Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements and Industry Data.” Because of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company in transition, evaluating the development of a dedicated, on-premises artificial intelligence (AI) infrastructure platform for the biotechnology industry. Our current focus is leveraging our mesenchymal stem cell secretome platform to test development of a scalable AI platform-as-a-service business to deploy secure, purpose-built AI systems directly within biotech and pharmaceutical client environments. We have historically been engaged in the research, development and commercialization of innovative therapies for rare and severe diseases of the front and back of the eye. Our lead product candidate was KPI-012, a MSC-S, which we acquired from Combangio on November 15, 2021. KPI-012 was in clinical development for the treatment of PCED, a rare disease of impaired corneal healing. Based on the results of a Phase 1b clinical safety and efficacy trial of KPI-012 in patients with PCED, we submitted an investigational new drug application to the FDA, which was accepted in December 2022. In February 2023, we dosed our first patient in the United States in our CHASE trial. By September 2025, the CHASE trial did not meet its primary endpoints, and we determined to discontinue our development of KPI-012 and the MSC-S platform. We have since expanded upon our business to evaluate strategic alternatives for our legacy MSC-S assets and capitalize on the substantial intellectual property (IP), proprietary biological datasets, and research experience generated during the clinical trials by starting development of an AI platform.
We are in the process of evaluating and transitioning from historical biologics research and development (R&D) activities to an “AI platform-as-a-service” model intended to provide dedicated, on-premises artificial intelligence infrastructure solutions to biotechnology and pharmaceutical customers. Following the discontinuation of the CHASE Phase 2b clinical trial of KPI-012 in September 2025 and the subsequent resolution of our obligations to Oxford Finance, our current operating focus is (i) the monetization or out-licensing of remaining biologics-related assets and (ii) development and commercialization planning for our licensed Researgency AI platform. This transition is expected to impact our operating expenses, capital requirements, and sources and uses of cash as described further below.
We have refocused our business on two complementary strategic priorities. First, we are preserving and seeking to maximize the value of our MSC-S biologics asset portfolio, including the KPI-012 and KPI-014 product candidates and related intellectual property, through potential licensing, collaboration, and other strategic arrangements with third parties, as well as through evaluation of opportunities to resume preclinical development activities subject to the availability of additional capital. Second, we are building our Researgency business through our exclusive license for Researgency, which we intend to deploy as a dedicated, on-premises AI infrastructure solution for biotechnology and pharmaceutical companies. We believe this dual-track strategy preserves and creates optionality with respect to our biologics assets while simultaneously pursuing a potential business opportunity in the rapidly growing AI platform market for the biotechnology industry.
Since inception, we have incurred significant losses from operations and negative cash flows from operations. Our net losses were $27.0 million for the year ended December 31, 2025 and $38.5 million for the year ended December 31, 2024. As of December 31, 2025, we had an accumulated deficit of $694.9 million. We have historically financed our operations primarily through proceeds from the sale of our Commercial Business to Alcon, our IPO, follow-on public Common Stock offerings and sales of our Common Stock under our sales agreement with Jefferies, LLC in at-the-market offerings, private placements of Common Stock and/or preferred stock (including our most recent private placements resulting in gross proceeds of approximately $1.2 million in November 2025 and $4.2 million in January 2026).
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Material Fourth Quarter 2025 Developments
Oxford Foreclosure and Workforce Terminations
On September 29, 2025, we received a written notice (the “Default Notice”) of event of default from Oxford Finance LLC (“Oxford Finance”), with respect to the Loan and Security Agreement, dated as of May 4, 2021, by and among us, Combangio and Oxford Finance, as lender and collateral agent (as amended, the “Loan Agreement”). The Default Notice asserted that an event of default had occurred under the Loan Agreement and that the Company’s obligations under the Loan Agreement were immediately due and payable. The total amount of our obligations under the Loan Agreement as of the date of the Default Notice that were accelerated and declared payable by Oxford Finance was $29.1 million, plus any additional interest due upon final payment and any expenses that become payable by us under the Loan Agreement.
On October 18, 2025, Oxford Finance informed us that it intended to foreclose on all of our remaining assets and that Oxford Finance would not consent to our use of cash for any reason other than for minimal payroll expenses pending Oxford Finance’s foreclosure of our assets. In addition, Oxford swept substantially all of our cash resources from our bank accounts. As a result, on October 19, 2025, we terminated all remaining employees not deemed necessary by Oxford Finance to execute a foreclosure of our assets.
On November 3, 2025, Oxford Finance informed us that it intended to pause its foreclosure of our assets and permitted us to use $125,000 of cash it previously swept to fund the negotiation and execution of the Convertible Loan Agreement (as defined below).
On November 25, 2025, we entered into a Loan Settlement Agreement (the “Settlement Agreement”) with Oxford Finance pursuant to which the Company owed Oxford Finance $2.0 million to be paid pursuant to the terms of the Settlement Agreement. The Settlement Agreement was entered into in connection with events of default by the Company, under the Loan Agreement. On December 26, 2025, the Company paid Oxford Finance $2.0 million, resulting in the Company’s obligations under the Settlement Agreement and the Loan Agreement being satisfied and the aggregate liability due to Oxford Finance of approximately $10,600 being settled and released.
Convertible Loan Agreement
On November 9, 2025, we entered into a Convertible Loan Agreement (the “Convertible Loan Agreement”) with David Lazar, an individual lender, pursuant to which David Lazar provided us a convertible loan in the aggregate amount of $375,000 (the “Loan Principal”).
Pursuant to the terms of the Convertible Loan Agreement, the Loan Principal bore simple interest at a rate equal to 15% per annum, commencing on the date we receive the applicable portion of the Loan Principal and until full repayment thereof in accordance with the terms of the Convertible Loan Agreement. The Loan Principal was due and payable by us to David Lazar on the first anniversary of receiving the Loan Principal. Subject to compliance with the rules and regulations of The Nasdaq Stock Market, at any time prior to the full repayment of the Loan Amount to David Lazar, David Lazar had the right, upon prior written notice to us, to convert all or any of the then outstanding and unpaid portion of the Loan Amount into shares of our Common Stock at the conversion prices specified in the Convertible Loan Agreement. In addition, if we had entered into a definitive agreement to consummate an M&A Transaction (as defined in the Convertible Loan Agreement) or an underwritten public offering, and if the Loan Amount had not previously converted or been repaid pursuant to the Convertible Loan Agreement, David Lazar had the right to elect to (i) convert the entire Loan Amount into the most senior class of shares issued us immediately prior to such events or (ii) have the entire Loan Amount repaid in cash. We repaid the Loan Principal in full to David Lazar on December 18, 2025.
Private Placement of Series AA Preferred Stock
On November 23, 2025, the Company entered into a Securities Purchase Agreement (the “November 2025 Purchase Agreement”) with David Lazar, pursuant to which the Company agreed to issue and sell, in a private placement, shares of our Series AA Preferred Convertible Preferred Stock, par value $0.001 per share (the “Series AA
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Preferred Stock”) and our Series AAA Preferred Stock, par value $0.001 per share (the “Series AAA Preferred Stock”), in two closings for aggregate gross proceeds of up to $6.0 million, subject to the terms and conditions set forth in the November 2025 Securities Purchase Agreement (the “Series AA Private Placement”).
The closing of the Series AA Private Placement occurred on November 24, 2025, on which date we issued and sold to David Lazar an aggregate of 900,000 shares of Series AA Preferred Stock at a price per share equal to $2.00, for aggregate gross proceeds of $1.8 million. Each share of Series AA Preferred Stock was convertible into 55 shares of Common Stock for an aggregate total of 49,500,000 shares of Common Stock issuable upon conversion of the Series AA Preferred Stock. As of March 31, 2026, all of the shares of Series AA Preferred Stock have been converted to shares of Common Stock, and there are no Series AA Preferred Shares of the Company outstanding. As of March 31, 2026, there were 681,818 shares of Series AA Preferred Stock outstanding.
Pursuant to the November 2025 Purchase Agreement, the Company also agreed to issue and sell to David Lazar 2,100,000 Series AAA Preferred Shares, at a price per Series AAA Preferred Share equal to $2.00, for aggregate gross proceeds of $4.2 million. The closing of the Series AAA Preferred Stock was subject to (i) the approval by the Company’s stockholders at a meeting of stockholders (the “Stockholder Meeting”) of (A) an increase in the number of authorized shares of Common Stock to enable the Company to issue all of the shares of Common Stock that are issuable upon the conversion of the Series AA Preferred Stock and Series AAA Preferred Stock into Common Stock (the “Share Increase”) and (B) the conversion of the Series AA Preferred Stock and Series AAA Preferred Stock into shares of Common Stock in accordance with the listing rules of Nasdaq (collectively, the “Stockholder Approvals”), (ii) the filing of an amendment to the Company’s Restated Certificate of Incorporation, as amended (the “Restated Certificate of Incorporation), with the Secretary of State of the State of Delaware (the “Charter Amendment”) effecting the Share Increase, (iii) the filing of a Certificate of Designations, Preferences and Rights of Series AAA Convertible Non-Redeemable Preferred Stock (the “Series AAA Certificate of Designations”), with the Secretary of State of the State of Delaware creating the Series AAA Preferred Stock, and (iv) the satisfaction of other customary closing conditions.
Pursuant to the Securities Purchase Agreement, if at any time during the six-month period following the date of the closing of the Series AAA Preferred Stock (the “Participation Period”), the Company proposes to offer and sell new equity securities in an offering that is conducted pursuant to an exemption from registration under the Securities Act, or in an offering that is registered under the Securities Act that is not conducted as a firm-commitment underwritten offering, then, subject to compliance with securities laws and regulations, the Company has agreed to offer David Lazar the right to purchase, on the same terms, including the price per security, and subject to the same conditions, as are applicable to the other investors in such offering, that amount of new equity securities equal to up to 25% of the total amount of new equity securities being offered for sale in such offering. In addition, if during the Participation Period, the Company proposes to offer and sell new equity securities in a firm-commitment underwritten offering registered under the Securities Act, then subject to compliance with securities laws and regulations, the Company has agreed to use its commercially reasonable efforts to cause the managing underwriters of such offering to contact the Investor about potentially participating in such offering and to provide to the Investor the opportunity to purchase up to 25% of the total new equity securities, subject to certain conditions and limitations.
Pursuant to the November 2025 Purchase Agreement, subject to obtaining Stockholder Approvals and the consummation of the Second Closing, David Lazar has the right to recommend to the Company up to eight individuals to be nominated for election at the Stockholder Meeting (the “Investor Nominees”), provided that such right shall at all times be subject to, and in compliance with, Nasdaq Listing Rule 5640.
On December 11, 2025, David Lazar transferred his rights and obligations under the November 2025 Purchase Agreement solely with respect to the shares of Series AAA Preferred Stock and the director nomination rights, to AK Holdings Group Inc., a Panamanian company (“AK Holdings”).
December 2025 Registered Direct Offering
On December 4, 2025, we entered into a securities purchase agreement (the “December 2025 Purchase Agreement”) with a certain institutional investor (the “RD Investor”), pursuant to which the Company agreed to issue and sell in a registered direct offering (the “RD Offering”) (i) 900,000 shares of the Company’s Common Stock and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 9,100,000 shares of Common Stock
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(the “Pre-Funded Warrant Shares”), at a purchase price of $1.00 per Pre-Funded Warrant Share (less $0.0001 per Pre-Funded Warrant). The gross proceeds to the Company from the RD Offering was approximately $10.0 million before deducting placement agent fees and other offering expenses payable by the Company.
The shares of Common Stock, Pre-Funded Warrants and Pre-Funded Warrant Shares were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-270263) which was filed with the Securities and Exchange Commission (the “SEC”) on March 3, 2023, as amended, and declared effective by the SEC on May 11, 2023, and related base prospectus and a prospectus supplement dated December 4, 2025, thereunder.
The Pre-Funded Warrants have an initial exercise price per share of $0.0001, subject to certain adjustments. The Pre-Funded Warrants may be exercised at any time until exercised in full, except that a holder (together with its affiliates) will not be entitled to exercise any portion of any Pre-Funded Warrant, which, upon giving effect to such exercise would cause the aggregate number of shares of the Company’s Common Stock beneficially owned by the holder (together with its affiliates) to exceed 4.99% (or, upon election of the holder, 9.99%) of the number of shares of Common Stock outstanding immediately prior to or after giving effect to the exercise, subject to such holder’s rights under the Pre-Funded Warrants to increase or decrease such percentage to another percentage not in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Pre-Funded warrants, provided that any increase shall only be effective upon at least 61 days’ prior notice from such holder to the Company. The Offering closed on December 5, 2025.
Pursuant to the terms of the Purchase Agreement, the Company has agreed to certain restrictions on the issuance and sale of its Common Stock or Common Stock Equivalents (as defined in the December 2025 Purchase Agreement) until 30 days following the closing date, and not to issue any Common Stock or Common Stock Equivalents in a Variable Rate Transaction (as defined in the December 2025 Purchase Agreement) for one year from the closing date, subject to an exception as contained therein.
Recent Developments
ATM Facility
On January 8, 2026, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”) providing for the sale and issuance by the Company of shares of its Common Stock from time to time, through or to Wainwright as the Company’s sales agent or principal in an “at the market offering” program and as set forth in the ATM Agreement (the “ATM Offering”).
The Company filed a prospectus supplement, dated January 8, 2026, including an accompanying base prospectus, dated May 11, 2023, contained therein (the “ATM Prospectus Supplement”), which together form a part of the Company’s shelf registration statement on Form S-3, as amended (File No. 333-270263), initially filed by the Company with the SEC on March 3, 2023 and declared effective by the SEC on May 11, 2023 in connection with the offer and sale of shares of Common Stock pursuant to the ATM Agreement. The aggregate market value of the shares of Common Stock eligible for sale under the prospectus supplement is currently $15.0 million.
Pursuant to the terms of the ATM Agreement, Wainwright agreed to use its commercially reasonable efforts, consistent with applicable state and federal law, rules and regulations, and the rules of the Nasdaq Capital Market, to sell the shares of Common Stock from time to time. Under the ATM Agreement, the Company may designate the parameters for the sale of shares of Common Stock, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number of shares that may be sold on any trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the ATM Agreement, Wainwright may sell the shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act, including without limitation, sales made directly on Nasdaq or on any other existing trading market for the Common Stock or to or through a market maker. In addition, with the Company’s prior written approval, Wainwright may also sell shares in privately negotiated transactions or block transactions. The gross sales price of the shares of
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Common Stock sold by Wainwright under the ATM Agreement as sales agent is the market price for the shares of Common Stock on Nasdaq at the time of sale.
Private Placement of Series AAA Preferred Stock
On January 29, 2026, pursuant to the terms of a certain Rights Purchase Agreement, by and among AK Holdings and each signatory thereto (the “Series AAA Investors”), AK Holdings sold its rights to purchase the Series AAA Preferred Stock (but not its director nomination rights under the November 2025 Purchase Agreement) to the Series AAA Investors.
On January 30, 2026, the Company entered into a Securities Purchase Agreement (the “January 2026 Purchase Agreement”), pursuant to which we issued and sold to the “Series AAA Investors” in a private placement (the “January 2026 Private Placement”), an aggregate of 2,100,000 shares of Series AAA Preferred Stock at a price per share equal to $2.00, for aggregate gross proceeds of $4.2 million. The closing of the January 2026 Private Placement occurred on January 30, 2026. Each share of Series AAA Preferred Stock was convertible into 420 shares of Common Stock for an aggregate total of 882,000,000 shares of Common Stock issuable upon conversion of the Series AAA Preferred Stock. As of the date of this Annual Report on Form 10-K, all of the shares of Series AAA Preferred Stock have been converted into shares of Common Stock and there are no Series AAA Preferred Shares of the Company outstanding.
Loan and Security Agreement
On February 9, 2026, the Company made a loan (the “Loan”) in the principal amount of $7.0 million evidenced by a secured promissory note (the “Note”) to Minglemint Solutions LLC (“Borrower”). The Loan bears interest at a rate of 8.0% per annum, and is due and payable on February 9, 2027.
The Note includes customary event of default provisions, including, but not limited to, for a breach of any representations and warranties or covenants, any bankruptcy or insolvency proceedings of the Borrower, and the failure of the Borrower to pay, upon 15 days’ written notice of default, any principal amount of the Loan or interest due. The Note provides for a default interest rate of 13.0%. As described in the Note, upon the occurrence of certain events of default, the Company may, among other remedies, declare the outstanding balance of the Note including all accrued interest thereon immediately due and payable.
Additionally, the Note is secured by a continuing first priority lien and security interest in all fixtures and personal property of the Borrower (the “Collateral”), pursuant to the security agreement with the Borrower dated February 9, 2026 (the “Security Agreement”). The Collateral includes, but is not limited to, all accounts, goods, documents, instruments, securities and investment properties, money, accounts and rights to payment of the Borrower, and any proceeds, records and obligations relating to the foregoing, as more fully detailed in the Security Agreement.
Platform Development and Exclusive License Agreement
On March 3, 2026, the Company entered into a Platform Development and Exclusive License Agreement (the “Younet License Agreement”) pursuant to which the Company obtained a worldwide exclusive license of Younet’s Researgency Platform, together with associated trademarks and intellectual property. The term of the Younet License Agreement is for 12 months following the Effective Date (the “Initial Term”), with the option by the Company to renew the agreement for successive 12 months terms (each, a “Renewal Term”), in each case by providing notice to Younet pursuant to the terms of the Agreement (the “Extension Notice”). Pursuant to the Agreement, Younet agreed to provide to the Company certain deliverables and services related to the Researgency Platform, with certain additional deliverables to be provided by Younet in the event of a Renewal Term, in each case with all operating costs relating to the Researgency Platform to be paid by the Company.
In consideration of the services to be performed by Younet under the Agreement, the Company paid to Younet for the Initial Term a cash fee of up to $530,000 consisting of (i) $80,000 in cash, which was paid by the Company on the Effective Date, and (ii) in the event the Company delivers to Younet a written notice electing to engage Younet for the continued development of Researgency, $450,000 in cash, payable in 9 monthly installments of $50,000, pursuant to
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the terms of the Agreement. Such notice may be provided at any time on or after the first business day of the third month following the Effective Date and such continued development may be terminated upon 30 days notice by the Company. In addition, the Company has to issued to Younet 5,000,000 shares of Common Stock, within 10 business days of the Effective Date. In addition, each time the Agreement is extended for a Renewal Term, the Company shall (i) pay to Younet $250,000 in cash and (ii) issue to Younet 5,000,000 shares of Common Stock within 10 business days of the Extension Notice. Any shares of Common Stock issuable to Younet pursuant to the Agreement shall herein be referred to as the “Younet Shares.” Except for certain block trades, during the Term (as defined in the Agreement) and for the twelve months thereafter, Younet shall not sell any Younet Shares on any Trading Day (as defined in the Agreement) in an amount that exceeds 3% of the Daily Trading Volume (as defined in the Agreement) for such Trading Day.
In addition, Younet has granted to the Company an irrevocable option, exercisable at any time during the Initial Term or any Renewal Terms, to acquire all of the issued and outstanding equity interests of Younet, or, at the Company’s election, substantially all of the assets of Younet, for a total purchase price of $55,000,000, subject to the terms of the Agreement.
If the Company does not deliver an Extension Notice prior to the expiration of the Initial Term or any Renewal Term, the Agreement shall expire automatically at the end of the applicable term. In addition, the Agreement may be terminated by either party (i) for uncured material breach or (ii) due to the insolvency of the other party. Upon termination or expiration, (a) the Exclusive License will terminated, (b) all licenses granted to Younet with respect to KALA Data (as defined in the Agreement) will immediately terminate, (c) all licenses granted to the Company with respect to Younet Background IP (as defined in the Agreement) will survive in accordance with their terms, and (d) all Work Product (as defined in the Agreement) completed as of the date of termination shall be delivered to and owned by the Company.
Nasdaq Deficiencies
On November 10, 2025, we received a deficiency letter (the “MVLS Letter”) from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market notifying us that the listing of our Common Stock was not in compliance with Nasdaq Listing Rule 5550(b)(2) (the “Minimum MVLS Requirement”) for continued listing on Nasdaq, as the market value of our listed securities was less than $35 million for the previous 30 consecutive business days.
In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we have been provided a period of 180 calendar days, or until May 11, 2026 (the “MVLS Compliance Date”), to regain compliance with the Minimum MVLS Requirement. If, at any time before the MVLS Compliance Date, the market value of our listed securities closes at $35 million or more for a minimum of 10 consecutive business days, the Staff will provide written notification to us that we have regained compliance with the Minimum MVLS Requirement.
If we do not regain compliance with the Minimum MVLS Requirement by the MVLS Compliance Date, we will receive written notification that our securities are subject to delisting. At that time, we may appeal the Staff’s delisting determination to a Nasdaq Listing Qualifications Panel (the “Panel”) pursuant to the procedures set forth in the applicable Nasdaq Listing Rules. However, there can be no assurance that, if we receive a delisting notice and appeal the delisting determination by the Staff to the Panel, such appeal would be successful.
In addition, on January 20, 2026, we received a letter from the Staff indicating that, based upon the closing bid price of the Company’s Common Stock for the 30 consecutive business days between December 3, 2025, to January 16, 2026, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”). The letter also indicated that we will be provided with a compliance period of 180 calendar days, or until July 20, 2026 (the “Minimum Bid Price Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).
In order to regain compliance with the Minimum Bid Price Rule, our Common Stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Minimum Bid Price Compliance Period. In the event we do not regain compliance by the end of the Minimum Bid Price Compliance Period, we may be eligible for additional time to regain compliance. To qualify, we will be required to meet the continued listing requirement for
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the market value of its publicly held shares and all other initial listing standards for Nasdaq, with the exception of the bid price requirement, and will need to provide written notice of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split if necessary. If we meet these requirements, we may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that we will be unable to cure the deficiency, or if we are not otherwise eligible for the additional cure period, Nasdaq will provide notice that our Common Stock will be subject to delisting. There can be no assurance that we will be eligible for the additional 180 calendar day compliance period, if applicable, or that the Nasdaq staff would grant our request for continued listing subsequent to any delisting notification. In the event of such a notification, we may appeal the Staff’s determination to delist its securities.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value 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 the notes to our financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the following critical accounting estimates are those most critical to the judgments and estimates used in the preparation of our financial statements and that involve a significant level of estimation uncertainty.
Grant Income
We account for grants received to perform research and development activities in accordance with Accounting Standards Codification Topic 730-20, Research and Development Arrangements , which requires an assessment, at the inception of the grant, of whether the grant is a liability or a contract to perform research and development activities. If we are obligated to repay the grant funds to the grantor regardless of the outcome of the research and development activities, then we are required to estimate and recognize that liability. Alternatively, if we are not required to repay, or if we were required to repay the grant funds only if the research and development activities are successful, then the grant agreement is accounted for as a contract to perform research and development activities, in which case, grant income is recognized as the related research and development expenses are incurred. Grant income recognized is based on a calculation derived from the eligible research and development expenses incurred which is, in part, based on estimates, specifically related to costs incurred for services performed by our vendors in connection with research and development activities for which we have not been invoiced. We base our estimates on the best information available at the time. Costs of grant income are recorded as a component of research and development expenses in our consolidated statements of operations and comprehensive loss.
Acquisition Accounting
We are required to make significant judgments and estimates to determine whether an acquisition constitutes an acquisition of a business or assets. For asset acquisitions, this includes whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. We are also required to make several significant judgments and estimates in order to determine the total consideration transferred for the asset acquisition and then allocate it to the assets that we have acquired and the liabilities that we have assumed on a relative fair value basis. If the asset related to acquired in-process research and development expenses has no alternative future use, it is expensed immediately upon the completion of the transaction.
In addition to upfront consideration, our asset acquisitions may also include contingent consideration payments to be made for future milestone events or royalties on net sales of future products. We assess whether such contingent
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consideration is required to be recorded at fair value on the date of the acquisition and subsequently remeasured to fair value at each reporting date. Contingent consideration payments in an asset acquisition not required to be recorded at fair value are recognized when the contingency is resolved, and the consideration is paid or becomes payable. Changes in the fair value of the contingent milestone payments can result from changes to one or more inputs, including adjustments to the probability of achievement, timing of the contingent milestone payments and changes to the applicable discount rates. Significant judgment is used in determining these assumptions and estimates during each reporting period. Reasonable changes in these assumptions can cause material changes to the fair value of our contingent consideration liability. Any changes in the fair value of these contingent consideration liabilities are included in loss from operations in the consolidated statements of operations and comprehensive loss. For information related to the unobservable inputs related to the contingent consideration, see Note 3, “Fair Value of Financial Instruments”, of our consolidated financial statements.
Results of Operations
Comparison of the Years Ended December 31, 2025 and 2024
The following table summarizes the results of our operations for the years ended December 31, 2025 and 2024:
Year Ended
December 31,
2025
2024
Change
(in thousands)
Costs and expenses:
General and administrative
$
23,629
$
18,340
$
5,289
Research and development
18,780
22,094
(3,314)
(Gain) Loss on fair value remeasurement of contingent consideration
(4,659)
549
(5,208)
Impairment of right-of-use assets
1,411
—
1,411
Total operating expenses
39,161
40,983
(1,822)
Loss from operations
(39,161)
(40,983)
1,822
Other income (expense)
Interest income
1,140
2,056
(916)
Interest expense
(3,276)
(5,783)
2,507
Grant income
3,377
6,199
(2,822)
Gain on extinguishment of debt
5,793
—
5,793
Other income (expense), net
5,147
—
5,147
Net loss
$
(26,980)
$
(38,511)
$
11,531
General and administrative expenses
General and administrative expenses consist primarily of salaries, benefits, stock-based compensation and travel expenses related to our executive, finance, human resources, legal, compliance, information technology and business development functions. General and administrative expenses also include professional fees for auditing, tax, information technology, consultants, legal services and allocated facility related costs not otherwise included in research and development expenses.
General and administrative expenses were $23.6 million for the year ended December 31, 2025, compared to $18.3 million for the year ended December 31, 2024, which was an increase of $5.3 million, or 29.0%. The increase in general and administrative expenses for the year ended December 31, 2025 was primarily due to a $2.7 million increase in administrative and professional service fees and $2.6 million increase in employee-related costs, primarily a result of our decision to cease development of KPI-012 and our MSC-S platform, including costs related to restructuring and wind-down activities, increased legal and professional services support, and higher employee-related costs in connection with those activities .
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Research and development expenses
The following table summarizes the research and development expenses incurred during the years ended December 31, 2025 and 2024:
Year Ended
December 31,
2025
2024
Change
(in thousands)
KPI‑012 development costs
$
8,156
$
10,170
$
(2,014)
Employee‑related costs for research and development personnel
8,928
10,757
(1,829)
Other research and development costs
1,696
1,167
529
Total research and development
$
18,780
$
22,094
$
(3,314)
Research and development expenses consist of costs associated with our research activities, including compensation and benefits for full time research and development employees, an allocation of facilities expenses, overhead expenses and certain outside expenses. Our research and development expenses generally include: employee related expenses, including salaries and stock based compensation; expenses incurred for the preclinical and clinical development of our product candidates and under agreements with contract research organizations, including costs of manufacturing product candidates prior to the determination that FDA approval of a drug candidate is probable and before the future economic benefit of the drug is expected to be realized; and facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and supplies.
We expense research and development costs as they are incurred. We expense costs relating to the production of inventory for our product candidates, as research and development expenses within our consolidated statements of operations and comprehensive loss in the period incurred, unless we believe regulatory approval and subsequent commercialization of the product candidate is probable and we expect the future economic benefit from sales of the drug to be realized. Research and development costs that are paid in advance of performance are capitalized as a prepaid expense until incurred. We track outsourced development costs by development program but do not allocate personnel costs, payments made under license agreements or other costs to specific product candidates or development programs. These costs are included in employee related costs and other research and development costs in the line items in the above table.
Research and development expenses were $18.8 million for the year ended December 31, 2025, compared to $22.1 million for the year ended December 31, 2024, a decrease of $3.3 million driven by a $2.0 million decrease in KPI-012 clinical development costs following our discontinuation of our MSC-S platform and a $1.8 million decrease in personnel and facilities expenses after workforce reductions.
(Gain) loss on fair value remeasurement of contingent consideration
We recorded an obligation for such contingent consideration at fair value on the acquisition date. We then revalue our contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations, other than changes due to issuance, are recognized as a gain or loss on fair value remeasurement of contingent consideration in our consolidated statements of operations and comprehensive loss.
Gain on fair value remeasurement of Contingent Consideration for the year ended December 31, 2025 was $4.7 million as compared to a loss of $0.5 million for the year ended December 31, 2024, primarily due to our decision to cease development of KPI-012 and our MSC-S platform .
Impairment of right-of-use assets
Impairment of right-of-use assets for the year ended December 31, 2025 was $1.4 million of expense, compared to $0 for the year ended December 31, 2024, due to the impairment of the right-of-use asset related to our Menlo Park lease.
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Interest income
Interest income consists of interest earned on our cash, cash equivalents and short-term investments, if any.
Interest income was $1.1 million for the year ended December 31, 2025, compared to $2.1 million for the year ended December 31, 2024, a decrease of $1.0 million. Interest income consists of interest earned on our cash, cash equivalents and short-term investments, if any. The decrease was attributable to a lower cash balance during the year ended December 31, 2025 as compared to the year ended December 31, 2024.
Interest expense
Interest expense primarily consists of contractual coupon interest, amortization of debt discounts and debt issuance costs and accretion of the final payment fee recognized on our debt arrangements
Interest expense was $3.3 million and $5.8 million for the years ended December 31, 2025 and 2024, respectively. I nterest expense for the years ended December 31, 2025 and 2024 was comprised of the contractual coupon interest expense, the amortization of the debt discount and the accretion of the final payment fee associated with our Loan Agreement with Oxford Finance. The decrease in 2025 was primarily a result of the Settlement Agreement during the fourth quarter of 2025. As of December 31, 2025, $0 million of indebtedness was outstanding under our Loan Agreement. During the year ended December 31, 2024, $34.0 million of indebtedness was outstanding under our Loan Agreement until $4.7 million was repaid on December 26, 2024 resulting in an outstanding indebtedness of $29.3 million as of December 31, 2024.
Grant income
Grant income for the years ended December 31, 2025 and 2024 was $3.4 million and $6.2 million, respectively, related to the CIRM Award. The decrease in grant income was due to the early achievement of specified milestones under the CIRM Award and the timing of the associated costs related to the CHASE Phase 2b clinical trial. The CIRM Award is not in the scope of the contracts with customers accounting guidance as the government entity is not a customer under the agreement. Rather, the CIRM Award is accounted for as a contract to perform research and development activities. As a result, grant income is recognized as the related research and development expenses are incurred. Additionally, on September 29, 2025, the Company announced that the CHASE trial of KPI-012 for the treatment of PCED did not meet the primary endpoint of complete healing of PCED as measured by corneal fluorescein staining. The CHASE trial also failed to achieve statistical significance for key secondary efficacy endpoints and did not show any meaningful difference between either KPI-012 treatment arm and the placebo arm. Based on the CHASE trial results, we determined to cease development of KPI-012 and our MSC-S platform, and as such, we do not expect to receive grant income relating to the CIRM Award in the near future.
Gain on extinguishment of debt
We recognized a gain on extinguishment of debt of $5.8 million for the year ended December 31, 2025, compared to $0 for the year ended December 31, 2024, an increase of $5.8 million. This gain was recorded in connection with the resolution of our obligations under our debt arrangements during 2025. Because this item relates to a discrete financing and settlement event, the amount may not be indicative of our ongoing results of operations.
Other income (expense), net
Other income, net for the year ended December 31, 2025 was $5.1 million, compared to $0 for the year ended December 31, 2024, an increase of $5.1 million, primarily related to gains associated with settlements, including a $3.4 million gain on executive compensation settlements, $1.4 million gain on other liabilities’ settlements and $0.9 million gain on Menlo Park lease settlement, partially offset by $0.5 million loss on disposal of fixed assets. There was no other expense, net for the year ended December 31, 2024. Because these items reflect discrete settlement activity, they may not be indicative of future period results.
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Known trends, events and uncertainties affecting results of operations
We expect our results of operations to continue to be materially affected by the fact that we do not have revenue-generating commercial products and are dependent on external financing, asset monetization transactions, and/or partnering activity to fund operations. In addition, our future operating results are expected to be influenced by the timing, structure, and probability of any potential out-licensing or collaboration arrangements relating to KPI-012, KPI-014, and related intellectual property, as well as execution and commercialization risks associated with our Researgency initiative, including the time and cost required to develop and deploy on-premises AI systems, the pace of customer evaluation and adoption, and the evolution of the regulatory and data-governance environment applicable to AI-enabled platforms. Our operating results may also be affected by the impacts of prior workforce reductions and broader capital markets conditions, which may constrain our access to financing and increase volatility in our operating plans.
Liquidity and Capital Resources
As described in Note 2 to the consolidated financial statements, we have incurred recurring losses from operations and negative cash flows from operations since inception, had an accumulated deficit of $694.9 million as of December 31, 2025, and disclosed going concern uncertainty during the first, second and third quarters of 2025. During the fourth quarter of 2025, we also experienced significant liquidity constraints in connection with our debt arrangement with Oxford Finance. Management concluded that, after considering its plans and recent developments, substantial doubt about our ability to continue as a going concern was alleviated for the twelve months following the date the consolidated financial statements were issued.
Since our inception, we have incurred significant operating losses. We only generated limited revenues from product sales of EYSUVIS and INVELTYS prior to the sale of our Commercial Business to Alcon in July 2022. We have financed our operations primarily through proceeds from the sale of our Commercial Business to Alcon in July 2022, our IPO, follow-on public Common Stock offerings and sales of our Common Stock under our at-the-market equity offerings, private placements of Common Stock and/or preferred stock, borrowings under credit facilities, our Loan Agreement with Oxford Finance, disbursements under a grant from CIRM, and convertible promissory notes and warrants. As of December 31, 2025 and 2024, we had $7.6 million and $51.2 million, respectively, in cash and cash equivalents. As of December 31, 2025 and 2024, we had $0 and $29.3 million, respectively, of indebtedness outstanding under our Loan Agreement with Oxford Finance.
Based on our current operating plan, including anticipated expenses related to our Researgency initiative and routine corporate costs, we believe our existing cash and cash equivalents will fund operations into the first quarter of 2027. We are evaluating additional financing alternatives, including potential sales under our ATM program and private placements, and pursuing asset monetization opportunities. If these actions are not successful or timely, we will need to further reduce or defer planned expenditures, which could materially affect our strategy. Our ability to raise additional capital may be constrained by market conditions, our Nasdaq continued listing compliance efforts, and investor perceptions regarding our liquidity position and historical operating losses.
Combangio Merger Agreement
Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), we entered into with Combangio in connection with the acquisition of Combangio in November 2021, the former Combangio stockholders or other equityholders (the “Combangio Equityholders”), are entitled to receive from us up to $105.0 million in payments that are contingent upon the achievement of specified development, regulatory and commercialization milestones (the “Contingent Consideration”).
Upon dosing of the first patient in our CHASE trial for PCED in the United States in February 2023, we paid the former Combangio Equityholders an aggregate of $2.5 million in cash and $2.4 million in shares of our Common Stock (representing an aggregate of 105,038 shares of our Common Stock ) in March 2023. The remaining amount of $0.1 million was paid in cash in January 2024. Any Contingent Consideration payable under the Merger Agreement in the future would be paid only in cash as follows: (i) $5.0 million payable upon the first patient dosed with any product candidate whose active ingredient comprises one or more biological factors secreted by MSC-S or their progenitors, including KPI-012, or the Product Candidate, in a pivotal clinical trial, (ii) $12.5 million payable upon regulatory
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approval by the FDA of marketing and sale of a Product Candidate in the United States, subject to certain specified reductions; (iii) $17.5 million payable upon the first commercial sale of a Product Candidate in the United States, subject to certain specified reductions and (iv) an aggregate of up to $65.0 million payable upon the achievement of specified sales milestones; tiered cash royalties at percentage rates in the mid-to-high single digits payable on annual net sales of all Product Candidates; and a cash payment at a percentage rate in the high single digits of all income, including earnout payments, received by us or any of our affiliates from a product license granted by us to a third party to sell or otherwise commercialize the Product Candidate in countries where neither we nor our affiliates conduct sales of such Product Candidate, subject to certain exceptions set forth in the Merger Agreement.
If the aggregate amount of Contingent Consideration payable in any calendar year exceeds $2.5 million (the “Excess Cash Cap”), such excess portion, or the Carry Forward Contingent Cash Consideration, will be carried forward and, subject to application of the Excess Cash Cap in the following calendar year, become payable on the first business day of the following calendar year. Any Carry Forward Contingent Cash Consideration outstanding on June 1, 2026 is payable in full on June 1, 2026. While our CHASE trial is currently on hold, if we were to continue development of KPI-012 or certain other product candidates, the Contingent Consideration payable under the Merger Agreement.
Sale of Commercial Business
In July 2022, we sold our Commercial Business to Alcon. In addition to the upfront cash payment of $60.0 million we received from Alcon, we are also eligible to receive from Alcon up to four commercial-based sales milestone payments as follows: (1) $25.0 million upon the achievement of $50.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2028, (2) $65.0 million upon the achievement of $100.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2028, (3) $75.0 million upon the achievement of $175.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2029 and (4) $160.0 million upon the achievement of $250.0 million or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2029. Each milestone payment is only payable once, if at all, upon the first time such milestone is achieved, and only one milestone payment is paid with respect to a calendar year. In the event that more than one milestone is achieved in a calendar year, the higher milestone payment is payable and the lower milestone payment becomes payable only if the corresponding milestone is achieved again in a subsequent calendar year. To date, we have not received any such milestone payments. We now have no revenue-generating commercial products, and although we are eligible to receive up to $325.0 million in milestone-based payments from Alcon, there can be no assurance as to when we may receive such milestone payments or the amount of milestone payments we may receive, if any.
CIRM Award
Our development of KPI-012 was funded, in part, by an award from the California Institute for Regenerative Medicine (“CIRM”). On April 28, 2023, CIRM awarded Combangio a $15.0 million grant, or the CIRM Award, subject to entering into a final award agreement, to support Combangio’s ongoing KPI-012 program for the treatment of PCED as well as product and process characterization and analytical development for the program. On August 2, 2023, Combangio entered into the CIRM Award and received an initial $5.9 million disbursement from CIRM. In 2025 and 2024, Combangio received an aggregate of $3.4 million and $5.8 million, respectively, in disbursements from CIRM upon the achievement of specified milestones. The CIRM Award is subject to a co-funding requirement under which Combangio is obligated to spend a specified minimum amount on the development of KPI-012 to obtain the full award amount and a significant portion of the award is payable to Combangio upon the achievement of specified milestones that are primarily related to Combangio’s progress in conducting the CHASE clinical trial. Under the terms of the CIRM Award, Combangio is obligated to pay a royalty on net sales of any product, service or approved drug resulting in whole or in part from the CIRM Award in the amount of 0.1% per $1.0 million of funds utilized by us until the earlier of 10 years from the date of first commercial sale of such product, service or approved drug and such time as nine times the amount of funds awarded by CIRM has been paid in royalties, or the Base Royalty. In addition, following the satisfaction of the Base Royalty, Combangio is obligated to pay a 1.0% royalty on net sales of any CIRM-funded invention in excess of $500 million per year until the last to expire patent covering such invention expires.
Under the CIRM Award, if we were to fail to satisfy the co-funding requirement under the CIRM Award or fail to achieve the milestones within the timeframe required by the CIRM Award, we may not receive full funding under the CIRM Award. CIRM may permanently cease disbursements under the CIRM Award if the milestones are not met within
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four months of their scheduled completion dates or if the delay is not addressed to CIRM’s satisfaction, as determined by CIRM in its sole discretion. Additionally, if CIRM determines, in its sole discretion, that Combangio has not complied with the terms and conditions of the CIRM Award, CIRM may suspend or permanently cease disbursements. Moreover, disbursements under the CIRM Award are contingent upon the availability of funds in the state of California’s Stem Cell Research and Cures Fund, which is outside of our control. On September 29, 2025, we announced that based on the CHASE trial results, we determined to cease development of KPI-012 and our MSC-S platform. As of December 31, 2025, no more funding is expected under the CIRM Award.
Offerings under Registration Statements
On March 3, 2023, we filed a shelf registration statement on Form S-3 with the SEC (the “2023 Shelf Registration”), which was declared effective on May 11, 2023. Under the 2023 Shelf Registration, we may offer and sell up to $350.0 million of a variety of securities including Common Stock, preferred stock, warrants, depositary shares, debt securities, subscription rights or units. In accordance with the terms of the Open Market Sale Agreement, we may issue and sell, from time to time, up to an aggregate of $40.0 million of our Common Stock in an at-the-market equity offering through Jefferies.
From entry into the Open Market Sale Agreement and as of December 31, 2025, we sold an aggregate of 784,196 shares of our Common Stock under the 2023 Shelf Registration for total net proceeds of approximately $7.0 million, none of which were sold during the year ended December 31, 2025. During the year ended December 31, 2024, we sold an aggregate of 527,940 shares of our Common Stock under the Open Market Sale Agreement under the 2023 Shelf Registration for total net proceeds of approximately $3.4 million.
On January 8, 2026, we entered into the ATM Agreement with Wainwright pursuant to which we filed the ATM Prospectus Supplement to the 2023 Shelf Registration. The aggregate market value of the shares of Common Stock eligible for sale under the ATM Prospectus Supplement is currently $15.0 million.
Loan Agreement
On May 4, 2021, we entered into the Loan Agreement with Oxford Finance, in its capacity as lender and as collateral agent, pursuant to which a term loan of up to an aggregate principal amount of $125.0 million became available to us, consisting of a tranche A term loan that was disbursed on the closing date of the Loan Agreement in the aggregate principal amount of $80.0 million and additional tranches that are no longer available to us. Through June 30, 2023, the term loan bore interest at a floating rate equal to the greater of 30-day LIBOR and 0.11%, plus 7.89%. Effective July 1, 2023, the term loan bears interest at a floating rate equal to the greater of (a) 8.00% and (b) the sum of (i) the 1-Month CME Term Secured Overnight Financing Rate (“SOFR”), (ii) 0.10% and (iii) 7.89%. Certain of the customary negative covenants limit our and certain of our subsidiaries’ ability, among other things, to incur future debt, grant liens, make investments, make acquisitions, distribute dividends, make certain restricted payments and sell assets, subject in each case to certain exceptions. In connection with our entry into the purchase agreement for the sale of our Commercial Business to Alcon on May 21, 2022, we entered into an amendment to the Loan Agreement (“Second Loan Amendment”), pursuant to which Oxford Finance consented to the entry by us into the asset purchase agreement and the sale of the Commercial Business to Alcon and agreed to release its liens on the Commercial Business in consideration for the payment by us at the closing of the Alcon Transaction of an aggregate amount of $40.0 million (the “Second Amendment Prepayment”), to Oxford Finance. The Second Amendment Prepayment, which represented a partial prepayment of principal in the amount of $36.7 million of the $80.0 million principal amount outstanding under the term loan advanced by Oxford Finance, as lender, under the Loan Agreement, plus a prepayment fee of $0.7 million and a final payment fee of $2.6 million, was paid on July 8, 2022 in connection with the closing of the Alcon Transaction.
On December 27, 2022, we entered into an amendment to the Loan Agreement with Combangio and Oxford Finance (the “Third Loan Amendment”), pursuant to which Oxford Finance agreed to amend certain provisions of the Loan Agreement to permit the transfer of the listing of our Common Stock from The Nasdaq Global Select Market to The Nasdaq Capital Market. Pursuant to the Third Loan Amendment, we agreed (A) to make partial prepayments of the principal amount of the term loan outstanding under the Loan Agreement (the “Third Amendment Prepayments”) as follows: (1) a payment of $5.0 million on or before June 30, 2023, representing a partial prepayment of principal in the amount of $4.7 million, plus a final payment fee of $0.3 million and (2) a payment of $5.0 million on or before January 31, 2024, representing a partial prepayment of principal in the amount of $4.7 million, plus a final payment fee of $0.3
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million and (B) the start date for us to make amortization payments under the Loan Agreement was changed from January 1, 2026 to January 1, 2025 (the “Amortization Date”). On January 25, 2023, we paid the Third Amendment Prepayments and the principal loan balance under the Loan Agreement following such prepayments was $34.0 million.
Pursuant to the Third Loan Amendment, if we made an additional prepayment under the Loan Agreement equal to $5.0 million (inclusive of the final payment fee) on or prior to December 31, 2024(the “First Extension Prepayment”), the Amortization Date would be automatically changed to July 1, 2025, and the maturity date of the Loan Agreement would be automatically changed from May 1, 2026 to November 1, 2026. On December 26, 2024, we paid the First Extension Prepayment, and as a result, the Amortization Date was changed to July 1, 2025 and the maturity date of the Loan Agreement automatically changed to November 1, 2026.
If we made an additional prepayment under the Loan Agreement equal to $2.5 million (inclusive of the final payment fee) on or prior to June 30, 2025, or the Second Extension Prepayment, the Amortization Date would be automatically changed to January 1, 2026, and the maturity date of the Loan Agreement would be automatically changed to May 1, 2027. On June 26, 2025, we paid the Second Extension Prepayment, and as a result, the Amortization Date was automatically changed to January 1, 2026 and the maturity date of the Loan Agreement was automatically changed to May 1, 2027.
Under the Third Loan Amendment, Oxford Finance also agreed to waive the prepayment fees for the Third Amendment Prepayments, the First Extension Prepayment, the Second Extension Prepayment and any other prepayments under the Loan Agreement. Pursuant to the Loan Agreement, we also will be required to pay all accrued and unpaid interest on the principal amounts of the term loan being repaid at the time of repayment.
On August 1, 2023, we entered into a fourth amendment to the Loan Agreement pursuant to which certain provisions of the Loan Agreement were amended in connection with the change in our corporate name and the cessation of the U.S. Dollar LIBOR rate. On August 2, 2023, we entered into a fifth amendment to the Loan Agreement pursuant to which Oxford Finance consented to our entry into the CIRM Award and certain provisions of the Loan Agreement were amended in connection therewith.
On September 29, 2025, we received the Default Notice from Oxford Finance, with respect to the Loan Agreement. The Default Notice asserted that an Event of Default had occurred and was continuing under the Loan Agreement and alleged that other events of default under the Loan Agreement may exist. In the Default Notice, Oxford Finance declared by reason of the Event of Default, that all of our obligations under the Loan Agreement were immediately due and payable. In addition, the Default Notice indicated that our obligations under the Loan Agreement began accruing interest at the Default Rate (as defined in the Loan Agreement) effective immediately upon occurrence of the Event of Default. The total amount of our obligations under the Loan Agreement as of the date of the Default Notice that were accelerated and declared payable by Oxford Finance was $29.1 million, plus any additional interest due upon final payment and any expenses that become payable by us under the Loan Agreement.
On October 19, 2025, pursuant to the terms of the Loan Agreement, Oxford Finance informed us that it intended to foreclose on all of our remaining assets and that Oxford Finance would not consent to the Company’s use of cash for any reason other than for minimal payroll and related expenses pending Oxford Finance’s foreclosure of the Company’s assets. Oxford then swept substantially all of our cash resources from our bank accounts. On November 3, 2025, Oxford Finance informed us that it intended to pause its foreclosure of the Company’s assets and permitted us to use $125,000 of cash it previously swept to fund the negotiation and execution of the Convertible Loan Agreement and to fund preliminary preparation work on the Quarterly Report on Form 10-Q for the quarter ended September 30, 2025.
On November 25, 2025, the Company entered into the Settlement Agreement with Oxford Finance pursuant to which the Company owed Oxford Finance $2.0 million to be paid pursuant to the terms of the Settlement Agreement. On December 26, 2025, the Company paid Oxford Finance the settlement agreement amount of $2.0 million. As a result of such payment, all of its obligations under the Settlement Agreement and the Loan Agreement have been satisfied and the aggregate liability due to Oxford Finance of approximately $10,600 has been settled and released.
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Convertible Loan Agreement
On November 9, 2025, the Company entered into the Convertible Loan Agreement with David Lazar, pursuant to which the David Lazar agreed to provide the Company a convertible loan in the aggregate amount of up to $375,000, which was received in November 2025 and repaid in December 2025.
Settlement Agreements
On December 30, 2025, the Company entered into a settlement agreement with Baker Bros. Advisors LP (“Baker Bros”) under which the Company agreed to issue 900,000 shares of Common Stock to resolve certain claims relating to participation rights under prior financing arrangements (the “Baker Settlement”). In connection with the Baker Settlement, the Company and Baker Bros also entered into a voting agreement under which Baker Bros granted an irrevocable proxy in favor of the Company to vote the settlement shares and other specified shares in line with the Board’s recommendations for a period of 6 months.
On December 30, 2025, the Company entered into a settlement agreement with LifeSci Capital LLC under which the Company agreed to issue 2,200,000 shares of Common Stock to settle certain payment obligations for financial advisory services.
On December 30, 2025, the Company entered into a consulting agreement and a settlement agreement with Delaware IR LLC (“Delaware IR”). Under the consulting agreement, Delaware IR agreed to provide marketing and advertising services for a six-month term for $600,000. Under the settlement agreement, the Company agreed to issue 1,100,000 shares of Common Stock to settle the outstanding $600,000 amount owed under the consulting agreement, with a make-whole mechanic tied to ultimate net sale proceeds from the future sales of the 1,100,000 shares of Common Stock.
December 2025 Registered Direct Offering
On December 4, 2025, we entered into a securities purchase agreement (the “December 2025 Purchase Agreement”) with a certain institutional investor (the “RD Investor”), pursuant to which the Company agreed to issue and sell in a registered direct offering (the “RD Offering”) (i) 900,000 shares of the Company’s Common Stock and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 9,100,000 shares of Common Stock (the “Pre-Funded Warrant Shares”), at a purchase price of $1.00 per Pre-Funded Warrant Share (less $0.0001 per Pre-Funded Warrant). The gross proceeds to the Company from the RD Offering was approximately $10.0 million before deducting placement agent fees and other offering expenses payable by the Company.
The shares of Common Stock, Pre-Funded Warrants and Pre-Funded Warrant Shares were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-270263) which was filed with the Securities and Exchange Commission (the “SEC”) on March 3, 2023, as amended, and declared effective by the SEC on May 11, 2023, and related base prospectus and a prospectus supplement dated December 4, 2025, thereunder.
The Pre-Funded Warrants have an initial exercise price per share of $0.0001, subject to certain adjustments. The Pre-Funded Warrants may be exercised at any time until exercised in full, except that a holder (together with its affiliates) will not be entitled to exercise any portion of any Pre-Funded Warrant, which, upon giving effect to such exercise would cause the aggregate number of shares of the Company’s Common Stock beneficially owned by the holder (together with its affiliates) to exceed 4.99% (or, upon election of the holder, 9.99%) of the number of shares of Common Stock outstanding immediately prior to or after giving effect to the exercise, subject to such holder’s rights under the Pre-Funded Warrants to increase or decrease such percentage to another percentage not in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Pre-Funded warrants, provided that any increase shall only be effective upon at least 61 days’ prior notice from such holder to the Company. The Offering closed on December 5, 2025.
Pursuant to the terms of the Purchase Agreement, the Company has agreed to certain restrictions on the issuance and sale of its Common Stock or Common Stock Equivalents (as defined in the December 2025 Purchase Agreement) until 30 days following the closing date, and not to issue any Common Stock or Common Stock Equivalents
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in a Variable Rate Transaction (as defined in the December 2025 Purchase Agreement) for one year from the closing date, subject to an exception as contained therein.
Private Placements
On November 23, 2025, we entered into a Securities Purchase Agreement (the “November 2025 Purchase Agreement”), with David Lazar, an investor, pursuant to which we agreed to issue and sell, in a private placement, shares of our Series AA Convertible Non-Redeemable Preferred Stock (the “Series AA Preferred Stock”), and our Series AAA Convertible Non-Redeemable Preferred Stock (the “Series AAA Preferred Stock”), in two closings for aggregate gross proceeds of up to approximately $6.0 million.
The closing of the private placement of the Series AA Preferred Stock (the “Series AA Private Placement”) occurred on November 24, 2025, pursuant to which we issued and sold to David Lazar an aggregate of 900,000 shares of Series AA Preferred Stock at a price per share equal to $2.00, for aggregate gross proceeds of approximately $1.8 million. Each share of Series AA Preferred Stock is convertible into 55 shares of Common Stock for an aggregate total of 49,500,000 shares of Common Stock issuable upon conversion of the Series AA Preferred Stock.
On January 30, 2026, the Company entered into a Securities Purchase Agreement (the “January 2026 Purchase Agreement”), pursuant to which we issued and sold to the “Series AAA Investors” in a private placement (the “January 2026 Private Placement”), an aggregate of 2,100,000 shares of Series AAA Preferred Stock at a price per share equal to $2.00, for aggregate gross proceeds of $4.2 million. The closing of the January 2026 Private Placement occurred on January 30, 2026. Each share of Series AAA Preferred Stock was convertible into 420 shares of Common Stock for an aggregate total of 882,000,000 shares of Common Stock issuable upon conversion of the Series AAA Preferred Stock. As of the date of this Annual Report on Form 10-K, all of the shares of Series AAA Preferred Stock have been converted into shares of Common Stock and there are no Series AAA Preferred Shares of the Company outstanding.
Series AA Preferred Stock
We filed the Certificate of Designations for the Series AA Preferred Stock (the “Series AA Preferred Stock”) with the Secretary of State of the State of Delaware on November 24, 2025. Pursuant to the Series Certificate of Designations, in the event of a Dissolution (as defined in the Series AA Certificate of Designations), holders of the Series AA Preferred Stock will be entitled to receive, before any distributions to the holders of the Common Stock, an amount per share of Series AA Preferred Stock equal to the greater of (i) $2.00 (subject to adjustment in the event of any stock split, combination or reclassification), plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series AA Preferred Stock been converted into Common Stock (without regard to any restrictions on conversion) immediately prior to such Dissolution. Shares of Series AA Preferred Stock will be entitled to receive dividends equal to (on an as-if-converted-to-Common Stock basis), and in the same form and manner as, dividends actually paid on shares of Common Stock. For the avoidance of any doubt, neither a change in control of the Company, the merger or consolidation of the Company with or into any other entity, nor the sale, lease, exchange or other disposition of all or substantially all of the Company’s assets shall, in and of itself, be deemed to constitute a Dissolution.
Shares of Series AA Preferred Stock generally have no voting rights, except to the extent provided by applicable law, and except that the consent of the holders of a majority of the outstanding shares of Series AA Preferred Stock is be required to (i) alter, repeal or change the powers, preferences or rights of the Series AA Preferred Stock or alter or amend the Series AA Certificate of Designations so as to adversely affect the Series AA Preferred Stock, (ii) supplement, amend, restate, repeal, or waive any provision of the Company’s Restated Certificate of Incorporation or Bylaws, or file any certificate of amendment, certificate of designation, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series AA Preferred Stock, regardless of whether any of the foregoing actions shall be by means of amendment to the Company’s Restated Certificate of Incorporation or by merger, consolidation, recapitalization, reclassification, conversion or otherwise, (iii) increase or decrease (other than by conversion) the number of authorized shares of Series AA Preferred Stock; or (iv) enter into any agreement with respect to any of the foregoing.
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Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements that are reasonably likely to have a material effect on our liquidity, capital resources, or results of operations.
Contractual Obligations and Commitments
We previously entered into an operating lease for office, laboratory and research and development space in Menlo Park, California. In November 2025, we terminated the lease and entered into a settlement with the landlord, and the settlement was paid prior to December 31, 2025. As a result, we did not have any material remaining operating lease payment obligations as of December 31, 2025.
We currently lease a limited amount of office space in Arlington, Massachusetts, which serves as our corporate headquarters. The lease is currently for six months, starting 2025 with approximately $3,000 monthly rent.
We have ongoing obligations under our Stanford Agreement, including annual license maintenance fees in the low-to-mid five figures , which are creditable against earned royalties for the same year, potential development and regulatory milestone payments of up to approximately $1.1 million in the aggregate, potential sales milestone payments up to approximately $1.1 million in the aggregate and tiered royalties on net sales of licensed products and a sublicense revenue-sharing payment. The annual maintenance fees represent recurring obligations. The milestone payments and royalties are contingent on future development, regulatory and commercialization outcomes (and, for royalties, future sales), and therefore the amounts and timing of any such payments are not determinable at this time.
We may be required to make future milestone-based payments under the Combangio Merger Agreement, including contingent consideration related to the Combangio acquisition, as well as under the CIRM Award.
For information related to our future commitments, see Note 14, “Commitments and Contingencies” of our consolidated financial statements.
Cash Flows
As of December 31, 2025 and 2024, we had $7.6 million and $51.2 million in cash and cash equivalents, respectively. As of December 31, 2025 and 2024, we had $0 million and $29.3 million in indebtedness, respectively, which represented the aggregate principal amount that was outstanding under the Loan Agreement with Oxford Finance.
The following table summarizes our sources and uses of cash for each of the periods presented:
Year Ended
December 31,
2025
2024
Change
(in thousands)
Net cash used in operating activities
$
(31,991)
$
(29,382)
$
(2,609)
Net cash used in investing activities
(15)
(208)
193
Net cash (used in) provided by financing activities
(11,618)
29,876
(41,494)
Net decrease in cash and cash equivalents
$
(43,624)
$
286
$
(43,910)
Operating Activities
Net cash used in operating activities for the year ended December 31, 2025 was $32.0 million, compared to $29.4 million for the year ended December 31, 2024, an increase of $2.6 million, primarily due to a $4.3 million increase due to the timing of working capital fluctuations, partially offset by the decrease in the net loss adjusted for non-cash charges of $1.7 million. Notable working capital fluctuations included a $3.8 million decrease in accounts payable, accrued expenses and other current liabilities during the year ended December 31, 2025, compared to a decrease of $1.8 million during the year ended December 31, 2024.
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Investing Activities
Net cash used in investing activities for the year ended December 31, 2025 was less than $0.1 million compared to $0.2 million for the year ended December 31, 2024, a decrease of $0.1 million. Net cash used in investing activities for the year ended December 31, 2025 and 2024 were related to purchases of property and equipment and other assets.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2025 was $11.6 million compared to net cash provided by financing activities for the year ended December 31, 2024 of $29.9 million. Net cash used in financing activities for the year ended December 31, 2025 largely consisted of $22.4 million repayment of principal and payment fee on our Oxford Loan Agreement, partially offset by $9.1 million of net proceeds from our Common Stock offering and $1.8 million of proceeds from the issuance of our Series AA Preferred Stock.
Net cash provided by financing activities for the year ended December 31, 2024 was $29.9 million. Net cash provided by financing activities for the year ended December 31, 2024 largely consisted of $10.8 million of gross proceeds from the sale of Common Stock and shares of our Series I Preferred Stock in our December 2024 private placement, $12.3 million of net proc eeds from the sale of Common Stock and shares of our Series H Preferred Stock in our June 2024 private placement, $8.5 million of net proceeds from the sale of shares of our Series G Preferred Stock in our March 2024 private placement and $3.4 million of net proceeds from the sale of shares of our Common Stock through Jefferies under our at-the-market equity offering, partially offset by a $5.0 million repayment of principal and payment fee on our Loan Agreement and a $0.1 million payment for the First Dosing Milestone reflected in financing activities.
Capital Requirements
We anticipate that our research and development expenses will increase substantially in the future as compared to prior periods as we strategically align our business to the development of the Researgency platform. Our research and development expenses will also increase in the future as we conduct any necessary evaluations and development activities for our the AI business. While the clinical trials relating to our product candidates are currently on hold, if we decide to relaunch the studies and if we obtain marketing approval for KPI-012 or any product candidates we may develop, we expect that our general and administrative expenses will increase substantially if and as we incur commercialization expenses related to product marketing, sales and distribution.
Our expenses will also increase if and as we:
● continue the clinical development of KPI-012 for PCED;
● initiate and continue the research and development of KPI-012 for additional indications, such as Limbal Stem Cell Deficiency, including initiating and conducting preclinical studies and clinical trials;
● scale up our manufacturing processes and capabilities to manufacture the clinical supply of KPI-012;
● seek regulatory approval for KPI-012 for PCED in the United States and other jurisdictions;
● seek regulatory approval for KPI-012 for additional indications;
● grow our sales, marketing and distribution capabilities in connection with the commercialization of any product candidates for which we may submit for and obtain marketing approval;
● initiate and progress any preclinical development programs under our MSC-S platform, including from our KPI-014 program;
● conduct clinical trials and other development activities and/or seek marketing approval for any product candidates we may develop in the future;
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● in-license or acquire the rights to other products, product candidates or technologies;
● maintain, expand and protect our intellectual property portfolio;
● hire additional clinical, quality control, scientific, manufacturing, commercial and management personnel to support our operations;
● expand our operational, financial and management systems; and
● increase our product liability insurance coverage if we initiate commercialization efforts for our product candidates.
We expect to continue to incur significant expenses and operating losses. Net losses may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our cash and cash equivalents as of December 31, 2025 will enable us to fund our operations, lease and debt service obligations, and capital expenditure requirements into the first quarter of 2027.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Our expenses will increase from what we anticipate if:
● we elect or are required by the FDA or non-U.S. regulatory agencies to perform clinical trials or studies in addition to those expected;
● there are any delays in enrollment of patients in or completing our clinical trials or the development of our product candidates;
● we in-license or acquire rights to other products, product candidates or technologies; or
● there are any third-party challenges to our intellectual property portfolio, or the need arises to defend against intellectual property-related claims or enforce our intellectual property rights.
Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate revenue from Researgency, KPI-012 or any other product candidate we may develop for the foreseeable future, if at all. Achieving and maintaining profitability will require us to be successful in a range of challenging activities, including:
● completing the clinical development of KPI-012 for PCED and any other indications we determine to pursue, including Limbal Stem Cell Deficiency;
● subject to obtaining favorable results from our ongoing and planned clinical trials of KPI-012, applying for and obtaining marketing approval of KPI-012;
● successfully commercializing KPI-012, if approved;
● discovering, developing and successfully seeking marketing approval and commercialization of any additional product candidates we may develop in the future, including under our KPI-014 program;
● hiring and building a full commercial organization required for marketing, selling and distributing those products for which we obtain marketing approval;
● manufacturing at commercial scale, marketing, selling and distributing those products for which we obtain marketing approval;
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● achieving an adequate level of market acceptance, and obtaining and maintaining coverage and adequate reimbursement from third-party payors for any products we commercialize; and
● obtaining, maintaining and protecting our intellectual property rights .
As a company, we have limited experience commercializing products, and we may not be able to commercialize a product successfully in the future. There are numerous examples of unsuccessful product launches and failures to meet expectations of market potential, including by pharmaceutical companies with more experience and resources than us. We may never succeed in the foregoing activities and we may never generate revenue that is sufficient to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, royalty agreements, and marketing and distribution arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include pledging of assets as collateral, covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
We will need to raise additional capital in the future to advance our business. Additional private or public financings may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy. If we raise additional funds through collaborations, strategic alliances, licensing arrangements, royalty agreements, or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or current or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves or cease operations and, potentially, wind down the company under the bankruptcy laws or otherwise. If we were to cease operations and wind down the company under the bankruptcy laws or otherwise, we cannot assure our stockholders or other stakeholders of any specific level of recovery, or any recovery at all on their specific claims or interest.
Known Trends, Events and Uncertainties
The following known trends and uncertainties are reasonably likely to have a material effect on our liquidity, financial condition and results of operations over the next 12 months: the absence of revenue-generating commercial products and our reliance on external financing, asset monetization and/or partnering to fund operations; the timing, structure and probability of any out-licensing or collaboration for KPI-012/KPI-014 and related IP; the execution and commercialization risks for our Researgency initiative, including regulatory roadblocks, customer adoption cycles, pricing and deployment costs; the effects of prior workforce reductions; and conditions in the capital markets, including our ability to utilize our shelf and ATM programs within applicable limits. These factors are reasonably likely to affect our results of operations, financial condition and liquidity over the next 12 months. In addition, the consequences of the ongoing geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine and the ongoing conflicts in the Middle East, including related sanctions and countermeasures, and the effects of rising global inflation, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations. In the past, U.S. federal government shutdowns, such as the shutdown that began on October 1, 2025 and ended on November 12, 2025, have curtailed operations of key agencies such as the FDA. Although we cannot predict the impact, if any, of these changes to our business, they could have an adverse impact. For a further discussion of factors that may affect future operating results see the sections entitled “Risk Factors” in this Annual Report on Form 10-K.
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Recently Issued Accounting Pronouncements
From time to time the Financial Accounting Standards Board or other standard-setting bodies, issue new accounting pronouncements. Where applicable, we adopt these new standards according to the specified effective dates. Unless otherwise disclosed in Note 2, “Summary of Significant Accounting Policies” to the consolidated financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the impact of any recently issued accounting pronouncements that are not yet effective will not have a material impact on our financial position or results of operation upon adoption.