Apimeds Pharmaceuticals US, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and the related notes included in Item 1 of this Quarterly Report and our audited consolidated financial statements for the year ended December 31, 2025. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. All share and per-share amounts have been retroactively adjusted for the 1-for-10 reverse stock split effected July 24, 2026. Overview We operate through two reportable segments. Our BioBusiness segment, conducted through our subsidiary Lokahi Therapeutics Inc., is a clinical-stage pharmaceutical business developing APITOX for the treatment of pain associated with osteoarthritis and other indications. Our Digital Asset segment, conducted through MindWave Innovations Inc. and its subsidiaries, holds and transacts in digital assets, principally Bitcoin, Tether and NILA tokens. As of June 30, 2026 we held digital assets with a fair value of $116,737,168, representing 89% of our total assets. Because those assets are measured at fair value with changes recognized in earnings, our reported results are subject to substantial period-to-period volatility that is unrelated to our operating performance. On April 24, 2026 we entered into a Confidential Settlement Agreement and Mutual Release providing, among other things, for a working capital contribution to the BioBusiness, the distribution of 51% of the equity of Lokahi and a contemplated spin-off of the BioBusiness within approximately twelve months. As of June 30, 2026 the distribution had not been effected and Lokahi remained a wholly owned subsidiary. Going Concern We have incurred recurring losses and negative operating cash flows. We incurred a net loss of $55,232,982 for the six months ended June 30, 2026, used $7,734,893 of cash in operating activities, and had an accumulated deficit of $65,626,043 and cash and cash equivalents of $278,371 as of June 30, 2026. In addition, notes payable with an aggregate principal amount of $5,000,000 and a senior secured convertible note with an aggregate principal amount of $10,900,000 were current obligations as of June 30, 2026. These conditions raise substantial doubt about our ability to continue as a going concern, as further described in Note 2 to the condensed consolidated financial statements. Our conclusion has changed from the quarter ended March 31, 2026, when we concluded that our cash and expected sources of liquidity were sufficient for twelve months in reliance on the Securities Purchase Agreement providing for the issuance of notes in tranches with an aggregate redemption amount of up to $120,900,000. Additional tranches under that agreement are issuable only on satisfaction of the conditions in the agreement and at the holder’s election, and we have no unilateral right to draw; no further tranche has been drawn and the $10,900,000 drawn to date remains the only amount funded. In addition, since March 31, 2026 the holder of the senior secured convertible note delivered a notice of default, a forbearance agreement entered into on April 30, 2026 expired on June 30, 2026 without extension, our notes payable of $5,000,000 matured on July 1, 2026, $250,000 of the working capital contribution under the Settlement Agreement remained unfunded at June 30, 2026, and release of the $8,000,000 held under the deposit account control arrangement remains contingent on conversion of the Series A Convertible Preferred Stock in accordance with the note agreement and is not available for general corporate purposes. Those developments, taken together, are the basis for the change in conclusion. Results of Operations — Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025 Research and development expenses were $959,742 for the three months ended June 30, 2026, compared with $651,784 for the same period in 2025, an increase of $307,958, or 47%. The increase was driven by clinical manufacturing costs of $287,623, non-clinical study costs of $187,232 and professional consulting of $240,695, partially offset by lower Phase II clinical trial spend. General and administrative expenses were $5,319,018 for the three months ended June 30, 2026, compared with $2,012,120 for the same period in 2025, an increase of $3,306,898. The increase was driven principally by $1,281,090 of settlement-related legal and consulting fees, $1,150,000 of transaction and advisory fees, higher investor relations and public-company costs, and the inclusion of $1,153,443 of general and administrative expenses of the Digital Asset segment, which was not part of the Company in the prior-year period. 2 Total other expense, net, was $13,894,369 for the three months ended June 30, 2026, compared with other income, net, of $1,711 for the same period in 2025. The change reflects an unrealized loss on digital assets of $13,178,928 and interest expense of $3,223,755, partially offset by realized and trading gains on digital assets of $1,987,367, $282,732 of digital asset yield income and a $215,993 gain from the change in fair value of our derivative liability. Interest expense comprises $1,304,011 of contractual and flat interest on our notes payable and related-party notes and $1,859,744 of accretion of debt discounts and the $60,000 cash extension fee paid in June 2026 on Notes 2 and 3. As a result, net loss was $20,173,129, or $11.77 per basic and diluted share, for the three months ended June 30, 2026, compared with $2,662,193, or $2.57 per basic and diluted share, for the same period in 2025. Results of Operations — Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025 Research and development expenses were $1,860,886 for the six months ended June 30, 2026, compared with $651,784 for the same period in 2025. The increase reflects a full six months of clinical development activity, including manufacturing costs of $533,159, contract research organization fees of $297,309, professional consulting of $422,705, non-clinical studies of $187,232 and Phase II clinical trial costs of $140,000. General and administrative expenses were $16,603,568 for the six months ended June 30, 2026, compared with $2,376,488 for the same period in 2025. The increase was driven principally by the $8,113,318 non-cash charge for advisory shares committed for issuance, $1,281,090 of settlement-related legal and consulting fees, $1,210,000 of transaction and advisory fees, and the inclusion of $2,814,364 of general and administrative expenses of the Digital Asset segment. Total other expense, net, was $36,768,528 for the six months ended June 30, 2026, compared with $36,318 for the same period in 2025, driven principally by an unrealized loss on digital assets of $35,257,529 and interest expense of $4,083,160, partially offset by realized and trading gains on digital assets of $2,004,495, $282,732 of digital asset yield income and a $264,272 gain from the change in fair value of our derivative liability. Net loss was $55,232,982, or $33.83 per basic and diluted share, for the six months ended June 30, 2026, compared with $3,064,590, or $3.35 per basic and diluted share, for the same period in 2025. Segment Results For the three months ended June 30, 2026, the BioBusiness segment reported a net loss of $7,197,738, the Digital Asset segment reported a net loss of $12,061,814 and Corporate reported a net loss of $913,577. For the six months ended June 30, 2026, the BioBusiness segment reported a net loss of $9,479,177, the Digital Asset segment reported a net loss of $35,785,775 and Corporate reported a net loss of $9,968,030. Segment assets as of June 30, 2026 were $2,497,274 for the BioBusiness segment, $117,075,940 for the Digital Asset segment and $9,769,393 for Corporate. Liquidity and Capital Resources As of June 30, 2026, we had cash and cash equivalents of $278,371 and restricted cash of $8,000,000, compared with $1,636,655 and $8,000,000, respectively, as of December 31, 2025. Our restricted cash consists of $8,000,000 held in a deposit account control arrangement for the benefit of the holder of our senior secured convertible note, pending release upon conversion of the Series A Convertible Preferred Stock in accordance with the terms of the note agreement, and is not available for general corporate purposes. Net cash used in operating activities was $7,734,893 for the six months ended June 30, 2026, compared with $3,381,409 for the same period in 2025. The 2026 amount reflects our net loss of $55,232,982, adjusted for non-cash items including $35,257,529 of unrealized losses on digital assets, $8,113,318 of advisory shares committed for issuance, $2,710,762 of non-cash accretion of debt discounts, $1,212,398 of accrued but unpaid interest and $219,376 of stock-based compensation, and for a $2,302,994 increase in accounts payable and accrued expenses. Net cash provided by investing activities was $1,990,606 for the six months ended June 30, 2026, comprising $2,000,000 of redemptions of short-term investments, partially offset by $9,394 of equipment purchases. Net cash used in investing activities was $13,369 for the same period in 2025. Net cash provided by financing activities was $4,386,002 for the six months ended June 30, 2026, comprising $5,970,000 of proceeds from notes payable net of original issue discount and $1,002 of subscription receivable collected, less $1,000,000 of note repayments and $585,000 of debt issuance costs paid. Net cash provided by financing activities was $12,126,646 for the same period in 2025, principally from our initial public offering and note financings. 3 Our ability to fund operations depends on our ability to raise additional capital, to monetize our digital-asset holdings, and to repay, extend or restructure our notes payable and senior secured convertible note. These factors raise substantial doubt about our ability to continue as a going concern. Critical Accounting Estimates Our critical accounting estimates include the fair value measurement of our digital assets under ASC 350-60 — in particular the NILA token, which is measured using Level 2 inputs and represented $49,983,968, or 43%, of our digital assets as of June 30, 2026 — the fair value of the embedded conversion feature accounted for as a Level 3 derivative liability and measured using a Monte Carlo simulation, and the effective interest rates used to accrete debt discounts. Changes in the assumptions underlying these estimates could have a material effect on our reported results. Off-Balance-Sheet Arrangements We do not have any off-balance-sheet arrangements as defined under SEC rules.