Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes thereto and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2025 (the “Form 10-K”) filed with the Securities and Exchange Commission on March 31, 2026. In addition to historical financial information, this discussion and analysis contains forward-looking statements that involve risks, assumptions, and uncertainties, including statements of our plans, objectives, expectations, intentions, forecasts, and projections. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth under Part I, Item 1A “Risk Factors” of the Form 10-K, which you should read carefully to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in the “Part I - Financial Information,” including the related notes to the condensed consolidated financial statements contained therein.
Overview
Our Company (f/k/a NAS-ONC, Inc.) was formed in 2008, devoted to developing new drugs with new delivery modes. As a clinical-stage biopharmaceutical company, we have focused on establishing superior treatments for intracranial malignancies, i.e., aggressive cancers located in the brain. These cancer types include primary brain cancers, such as glioblastoma, and secondary brain cancers, that have arrived through metastatic spread from other cancers throughout the body, such as melanoma or breast and lung cancer. Brain-localized malignancies are particularly difficult to treat because the blood-brain barrier prevents efficient entry of most pharmacotherapeutic agents into the brain. As a result, these patients are faced with poor prognoses and shortened average life expectancy. NeOnc is developing novel drug delivery methods to be used in combination with novel drug candidates.
NeOnc’s lead product candidate is NEO100. NEO100 is administered to patients via intranasal delivery. We have completed human safety testing in a Phase 1 clinical trial and have completed patient enrollment in, and the collection of clinical data from, our Phase 2a trial in patients with recurrent malignant glioma (Grade IV IDH1 mutant and Grade III Astrocytoma IDH1 mutant). Based on the data generated to date, we intend to meet with the FDA to discuss the design of a potential Phase 3 clinical trial of NEO100. NeOnc is also developing a second product candidate, NEO212, which has completed preclinical testing and, following the filing and acceptance of an investigational new drug (IND) application with the United States Food and Drug Administration (FDA), has completed its Phase 1 clinical trial in patients harboring primary and secondary malignant brain cancer types. We have met with the FDA regarding the NEO212 program, and the FDA provided chemistry, manufacturing and controls (CMC) clearance to advance NEO212 into a Phase 2 clinical trial and indicated that the NEO212 program may proceed under the FDA’s accelerated approval pathway. We have since modified the design of the planned Phase 2 trial to focus on recurrent IDH1 wildtype glioblastoma multiforme (GBM). Several additional drug candidates are in the pipeline and are undergoing preclinical development.
Since inception, our operations have focused on organizing and staffing our Company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical and clinical studies and manufacturing. We do not have any products approved for sale and have not generated any revenue from product sales other than for humanitarian usage.
Investment and Joint Venture
In June 2025, the Company (through its recently formed subsidiary – Nuromena Holdings Ltd. “NuroMena”) entered into a letter of intent to form an investment and joint venture agreement with a Middle-East investor (“Investor”), Quazar Investments. At the formation date, the Company would own 10 million shares of NuroMena and contribute a license to its technology to NuroMena, and the Investor will purchase 2.5 million shares of NuroMena for a subscription price of $400,000 (“Initial Investment”). Following the formation of the entity and closing of the Initial Investment, the Investor shall source one or more future investors to purchase up to $50.0 million at $25/share in common stock of the Company, of which 70% of the proceeds will be maintained by the Company and 30% will be transferred to an operating entity to be formed under NuroMena, to conduct clinical trials in the middle-east markets. As of the date of this filing, the Initial Investment has not yet occurred.
29
Asset Acquisition
In October 2025, the Company paid $500,000 to McMaster University pursuant to a Patent Purchase Agreement, and U.S. Patent No. 11,788,057 B2 (the “Patent”) was formally assigned effective October 8, 2025. The Patent covers proprietary technologies combining 3D bioprinting, artificial intelligence, and quantum modeling that are designed to enable the creation of patient-derived three-dimensional brain tumor models for high-throughput preclinical drug screening.
Liquidity and Going Concern
Since our inception, we have incurred significant operating losses. For the three and six months ended June 30, 2026, the Company incurred a net loss of $14,240,044 and $23,059,976, respectively. We had an accumulated deficit of $135,814,631 as of June 30, 2026, compared to $112,754,655 as of December 31, 2025. We expect to continue to incur operating losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing, and distribution activities.
These factors raise substantial
doubt regarding the Company’s ability to continue as a going concern one year from the issuance date of this Form 10-Q. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company is actively taking
steps to mitigate the substantial doubt about the Company’s ability to continue as a going concern, including pursuing additional
financing. If the Company is unable to obtain additional capital and continue as a going concern, it may have to further scale back operations
or liquidate its assets and cease operations entirely, and the values received for assets in liquidation or dissolution could be significantly
lower than the values reflected in these financial statements. Accordingly, these financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Components of Results of Operations
Revenue
We occasionally receive a fee from a patient for a “right to try” humanitarian program. Such revenues are not part of our core business.
Operating Expenses
Our operating expenses consist of (i) research and development expenses and (ii) legal and professional expenses and (iii) general and administrative expenses.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts and preclinical and clinical studies under our research programs, which include:
●
employee-related expenses, including salaries, benefits and stock-based compensation expense for our research and development personnel;
30
●
costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on our behalf;
●
costs of manufacturing drug products and drug supply related to our current or future product candidates;
●
costs of conducting preclinical studies and clinical trials of our product candidates;
●
consulting and professional fees related to research and development activities, including equity-based compensation to non-employees;
●
costs of maintaining our laboratory, including purchasing laboratory supplies and non-capital equipment used in our preclinical studies;
●
costs related to compliance with clinical regulatory requirements;
●
license fees and milestone payments made pursuant to license and collaboration agreements; and
●
facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies.
Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our preclinical and clinical studies or other services performed.
The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if they are approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
●
the scope, rate of progress, and expenses of our ongoing research activities as well as any preclinical studies and clinical trials and other research and development activities;
●
establishing an appropriate safety profile;
●
successful enrollment in and completion of clinical trials;
●
whether our product candidates show safety and efficacy in our clinical trials;
●
receipt of marketing approvals from applicable regulatory authorities;
●
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
●
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
●
commercializing product candidates, if and when approved, whether alone or in collaboration with others; and
●
continued acceptable safety of the products following any regulatory approval.
31
A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as we commence clinical trials and continue the development of our current and future product candidates. However, we do not believe that it is possible at this time to accurately project expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
Legal and Professional Expenses
Legal and professional expenses consist of costs related to corporate and intellectual property legal costs and accounting and auditing fees. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the Securities and Exchange Commission, or the SEC, and listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums, and investor relations costs.
General and Administrative Expenses
General and administrative expenses include salaries and other compensation-related costs, including stock-based compensation, for personnel in executive, finance and accounting, business development, operations and administrative roles. Other significant costs include insurance costs, travel costs, facility and office-related costs not included in research and development expenses.
We anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities, including our future clinical programs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside service providers, among other expenses. In addition, if we obtain regulatory approval for any of our product candidates and do not enter a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.
Stock Based Compensation
Stock based compensation expense result from the recognition of the fair value of restricted stock recorded on a straight-line basis from the date of grant to the date the restricted stock becomes fully vested.
Interest Expense
Interest expense primarily results from the bridge loan and a short-term loan both from related parties. Borrowings under these loans carry a 50% (or 1 times amounts borrowed) original issue discount (“OID”) on principal. The Company also had interest expense related to the convertible debt entered into in 2025, which contained an OID factor on the original principal amount. The OID to be earned under the loan is recognized ratably over the term of each draw-down under the loan through the maturity date.
Interest expense primarily relates to the convertible debt entered into in 2025, which contained an original issue discount (“OID”) factor on the original principal amount, which was repaid in January 2026. The Company also had interest expense related to the outstanding litigation settlements.
32
Advisory fees
Advisory fees principally represent amounts due AFH Holdings, a related party, for their services in recapitalizing the Company.
Amortization
Amortization on debt issuance costs resulted from the grant of warrants for a line of credit commitment. The fair value of the warrants was determined using the Black Scholes valuation method and the fair value is being amortized over the term of the line of credit commitment.
Amortization on deferred offering costs resulted from the issuance of common stock in connection with a private equity agreement.
Gain (Loss) on Change in Fair Value of Derivative Liability
Gain (loss) on change in fair value of derivative liability relates to the fair value of the discount offered to stockholders who purchased shares under the equity line of credit.
Comparison of the three months ended June 30, 2026 and 2025:
Results of Operations
The following table summarizes our results of operations for the periods presented:
For the
Three Months Ended
June 30,
2026
2025
Change
Operating Expenses:
Research and development
$
2,649,673
$
677,332
$
1,972,341
Legal and professional
1,286,167
520,364
765,803
General and administrative
895,559
984,262
(88,703
)
Stock based compensation
5,651,913
3,526,076
2,125,837
Advisory Fee
3,586,575
-
3,586,575
Total Operating Expenses
14,069,887
5,708,034
8,361,853
Loss From Operations
(14,069,887
)
(5,708,034
)
(8,361,853
)
Other Income (Expense):
Interest and other income
334
28,725
(28,391
)
Grant income
482,778
-
482,778
Amortization expense
(167,951
)
(192,249
)
24,298
Interest expense - related parties
(234,370
)
(48,750
)
(185,620
)
Other income (expense)
(189,627
)
240,138
(429,765
)
Loss on change in fair value of derivative liability related to Series A preferred stock
(61,321
)
-
(61,321
)
Net Loss
$
(14,240,044
)
$
(5,680,170
)
$
(8,559,874
)
Revenue
No revenue was generated for fees for a “right to try” humanitarian program during the three months ended June 30, 2026 and June 30, 2025.
33
Research and Development Expenses
The following table summarizes the components of our research and development expenses for the periods presented:
For the
Three Months Ended
June 30,
2026
2025
Research and development costs by project:
NEO100-01
$
998,369
$
109,166
NEO100-02
304,244
93,326
NEO212
592,757
279,074
NEO216
75,336
-
Pediatric
147,273
50,178
Laboratory
460,655
107,465
Other
71,039
38,123
Total
$
2,649,673
$
677,332
For the
Three Months Ended
June 30,
2026
2025
Change
Clinical trial expense
$
2,117,979
$
531,744
$
1,586,235
Research and laboratory
531,694
145,588
386,106
Total research and development expense
$
2,649,673
$
677,332
$
1,972,341
Research and development expenses were $2,649,673 and $677,332 for the three months ended June 30, 2026 and 2025, respectively. A portion of these expenses amounting to approximately $0 and $82,225 for the three months ended June 30, 2026 and 2025, respectively are from the University of Southern California (USC), where Dr. Chen is a member of the faculty. The total increase of $1,972,341 was primarily due to:
●
The addition of clinical trial sites for NEO100 and NEO212 clinical trials.
●
The increased drug product manufacturing activity to support ongoing and planned clinical trials.
●
The recruitment for NEO212.
●
The start of the clinical trial for NEO100-03 for a Pediatric Indication.
●
Increased patient recruitment efforts.
●
Data lockdown and analysis activities associated with the NEO100 clinical trial.
●
Costs associated with designing the Phase 2a trial for NEO212, including meetings and correspondence with the U.S. Food and Drug Administration (“FDA”) regarding the program’s clinical development pathway.
34
Legal and Professional Expenses
Legal and professional expenses were $1,286,167 and $520,364 for the three months ended June 30, 2026 and 2025, respectively. The increase of $765,803 was primarily attributable to investment banking associated with the Company’s capital raising activities, incremental legal fees associated with the Second Addendum to the Company’s advisory agreement with AFH Holding & Advisory, LLC, the Series A Convertible Preferred Stock issuance, and other corporate and securities matters, and increased audit fees associated with the Company’s expanded reporting requirements as a public company.
General and Administrative Expenses
General and administrative expenses were $895,559 and $984,262 for the three months ended June 30, 2026 and 2025, respectively. The decrease of $88,703 was primarily due to a reduction in D&O insurance premiums, as well as a reduction in advertising, marketing, and travel expenses incurred during the three months ended June 30, 2025 in connection with a marketing campaign and in pursuit of a strategic partnership in the Middle East, for which a letter of intent was executed subsequent to June 30, 2025. This decrease was partially offset by an increase in business development costs during the three months ended June 30, 2026.
Stock Based Compensation
Stock-based compensation expense, which is a non-cash expense, for the three months ended June 30, 2026 primarily resulted from the acceleration of vesting of certain outstanding restricted stock awards approved by the Board of Directors in April 2026, which resulted in the recognition of previously unrecognized compensation expense associated with those awards, in addition to the ongoing recognition of the grant date fair value of restricted stock over the applicable service periods for awards not subject to the acceleration. Stock-based compensation expense for the three months ended June 30, 2025 included the recognition of expense from the original grant dates of certain restricted stock through the Listing Date that occurred on March 26, 2025, reflecting a cumulative catch-up upon removal of the listing contingency, in addition to amortization of the grant date fair value of those shares of restricted stock over their respective service periods following the Listing Date. Since stock-based compensation is a non-cash item, it does not affect our cash position or our cash used in operating activities.
In April
2026, the Company’s Board of Directors approved the acceleration of vesting for certain outstanding unvested shares of restricted
stock previously granted to employees, directors, and scientific advisory board members, such that 734,356 shares that would otherwise
have vested on their original vesting schedules vested immediately on April 30, 2026. The accelerated shares related to awards originally
granted on July 12, 2024, June 5, 2025, September 25, 2025, and November 6, 2025. The acceleration was accounted for as a modification
under ASC 718-20. Based on the $4.30 closing stock price on April 30, 2026, the Company recognized stock-based compensation expense of
$4,781,116 related to the accelerated shares during the three and six months ended June 30, 2026, representing the previously unrecognized
compensation cost associated with the original awards that was accelerated into the period.
Advisory Fee
Advisory fee expense, a related party, was $3,586,575 and $0 for the three months ended June 30, 2026 and 2025, respectively. Advisory fee expense for the three months ended June 30, 2026 consisted of fees incurred for advisory services related to our capital financing arrangements pursuant to a letter of intent with AFH (see Note 4). In addition, on June 11, 2026, the Company and AFH entered into a Second Addendum to the Letter of Intent and Advisory Services Agreement, which amends and clarifies the methodology for determining AFH’s annual advisory fee. Under the Second Addendum, AFH is entitled to an annual advisory fee equal to 2.5% of the Company’s fully diluted market capitalization as of December 31 of each fiscal year. As of June 30, 2026, the Company had an outstanding accrued advisory fee – related party balance of approximately $1,600,000 payable to AFH pursuant to the Second Addendum.
Interest and Other Income
Interest and income was $334 and $28,725 for the three months ended June 30, 2026 and 2025, respectively. Interest and other income for the three months ended June 30, 2026 and 2025 related primarily to interest earned on our money market account.
35
Grant Income
Grant income was $482,778 and $0 for the three months ended June 30, 2026 and 2025, respectively. Grant income for the three months ended June 30, 2026 related to the Company’s two Small Business Technology Transfer (“STTR”) grants from the National Institutes of Health (“NIH”), awarded in August 2025 and September 2025, respectively, pursuant to which the Company’s academic research collaborator at USC serves as subcontractor. The Company recognizes grant income related to the whole portion of allowable costs as incurred and reimbursed by the NIH. There was no comparable grant income during the three months ended June 30, 2025, as the grants were not awarded until the second half of 2025.
Amortization of Debt Issuance Costs
Amortization of debt issuance costs was $167,951 and $192,249 for the three months ended June 30, 2026 and 2025, respectively. Amortization of debt issuance costs in both periods primarily reflected the ongoing amortization of debt issuance costs associated with the warrants issued in connection with the line of credit with HCWG.
Interest Expense
Interest expense was $234,370 and $48,750 for the three months ended June 30, 2026 and 2025, respectively. The increase of $185,620 was primarily related to interest accrued on the Company’s unremitted restricted stock tax withholding obligations and accrued interest for a litigation matter.
Other Income (Expense)
Other expense was $189,627 and other income was $240,138 for the three months ended June 30, 2026 and 2025, respectively. Other expense for the three months ended June 30, 2026 consisted of penalties and interest accrued in connection with the unremitted income tax withholdings on shares of common stock that were withheld from recipients upon the vesting of shares of restricted stock to satisfy the recipients’ tax obligations. As of June 30, 2026, the Company had not remitted such withholding taxes to the applicable taxing authorities, and accordingly the Company has accrued penalties and interest, which is included within accrued expenses in the condensed consolidated balance sheets.
Loss on change in fair value of derivative liability related to Series A preferred stock
Loss on change in fair value of derivative liability related to Series A Preferred Stock was $61,321 and $0 for the three months ended June 30, 2026 and 2025, respectively. In connection with the issuance of the Company’s Series A Convertible Preferred Stock during the three months ended June 30, 2026, the Company bifurcated an embedded variable-rate conversion feature as a derivative liability, which is remeasured to fair value at each reporting period using a Monte Carlo simulation model, with changes in fair value recognized in the condensed consolidated statements of operations. The loss recognized during the three months ended June 30, 2026 reflects the change in fair value of the derivative liability between the issuance date and June 30, 2026 (see Note 8). There was no comparable activity during the three months ended June 30, 2025, as the Series A Preferred Stock was not issued until the current period.
36
Comparison of the six months ended June 30, 2026 and 2025:
Results of Operations
The following table summarizes our results of operations for the periods presented:
For the
Six Months Ended
June 30,
2026
2025
Change
Operating Expenses:
Research and development
$
3,936,009
$
1,635,564
$
2,300,445
Legal and professional
2,474,387
1,477,909
996,478
General and administrative
1,384,267
1,833,747
(449,480
)
Stock based compensation
8,384,311
20,923,850
(12,539,539
)
Advisory Fee
4,946,575
11,737,806
(6,791,231
)
Total Operating Expenses
21,125,549
37,608,876
(16,483,327
)
Loss From Operations
(21,125,549
)
(37,608,876
)
16,483,327
Other Income (Expense):
Interest and other income
5,530
80,424
(74,894
)
Grant income
529,901
-
529,901
Amortization expense
(360,116
)
(360,200
)
84
Interest expense - related parties
(1,216,994
)
(357,672
)
(859,322
)
Other income (expense)
(834,228
)
240,138
(1,074,366
)
Loss on change in fair value of derivative liability related to Series A preferred stock
(61,321
)
-
(61,321
)
Loss on change in fair value of derivative liability related to sales of common stock through equity line of credit
2,801
-
2,801
Net Loss
$
(23,059,976
)
$
(38,006,186
)
$
14,946,210
Revenue
No
revenue was generated for fees for a “right to try” humanitarian program during the six months ended June 30, 2026
and June 30, 2025.
Research and Development Expenses
The following table summarizes the components of our research and development expenses for the periods presented:
For the
Six Months Ended
June 30,
2026
2025
Research and development costs by project:
NEO100-01
$
1,881,023
$
688,628
NEO100-02
409,338
201,787
NEO212
861,334
455,629
NEO216
75,336
-
Pediatric
167,009
99,010
Laboratory
470,930
192,377
Other
71,039
38,123
Total
$
3,936,009
$
1,675,554
37
For the
Six Months Ended
June 30,
2026
2025
Change
Clinical trial expense
$
3,394,040
$
1,445,054
$
1,948,986
Research and laboratory
541,969
230,500
311,469
Total research and development expense
$
3,936,009
$
1,675,554
$
2,260,455
Research and development expenses were $3,936,009 and $1,635,564 for the six months ended June 30, 2026 and 2025, respectively. A portion of these expenses amounting to approximately $38,409 and $184,449 for the six months ended June 30, 2026 and 2025, respectively are from the University of Southern California (USC), where Dr. Chen is a member of the faculty. The total increase of $2,300,445 was primarily due to:
●
The addition of clinical trial sites for NEO100 and NEO212 clinical trials.
●
The increased drug product manufacturing activity to support ongoing and planned clinical trials.
●
The recruitment for NEO212.
●
The start of the clinical trial for NEO100-03 for a Pediatric Indication.
●
Increased patient recruitment efforts.
●
Data lockdown and analysis activities associated with the NEO100-01 clinical trial.
●
Costs associated with designing the Phase 2a trial for NEO212, including meetings and correspondence with the U.S. Food and Drug Administration (“FDA”) regarding the program’s clinical development pathway.
Legal and Professional Expenses
Legal and professional expenses were $2,474,387 and $1,477,909 for the six months ended June 30, 2026 and 2025, respectively. The increase of $996,478 was primarily attributable to investment banking and advisory fees associated with the Company’s capital raising activities. Additionally, the increase reflected incremental legal fees associated with the preparation and filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, its Registration Statement on Form S-3 and related prospectus supplement, the Second Addendum to the Company’s advisory agreement with AFH Holding & Advisory, LLC, the Series A Convertible Preferred Stock issuance, and other corporate and securities matters, as well as increased audit fees associated with the Company’s expanded reporting requirements as a public company.
General and Administrative Expenses
General and administrative expenses were $1,384,267 and $1,833,747 for the six months ended June 30, 2026 and 2025, respectively. The decrease of $449,480 was primarily due to a reduction in advertising and marketing expense in connection with the Company’s direct public listing, a reduction in D&O insurance premiums, and a reduction in rent, travel, and other costs incurred during the six months ended June 30, 2025 in connection with a marketing campaign and in pursuit of a strategic partnership in the Middle East. This decrease was partially offset by an increase in business development and travel costs during the six months ended June 30, 2026.
38
Stock Based Compensation
Stock-based compensation expense, which is a non-cash expense, for the six months ended June 30, 2026 primarily resulted from the acceleration of vesting of certain outstanding restricted stock awards approved by the Board of Directors in April 2026, which resulted in the recognition of previously unrecognized compensation expense associated with those awards, in addition to the ongoing recognition of the grant date fair value of restricted stock over the applicable service periods for awards not subject to the acceleration. Stock-based compensation expense for the six months ended June 30, 2025 included the recognition of expense from the original grant dates of certain restricted stock through the Listing Date that occurred on March 26, 2025, reflecting a cumulative catch-up upon removal of the listing contingency, in addition to amortization of the grant date fair value of those shares of restricted stock over their respective service periods following the Listing Date. Since stock-based compensation is a non-cash item, it does not affect our cash position or our cash used in operating activities.
Advisory Fee
Advisory fee expense, primarily to a related party, was $4,946,575 and $11,737,806 for the six months ended June 30, 2026 and 2025, respectively. Advisory fee expense for the six months ended June 30, 2026 consisted of fees incurred for advisory services related to our capital financing arrangements pursuant to a letter of intent with AFH (see Note 4). In addition, on June 11, 2026, the Company and AFH entered into a Second Addendum to the Letter of Intent and Advisory Services Agreement, which amends and clarifies the methodology for determining AFH’s annual advisory fee. Under the Second Addendum, effective retroactively to January 1, 2025, AFH is entitled to an annual advisory fee equal to 2.5% of the Company’s fully diluted market capitalization as of December 31 of each fiscal year. As of June 30, 2026, the Company had an outstanding accrued advisory fee – related party balance of approximately $1,600,000 payable to AFH pursuant to the Second Addendum. Advisory fee expense for the six months ended June 30, 2025 was substantially comprised of the $11,328,565 fee earned upon the Listing Date on March 26, 2025 in accordance with the AFH advisory agreement then in effect.
Interest and Other Income
Interest and income was $5,530 and $80,424 for the six months ended June 30, 2026 and 2025, respectively. Interest and other income for the six months ended June 30, 2026 and 2025 related primarily to interest earned in our money market account.
Grant Income
Grant income was $529,901 and $0 for the six months ended June 30, 2026 and 2025, respectively. Grant income for the six months ended June 30, 2026 related to the Company’s two Small Business Technology Transfer (“STTR”) grants from the National Institutes of Health (“NIH”), awarded in August 2025 and September 2025, respectively, pursuant to which the Company’s academic research collaborator at USC serves as subcontractor. The Company recognizes grant income related to the whole portion of allowable costs as incurred and reimbursed by the NIH. There was no comparable grant income during the six months ended June 30, 2025, as the grants were not awarded until the second half of 2025.
Amortization of Debt Issuance Costs
Amortization of debt issuance costs was $360,116 and $360,200 for the six months ended June 30, 2026 and 2025, respectively. Amortization of debt issuance costs in both periods primarily reflected the ongoing amortization of debt issuance costs associated with the warrants issued in connection with the line of credit with HCWG.
39
Interest Expense
Interest expense was $1,216,994 and $357,672 for the six months ended June 30, 2026 and 2025, respectively. The increase of $859,322 was primarily related to the short-term OID loan (see Note 6), interest accrued on the Company’s unremitted restricted stock tax withholding obligations, and accrued interest for a litigation matter.
Other Income (Expense)
Other expense was $834,228 and other income was $240,138 for the six months ended June 30, 2026 and 2025, respectively. Other expense for the six months ended June 30, 2026 consisted of penalties and interest accrued in connection with the unremitted income tax withholdings on shares of common stock that were withheld from recipients upon the vesting of restricted stock to satisfy the recipients’ tax obligations. As of June 30, 2026, the Company had not remitted such withholding taxes to the applicable taxing authorities, and accordingly the Company has accrued penalties and interest, which is included within accrued expenses in the condensed consolidated balance sheets.
Loss on change in fair value of derivative liability related to Series A preferred stock
Loss on change in fair value of derivative liability related to Series A Preferred Stock was $61,321 and $0 for the six months ended June 30, 2026 and 2025, respectively. In connection with the issuance of the Company’s Series A Convertible Preferred Stock during the three months ended June 30, 2026, the Company bifurcated an embedded variable-rate conversion feature as a derivative liability, which is remeasured to fair value at each reporting period using a Monte Carlo simulation model, with changes in fair value recognized in the condensed consolidated statements of operations. The loss recognized during the three months ended June 30, 2026 reflects the change in fair value of the derivative liability between the issuance date and June 30, 2026 (see Note 8). There was no comparable activity during the six months ended June 30, 2025, as the Series A Preferred Stock was not issued until the current period.
Gain on Change in Fair Value of Derivative Liability
Gain on change in fair value of derivative liability was $2,801 and $0 for the six months ended June 30, 2026 and 2025, respectively. The derivative liability is created from the settlement feature embedded in the Company’s equity line of credit agreement with Mast Hill Fund, LP. Under the agreement, shares of common stock are purchased at a discount due to the five-day settlement period between the commitment date and the issuance date. This discount feature creates a variable settlement mechanism that is required to be accounted for as a derivative liability. The gain represents the change in fair value of this derivative liability from each draw under the agreement through the corresponding settlement date. There were no draws under the equity purchase agreement during the six months ended June 30, 2025, and no related loss was recognized in that period.
Cash Flows
The following table summarizes our cash flow for the periods indicated:
For the
Six Months Ended
June 30,
2026
2025
Change
Net cash provided by (used in):
Operating activities
$
(11,756,954
)
$
(10,964,226
)
$
(792,728
)
Financing activities
13,671,645
11,024,372
2,647,273
Net increase in cash
$
1,914,691
$
60,146
$
1,854,545
40
Operating Activities
During
the six months ended June 30, 2026, net cash used in operating activities was $11,756,954, consisting primarily of our net loss
of $23,059,976, offset by stock-based compensation of $8,384,311, accretion of original issue discount on the convertible promissory
notes of $714,600, amortization of debt issuance costs of $360,116, amortization of right of use asset of $38,996, amortization of intangible
asset of $18,519, transaction costs expensed on the issuance of Series A Convertible Preferred Stock of $127,478, loss on change in fair
value of derivative liability related to Series A Convertible Preferred Stock of $61,321, an increase in accrued expense of $2,261,282,
and an increase in accounts payable of $582,222. These were offset by decreases in accrued advisory fee of $100,566, accounts payable
– related parties of $197,762, and lease liability of $33,596, an increase in prepaid expenses and other of $824,168, an increase
in deferred offering costs of $86,930, and a gain on change in fair value of derivative liability of $2,801.
During the six months ended June 30, 2025, net cash used in operating activities was $10,964,226, consisting primarily of our net loss of $38,006,186, offset by stock-based compensation of $20,923,850, accretion of original issue discount on the bridge loan – related party of $300,000, amortization of debt issuance costs of $769,441, amortization of right of use asset of $18,153, an increase in accrued advisory fee of $5,882,710, and an increase in accounts payable – related parties of $45,350. These were offset by an increase in prepaid expenses and other of $350,134, a decrease in other assets of $47,177, a decrease in accrued compensation of $479,775, and a decrease in lease liability of $20,458.
Financing Activities
During the six months ended June 30, 2026, cash provided by financing activities was $13,671,645, consisting primarily of proceeds from the issuance of common stock and warrants in connection with our PIPE financing of $15,071,783, proceeds from the issuance of Series A Convertible Preferred Stock of $5,000,000, and proceeds from sales of common stock under the equity purchase agreement of $666,528, offset by the repayment of the OID loan of $6,666,667 and payment of issuance costs related to the Series A Convertible Preferred Stock of $400,000.
During the six months ended June 30, 2025, cash provided by financing activities was $11,024,372 consisting primarily of proceeds from the sale of common stock of $11,324,372 and proceeds from related party loans of $300,000, offset by repayment of related party loans of $600,000.
Liquidity and Capital Resources
Sources of Liquidity/Going Concern
Since our inception, we have funded our operations through the sale and issuance of common stock and debt financings from related and third parties. Our historical sources of liquidity, including the issuances of common stock under our private placements, sales under the Equity Purchase Agreement with Mast Hill Fund, LP, the line of credit with HCWG, and our convertible debt financings, are described in the “Liquidity and Capital Resources” section of our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to these arrangements during the six months ended June 30, 2026 except as described below.
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Since our inception, we have not generated any revenue from product sales or any other sources, except humanitarian use, and we have incurred significant operating losses. We have not yet commercialized any products, and we do not expect to generate revenue from sales of any product candidates for a number of years, if ever. As reflected in the accompanying condensed consolidated financial statements, we have incurred recurring net losses since our inception. For the six months ended June 30, 2026, we incurred a net loss of $23,059,976, and we had an accumulated deficit of $135,814,631 at June 30, 2026. At June 30, 2026, we had cash totaling $1,973,420. These factors raise substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our strategies, such as executing additional licensing contracts. The condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
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In January 2026, the Company entered into the first of a series of related Securities Purchase Agreements providing for the issuance, in one or more closings, of up to an aggregate of 2,222,222 shares of common stock and warrants to purchase up to 2,222,222 shares of common stock at an exercise price of $9.00 per share, for aggregate gross proceeds of up to approximately $16,000,000. During the six months ended June 30, 2026, we completed closings under three Securities Purchase Agreements for an aggregate of 2,093,305 shares of common stock and warrants to purchase 2,093,305 shares of common stock, resulting in gross proceeds of $15,071,783. The offering of securities under the PIPE Financing terminated on April 30, 2026.
In June 2026, the Company entered into a Securities Purchase Agreement providing for the issuance of shares of Series A Convertible Preferred Stock for aggregate gross proceeds of $5,000,000. During the six months ended June 30, 2026, the Company completed the closing under the Securities Purchase Agreement, resulting in gross proceeds of $5,000,000 and net proceeds of approximately $4,600,000, after deducting issuance costs of $400,000. See Note 8 to the condensed consolidated financial statements for additional information regarding the terms of the Series A Convertible Preferred Stock.
While the proceeds from the PIPE Financing and the Series A Convertible Preferred Stock financing have provided additional liquidity during the six months ended June 30, 2026, management does not believe these proceeds, together with the Company’s other available resources, are sufficient to fund operations for at least twelve months from the date of issuance of these financial statements, and substantial doubt about the Company’s ability to continue as a going concern therefore remains, as discussed above.
The ability to continue as a going concern is dependent on us raising additional capital and attaining and maintaining profitable operations in the future to meet our obligations and repay our liabilities arising from normal business operations when they come due. Since inception, we have funded our operations primarily through equity and debt financings and licensing income and we expect to continue to rely on these sources of capital in the future. We have the following financing facilities available to us:
●
On October 11, 2024, the Company entered into a Line of Credit Agreement (“the Agreement”) with HCWG for borrowings of up to $10.0 million. No amounts have been borrowed under the facility through June 30, 2026.
●
On October 22, 2024, we entered into an equity purchase agreement (the “Equity Purchase Agreement”) with Mast Hill Fund, LP (“Mast Hill”) pursuant to which the Company may sell and issue to the investor, and the investor may purchase from the Company, up to $50,000,000 of Company’s common shares. During the six months ended June 30, 2026, the Company sold 76,648 shares of common stock at prices ranging from $8.40 to $8.97 per share under the Equity Purchase Agreement, resulting in net proceeds of $663,727.
●
On April 2, 2026, the Company filed a shelf registration statement on Form S-3, pursuant to which the Company may offer and sell up to $300,000,000 of common stock, preferred stock, debt securities, warrants, and units, from time to time. In connection with the Shelf Registration Statement, the Company entered into an At-the-Market Equity Offering Sales Agreement (the “ATM Agreement”) with BTIG, LLC and Alliance Global Partners, as sales agents, pursuant to which the Company may offer and sell shares of common stock having an aggregate offering price of up to $75,000,000, subject to any applicable limits when using Form S-3. During the six months ended June 30, 2026, the Company did not sell any shares of common stock under the ATM Agreement.
No assurance can be given that we will be able to draw upon such facilities if needed. Further, no assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing, or grant unfavorable terms in licensing agreements.
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Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, initiate and conduct preclinical studies and clinical trials, and seek marketing approval for our current and any of our future product candidates. In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We intend to finance our operations over the next 12 months primarily through existing cash balances and the proceeds from the funds available through our Line of Credit Agreement with HCWG, sales under the Equity Purchase Agreement, and sales under the ATM Agreement, each as described above. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on a number of factors, including:
●
the costs of conducting preclinical studies and clinical trials;
●
the costs of manufacturing;
●
the scope, progress, results and costs of discovery, preclinical development, laboratory testing, and clinical trials for product candidates we may develop, if any;
●
the costs, timing, and outcome of regulatory review of our product candidates;
●
our ability to establish and maintain collaborations on favorable terms, if at all;
●
the achievement of milestones or the occurrence of other developments that trigger payments under any license or collaboration agreements we might have at such time;
●
the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
●
the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;
●
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;
●
our headcount growth and associated costs as we expand our business operations and research and development activities; and
●
the costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.
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If we raise funds through potential collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Estimates
Stock-Based Compensation
We account for stock-based compensation, including restricted stock, in accordance with ASC 718 (Accounting Standards Codification Topic 718, Compensation—Stock Compensation). Shares of restricted stock are measured at fair value on the grant date based on our common stock price and expense over the vesting period. For awards with performance or market conditions, expense is recognized based on the probability of achievement and may be accelerated. We estimate forfeitures based on historical data and adjust these estimates periodically. Changes in forfeiture rates, stock price, or performance assumptions can materially affect stock-based compensation expenses. Management reviews these assumptions quarterly and updates estimates as necessary. We consider the accounting for restricted stock a critical estimate due to the judgment involved and its material impact on our financial results.
Common Stock Purchase Warrants
We consider the valuation of our common stock purchase warrants a critical accounting estimate. The fair value of our warrants is determined using a Monte Carlo Simulation model. The Monte Carlo Simulation model requires significant judgment in the selection of key inputs, including expected volatility, expected term, risk-free interest rate, and the fair value of our common stock. Expected volatility is estimated based on the historical volatility of a peer group of guideline public companies, given our limited trading history as a public company. The expected term reflects, among other factors, our assumptions regarding the likelihood and timing of liquidity events. For warrants with down-round protective provisions, additional judgment is required in modeling the timing, probability, and pricing of assumed future financing events that could trigger an adjustment to the warrant exercise price. Changes in these assumptions, particularly expected volatility, expected term, and stock price, can materially affect the estimated fair value of our warrants and, for liability-classified warrants, our reported results of operations in any given period.
Series A Convertible Preferred Stock
We consider the accounting for our Series A Convertible Preferred Stock a critical accounting estimate. Management exercised significant judgment in determining that the Series A Convertible Preferred Stock should be classified as permanent equity under ASC 480, and that the embedded variable-rate conversion feature should be bifurcated and separately accounted for as a derivative liability under ASC 815. The derivative liability is initially recorded at fair value, with subsequent changes in fair value recognized in the condensed consolidated statements of operations at each reporting period. The fair value of the derivative liability is estimated using a Monte Carlo Simulation model, which requires significant judgment in the selection of key inputs, including expected volatility, risk-free interest rate, the probability and timing of conversion events, and the fair value of our common stock. Expected volatility is estimated based on the historical volatility of a peer group of guideline public companies, given our limited trading history as a public company. Changes in these assumptions, particularly expected volatility, stock price, and the probability and timing of conversion, can materially affect the estimated fair value of the derivative liability and our reported results of operations in any given period.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.