Item 7. Management’s Discussion and Analysis

of Financial Condition and Results of Operations of CERo.

The following discussion

and analysis of CERo’s financial condition and results of operations should be read in conjunction with our audited consolidated

financial statements and the notes related thereto which are included in Item 8 of this Annual Report. Certain information contained in

the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated

in these forward-looking statements as a result of many factors, including those set forth under “Cautionary Note Regarding Forward-Looking

Statements,” “Risk Factors” and elsewhere in this Annual Report.

Overview

CERo Therapeutics, Inc. (the

“Predecessor”) was incorporated in Delaware on September 23, 2016, and is based in South San Francisco, California. Predecessor

was focused on developing its therapeutic platform to genetically engineer human immune cells to fight cancer and did not begin clinical

development or product commercialization. The Company’s efforts will focus on continued product development, including clinical

development, to support regulatory approval to commercialize and subsequent product commercialization.

On June 4, 2023, Predecessor

entered into a Business Combination Agreement (as amended by that certain Amendment No. 1 to the Business Combination Agreement, dated

as of February 5, 2024 and Amendment No. 2 to the Business Combination Agreement, dated as of February 13, 2024, the “Business Combination

Agreement”) by and among PBAX and PBCE Merger Sub, Inc., pursuant to which Merger Sub merged with and into Predecessor, with Predecessor

surviving as a wholly-owned subsidiary of PBAX (the “Merger”). In connection with the consummation of the Business Combination

on February 14, 2024, PBAX changed its corporate name to “CERo Therapeutics Holdings, Inc.”

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At the effective time of

the Merger, (i) each outstanding share of Predecessor common stock, was cancelled and converted into the right to receive shares of Common

Stock; (ii) each outstanding option to purchase Predecessor common stock was converted into an option to purchase shares of Common Stock,

par value $0.0001 per share; (iii) each outstanding share of Predecessor preferred stock, was converted into the right to receive shares

of Common Stock, and (iv) each outstanding warrant to purchase Predecessor preferred stock was converted into a warrant to acquire shares

of Common Stock. In addition, each outstanding Predecessor convertible bridge note was exchanged for shares of Series A Preferred Stock.

In addition, the holders

of Predecessor common stock and Predecessor preferred stock have the contingent right to receive the Earnout Shares. At the Closing, the

Company issued three pools of shares of Common Stock subject to forfeiture if the applicable conditions to transferability thereof are

not satisfied: (i) 12,000 shares of Common Stock (giving retroactive effect to the Reverse Stock Split), which will be fully vested upon

the achievement of certain adjusted stock price-based earnout targets or upon a qualifying transaction (ii) 8,750 shares of Common Stock

(giving retroactive effect to the Reverse Stock Split), pursuant to a Letter Agreement, dated as of February 14, 2024 which were fully

vested at Closing of the Merger and which were issued as an offset to the Sponsor Share Forfeiture Agreement, and (iii) 10,000 shares

of Common Stock (giving retroactive effect to the Reverse Stock Split), which were fully vested upon the June 28, 2024 achievement of

certain regulatory milestone-based earnout targets.

As consideration for the

Merger, the Company issued to Predecessor stockholders an aggregate of 84,483 shares of Common Stock, including 22,000 Earnout Shares

and 3,733 shares issuable upon exercise of rollover options or warrants (giving retroactive effect to the Reverse Stock Split).

Going concern

The accompanying financial

statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets

and satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent

on its ability to raise additional capital to fund its R&D activities and meet its obligations on a timely basis. As of December 31,

2024, the Company reported $3.3 million of cash and cash equivalents, with an accumulated deficit of $70.9 million. On February 5, 2025,

the Company entered into a securities purchase agreement (the “SPA”), with participation from a member of the Board and a

single institutional investor, for the purchase and sale of (i) 2,551,020 shares of Common Stock or Common Stock equivalents in lieu thereof;

and (ii) February 2025 Common Warrants to purchase up to 2,551,020 shares of Common Stock at an exercise price of $1.96. In connection

with such offering, the Company received net proceeds of approximately $4.5 million. Additionally, since December 31, 2024, the Company

received net proceeds from the exercise of the remaining Series A Warrants, the collection of subscriptions receivable and equity line

of credit fundings of approximately $2.5 million. Additional funds are necessary to maintain current operations and to continue R&D

activities. However, there can be no assurance that sufficient funding will be available to allow the Company to successfully continue

its R&D activities and planned regulatory filings with the FDA. If the Company is unable to obtain the necessary funds, significant

reductions in spending and the delay or cancellation of planned activities may be necessary. These actions would have a material adverse

effect on the Company’s business, results of operations, and prospects. These conditions raise substantial doubt about the Company’s

ability to continue as a going concern within one year from the date these accompanying financial statements are issued. The accompanying

financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the

amounts and classification of liabilities that might result from the outcome of this uncertainty.

Recent Developments

Reverse Stock Split

At 12:01 a.m. Eastern time

on January 8, 2025, we effected the Reverse Stock Split pursuant to which each 100 shares of our Common Stock outstanding immediately

prior thereto was converted into 1 share of our Common Stock outstanding immediately thereafter.

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February 2025 Offering

On February 7, 2025, we closed

our reasonable best efforts public offering, with participation from a member of our board of directors and a single institutional investor,

for the purchase and sale of (i) 2,551,020 shares of Common Stock or common stock equivalents in lieu thereof; and (ii) February 2025

Common Warrants to purchase up to 2,551,020 shares of common stock, at a combined public offering price of $1.96 per share and warrant.

In connection with the offering, on February 5, 2025, we entered into the SPA with the investors. Such transaction is referred to as the

“February 2025 Offering.” The shares of Common Stock and the Warrants described above and the shares of Common Stock underlying

the Warrants were offered pursuant to the Registration Statement on Form S-1 (File No. 333-284007), as amended, which was declared effective

by the Securities and Exchange Commission on February 5, 2025. In connection with this offering, we received net proceeds of approximately

$4.5 million.

Investigational New Drug

Application Submission

On June 28, 2024, the Company

submitted an Investigational New Drug Application (“IND”) for its product candidate, CER-1236, to FDA. On July 26, 2024, the

Company was informed by the FDA that it has placed a clinical hold on the IND. The FDA indicated that the clinical hold has been placed

as a result of insufficient data provided with regard to two issues within pharmacology and toxicology of CER-1236. The FDA indicated

that, within 30 calendar days, it would provide a detailed official hold letter and requested that the Company hold its response until

after receipt of such letter (the “Hold Letter”).

The Company received the

Hold Letter on July 26, 2024 and submitted a complete response letter to the FDA on October 21, 2024 in which the Company requested a

meeting to address the FDA’s questions.

On November 15, 2024, the Company received notice from the FDA that

the IND for CER-1236 was cleared. The Company currently anticipates beginning clinical trials in the first half of 2025. We submitted

a second IND application for the investigation of CER-T cell therapy in NSCLC and ovarian cancer, which was accepted by the FDA on March

27, 2025.

Nasdaq Notices of Non-compliance

and Nasdaq Panel Decision

On July 19, 2024, the Company

received a letter (the “Bid Price Requirement Letter”) from the staff at The Nasdaq Global Market notifying the Company that,

for the 30 consecutive trading days prior to the date of the Bid Price Requirement Letter, the closing bid price for the Common Stock

had not been in compliance with the Bid Price Requirement. On October 23, 2024, the trading price for CERo common stock closed under $0.10

and was the tenth consecutive trading day to do so. On October 24, 2024, the Company received a letter from the staff at The Nasdaq Global

Market notifying the Company that, because its Common Stock had a closing bid price of $0.10 or less for ten consecutive trading days,

it was no longer eligible to rely upon the 180-day cure period set forth in the Bid Price Requirement Letter.

On July 19, 2024, the Company

also received the MVPHS Letter notifying the Company that, for the 30 consecutive trading days prior to the date of the MVPHS Letter,

the Common Stock had not been in compliance with the MVPHS Requirement.

Such letters are in addition

to the letter from The Nasdaq Global Market received by the Company on May 2, 2024 (the “MVLS Letter” and, together with the

Bid Price Requirement Letter and the MVPHS Letter, the “Letters”) notifying the Company that, for the 30 consecutive trading

days prior to the date of such MVLS Letter, the Common Stock had traded at a value below the minimum $50,000,000 “Market Value of

Listed Securities” (“MVLS”) requirement set forth in Nasdaq Listing Rule 5450(b)(2)(A), which is required for continued

listing of the Common Stock on The Nasdaq Global Market (the “MVLS Requirement”). On October 30, 2024, the Company received

a letter from the staff at The Nasdaq Global Market notifying the Company that it had not regained compliance with the MVLS Requirement

within the 180-day compliance period set forth in the MVLS Letter.

Each of the Bid Price Requirement

and MVLS Requirement deficiencies results in the commencement of delisting proceedings. However, the Company attended a hearing before

the Nasdaq Panel on December 17, 2024, at which the Company submitted a plan for regaining compliance. Notwithstanding that applicable

Nasdaq rules provide a 180-day compliance period to regain compliance with the MVPHS Requirement, the plan submitted by the Company in

connection with such hearing, as required by applicable Nasdaq requirements, demonstrated a pathway to compliance with all applicable

deficiencies.

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On January 17, 2025, the

Nasdaq Panel granted the Company’s request for an extension of the deadline for regaining compliance with Nasdaq listing requirements

to April 22, 2025, subject to Nasdaq Conditions. Pursuant to the Nasdaq Conditions, the Company shall demonstrate compliance with the

Bid Price Requirement and apply to transfer its listing to the Nasdaq Capital Market on or prior to January 22, 2025. The Company is also

required to satisfy the $2.5 million stockholders’ equity requirement of the Nasdaq Capital Market on or prior to April 22, 2025,

submit certain plans to Nasdaq and make certain disclosures.

On February 12, 2025, we

received a letter from Nasdaq confirming that we have regained compliance with the Bid Price Requirement and we have been moved to the

Nasdaq Capital Market, as required by the Nasdaq Panel.

Regaining compliance with the Bid Price Requirement is one of the conditions

set forth by the Nasdaq Panel in its previously disclosed decision granting our request for an extension to regain compliance with certain

Nasdaq continued listing requirements until April 22, 2025. We continue to make progress towards satisfaction of the other conditions.

Nevertheless, as of the date of this Annual Report, the trading price of our Common Stock is below the Bid Price Requirement and we have

not satisfied the $2.5 million stockholder’s equity requirement. We cannot assure you that we will obtain compliance with these

requirements in a timely manner, or at all.

Warrant Issuances

On December 23, 2024, the Company issued warrants to purchase an aggregate

of 84,061 shares of Common Stock, with an exercise price of $5.61 per share, which was the closing price of the Common Stock on Nasdaq

on December 20, 2024, to certain institutional investors as a condition to the exercise of Preferred Warrants held thereby. On January

6, 2025, the Company issued additional warrants to purchase an aggregate of 163,853 shares of Common Stock, with an exercise price of

$5.82 per share, which was the closing price of the Common Stock on Nasdaq on January 3, 2025, to an institutional investor as a condition

to the exercise of Preferred Warrants held thereby. Such number of shares gives effect to the Reverse Stock Split.

Results of Operations

Revenue

Predecessor and the Company

have not recognized any revenue from any sources, including from product sales, and the Company does not expect to generate any revenue

from the sale of products in the foreseeable future. If the development efforts for the Company’s product candidates, each of which

is a specific product and indication combination, are successful and result in regulatory approval, or if the Company executes license

agreements with third parties, the Company may generate revenue from R&D services, from the achievement of development milestones

or from milestones and royalties related to product sales. However, there can be no assurance as to when any revenues will be generated,

if at all.

Operating Expenses

Research and Development Expenses

R&D expenses consist

of discovery activities, manufacturing development and production, preclinical and clinical development, and regulatory filing for product

candidates. R&D expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in R&D

are capitalized until the goods or services are received. Costs incurred in obtaining technology licenses through asset acquisitions,

if incurred, will be charged to R&D expense if the licensed technology has not reached technological feasibility and has no alternative

future use. R&D expenses include or could include:

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● product-liability insurance for clinical development product(s);

● laboratory supplies and research materials;

● software and systems related to R&D activities;

● costs related to regulatory filing and compliance; and

Product candidates in later

stages of development generally have higher development costs than those in earlier stages of clinical development, primarily due to the

increased size and duration of later-stage clinical trials. The Company plans to substantially increase its R&D expenses for the foreseeable

future as it continues the development of its product candidates through clinical development. The Company cannot determine with certainty

the timing of initiation, the duration or the costs of current or future preclinical studies and clinical trials required for regulatory

approval due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines,

the probability of success and development costs can differ materially from expectations. The Company anticipates that it 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 ongoing assessments as to each product

candidate’s commercial potential. The Company will need to, and plans to, raise substantial additional capital in the future. Future

R&D expenses may vary significantly between periods and from current expectations based on factors such as:

● potential additional safety monitoring requested by regulatory agencies;

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General and Administrative Expenses

General and administrative

expenses consist principally of salaries and related costs for personnel in executive and administrative functions, including stock-based

compensation, travel expenses and recruiting expenses. Other general and administrative expenses include professional fees for legal,

accounting and tax-related services, consulting fees, insurance costs, and investor relations fees.

The Company anticipates that

its general and administrative expenses will increase in the future as the Company increases headcount and contracted services for operational

support for expanded operations and infrastructure. The Company also anticipates that general and administrative expenses will increase

as a result of expenses for accounting, audit, legal and consulting services, as well as costs associated with maintaining compliance

with Nasdaq listing rules and SEC requirements, director and officer liability insurance, investor and public relations activities and

other expenses associated with operating as a public company.

Other Income, Net

Other income, net consists predominantly of interest income from interest

bearing bank accounts, interest expense on payables, gains recorded on settlements reached with vendors on payables, and the gain or loss

on the revaluation of earnout and derivative liabilities, which represents the change in fair value of earnout liabilities or outstanding

warrants between periods.

Results of Operations for the years ended December

31, 2024 and 2023

The Results of Operations

for year ended December 31, 2024 are pro forma as the period presented in the following table and discussion includes the Predecessor

for the period from January 1, 2024 through February 13, 2024 and the Company for the period from February 14, 2024 through December 31,

2024. This pro forma period from January 1, 2024 to December 31, 2024 does not include the Merger transactions that occurred on-the-line.

For the Years Ended December 31,

Operating expenses:

Other income (expense):

General and Administrative Expenses

General and administrative expenses were $9.1 million for the year

ended December 31, 2024, compared to $2.4 million for the year ended December 31, 2023, reflecting an increase of $6.7 million. The increase

in the year ended December 31, 2024, over the year ended December 31, 2023, was partially due to a $1.8 million expense consisting of

the remaining underwriting fees from the PBAX initial public offering, which were earned on the consummation of the business combination.

Additionally, the hiring of senior management in G&A resulted in an increase of $2.0 million, including recruiting fees. Legal fees

increased $1.0 million and business consulting increased $0.8 million in the year ended December 31, 2024, versus the year ended December

31, 2023. Expenses related to services required for SEC compliance, such as printing and transfer agency fees, increased $0.5 million

and public company insurance coverage increased insurance expenses $0.5 million in the year ended December 31, 2024, compared to the year

ended December 31, 2023. Corporate communications and director fees each increased $0.2 million in the year ended December 31, 2024 compared

to the year ended December 31, 2023. The additional expenses are all driven by the increased expenses of operational compliance as a public

company.

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Research and Development Expenses

Research and development

expenses were $7.6 million for the year ended December 31, 2024, compared to $5.3 million for the year ended December 31, 2023, reflecting

an increase of $1.8 million. The increase was related to increased R&D activity as the Company prepared and filed the IND for CER-1236,

prepared for the clinical trial initiation, and conducted additional experiments in response to the FDA questions related to the IND. Clinical expenses increased $0.2 million, and scientific consulting

expenses increased $1.2 million in the year ended December 31, 2024, due to activities related to the preparation of the IND and responses

to questions from the FDA, and preparation for the anticipated clinical trial for CER-1236. Additional studies required to address FDA

questions increased preclinical study costs by $0.3 million.

The Company anticipates that

its R&D expenses will significantly increase in the future as the Company increases headcount, compensation expense, and contracted

services for preclinical and clinical development of its product candidates, as well as for manufacturing of clinical product to be used

in clinical development.

Other Income, Net

Other income was $7.9 million

for the year ended December 31, 2024, compared to $0.4 million for the year ended December 31, 2023, reflecting an increase of $7.5 million.

The increase in 2024 as compared to 2023 was primarily due to the $4.8 million positive change in value of the Company’s earnout

liability and the $0.4 million gain recorded for the change in value of the Predecessor’s preferred stock warrant liability in the

year ended December 31, 2024. Additionally, settlement of vendor liabilities in 2024 resulted in a $3.3 million increase in other income

in 2024. This other income was offset by an increase in other expenses attributable to an increase in registration and other penalties

of $0.6 million and a decrease in interest income of $0.1 million.

Net loss and net loss attributable to common

stockholders

For the years ended December

31, 2024 and 2023, net loss amounted to $8.3 million and $7.3 million, respectively, an increase of $1.0 million, or 13.9%. During 2024,

in connection with our Series A and Series B preferred stock conversions and the repricing of Series A Warrants, we recorded a deemed

dividend of $2.8 million. Accordingly, for the years ended December 31, 2024 and 2023, net loss attributable to common stockholders amounted

to $11.1 million, or $(19.14) per common share, and $7.3 million, or $(97.90) per common share, respectively.

Liquidity and Capital Resources

Capital Requirements

Predecessor and the Company

have not generated any revenue from any source and the Company does not expect to generate revenue for at least the next few years. If

the Company fails to complete the timely development of, or fails to obtain regulatory approval for, its product candidates, the ability

of the Company to generate future revenue will be adversely affected. The Company does not know when, or if, it will generate any revenue

from its product candidates, and does not expect to generate revenue unless and until the Company obtains regulatory approval and commercialization

of its product candidates.

The Company expects its expenses

to increase significantly in connection with its ongoing activities, particularly as it continues and expands research, preclinical development,

and clinical development to support marketing approval for its product candidates. In addition, if the Company obtains approval for any

of its product candidates, the Company expects to incur significant commercialization expenses related to sales, marketing, manufacturing

and distribution. Furthermore, the Company expects to incur additional costs associated with operating as a public company.

106

The Company, therefore, anticipates that substantial additional funding

will be needed in connection with its continuing operations. At December 31, 2024, the Company had $3.3 million in cash and cash

equivalents. The Company intends to devote most of the available cash to the preclinical and clinical development of its product candidates

and public company compliance costs. Based on current business plans, the Company believes that the cash available at December 31, 2024

will not fund its operations and capital requirements for 12 months after the filing of the audited financial statements for the year

ended December 31, 2024. The Company has arranged two equity lines of credit, one providing for the sale of up to 25,000,000 newly issued

shares of Common Stock and the other providing for the purchase of up to $25 million of Common Stock on the satisfaction of certain conditions.

The Company has no guarantee that the conditions will be satisfied to require the purchase of all, or any additional amount, of the ELOC

funds. On February 5, 2025, the Company entered into the SPA, with participation from a member of the Company’s Board and a single

institutional investor, for the purchase and sale of (i) 2,551,020 shares of our common stock or common stock equivalents in lieu thereof;

and (ii) February 2025 Common Warrants to purchase up to 2,551,020 shares of common stock, at a combined public offering price of $1.96

per share and warrant. In connection with this offering, the Company received net proceeds of approximately $4.5 million. Additionally,

since December 31, 2024, the Company received net proceeds from the exercise of the remaining Series A Preferred Warrants, the collection

of subscriptions receivable and ELOC fundings of approximately $2.5 million. Any estimate as to how long the Company expects the net proceeds

from the ELOC funding may fund the Company’s operations is based on assumptions that may prove to be wrong, and the Company could

use its available capital resources sooner than its current expectations. Changing circumstances, some of which may be beyond the Company’s

control, could result in less cash and cash equivalents available to fund operations or cause the Company to consume capital significantly

faster than currently anticipated, and the Company may need to seek additional funds from additional sources sooner than planned.

Because of the numerous risks

and uncertainties associated with research, development and commercialization of pharmaceutical drug products, the Company is unable to

estimate the exact amount of its operating capital requirements. The Company’s future funding requirements will depend on many factors,

including, but not limited to those listed under “Factors Affecting Our Performance” above.

Identifying potential product

candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many

years to complete, and the Company may never generate the necessary data or results required to obtain marketing approval and achieve

product sales. In addition, the Company’s product candidates, if approved, may not achieve commercial success. Commercial revenues,

if any, will be derived from sales of product candidates that the Company does not expect to be commercially available in the near term,

if at all. Accordingly, the Company will need to continue to rely on additional financing to achieve its business objectives. Adequate

additional financing may not be available to the Company on acceptable terms, or at all. To the extent that the Company raises additional

capital through the sale of equity or convertible debt securities, the terms of these equity securities or this debt may restrict the

Company’s ability to operate. Any future debt financing and equity financing, if available, may involve covenants limiting and restricting

the ability to take specific actions, such as incurring additional debt, making capital expenditures, entering into profit-sharing or

other arrangements or declaring dividends. If the Company raises additional funds through collaborations, strategic alliances or marketing,

distribution or licensing arrangements with third parties, it may be required to relinquish valuable rights to its technologies, future

revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to the Company. If the

Company is unable to raise capital when needed or on acceptable terms, the Company could be forced to delay, reduce or eliminate its R&D

programs or future commercialization efforts.

Cash Flows

For the Years Ended December 31,

(Pro forma, Predecessor and Successor) 2023 (Predecessor) Difference

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Net cash used in operating activities

Net cash used in operating activities for the year ended December 31,

2024 primarily reflected a net loss of $8.3 million, adjusted for the reconciliation of non-cash items such as a gain on of the settlement

of vendor liabilities of $3.3 million, depreciation expense of $0.4 million, stock-based compensation of $0.9 million, amortization of

right-of-use asset of $0.7 million and a gain on revaluation of derivative and earnout liabilities of $5.2 million, and changes in operating

asset and liabilities primarily consisting of an increase in prepaid expenses and other current assets of $0.1 million, an increase in

accounts payable of $0.2 million, an increase in accrued liabilities of $2.3 million, and a decrease in operating lease liabilities of

$0.8 million.

Net cash used in operating activities for the year ended December 31,

2023 primarily reflected a net loss of $7.3 million, adjusted for the reconciliation of non-cash items such as depreciation expense of

$0.5 million, stock-based compensation of $0.1 million, amortization of right-of-use asset of $0.7 million and a gain on revaluation of

the preferred stock warrant liability of $0.3 million, and changes in operating asset and liabilities primarily consisting of an increase

in prepaid expenses and other current assets of $0.1 million, an increase in accounts payable of $1.3 million, and a decrease in operating

lease liabilities of $0.7 million.

Net cash provided by financing activities

Net cash provided by financing

activities for the year ended December 31, 2024 amounted to $13.73 million as compared to $0.6 million for the year ended December 31,

2023.

During the year ended December 31, 2024, net cash provided by financing

activities of $13.7 million was primarily attributable to the receipt of net proceeds of $7.2 million from the issuance of Series A and

B Preferred Stock, net proceeds of $0.8 million from the issuance of Series C Preferred Stock and associated warrants, net proceeds of

$4.8 million for the sale of common stock under the ELOC, and proceeds from the exercise of Series A warrants of $0.9 million.

During the year ended December

31, 2023, net cash provided by financing activities of $0.6 million was primarily attributable to the receipt of net proceeds of $0.6

million from the issuance of convertible notes payable.

Critical Accounting Estimates

Earnout liability- As a result

of the Merger in February 2024, the Company recognized an earnout liability of $4.9 million on the merger date. The earnout liability

is measured using unobservable (Level 3) inputs and was included in current liabilities on balance sheet. The Company estimated

the fair value of the earnout liability by applying a Monte-Carlo simulation method using the Company’s projection of future operating

results and the estimated probability of achievement of the earnout target metrics. The Monte-Carlo simulation is a generally

accepted statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of the

fair value of the earnout liability. The liability is remeasured to fair value using the Monte-Carlo simulation method at each reporting

period, and the change in fair value is recognized in other income (expense) until the contingency is resolved. During the year ended

December 31, 2024, the Company recorded a gain from change of fair value of the earnout liability of $4,880,000, which is included in

other income, net on the accompanying consolidated statement of operations.

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Stock-based compensation –

The Company periodically issues common stock and stock options to officers, directors, and consultants for services rendered. Stock-based

compensation accounting requires the recognition of stock-based compensation expense, using a grant date fair value-based method, for

costs related to all share-based payments including stock options and restricted stock awards granted to employees and non-employees.

Companies are required to estimate the fair value of all share-based payment awards on the date of grant using an option pricing model,

and the Company uses a Black-Scholes option pricing model (“Black-Scholes”) to estimate option award fair value. The assumptions

used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties

and the application of management’s judgment. The fair value of restricted stock awards is based upon the estimated share price

of the common shares on the date of grant. Forfeitures are accounted for as they occur, and the Company applies the simplified method

to estimate expected term of “plain vanilla” options. All options and restricted stock awards granted since inception are

expensed on a straight-line basis over the requisite service period, which is usually the vesting period, or upon the completion of certain

performance-based vesting terms and the related amounts are recognized in the statements of operations.

The accounting for stock

options granted to outside consultants is consistent with the accounting for stock-based payments to officers and directors, as described

above, by measuring the cost of services received in exchange for equity awards utilizing the grant date fair value of the awards, with

the cost recognized as stock-based compensation expense on the straight-line basis in the Company’s financial statements over the

vesting period of the awards.

Recent Accounting Standards

See the section titled in

Note 2 to the Company’s consolidated financial statements for the year ended December 31, 2024, appearing elsewhere herein.

Item 7A. Quantitative and Qualitative Disclosures

About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the

Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information under this

item.

Item 8. Financial Statements and Supplementary

Data.

Our consolidated financial

statements for the year ended December 31, 2024, together with the reports of our independent registered public accounting firm, appear

beginning on page F-1 of this Annual Report.

Item 9. Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure.

None.

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Item 9A. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures

that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act

is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls

are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the

Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our

Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our

disclosure controls and procedures as of December 31, 2024. Based upon their evaluation, our Chief Executive Officer and Chief Financial

Officer concluded that, as a result of the material weakness in internal control over financial reporting as described below, our disclosure

controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of December 31, 2024.

(b) Management’s Report on Internal Control

over Financial Reporting

Our management is responsible for establishing and maintaining adequate

internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal

control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of our consolidated financial statements for external reporting purposes in accordance with the accounting principles generally

accepted in the United States of America (“GAAP”). Our internal control over financial reporting includes those policies and

procedures that:

(1) pertain to the maintenance

of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company;

(2) provide reasonable assurance

that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that

our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(3) provide reasonable assurance

regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect

on the consolidated financial statements.

Because of its inherent limitations,

internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because

of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness

of our internal control over financial reporting at December 31, 2024. In making these assessments, management used the criteria set forth

by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on our

assessments and those criteria, management concluded that our internal control over financial reporting was not effective as of December

31, 2024 as a result of the material weakness in internal control over financial reporting as described below.

Our certifying officers concluded that the Company lacks effective

processes and controls to ensure the accuracy and completeness of its financial statements due to the lack of sufficient and qualified

resources. This material weakness led to the Company consistently failing to meet contractual deadlines for filing its financial statements.

In order to remediate the material weakness, the Company plans to hire additional qualified accounting personnel when the Company

has the financial resources to support such expenses, as well as engage consultants and purchase software licenses, if, and to the extent,

that the Company has sufficient financial resources for such additional expenses.

Management continues to evaluate

its plan to remediate the material weakness, which will not be considered remediated until management designs and implements effective

controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective.

This Annual Report does not

include an attestation report of our independent registered public accounting firm due to our status as an emerging growth company under

the JOBS Act.

110

Reporting

Other than described above, there

were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange

Act) during the year to which this Report relates that have materially affected or are reasonably likely to materially affect our internal

control over financial reporting.

(d) Inherent Limitations on Effectiveness of Controls

Our disclosure controls and

procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control

objectives. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable

assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of

possible controls and procedures. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error

or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

Item 9B. Other Information.

Rule 10b5-1 Plan or non-Rule

10b5-1 Trading Arrangements

During the three-month period

ended December 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended)

adopted, terminated or modified a Rule 10b5-1 trading arrangement or any “non-Rule 10b5-1 trading agreement” (as defined in

Item 408(c) of Regulation S-K).

Item 9C. Disclosure Regarding Foreign Jurisdictions

that Prevent Inspections.

Not applicable.

111

PART III

Item 10. Directors, Executive Officers and

Corporate Governance.

The information required

under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement