AARD US Equity☆

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report. This discussion and other parts of this Annual Report contain forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions, forecasts and projections. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth under Part I, Item 1A, “Risk Factors”, of this Annual Report and elsewhere in this Annual Report. You should carefully read Part I, Item 1A, “Risk Factors”, of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a clinical-stage biopharmaceutical company focused on developing novel, small-molecule therapeutics to activate innate homeostatic pathways for the treatment of metabolic diseases. We target biological pathways associated with alleviating hunger that we believe have the potential to deliver transformative outcomes for patients. We have focused our efforts on developing selective compounds, targeting Bitter Taste Receptors (TAS2Rs) for hunger-associated conditions. Our initial compounds target TAS2Rs expressed in the gut lumen, which normally respond to the nutrients in food and participate in the gut-brain axis. Our research has shown that activating these receptors can induce secretion of endogenous signaling molecules, including cholecystokinin (CCK) and glucagon-like peptide-1 (GLP-1). Our wholly-owned lead product candidate, ARD-101, is an oral gut-restricted small-molecule agonist of certain TAS2Rs expressed in the gut lumen for which we have initiated a Phase 3 clinical trial for hyperphagia associated with PWS. We also intend to evaluate ARD-101 in a Phase 2 clinical trial for hyperphagia associated with HO. In our completed Phase 2 clinical trial in subjects with hyperphagia associated with PWS, ARD-101 was shown to be well-tolerated and demonstrated clinical activity through a reduction in Hyperphagia Questionnaire for Clinical Trials (HQ-CT) score. We have aligned with the FDA on a protocol for a potentially pivotal Phase 3 clinical trial, which we initiated in December 2024, and we anticipate topline data will be available in early 2026. In furtherance of preparing for this potentially pivotal Phase 3 clinical trial, we have expanded our clinical management and regulatory capabilities, including hiring clinical, regulatory and quality personnel, and we expect to continue to need to expand our clinical management and regulatory capabilities and to rely on third parties to conduct our pivotal clinical trials.

Below is a summary of our portfolio of novel and proprietary small molecule programs that we believe can induce satiety in patients with hunger-associated indications.

Our Hunger Associated TAS2R Pipeline (1)(2)

Beyond our lead product candidate, ARD-101, and our ARD-201 program, we are also developing other programs for the potential treatment of indications with high unmet need, including other indications mediated by TAS2R signaling.

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Since we commenced operations in 2017, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, discovering ARD-101, establishing and maintaining our intellectual property portfolio, conducting research, preclinical studies, and clinical trials, manufacturing of ARD-101 and related raw materials, and providing general and administrative support for these operations.

We have incurred significant net losses and negative cash flows from operations since our inception and, as of December 31, 2024, we had an accumulated deficit of $58.3 million. Our net losses for the years ended December 31, 2024 and 2023 were $20.6 million and $7.2 million, respectively. We expect our expenses and operating losses will increase substantially for the foreseeable future as we:

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continue our development of, seek regulatory approval for, and potentially commercialize ARD-101 and our other product candidates;

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seek to discover and develop additional product candidates;

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conduct our ongoing and planned clinical trials and preclinical studies;

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continue our research and development activities;

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utilize third parties to manufacture ARD-101 and our other product candidates and related raw materials;

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hire additional personnel;

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maintain, expand and protect our intellectual property;

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implement operational, financial and management information systems;

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potentially experience any delays, challenges, or other issues associated with the clinical development of our product candidates, including with respect to our regulatory strategies; and

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incur additional costs associated with being a public company.

If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of and level of expense related to our clinical trials and preclinical studies and our other research and development activities and capital expenditures and the timing and amount of any milestone or royalty payments due under our existing or future license or collaboration agreements.

From inception and up to the date of our IPO in February 2025, we had raised a total of $129.1 million in gross proceeds to fund our operations from the sale and issuance of shares of our convertible preferred stock. In February 2025, we completed our IPO with the sale of 6,120,661 shares of common stock, which included the partial exercise by the underwriters of their option to purchase 232,661 additional shares, at an initial public offering price of $16.00 per share and received net proceeds of approximately $87.5 million. As of December 31, 2024, we had cash, cash equivalents and short-term investments of $73.7 million, which does not include the net proceeds from our IPO. Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term investments, together with the proceeds from our IPO, will be sufficient to fund our projected operations into 2027. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

We do not have any products approved for sale and have not generated any revenue to date. We do not expect to generate any revenue from product sales until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and may never occur. We will need substantial additional funding in addition to the net proceeds of our IPO to support our continuing operations and pursue our long-term business plan, including to complete the development and commercialization of ARD-101 and our other product candidates, if approved. Accordingly, until such time as we can generate significant revenue from sales of ARD-101 or our other product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce, or terminate our research and development programs or other operations, or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves.

We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our ARD-101 and our other product candidates for preclinical and clinical testing, as well as for commercial manufacture if ARD-101 or any of our other product candidates obtain marketing approval. We are

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working with our current manufacturers to ensure that we will be able to scale up our manufacturing capabilities to support our clinical plans. In addition, we rely on third parties to package, label, store, and distribute ARD-101, and we intend to rely on third parties for our commercial products if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the discovery and development of ARD-101 and our other product candidates.

Given our stage of development, we do not yet have a marketing or sales organization or commercial infrastructure; however, we intend to build the necessary sales, marketing and commercialization capabilities and infrastructure over time as our product candidates advance through clinical development. We expect to spend a significant amount in commercial development and marketing costs prior to obtaining regulatory and marketing approval of one or more of our product candidates.

Macroeconomic Trends

We may be affected by unfavorable economic conditions and challenges in the United States and abroad, such as the effects of the ongoing geopolitical conflicts in Ukraine, the Israel-Hamas war, tensions in U.S.-China relations, disruptions in the banking industry and inflationary trends. The fiscal years 2024 and 2023 were marked by significant market uncertainty and increasing inflationary pressures. These market dynamics are expected to continue into 2025, and these and similar adverse market conditions may negatively impact our business, financial position, results of operations and growth prospects. For further discussion of the potential impacts of macroeconomic events on us, refer to Part I, Item 1A, “Risk Factors”, of this Annual Report.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from the sale of products. We do not expect to generate any such revenue unless and until such time as ARD-101, ARD-201 and our other product candidates have advanced through clinical development and regulatory approval, if ever. If we fail to complete preclinical and clinical development of any product candidates or obtain regulatory approval for them, our ability to generate future revenues, and our results of operations and financial position would be adversely affected.

Operating Expenses

Our operating expenses consist of (i) research and development expenses, (ii) general and administrative expenses and (iii) credit losses recorded on related party convertible promissory note and accounts receivable.

Research and Development

Our research and development (R&D) expenses consist primarily of external and internal costs incurred in performing preclinical and clinical development activities. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Our research and development expenses consist principally of:

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external costs, including:

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fees paid to CROs and consultants in connection with our preclinical studies, toxicology and clinical trials;

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costs related to manufacturing materials for our preclinical studies and clinical trials;

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costs related to compliance with regulatory requirements;

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license fees; and

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internal costs, including:

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personnel-related costs such as salaries, bonuses, payroll taxes, employee benefits, travel, and stock-based compensation expense for employees involved in research and development efforts; and

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facilities-related costs, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance, equipment, and other supplies and services.

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We do not track our research and development expenses on a program-specific basis or allocate our internal costs associated with our discovery and development efforts because these costs are deployed across multiple programs and, as such, are not separately classified. Since our inception and through December 31, 2024, substantially all of our external costs have been related to the research and development of ARD-101.

Although R&D activities are central to our business model, the successful development of ARD-101 and our other product candidates is highly uncertain. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of ARD-101, ARD-201, or any future product candidates due to the inherently unpredictable nature of preclinical and clinical development. There are numerous factors associated with the successful development of a product candidate, 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 development generally have higher development costs than those in earlier stages of development. As a result, we expect that our R&D expenses will increase substantially for the foreseeable future as we continue to conduct our ongoing R&D activities, advance preclinical research programs toward clinical development, conduct clinical trials, hire additional personnel, and maintain, expand, protect, and enforce our intellectual property portfolio.

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 any of our product candidates. Our future R&D expenses may vary significantly based on a wide variety of factors such as:

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the number and scope, rate of progress, expense and results of our discovery and preclinical activities and clinical trials;

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per patient trial costs;

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the number of trials required for approval;

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the number of sites included in the trials;

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the countries in which the trials are conducted;

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the length of time required to enroll eligible patients;

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the number of patients that participate in the trials;

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the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

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the potential additional safety monitoring requested by regulatory agencies;

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the duration of patient participation in the trials and follow-up;

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the cost and timing of manufacturing our product candidates;

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the phase of development of our product candidates;

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the extent of changes in government regulation and regulatory guidance;

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the efficacy and safety profile of our product candidates;

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the timing, receipt, and terms of any approvals from applicable regulatory authorities; and

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the extent to which we establish collaboration, license, or other arrangements.

A change in the outcome of any of these variables with respect to development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.

The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for ARD-101 or any future product candidates may be affected by a variety of factors. We may never succeed in achieving regulatory approval for any of our product candidates. Preclinical and clinical development timelines, the probability of success, and total development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments, and our ongoing assessments as to each product candidates’ commercial potential. We will need to raise substantial additional capital in the

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future. In addition, we cannot forecast which product candidate may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

General and Administrative

Our general and administrative (G&A) expenses consist primarily of personnel-related costs such as salaries, bonuses, payroll taxes, employee benefits, travel, and stock-based compensation expense for employees involved in executive, accounting and finance, legal, and other administrative functions. Other significant costs include allocated facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, insurance costs, and business development expenses.

We expect that our G&A expenses will increase substantially for the foreseeable future as we continue to increase our general and administrative headcount to support our continued R&D activities and, if ARD-101 or our other product candidates receive marketing approval, commercialization activities, as well as to support our operations generally. We also expect to incur increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated with operating as a public company.

Credit Loss – Accounts Receivable and Related Party Convertible Promissory Note

In connection with a Transition Services Agreement (the Transition Services Agreement) entered into with Aardwolf Therapeutics, Inc. (Aardwolf), which was effective through May 31, 2024, we performed certain services and billed Aardwolf monthly. As Aardwolf currently does not have the ability to repay the related party receivables, these amounts are deemed uncollectible and have been written off until such time as Aardwolf has the ability to repay. In addition, in August 2022, we loaned Aardwolf $1.0 million in the form of a convertible promissory note, which, based on its current inability to repay, we also have written off as uncollectible. We will reassess the estimated recovery on previous written off balances at each reporting period.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income earned on our invested cash and cash equivalents, dividend income and changes in the fair value of equity securities held as investments.

Results of Operations

Comparison of the Year Ended December 31, 2024 and 2023

The following table summarizes our results of operations for each of the periods indicated:

Year Ended December 31,

(in thousands)

Operating expenses:

Credit loss – related party accounts receivable 117 762 (645 )

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Research and Development Expenses

The following table summarizes our R&D expenses for each of the periods indicated:

Year Ended December 31,

(in thousands)

Internal costs:

Personnel-related (including stock-based compensation expense) 4,272 1,084 3,188

R&D expenses were $17.4 million and $4.5 million for the year ended December 31, 2024 and 2023, respectively. The $12.9 million increase for the year ended December 31, 2024 as compared to the year ended December 31, 2023 resulted primarily from an increase of $9.4 million for external expenses incurred for chemistry, manufacturing and controls (CMC), clinical and toxicology studies primarily related to the development of ARD-101 and a $3.2 million increase in personnel-related costs due to increased headcount and bonuses.

General and Administrative (G&A) Expenses

G&A expenses were $5.3 million and $2.2 million for the year ended December 31, 2024 and 2023, respectively. The $3.1 million increase for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily resulted from a $0.7 million increase in personnel-related costs and a $2.0 million increase in legal and other professional costs.

Credit Loss – Related Party Accounts Receivable

Amounts written off as uncollectible related to the Transition Services Agreement with Aardwolf were $0.1 million and $0.8 million for the year ended December 31, 2024 and 2023, respectively. The $0.7 million decrease for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was due to the expiration of the Transition Services Agreement in May 2024.

Other Income, Net

Other income, net was $2.2 million and $0.2 million for the year ended December 31, 2024 and 2023, respectively. The $2.0 million increase for the year ended December 31, 2024 as compared to the year ended December 31, 2023 resulted from higher interest income generated by our invested cash and lower unrealized losses recorded on the change in the fair value of our short-term investments, offset by lower dividend income.

Liquidity and Capital Resources

Sources of Liquidity

We have not generated any revenue from product sales and have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. From inception and up to the date of our IPO in February 2025, we had raised a total of $129.1 million in gross proceeds to fund our operations from the sale and issuance of shares of our convertible preferred stock. In February 2025, we completed our IPO with the sale of 6,120,661 shares of common stock, which included the partial exercise by the underwriters of their option to purchase 232,661 additional shares, at an initial public offering price of $16.00 per share and received net proceeds of $87.5 million.

Future Funding Requirements

As of December 31, 2024, we had cash, cash equivalents and short-term investments of $73.7 million, which does not include the proceeds from our IPO in February 2025. Based upon our current operating plans, we believe that our existing cash, cash equivalents and short-term investments, together with the proceeds from our IPO, will be sufficient to fund our projected operations into 2027. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have

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based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of conducting preclinical studies, manufacturing and testing product candidates in clinical trials is costly, and the timing of progress and expenses in these studies and trials is uncertain.

We have incurred significant operating losses since our inception and, as of December 31, 2024, we had an accumulated deficit of $58.3 million. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase substantially for the reasons described above.

Our future capital requirements are difficult to predict and depend on many factors, including but not limited to:

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the initiation, type, number, scope, progress, expansions, results, costs, and timing of clinical trials and preclinical studies of our current and future product candidates, including the costs of any third-party products used as combination agents in our combination clinical trials;

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the costs and timing of manufacturing for our product candidates, including commercial manufacture at sufficient scale, if any product candidate is approved;

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the costs, timing, and outcome of regulatory meetings and reviews of our product candidates;

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the costs of obtaining, maintaining, enforcing, and protecting our patents and other intellectual property and proprietary rights;

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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;

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the costs associated with hiring additional personnel and consultants as our clinical and preclinical activities increase;

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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;

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the costs and timing of establishing or securing sales and marketing capabilities if any product candidates is approved;

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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;

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patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;

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the terms and timing of establishing and maintaining collaborations, licenses, and other similar arrangements;

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costs associated with any products or technologies that we may in-license or acquire; and

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the effects of competing technological and market developments as well as disruptions to and volatility in the credit and financial markets.

We have no other committed sources of capital. Until we can generate a sufficient amount of product revenue to finance our cash requirements, if ever, we expect to finance our future cash needs primarily through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, 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 that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could 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, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through other collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, product candidates, research programs, intellectual property or proprietary technology, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce, or terminate our R&D programs or other operations, or grant rights to develop and market our product candidates to third parties that we would otherwise prefer to develop and market ourselves, or on less favorable terms than we would otherwise choose.

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Cash Flows

The following table summarizes our cash flows for each of the periods indicated:

Year Ended December 31,

(in thousands)

Net cash used in operating activities $ (18,087 ) $ (5,824 )

Net cash used in investing activities (11,998 ) —

Net cash provided by financing activities 81,991 —

Increase (decrease) in cash and cash equivalents $ 51,906 $ (5,824 )

Operating Activities

Net cash used in operating activities was $18.1 million and $5.8 million for the years ended December 31, 2024 and 2023, respectively. The net cash used in operating activities during the year ended December 31, 2024 was primarily due to our reported net loss of $20.6 million, net of non-cash items (including unrealized losses on short-term investments, credit losses, stock-based compensation expense and right-of-use asset amortization) totaling $0.9 million and a $1.6 million net increase of our net operating assets. The net cash used in operating activities during the year ended December 31, 2023 was primarily due to our reported net loss of $7.2 million, net of non-cash charges (including non-cash dividend income, unrealized losses on short-term investments, credit losses, stock-based compensation expense, and right-of-use asset amortization) totaling $1.5 million and a $0.1 million net decrease of our net operating assets. The increase in cash used in operations during the year ended December 31, 2024 in comparison to the year ended December 31, 2023 was primarily attributable to increased research and development activities.

Investing Activities

Net cash used in investing activities was $12.0 million during the year ended December 31, 2024 primarily as a result of the purchase of short-term investments during the period.

Financing Activities

Net cash provided by financing activities was $82.0 million during the year ended December 31, 2024 primarily as a result of proceeds from the sale and issuance of shares of our Series C convertible preferred stock in May 2024 for net proceeds of $82.9 million, offset by payments for deferred IPO costs of $1.2 million.

Contractual Obligations and Other Commitments

We entered into a new lease for office space commencing on August 1, 2024 and expiring on December 31, 2026. Total future aggregate operating lease commitments under the lease agreement is $0.9 million.

In August 2023, we acquired the rights to certain intellectual property, in connection with which we have payment obligations up to an aggregate of $118.5 million that are contingent upon our achievement of specified regulatory and commercial milestones. In addition, in October 2024, we acquired the rights to certain assets in exchange for an upfront cash payment of $0.6 million, in connection with which we have payment obligations up to an aggregate of $62.0 million that are contingent upon our achievement of specified regulatory and commercial milestones. As of December 31, 2024, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales. For additional information regarding this agreement, including our payment obligations thereunder, see Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report.

During the normal course of our business, we enter into contracts for research and professional services, and for the purchase of lab supplies used in our research activities. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not separately presented.

Off-Balance Sheet Arrangements

Since our inception, we did not have, and we do not currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

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Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation expense. We base our estimates on historical experience, known trends and events, and various other factors that 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. 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 our audited consolidated financial statements included elsewhere in this Annual Report, we believe the following accounting estimates to be most critical to the preparation of our consolidated financial statements.

Accrued R&D Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued R&D expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, 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 accrued R&D expenses as of each balance sheet date based on facts and circumstances known to us at that time. The significant estimates in our accrued R&D expenses include the costs incurred for services performed by our vendors in connection with services for which we have not yet been invoiced.

We base our expenses related to R&D activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct R&D on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows.

There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the R&D expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future R&D activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Stock-Based Compensation Expense

Stock-based compensation expense represents the cost of the estimated grant date fair value of stock option awards amortized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of all stock option grants using the Black-Scholes option pricing model and recognize forfeitures as they occur.

Estimating the fair value of equity awards at the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of complex variables, including:

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Fair Value of Common Stock. See the subsection titled “—Determination of Fair Value of Our Common Stock” below.

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Risk-Free Interest Rate. We base the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

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Expected Volatility. Given that our common stock had been privately held prior to our IPO, there was no active trading market for our common stock. The expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group is developed based on companies in the biotechnology industry.

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Expected Term. The expected term represents the period of time that options are expected to be outstanding. Because we do not have significant historical exercise behavior, we determine the expected life assumption using the “simplified” method, which is an average of the contractual term of the option and its vesting period.

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Expected Dividend Yield. We use an expected dividend yield of zero, as we have never paid dividends on our common stock and have no present intention of doing so in the foreseeable future.

These inputs are subjective and generally require significant analysis and judgment to develop. Changes in these assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized.

See Notes 2 and 6 to our audited consolidated financial statements included elsewhere in this Annual Report for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options.

We recorded $0.4 million and $0.3 million of stock-based compensation expense for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, there was $2.3 million of total unrecognized stock-based compensation expense related to unvested stock options with service conditions that we expect to recognize over a remaining weighted-average period of 3.4 years.

Determination of Fair Value of Our Common Stock

Prior to our IPO, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering contemporaneous independent third-party valuations of our common stock 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 (Practice Aid), 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, including: the prices at which we sold shares of our convertible preferred stock to outside investors in arms-length transactions, and the superior rights, preferences, and privileges of the convertible preferred stock relative to the common stock at the time of each sale; the progress of our company’s R&D programs, including their stages of development, and our company’s business strategy; external market and other conditions affecting the biotechnology industry, and trends and developments within the biotechnology industry; our company’s financial position, including cash on hand; the lack of an active public market for our company’s common stock; the likelihood of achieving a liquidity event for our company’s securityholders, such as an initial public offering or a sale of the company, taking into consideration prevailing market conditions, trends and developments in our industry; the hiring of key personnel and the experience of management; the analysis of initial public offerings and the market performance and volatility of peer companies in the biopharmaceutical industry, as well as completed mergers and acquisitions of peer companies; and the material risks related to our business and industry, our results of operations and financial position, including our levels of capital resources. Prior to the completion of our IPO, there were significant judgments and estimates inherent in the determination of the fair value of our common stock. These judgments and estimates included assumptions regarding our future operating performance, the time to completing an initial public offering or other liquidity event, and the determination of the appropriate valuation methods. If we had made different assumptions, our stock-based compensation expense, net loss, and net loss per share of common stock could have been significantly different.

Following the closing of our IPO, our board of directors determines the fair value of our common stock based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

Recently Adopted Accounting Pronouncements

See Note 2 to each of our audited consolidated financial statements included elsewhere in this Annual Report for recently adopted accounting pronouncements.

Emerging Growth Company and Smaller Reporting Company Status

We qualify as an “emerging growth company,” as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: (i) being permitted to present only two years of audited financial statements, in addition to any required unaudited condensed financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this Annual Report; (ii) reduced disclosure about our executive compensation arrangements; (iii) not being required to hold advisory votes on executive compensation or to obtain stockholder approval of any golden parachute arrangements not previously approved; (iv) an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act; and (v) an exemption from compliance with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the financial statements.

110

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of:

(i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more;

(ii) December 31, 2030 (the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO);

(iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or

(iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

We may choose to take advantage of some but not all of these exemptions. We have elected to avail ourselves of this exemption and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. As a result of this election, our financial statements may not be comparable to those of other public companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

We are also a “smaller reporting company” as defined in 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 the market value of our shares of 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 the market value of our shares of common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Our cash and cash equivalents consist of cash held in readily available checking and money market accounts, as well as short-term debt securities. We are exposed to market risk related to fluctuations in interest rates and market prices. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, we do not believe a hypothetical 100 basis point increase or decrease in interest rates during any of the periods presented would have had a material impact on our audited consolidated financial statements included elsewhere in this Annual Report.

Foreign Currency

Net realized and unrealized gains and losses from foreign currency transactions are reported in other income (expense), net, in the consolidated statements of operations and comprehensive loss. All of our employees and our operations are currently located in the United States and our expenses are generally denominated in U.S. dollars. However, we have contracted with and may continue to contract with non-U.S. vendors who we may pay in local currency. To date, the impact of foreign currency costs on our operations have been negligible for all periods presented and we have not had a formal hedging program with respect to foreign currency. Therefore, we do not believe a hypothetical 100 basis point increase or decrease in exchange rates during any of the periods presented would have had a material impact on our audited consolidated financial statements included elsewhere in this Annual Report.

Inflation Risk

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during the periods presented.

Item 8. Financial Statements and Supplementary Data.

111

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Aardvark Therapeutics, Inc.

Page

Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3

Notes to Consolidated Financial Statements F-7

F-1

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

Aardvark Therapeutics, Inc.

San Diego, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Aardvark Therapeutics, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2021.

San Diego, California

March 31, 2025

F-2

AARDVARK THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and par value data)

December 31,

Assets

Current assets:

Prepaid expenses and other current assets 474 379

Operating lease right-of-use asset 735 155

Liabilities, Convertible Preferred Stock and Stockholders’ Deficit

Current liabilities:

Operating lease liability, current portion 338 112

Operating lease liability, net of current portion 441 50

Other long-term liabilities 26 2

Commitments and contingencies (Note 10)

Stockholders’ deficit

See accompanying notes to consolidated financial statements.

F-3

AARDVARK THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

Year EndedDecember 31,

Operating expenses:

Credit loss—related party accounts receivable 117 762

Other income (expense), net:

Unrealized loss on short-term investments (217 ) (1,216 )

Net loss and comprehensive loss $ (20,588 ) $ (7,208 )

See accompanying notes to consolidated financial statements.

F-4

AARDVARK THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ DEFICIT

(in thousands, except share data)

Shares Amount Shares Amount Capital Deficit Deficit

Vesting of restricted common stock — — 13,334 — 16 — 16

Stock-based compensation expense — — — — 313 — 313

Vesting of restricted common stock — — 3,807 — 8 — 8

Stock-based compensation expense — — — — 439 — 439

See accompanying notes to consolidated financial statements.

F-5

AARDVARK THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

Operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Credit loss—related party accounts receivables 117 762

Stock-based compensation expense 439 313

Non-cash lease expense 235 97

Unrealized loss on short-term investments 217 1,216

Amortization of discount on short-term investments (96 ) —

Common stock dividend of Scilex Holding Company — (923 )

Depreciation expense 16 —

Changes in operating assets and liabilities:

Prepaid expenses and other assets (412 ) (755 )

Accrued liabilities 1,385 (2 )

Operating lease liability (198 ) (100 )

Net cash used in operating activities (18,087 ) (5,824 )

Investing activities:

Purchases of short-term investments (11,889 ) —

Purchases of property and equipment (109 ) —

Net cash used in investing activities (11,998 ) —

Financing activities:

Proceeds from sale and issuance of Series C convertible preferred stock 85,000 —

Proceeds from exercises of common stock options 332 —

Costs paid in connection with deferred financing costs (1,193 ) —

Net cash provided by financing activities 81,991 —

Net increase (decrease) in cash and cash equivalents 51,906 (5,824 )

Cash and cash equivalents at beginning of year 9,735 15,559

Cash and cash equivalents at end of year $ 61,641 $ 9,735

Supplemental schedule of non-cash financing activity:

Early exercise options and unvested stock liability $ 8 $ 16

See accompanying notes to consolidated financial statements.

F-6

AARDVARK THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

Organization and Basis of Presentation

Description of Business

Aardvark Therapeutics, Inc. (“Aardvark” or the “Company”) was incorporated in the State of Delaware on May 17, 2017 and is located in San Diego, California. The Company is a clinical-stage biopharmaceutical company focused on developing novel, small-molecule therapeutics to activate innate homeostatic pathways for the treatment of metabolic diseases. The Company targets biological pathways associated with alleviating hunger.

In October 2024, the Company incorporated a wholly-owned subsidiary, Artisan Therapeutics, Inc., in the State of Delaware and contributed certain assets to the new entity.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Artisan Therapeutics, Inc., and have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). All intercompany accounts and transactions have been eliminated in consolidation.

Reverse Stock Split

On February 5, 2025, the Company effected a one-for-8.474 reverse stock split of its common stock (the "Reverse Stock Split"). The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock and the conversion ratio of the redeemable convertible preferred stock have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented.

Liquidity

As of December 31, 2024, the Company has devoted substantially all of its resources to organizing and staffing the Company, business planning, raising capital, discovering ARD-101, establishing and maintaining its intellectual property portfolio, conducting research, preclinical studies and clinical trials, manufacturing of ARD-101 and related raw materials, and providing general and administrative support for these operations. The Company does not have any products approved for sale and has not generated any revenue to date. In addition, the Company has a limited operating history, has incurred significant net losses and negative cash flows from operations since its inception and expects that its expenses and operating losses will increase substantially for the foreseeable future. As of December 31, 2024, the Company had an accumulated deficit of $58.3 million.

The Company believes its cash, cash equivalents and short-term investments of $73.7 million as of December 31, 2024 will be sufficient for the Company to continue as a going concern for at least one year following the date that the consolidated financial statements are available to be issued.

The Company will be required to raise additional capital and plans to finance its cash needs through public or private equity or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. If the Company is not able to secure adequate additional funding, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or delay or reduce the scope of its planned development programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects.

Use of Estimates

The preparation of the Company’s consolidated financial statements requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Such estimates include the estimated incremental borrowing rate for the determination of the Company’s operating lease right-of-use (“ROU”) assets, valuation of stock-based awards, fair value of common stock prior to the Company's initial public offering (“IPO”) (Note 15), and the accrual of research and development expenses. Management evaluates its estimates on an ongoing basis. Although estimates are based on the Company’s historical experience, knowledge of current events, and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

F-7

2.

Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments that are readily convertible into cash, with original maturities of three months or less when purchased, to be cash equivalents and are stated at cost, which approximates fair value. Cash equivalents is comprised of money market mutual funds and short-term debt obligations of the U. S. Treasury.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to significant concentration of credit risk consist of cash and cash equivalents and related party accounts and convertible promissory note receivable (Note 12). The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company may invest its excess cash in short-term debt obligations of the U. S. Treasury in order to mitigate credit risk and maintain principal and maximize liquidity.

Short-Term Investments

Short-term investments consist of investments in corporate equity securities with readily determinable fair values and short-term debt obligations of the U.S. Treasury with original maturities in excess of three months. The investments in corporate equity securities with readily determinable fair values are reported at fair value with changes in fair value recorded in the consolidated statements of operations and comprehensive loss. During the years ended December 31, 2024 and 2023, unrealized losses of $0.2 million and $1.2 million, respectively, were reported in other income (expense), net in the accompanying consolidated statements of operations and comprehensive loss.

The Company obtains pricing information from its investment manager and generally determines the fair value of debt securities using standard observable inputs, including reported trades, broker/dealer quotes, and bid and/or offers. The Company classifies its investment securities as available-for-sale, as the sale of such securities may be required prior to maturity. Management determines the appropriate classification of its investments in debt securities at the time of purchase. Investments with original maturities beyond three months at the date of purchase and which mature at, or less than 12 months from, the balance sheet date are classified as short-term investments. Investments with contractual maturities beyond one year are also classified as short-term due to the Company’s ability to liquidate the investment for use in operations within the next 12 months. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported as accumulated other comprehensive income (loss) until realized. The amortized cost of available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

At each balance sheet date, the Company reviews its available-for-sale debt securities that are in an unrealized loss position to determine whether the unrealized loss or any potential credit losses should be recognized in the consolidated statements of operations. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through net income (loss). For available-for-sale securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the severity of the impairment, any changes in interest rates, changes to the underlying credit ratings and forecasted recovery, among other factors. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in other income, net through an allowance account. There have been no impairment or credit losses recognized during any of the periods presented related to investments in the Company's available-for-sale debt securities.

Deferred Financing Costs

Financing costs, consisting of legal, professional, accounting, and other third-party fees that are directly associated with in-process equity financings are deferred until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of proceeds generated as a result of the offering. In the event a financing is terminated, the deferred financing costs will be expensed as a charge to operating expenses in the consolidated statements of operations and comprehensive loss. As of December 31, 2024 and 2023, capitalized deferred financing costs totaled $2.3 million and zero, respectively, and are included in other assets in the accompanying consolidated balance sheets.

F-8

Fair Value of Financial Instruments

The carrying amounts of cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of those instruments.

Leases

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present, the existence of an identified asset(s), if any, and the Company’s control over the use of the identified asset(s), if applicable.

Operating leases are included in operating lease right-of-use assets and in operating lease liabilities in the accompanying consolidated balance sheets. Operating lease assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term discounted based on the more readily determinable of (i) the rate implicit in the lease or (ii) the Company’s incremental borrowing rate (which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease). Because the Company’s operating leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at lease commencement date for borrowings with a similar term.

The Company’s operating lease assets are measured based on the corresponding operating lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) tenant incentives under the lease. The Company does not assume renewals or early terminations unless it is reasonably certain to exercise such options at commencement. The Company has elected the practical expedient such that it does not recognize lease assets or lease liabilities for leases with a term of 12 months or less of all asset classes and to not allocate consideration between lease and non-lease components. Variable lease payments are recognized in the period in which the obligations for those payments are incurred. Operating lease expense is recognized on a straight-line basis over the lease term.

Convertible Preferred Stock

The Company’s convertible preferred stock has been classified as temporary equity in the accompanying consolidated balance sheets in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of the Company’s control, including liquidation, sale or transfer of control of the Company. Costs incurred in connection with the issuance of convertible preferred stock are recorded as a reduction of gross proceeds from issuance. The Company does not accrete the carrying values of the convertible preferred stock to the redemption values since the occurrence of any of these events was not considered probable as of December 31, 2024 and 2023. Subsequent adjustments of the carrying values to the ultimate redemption values will be made only when it becomes probable that such events will occur (Note 15).

Research and Development Expenses

Research and development expenses are charged to expense as incurred. Research and development expenses consist primarily of external and internal costs incurred in performing preclinical and clinical development activities. External costs include fees paid to contract research organizations and consultants in connection with product development activities, including regulatory activities, costs related to manufacturing materials for preclinical studies and clinical trials and license fees. Internal costs include personnel-related costs such as salaries and related expenses for employees involved in research and development efforts, facilities-related costs, depreciation, and other allocated expenses. Non refundable advance payments for goods and services for future research and development activities are deferred and included in prepaid and other current assets in the accompanying consolidated balance sheet and are expensed as the goods are delivered or the related services are performed.

The Company estimates its expenses resulting from its obligations under contracts with vendors, consultants, and contract research organizations in connection with the progress of research and development services performed. The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which the services are provided or goods delivered under such contracts. The Company reflects research and development expenses in its consolidated financial statements by matching those expenses with the period in which services are provided. The Company accounts for these expenses according to the progress of the preclinical or clinical study as measured by the timing of various aspects of the study or the progress of related activities. During the course of a study, the Company reassess its estimate of performance prospectively based on actual results or any modification to the agreements. Historically, there have been no material differences between the Company’s estimates and the amounts actually incurred.

F-9

Patent Costs

Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.

Stock-Based Compensation Expense

Stock-based compensation expense represents the grant date fair value of employee and non-employee stock award grants recognized as expense over the requisite service period of the awards (usually the vesting period) on a straight-line basis, net of actual forfeitures during the period. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model.

For restricted stock awards, the fair value of the award is the estimated fair value of the Company’s common stock on the grant date.

Fair Value of Common Stock

Given the absence of a public trading market for the Company’s common stock through December 31, 2024, the Company utilized methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants’ Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. In determining the fair value, a number of objective and subjective factors were considered, which include factors such as: contemporaneous valuations performed by independent third-party specialists; the prices at which the Company sold shares of its convertible preferred stock to outside investors in arms-length transactions, and the superior rights, preferences, and privileges of the convertible preferred stock relative to the common stock at the time of each sale; the progress of the Company’s research and development programs, including their stages of development, and the Company’s business strategy; external market and other conditions affecting the biotechnology industry, and trends and developments within the biotechnology industry; the Company’s financial position, including cash on hand; the lack of an active public market for the Company’s common stock; the analysis of initial public offerings and the market performance and volatility of peer companies in the biopharmaceutical industry, as well as completed mergers and acquisitions of peer companies; and the material risks related to its business and industry, its results of operations and financial position, including its levels of capital resources, among other factors.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on certain investments. Net loss and comprehensive loss were the same for all periods presented.

F-10

Recent Accounting Standards

From time to time, new accounting standards are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

Recently Adopted Accounting Standards

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280) (“ASU 2023-07”), which intends to improve financial reporting primarily through enhanced disclosures about significant segment expenses. FASB Accounting Standards Codification (“ASC”) Topic 280 includes amendments which (i) introduce a new requirement to disclose significant segment expenses regularly provided to the chief operating decision maker (“CODM”), (ii) extend certain annual disclosures to interim periods, (iii) clarify that single reportable segment entities must apply Topic 280 in its entirety, (iv) permit more than one measure of segment profit or loss to be reported under certain conditions, and (v) require disclosure of the title and position of the CODM. This update is effective for all public entities beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-07 on a retrospective basis on December 31, 2024. The adoption of this standard had no impact on the Company's reportable segment and the additional required disclosures are included in Note 14, Segment Reporting.

Recently Issued Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires additional income tax disclosures in the rate reconciliation table for federal, state and foreign income taxes, in addition to more details about the reconciling items in some categories when items meet a certain quantitative threshold. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 with early adoption permitted. This update will result in enhanced income tax disclosures and the Company does not expect the adoption to impact the amount recorded for income tax expenses.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”), which requires new financial statement disclosures in tabular format, in the notes to the consolidated financial statements, of specified information about certain costs and expenses. This update is effective for all entities beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. ASU 2024-03 can be applied prospectively or retrospectively and early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

3.

Net Loss Per Share

Basic net loss per share of common stock attributable to common stockholders is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. The Company has excluded 2,548 and 7,059 weighted-average shares subject to repurchase or forfeiture from the weighted-average number of shares of common stock outstanding for the year ended December 31, 2024 and 2023, respectively.

Basic and diluted net loss attributable to common holders per share is presented in conformity with the two-class method required for participating securities as the convertible preferred stock are considered participating securities because they participate in dividends with the common stock. The Company also considers the shares issued upon the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of all series of convertible preferred stock and the holders of early exercised shares subject to repurchase do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. Because the Company has reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share for those periods. Accordingly, for the years ended December 31, 2024 and 2023, there is no difference in the number of shares used to calculate basic and diluted shares outstanding.

F-11

The Company excluded the following potential shares of its common stock, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

December 31,

Common stock subject to repurchase rights 8,417 1,627

4.

Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs, such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

As of December 31, 2024 and 2023, assets measured at fair value on a recurring basis were as follows (in thousands):

Total Level 1 Level 2 Level 3

Assets

Cash equivalents

Short-term investments

Scilex Holding Company common stock $ 37 $ 37 $ — $ —

Sorrento Therapeutics, Inc. common stock — — — —

Total Level 1 Level 2 Level 3

Assets

Cash equivalents

Money market mutual funds $ 1,472 $ 1,472 $ — $ —

Short-term investments

Scilex Holding Company common stock $ 178 $ 178 $ — $ —

Sorrento Therapeutics, Inc. common stock 76 76 — —

Total short-term investments $ 254 $ 254 $ — $ —

F-12

There were no available-for-sale investment securities held by the Company at December 31, 2023. The following table summarizes the available-for-sale investment securities held at December 31, 2024 (in thousands):

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Fair Value

Cash Equivalents

The Company determines the fair value of its money market mutual funds and treasury bonds based upon quoted prices in active markets for identical assets. At December 31, 2024 and 2023, the Company did not hold any investments, within cash equivalents, that were in a material unrealized gain or loss position.

Short-Term Investments

The contractual maturities on the purchase date of the U.S. Treasury bonds included in short-term investments at December 31, 2024 range from 94 to 97 days.

5.

Balance Sheet Details

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

December 31,

Prepaid research and development costs $ 314 $ 252

Total prepaid expenses and other current assets $ 474 $ 379

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

December 31,

Research and development costs $ 1,222 $ 188

Compensation-related expenses 225 45

Deferred offering costs 671 —

Total accrued liabilities $ 2,291 $ 235

6.

Stockholders’ Deficit

Amended and Restated Certificate of Incorporation

In April 2024, the Company amended and restated its certificate of incorporation to increase the authorized shares of its common stock to 157,230,354 shares and increase the authorized shares of its convertible preferred stock to 96,941,453 shares. The convertible preferred stock is designated as 26,250,131 shares of Series A convertible preferred stock, 22,660,592 shares of Series B convertible preferred stock and 48,030,730 shares of Series C convertible preferred stock.

Convertible Preferred Stock

The Company issued shares of its convertible preferred stock in a series of transactions as follows:

•

In 2019, 26,250,131 shares of the Company’s Series A convertible preferred stock were issued at a per share price of $0.5714, resulting in gross cash proceeds of $14.7 million and the conversion of debt of $0.2 million.

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•

In 2021, 22,660,592 shares of the Company’s Series B convertible preferred stock were issued at a per share price of $1.2857, resulting in gross cash proceeds of $29.1 million.

•

In 2024, 48,030,730 shares of the Company’s Series C convertible preferred stock were issued at a per share price of $1.7697, resulting in gross cash proceeds of $85.0 million.

At December 31, 2024, the Company’s convertible preferred stock consisted of the following (in thousands, except share and per share amounts):

At December 31, 2023, the Company’s convertible preferred stock consisted of the following (in thousands, except share and per share amounts):

Rights, Preferences, and Privileges of Convertible Preferred Stock

The holders of the Company’s Series A, B and C convertible preferred stock (collectively, the “Preferred Stock”) have the following rights, preferences, and privileges:

Voting Rights

The holders of Preferred Stock are entitled to vote, together with the holders of common stock, on all matters submitted to the stockholders for a vote and are entitled to the number of votes equal to the number of whole shares of common stock into which such holders of Preferred Stock could convert on the record date for determination of stockholders entitled to vote.

Dividends

The Company cannot declare and pay any common stock dividends without first declaring and paying dividends, as defined in the terms of the Company’s amended and restated certificate of incorporation, to the preferred stockholders. The holders of Preferred Stock are entitled to receive, when, as and if declared by the board of directors, noncumulative dividends at the rate of 6.0% of the applicable original issue price of such Preferred Stock (“Original Issue Price”), for Series A, Series B and Series C convertible preferred stock. The Original Issue Price is subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Preferred Stock.

Provided that the 6% non-cumulative dividends of the Preferred Stock are fully satisfied, then the holders of Preferred Stock will participate in any dividends declared and paid to common stockholders on a pro rata basis based on the number of shares held by each holder, with Preferred Stock treated as if it had been converted into shares of common stock. No dividends have been declared as of December 31, 2024.

Liquidation Rights

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event (as defined in the Company’s amended and restated certificate of incorporation), each holder of Series C convertible preferred

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stock, is entitled to receive, prior and in preference to any distributions to the Series A and Series B preferred stockholders and common stockholders, an amount equal to the greater of (i) the Original Issue Price per share of Series C convertible preferred stock, plus any declared but unpaid dividends thereon or (ii) the amount such holder would have received if such holder had converted its Series C convertible preferred shares into common stock immediately prior to such liquidation event. In the event that the assets available for distribution to the holders of Series C convertible preferred stock are insufficient to pay such holders the full amounts to which they are entitled, the assets available for distribution will be distributed on a pro rata basis among the holders of the Series C convertible preferred stock in proportion to the respective amounts that would otherwise be payable in respect of such stock.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event (as defined in the Company’s amended and restated certificate of incorporation), after payments to the holders of Series C convertible preferred stock have been made, each holder of Series A and Series B convertible Preferred Stock, is entitled to receive, prior and in preference to any distributions to the common stockholders, an amount equal to the greater of (i) the Original Issue Price per share, plus any declared but unpaid dividends thereon or (ii) the amount such holder would have received if such holder had converted its shares into common stock immediately prior to such liquidation event. In the event that the assets available for distribution to the holders of Preferred Stock are insufficient to pay such holders the full amounts to which they are entitled, the assets available for distribution will be distributed on a pro rata basis among the holders of the Preferred Stock in proportion to the respective amounts that would otherwise be payable in respect of such stock. After payments have been made in full to the holders of Preferred Stock, then, to the extent available, the remaining amounts would be distributed among the holders of the common stock, pro rata based on the number of shares held by each holder.

Conversion Rights

The shares of Preferred Stock are convertible into an equal number of shares of common stock, at the option of the holder, subject to certain anti-dilution adjustments. Each share of Preferred Stock is automatically converted into common stock (i) upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of common stock for the account of the Company in which the aggregate gross proceeds to the Company are not less than $50.0 million or (ii) at any time upon the written consent of a majority of the holders of the outstanding shares of Preferred Stock; provided that, in the case of Series C convertible preferred stock, no automatic conversion shall occur without the written request for such conversion from the holders of at least a majority of the then-outstanding shares of Series C convertible preferred stock unless such conversion is being made pursuant to clause (i) above and immediately prior to the closing of the sale of shares of common stock to the public, the common stock has a price of at least $22.49 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock).

2017 Equity Incentive Plan

In 2017, the Company adopted the 2017 Stock Plan (as amended, the “Plan”). The Plan provides for the grant of incentive stock options, non-statutory stock options and restricted stock awards. As of December 31, 2024 and 2023, the number of shares reserved for issuance under the Plan was 2,661,211 and 1,593,014 shares, respectively, an increase of 1,068,197 shares, which was approved in connection with the closing of the Series C convertible preferred stock financing in May 2024. As of December 31, 2024 and 2023, the number of shares remaining for grant under the Plan were 1,164,562 and 665,549 shares, respectively. The maximum term of the options granted under the Plan is no more than ten years. Grants generally vest at 25% one year from the vesting commencement date and ratably each month thereafter for a period of 36 months, subject to continuous service.

The Plan allows for the early exercise of all stock options granted if authorized by the board of directors at the time of grant. Any shares of common stock issued from the early exercise of stock options are restricted and vest over time. The Company has the option to repurchase any unvested shares at the lower of the original issue price or current fair value upon any voluntary or involuntary termination of such optionee.

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Stock option activity for employee and nonemployee awards and related information is as follows:

Aggregate intrinsic value in the above table is the difference between the estimated fair value of the Company’s common stock as of either December 31, 2024 or 2023, and the exercise price of stock options that had exercise prices below that value. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2024 was $0.1 million. There were no stock option exercises in the year ended December 31, 2023. The aggregate intrinsic value of stock options vested during each of the years ended December 31, 2024 and 2023 was $0.3 million.

Stock-Based Compensation Expense

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the stock options granted in the years ended December 31, 2024 and 2023 were as follows:

Year EndedDecember 31,

Risk-free interest rate 4.05 % 3.66 %

Expected term (in years) 6.0 5.9

Expected dividend yield — —

Risk-free interest rate. The Company based the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

Expected volatility. Given that there was no active trading market for the Company's common stock prior to the IPO, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry.

Expected term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the “simplified” method, which is an average of the contractual term of the option and its vesting period.

Expected dividend yield. The Company used an expected dividend yield of zero, as it has never paid dividends on its common stock and has no present intention of doing so in the foreseeable future.

The weighted-average fair value of stock options granted during the years ended December 31, 2024 and 2023 was $3.67 and $2.54 per share, respectively.

The allocation of stock-based compensation expense was as follows (in thousands):

Year Ended December 31,

Research and development expense $ 288 $ 152

General and administrative expense 151 161

Total stock-based compensation expense $ 439 $ 313

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As of December 31, 2024, the unrecognized compensation cost related to outstanding time-based options was $2.3 million and is expected to be recognized over a weighted-average period of 3.4 years.

Early Exercise Liability

The right to repurchase shares that were exercised prior to the time the options have vested generally lapses over the four-year vesting period. As of December 31, 2024 and 2023, the early exercise liability was approximately $26,000 and $2,000, respectively, and is included in other long-term liabilities. For accounting purposes, the early exercise of options is not considered to be a substantive exercise until the underlying awards vest and are not considered to be outstanding until those shares vest.

A summary of the unvested common stock issued pursuant to an early exercise of stock option awards is as follows:

Number ofUnvestedShares

Early-exercised stock options 10,597

Vested shares (3,807 )

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consisted of the following:

December 31,

7.

Sale of Intellectual Property

In April 2021, the Company sold to Sorrento Therapeutics, Inc. (“Sorrento”) the patent rights to certain assets in exchange for 616,655 shares of Sorrento’s publicly traded common stock with a total fair value of approximately $4.7 million on the date of the agreement. In addition, the Company is eligible to receive future development and commercial milestone payments of up to $23.0 million, as well as future royalties on net sales in the low single digit percentages. In May 2022, Sorrento assigned the above-mentioned patent rights and agreement to its subsidiary, Scilex Holding Company (“Scilex”), which became a publicly traded company in November 2022. Due to the high degree of uncertainty, outside of the Company’s control, related to these milestones and future royalty payments, they are considered fully constrained as of December 31, 2024.

In January 2023, the Company received 86,956 shares of common stock of Scilex, with a fair value of approximately $0.9 million, resulting from the board of directors of Sorrento declaring a stock dividend of common stock of Scilex to record holders of Sorrento’s common stock as of the close of business on January 9, 2023. The $0.9 million fair value of these shares is included in interest and dividend income during the three months ended March 31, 2023 in the accompanying consolidated statements of operations and comprehensive loss. These shares of common stock are subject to certain transfer restrictions through April 14, 2025 as ordered in connection with Sorrento’s voluntary proceedings under Chapter 11 of the U. S. Bankruptcy Code, which commenced in February 2023.

In 2021, Sorrento participated in the Company’s Series B convertible preferred stock financing, purchasing a total of 7,777,864 shares of Series B convertible preferred stock for approximately $10.0 million.

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8.

Income Taxes

For the years ended December 31, 2024, and 2023, due to the operating losses reported and the full valuation allowance recorded on the Company’s net deferred income tax assets, the Company recorded no provision for income taxes.

A reconciliation of the Company’s income taxes to the amount computed by applying the statutory federal income tax rate to the pretax loss is summarized as follows (in thousands):

Year Ended December 31,

Expected income tax benefit at statutory rates $ (4,324 ) $ (1,514 )

State income tax, net of federal benefit (1,388 ) (397 )

Stock-based compensation expense 84 35

Permanent items (14 ) (23 )

Rate adjustments (88 ) (345 )

Uncertain tax positions 796 90

Other (4 ) (68 )

Total income tax expense (benefit) $ — $ —

Significant components of the Company’s deferred income taxes were as follows (in thousands):

December 31,

Deferred tax assets:

Net operating loss carryforward $ 8,627 $ 6,060

Allowance for receivables 696 602

Deferred tax liabilities:

Right-of-use asset (206 ) (42 )

Cash to accrual method change (63 ) (91 )

Other, net (2 ) —

Total gross deferred tax liabilities (271 ) (133 )

Net deferred tax assets $ — $ —

The Company changed from the cash method to the accrual method for income tax return reporting purposes for the year ended December 31, 2023.

The Company establishes a valuation allowance when it is more likely than not that the Company’s recorded net deferred tax asset will not be realized. In determining whether a valuation allowance is required, the Company must take into account all positive and negative evidence with regard to the utilization of a deferred tax asset. As of December 31, 2024 and 2023, the valuation allowance for deferred tax assets totaled approximately $18.4 million and $10.6 million, respectively. The net change in the total valuation allowance for the year ended December 31, 2024 and 2023 was an increase of $7.8 million and $2.6 million, respectively.

As of December 31, 2024, the Company had federal and state net operating carryforwards of approximately $25.8 million and $45.8 million, respectively. The federal loss carryforwards will carryforward indefinitely and can be used to offset up to 80% of future annual taxable income. The state loss carryforwards begin expiring in 2037, unless previously utilized.

As of December 31, 2024, the Company had federal and California research and development credit carryforwards totaling $1.1 million and $0.6 million, respectively. As of December 31, 2024, the Company also had federal Orphan Drug credit carryovers of $2.8 million. The federal credits begin to expire in 2041, unless previously utilized, while the state credits do not expire.

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Pursuant to Internal Revenue Code of 1986, as amended (“IRC”), Sections 382 and 383, annual use of the Company’s federal and state net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382 and 383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. The deferred tax asset associated with the Company’s federal and state net operating losses is fully offset by a valuation allowance. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. The Company intends to complete an IRC Section 382 study in the future, which could result in reductions to deferred tax assets and related valuation allowance disclosed above.

Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based upon new information may lead to changes in recognition, derecognition, and measurement. Adjustment may result, for example, upon resolution of an issue with the taxing authorities or expiration of a statute of limitations, barring an assessment for an issue. The Company recognizes a tax benefit from an uncertain tax position when it is more-likely-than-not that it will be sustained upon examination by tax authorities.

A reconciliation of the amount of unrecognized tax benefits is as follows (in thousands):

Year Ended December 31,

Additions related to current year positions 810 95

Additions (decreases) related to prior year positions — 26

Additions (decreases) due to settlement — —

Expiration of unrecognized tax benefits — —

The Company’s policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense. The Company has no accruals for interest or penalties in the accompanying consolidated balance sheet as of December 31, 2024 or 2023 and has not recognized interest or penalties in the accompanying consolidated statements of operations and comprehensive loss for the years then ended.

The Company is subject to taxation in the United States and various state jurisdictions. The Company is generally subject to examination by U.S. federal and state tax authorities from inception to date; however, to the extent allowed by law, the taxing authorities may have the right to examine periods where net operating losses were generated and carried forward and make adjustments to the amount of the net operating losses. The Company is not currently under examination by any jurisdictions.

9.

Leases

In August 2021, the Company entered into a sublease agreement for office space in San Diego, California (the “San Diego Lease”). The San Diego Lease, which terminates in June 2025, requires average annual rental payments of approximately $110,000.

Commencing August 1, 2024, the Company leased additional office space in San Diego, California for a term of 29 months (the “2024 Lease”). Total payments under the lease of approximately $0.9 million will be paid in monthly payments through December 31, 2026. The lease includes an option to renew for 36 months; however, the Company has not included the optional renewal period in the measurement of the lease liability because it is not reasonably certain that the Company will exercise this renewal option.

The Company recognized an operating lease ROU asset and liability for the 2024 Lease based on the present value of the future minimum lease payments over the lease term at the commencement date, using the Company’s assumed incremental borrowing rate and amortizes the ROU asset and liability over the lease term. As the 2024 Lease does not have an implicit interest rate, the present value reflects a 7.0% discount rate, which is the Company’s estimated incremental borrowing rate. The weighted-average remaining lease term and discount rate related to the Company’s operating lease liabilities as of December 31, 2024 was 1.9 years and 7.0%, respectively. The weighted-average remaining lease term and discount rate related to the Company’s operating lease liabilities as of December 31, 2023 was 1.5 years and 7.0%, respectively.

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Maturities of lease liabilities due under the operating lease agreements as of December 31, 2024 were as follows (in thousands):

Maturity of Lease Liability OperatingLease

Total lease payments 841

Less imputed interest (62 )

Total operating lease liability 779

Less current portion of operating lease liability (338 )

Operating lease liability, net of current portion $ 441

Cash paid for amounts included in the measurement of lease liabilities for operating cash flow from operating leases during the years ended December 31, 2024 and 2023 totaled $0.2 million and $0.1 million, respectively.

10.

Commitments and Contingencies

Commitments

LongevityX, Inc.

In October 2022, the Company entered into a Collaboration Agreement with LongevityX, Inc. (“LongevityX”), whose Chief Executive Officer is a less than 5% stockholder of the Company, to focus on the identification and development of novel therapeutics with direct implications for the extension of human health span and longevity. In connection with the LongevityX Agreement, the Company agreed to pay LongevityX a monthly advisory fee of $15,000 and has committed up to $1.0 million and personnel support for a period of time not to exceed 24 months to support preclinical development activities upon the identification and selection of two lead candidate molecules. The two entities agreed to share future economic interest of varying levels dependent on potential future capital raises. During the years ended December 31, 2024 and 2023, pursuant to the LongevityX Agreement, the Company paid LongevityX advisory fees totaling $75,000 and $225,000, which are recorded in research and development expenses in the accompanying consolidated statements of operations and comprehensive loss.

The LongevityX Agreement was terminated in May 2024.

Tulex Pharmaceuticals Inc.

In August 2021, the Company entered into a Collaboration Agreement (the “Tulex Agreement”) with Tulex Pharmaceuticals Inc. (“Tulex”) to jointly research, develop, manufacture and commercialize pharmaceutical products using their combined intellectual properties. The Tulex Agreement, as amended in August 2023, provides for the Company and Tulex to share expenses, profits and the ownership of any products jointly developed on a 60%/40% basis.

Pursuant to the Tulex Agreement, as amended, total costs to be incurred by both parties are limited to $3.0 million, unless both parties expressly consent to a change, of which $2.2 million has been incurred as of December 31, 2024. During the years ended December 31, 2024 and 2023, the Company recorded expenses totaling $0.1 million and $0.2 million, respectively, for work performed pursuant to the Tulex Agreement, representing 60% of the total costs incurred by both parties.

The Tulex Agreement expires upon the completion of the agreed upon work plan and may be terminated by either party upon thirty days written notice upon the completion of a party’s respective activities, in the event of certain breaches of the agreement or in certain limited cases as set forth in the agreement.

Acquisition-Related Liabilities

In 2023 and 2024, the Company acquired the rights to certain intellectual property in exchange for an upfront cash payment of $0.3 million and $0.6 million, respectively, (included in research and development expenses in the accompanying consolidated statements of operations and comprehensive loss), and the sellers’ right to receive additional consideration upon the achievement of specified regulatory and commercial milestones associated with products developed by the Company utilizing the acquired in-process research and development. At December 31, 2024, potential future regulatory and commercial milestone payments under these agreements totaled an aggregate of approximately $180.5 million.

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Contingencies

From time to time, the Company may become subject to claims or suits arising in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. As of December 31, 2024, the Company was not a party to any litigation.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breech of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with officers and members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. At December 31, 2024, no claims exist under indemnification arrangements and accordingly, no amounts have been accrued in its consolidated financial statements as of December 31, 2024.

11.

Related Party Transactions

Equity Holders

Three family members of the Company’s Chief Executive Officer are investors in the Company. As of December 31, 2024 and 2023, these family members owned 1,828,052 shares of the Company’s common stock. The family members also owned 437,503 shares of the Company’s Series A convertible preferred stock and 782,228 shares of the Company’s Series B convertible preferred stock as of December 31, 2024 and 2023. As of December 31, 2024, the family members also owned 28,253 shares of the Company’s Series C convertible preferred stock.

Other

The Company’s Chief Executive Officer is a member of the board of directors of Aardwolf Therapeutics, Inc. (Note 12) and through August 27, 2023, was also a member of the board of directors of Scilex (Note 7).

12.

Aardwolf Spinoff

On May 31, 2022, the Company contributed certain assets with a fair value of $0.2 million to a newly formed wholly-owned subsidiary, Aardwolf Tx, LLC, for which 100% of the membership interests was subsequently distributed on a pro-rata basis to Aardvark’s stockholders. Through a series of subsequent transactions (combined with the aforementioned pro-rata distribution referred to as the “Spinoff”), the units of Aardwolf Tx, LLC were contributed to Aardwolf Therapeutics, Inc. (“Aardwolf”).

In conjunction with the Spinoff, the Company entered into a Transition Services Agreement with Aardwolf, which expired in May 2024, pursuant to which the Company has a right to reimbursement for certain administrative and personnel costs incurred and paid by the Company on behalf of Aardwolf. As of December 31, 2024 and 2023, unreimbursed costs incurred on behalf of Aardwolf totaled $1.4 million and $1.3 million, respectively. The Company determined that the current operations of Aardwolf do not support its ability to repay this related party receivable and as a result, these unreimbursed costs are deemed uncollectible and have been fully written off and are carried as zero in the accompanying consolidated balance sheets. Of the total unreimbursed expenses incurred, $0.1 million and $0.8 million was written-off as uncollectible in the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31, 2024 and 2023, respectively. The Company will reassess estimated recoveries on previously written off balances each reporting period.

In August 2022, Aardwolf issued to the Company a convertible promissory note (the “Aardwolf Note”) with a principal amount of $1.0 million. The Aardwolf Note contractually accrues interest at an annual rate of 5% and matures on July 31, 2029. The principal plus accrued interest will automatically convert upon issuance or sale of equity securities upon which Aardwolf receives total gross proceeds of not less than $3.0 million (a “Qualified Financing”). In a Qualified Financing transaction, the Aardwolf Note would convert into securities issued in the Qualified Financing at a conversion price equal to 70% of the per share price paid by investors for such securities. If a sale, merger or change of control, as defined in the Aardwolf Note, occurs, at the election of the Company, Aardwolf shall either convert the principal amount of the Aardwolf Note, and the accrued interest thereon, into shares of shares of Aardwolf’s common stock at a conversion price equal to the quotient resulting from dividing 70% of the fully-diluted valuation of Aardwolf as of immediately prior to the closing of the sale, merger or change of control, or repay the Company the outstanding principal plus any unpaid accrued interest thereon. The Aardwolf Note may not be prepaid without the consent of the Company. The

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Company determined that the current operations of Aardwolf do not support its ability to repay the Aardwolf Note and it is considered to be uncollectable. As a result, the Company elected to designate the Aardwolf Note as nonaccrual status and wrote off this related party note receivable in 2022. The Company will apply a cost recovery policy when reassessing recoveries on previously written off nonaccrual balances.

Credit loss activity for the periods presented for the related accounts receivable and convertible promissory note, which are carried at zero in the accompanying consolidated balance sheets, was as follows (in thousands):