants can only be exercised
on a cash basis through November 11, 2025 and only on a cashless basis on November 12, 2025 and thereafter.

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

Authorized 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.

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 consolidated financial statements, on a retrospective basis, to reflect the reverse stock
split for all periods presented.

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 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:

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,
investor and public relations, and travel expenses.

We anticipate our general and
administrative expenses will increase substantially 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

On June 30, 2023, in connection
with the issuance of the Series C Redeemable Convertible Preferred Stock, we issued the placement agent warrants to purchase up to 18,223
shares of Series C Redeemable Convertible Preferred Stock (after giving effect to the conversion of such shares into common stock) at
an exercise price equivalent to $9.42 per share of common stock. The initial estimated fair value of these 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.

In 2018, in connection with convertible
promissory note payable agreements, we issued the noteholders warrants to purchase shares of Series B-1 Redeemable Convertible Preferred
Stock, of which, warrants to purchase up to 76,376 shares of Series B Redeemable Convertible Preferred Stock (after giving effect to the
conversion of such shares into common stock) were issued at an exercise price equivalent to $5.27 per share of common stock and warrants
to purchase up to 76,376 shares of Series B Redeemable Convertible Preferred Stock (after giving effect to the conversion of such shares
into common stock) were issued at an exercise price equivalent to $10.55 per share of common stock.

The Redeemable Convertible Preferred
Stock Warrants required liability classification as the underlying Redeemable Convertible Preferred Stock was considered contingently
redeemable and could have obligated us to transfer assets to the holders at a future date upon occurrence of a deemed liquidation event.
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. We adjusted the warrant liability for changes in 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. Accordingly, the Redeemable Convertible Preferred Stock Warrants were remeasured upon the closing
of the 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

On February 20, 2024, March 27,
2024, and May 8, 2024, the Company issued related party convertible notes in the amount of $3,000,000, $1,500,000, and $1,000,000 (collectively,
“Related Party Convertible Notes Payable”), respectively. The Related Party Convertible Notes Payable were measured at fair
value on their issuance date 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). Upon issuance of the Related Party Convertible Notes Payable, we elected to apply the fair value
option to the Related Party Convertible Notes Payable 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 loss on issuance of the Related Party Convertible Notes Payable represented the difference between the estimated fair value of the
Related Party Convertible Notes Payable on the issuance date and the gross proceeds received on the issuance date based on the valuation
assumptions, including but not limited to, the proximity in time to the IPO, the discount on conversion of the Related Party Convertible
Notes Payable upon a financing or IPO, and the increased probability weighted IPO scenario on the issuance date.

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 included
but were 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.

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 Year Ended December 31, 2024 and 2023:

The following table summarizes our results of operations
for the year ended December 31, 2024 and 2023:

Research and Development Expenses

The following table summarizes our research and development
expenses for the year ended December 31, 2024 and 2023:

The decrease in research and development
expenses of $3,032,056 for the year ended December 31, 2024 compared to the prior year was primarily due to (i) a decrease in preclinical
and biomarker studies in the current period of $1,402,916 due to few contracted studies in the current year, (ii) a decrease in external
clinical trial expenses of $573,612 mostly related to lower contract research organizations (“CRO”) costs in the current year
related to the randomized Phase 2 mPDAC trial (Actuate-1801 Part 3B) associated with fewer patients on study, (iii) a decrease of $539,148
in Chemistry Manufacturing & Control (“CMC”) related costs due to a decrease in manufacturing costs of elraglusib in the
current period due to the timing of drug substance manufacturing to support the randomized Phase 2 mPDAC trial (Actuate-1801 Part 3B),
and (iv) a decrease in personnel and consulting expenses of $516,380 primarily due to a decrease in consulting fees in the current period
as certain consultants transitioned to full-time employment at an overall lower cost to the Company.

General and Administrative Expenses

The following
table summarizes our general and administrative expenses for the year ended December 31, 2024 and 2023:

The increase in general and administrative
expenses of $3,218,961 for the year ended December 31, 2024 compared to the prior year was primarily due to (i) an increase in personnel-related
expenses of $1,943,643 primarily due to an increase in non-cash stock-based compensation expense of approximately $1.6 million related
to awards granted to the president and chief executive officer, the chief financial officer, members of the board of directors in connection
with the IPO, and other administrative award grants combined with an increase in payroll and bonus expense of approximately $0.3 million
mostly related to the hiring of the Company’s chief financial officer in connection with the IPO (ii) an increase in professional
and consulting fees of $774,006 primarily related to an increase in search firm related fees to identify and add three new board members
to the Company’s Board of Directors to comply with Nasdaq listing requirements, an increase in valuation services to support the
estimated fair market value of the Company’s common stock and other financial instruments, including the fair value of the Related
Party Convertible Notes Payable, an increase in legal fees related to additional corporate matters and intellectual property costs, and
an increase in audit and audit related fees associated with the annual and quarterly review of the Company’s financial statements,
and (iii) an increase in other expenses of $501,312 primarily due to an increase in the cost of directors and officer insurance during
the current period, combined with an increase in board fees, investor relations fees, and other public company expenses.

Other Income (Expense)

Other income (expense), net, for
the year ended December 31, 2024 and 2023 is comprised of the following:

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 December 31, 2024, we had cash and cash equivalents of $8,641,622.

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:

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 through twelve months from the issuance date of the consolidated financial statements included in this Report.

We have no other committed sources
of capital. 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.

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 year ended December 31, 2024 and 2023:

Cash Flows From Operating Activities

Year Ended December 31, 2024 — Net
cash used in operating activities for the year ended December 31, 2024 consisted of our net loss of $27,285,328 combined with the non-cash
gain on settlement of the warrant liability of $343,240, which amounts were offset by (i) non-cash stock-based compensation expense of
$1,995,793, (ii) a non-cash increase in the fair value of our warrant liability of $78,903, (iii) a loss on issuance of Related Party
Convertible Notes Payable at fair value of $400,000, (iv) the change in estimated fair value of Related Party Convertible Notes Payable
of $2,192,507, (v) an increase in accrued interest on license payable of $18,641, and (vi) cash provided by a net change in operating
assets and liabilities of $1,100,076.

Year Ended December 31,
2023 — Net cash used in operating activities for the year ended December 31, 2023 consisted of our net loss
of $24,744,620, which amount was offset by (i) non-cash stock-based compensation expense of $423,539, (ii) a non-cash increase
in the fair value of our warrant liability of $79,822, (iii) an increase in accrued interest on license payable of $43,641, and (iv) cash
provided by a net change in operating assets and liabilities of $2,572,451.

Cash Flows From Financing Activities

Year Ended December 31, 2024 — During
the year ended December 31, 2024, net cash provided by financing activities primarily consisted of net proceeds received from the closing
of the IPO and Overallotment Option of $22,025,611 (net of underwriting discounts and commissions and after payment of offering costs
of $1,931,189), proceeds of $5,500,000 from the issuance of the Related Party Convertible Notes Payable, which amount was offset .

Year Ended December 31, 2023 — During
the year ended December 31, 2023, net cash provided by financing activities consisted of net proceeds of $4,134,516 related to the issuance
of Series C Redeemable Convertible Preferred Stock.

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 consolidated financial statements included elsewhere in this 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 clinical trials, 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

In April 2015 and August 2024,
the Company’s Board of Directors (“Board”) adopted the 2015 Stock Incentive Plan (“2015 Plan”) and the 2024
Stock Incentive Plan (“2024 Plan”), respectively.

The Company periodically grants
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 records stock-based compensation expenses 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.

The Company accounts 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 are 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, the Company 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.

The Company classifies stock-based
compensation expense in the 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.

The Company recognizes forfeitures
related to stock-based compensation awards as they occur.

Determination of Fair Value of Our Common Stock

Prior to the closing of the Company’s
IPO, there was no public market for our common stock. Therefore, the estimated fair value of our common stock prior to the date of the
Company’s IPO was determined by our board of directors as of the date of grant of each award, with input from management, considering
our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective
and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the
date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified
Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
Our common stock valuations were prepared using either an option pricing method (OPM) or a hybrid method, both of which used market approaches
to estimate our enterprise value. The OPM treats common stock and preferred stock as call options on the total equity value of a company,
with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes.
Under this method, the common stock has value only if the funds available for distribution to stockholders exceed the value of the preferred
stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. The hybrid method is a probability-weighted
expected return method (PWERM) where the equity value in one or more of the scenarios is calculated using an OPM. The PWERM is a scenario-based
methodology that estimates the fair value of common stock based upon an analysis of future values for us, assuming various outcomes. In
addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective
factors to determine the fair value of our common stock as of each grant date, including:

The assumptions underlying these
valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s
judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based
compensation expense could have been materially different.

There were significant judgments
and estimates inherent in the determination of the fair value of our common stock. Historically, these judgments and estimates included
assumptions regarding our future operating performance, the time to complete an IPO or other liquidity event, and the determination of
the appropriate valuation methods.

Based on our early stage of development,
the difficulty in predicting the range of specific outcomes (and their likelihood), and other relevant factors, the market approach was
considered most appropriate for valuations prior to the closing of the IPO. The recent transactions method was utilized to determine the
value of the equity and the OPM allocated the equity value to the respective share classes. In determining the estimated fair value of
our common stock, our board of directors also considered the fact that our stockholders could not freely trade our common stock in the
public markets prior to the closing of the Company’s IPO. Accordingly, we applied discounts to reflect the lack of marketability
of our common stock based on the weighted-average expected time to liquidity.

Once a public trading market for
our common stock became established in connection with the completion of the Company’s IPO, it is no longer necessary for our board
of directors to estimate the fair value of our common stock in connection with our accounting for granted equity-based awards or for any
other such awards we may grant, as 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.

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 and the Redeemable Convertible Preferred Stock Warrant Liability 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:

The Company reviews the fair value
hierarchy classification at each reporting date. Changes in the ability to observe valuation inputs may result in a reclassification of
levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities
between the levels of the fair value measurement hierarchy during the years presented.

Redeemable Convertible Preferred Stock Warrants

The Company’s Redeemable
Convertible Preferred Stock Warrants 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 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 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

The Redeemable Convertible Preferred
Stock Warrant Liability was valued using the Black-Scholes valuation model, which requires the use of highly subjective assumptions to
determine the appropriate fair value of each warrant, including:

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 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 were 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. 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 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 Convertible
Notes Payable recorded during year ended December 31, 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 December 31, 2024.

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 in this 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.