Item 7. Management’s Discussion and Analysis
Item 7 –
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS OVERVIEW
We are a biopharmaceutical company focused on advancing
innovative immuno-oncology technologies addressing difficult to treat cancers. Our proprietary DNase technology is designed to improve
outcomes of existing treatments, including immunotherapies, by targeting NETs, which are involved in cancer progression. We are currently
focused on advancing our systemic DNase program into the clinic as an adjunctive therapy for pancreatic carcinoma and locally advanced
or metastatic solid tumors.
We incorporate our patented and proprietary technologies
into drug candidates currently under development with biotechnology and pharmaceutical industry collaborators to create what we believe
will be the next-generation biologic drugs with improved pharmacological properties over existing therapeutics. Our drug candidates have
resulted from our research activities or that of our collaborators and are in the development stage. As a result, we continue to commit
a significant amount of our resources to our research and development activities and anticipate continuing to do so for the near future.
To date, none of our drug candidates have received regulatory marketing authorization or approval in the U.S. by the Food and Drug Administration
nor in any other countries or territories by any applicable agencies. We are receiving ongoing royalties pursuant to a license of our
legacy PolyXen technology to an industry partner. Although we hold a broad patent portfolio, the focus of our internal efforts during
the years ended December 31, 2025 and 2024, was on the advancement of our DNase technology.
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Critical Accounting Estimates
The preparation of our financial statements in conformity
with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates, judgments and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue,
costs and expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances. The result of these evaluations forms the basis
for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent
from other sources. Because future events and their effects cannot be determined with certainty, actual results and outcomes may differ
materially from our estimates, judgments and assumptions.
Management believes that the following accounting
estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s
most difficult subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently
uncertain. The following narrative describes these critical accounting estimates, judgments and assumptions and the effect if actual results
differ from these assumptions.
Research and Development Expenses
Research and development expenses consist of expenses
incurred in performing research and development activities, including compensation and benefits, facilities expenses, overhead expenses,
pre-clinical development, clinical trial and related clinical manufacturing expenses, fees paid to contract research organizations (“CROs”)
and contract manufacturing organizations (“CMOs”) and other outside expenses. We expense research and development costs as
incurred. We expense upfront, non-refundable payments made for research and development services as obligations are incurred, except when
deposits are made for specifically identified future services. The value ascribed to intangible assets acquired but which have not met
capitalization criteria is expensed as research and development at the time of acquisition. Upfront payments under license agreements
are expensed upon receipt of the license. Milestone payments under license agreements are accrued, with a corresponding expense being
recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
We are required to estimate accrued research and development
expenses at each reporting period. This process involves reviewing open contracts and purchase orders, communicating with our personnel
and consultants to identify services that have been performed on our behalf and estimating the level of service performed and the associated
cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers
invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met. However, some require
advanced payments. We make estimates of accrued expenses as of each balance sheet date in the financial statements based on facts and
circumstances known at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments,
if necessary. Examples of estimated accrued research and development expenses include fees paid to:
·
Collaborative partners performing research and development and pre-clinical activities;
·
Program managers in connection with overall program management of exploratory studies and clinical trials;
·
CMOs in connection with cGMP manufacturing;
·
CROs in connection with exploratory studies and clinical trials; and
·
Investigative sites in connection with exploratory studies and clinical trials.
We base our expenses related to research and development,
pre-clinical activities, manufacturing and clinical trials on our estimates of the services received and efforts expended pursuant to
quotes and contracts with multiple research institutions, CMOs and CROs that conduct and manage exploratory studies and clinical trials
on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven
payment flows. There may be instances in which payments made to vendors will exceed the level of services provided and result in a prepayment
of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to
be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust
the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred,
our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary
and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments
to our prior estimates of accrued research and development expenses.
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Recent Developments
We and our board of directors (“Board”)
have initiated a formal strategic review process with the assistance of outside financial and legal advisors. We are considering a wide
range of alternatives to maximize shareholder value, including, but not limited to, the sale of all or part of the Company or its assets
or a business combination, including a “reverse merger”, share exchange or similarly structured transaction. An independent
committee of the Board has engaged in preliminary discussions with third parties regarding potential transactions. Any such completed
transaction could have a significant impact on our stockholders, including if the transaction would result in the current investors of
the counterparty holding a substantial majority of our outstanding common stock following consummation of the potential transaction. Given
the preliminary stage of such discussions, at this time there is no way to quantify the potential impact of a transaction, if any. There
is no deadline or definitive timetable set for the completion of the strategic alternatives process, and there can be no assurance any
proposal will be made or accepted, any agreement will be executed, or any transaction will be consummated in connection with this review.
In addition, if we do enter into definitive agreements with respect to a potential transaction, we expect that consummation of the potential
transaction would be subject to a number of conditions, including approval by our stockholders and Nasdaq, and other customary conditions,
which would be out of our control and may never be satisfied. We remain committed to advancing our DNase technology and do not intend
to make further announcements regarding the review process unless and until the Board approves a specific transaction or otherwise determines
that further disclosure is appropriate.
Impact of Global Conflicts on Operations
The short and long-term implications of geopolitical
events and global conflicts, including those in Ukraine and the Middle East are difficult to predict at this time. The imposition of current
and future sanctions and counter sanctions may have an adverse effect on the economic markets generally and could impact our business,
financial condition, and results of operations.
Results of Operations
The table below sets forth the comparison of our historical
results of operations for the year ended December 31, 2025 to the year ended December 31, 2024.
Description
2025
2024
Increase
(Decrease)
Percentage
Change
Revenue:
Royalty revenue
$ 2,976,411
$ 2,500,284
$ 476,127
19.0%
Operating costs and expenses:
Research and development
(3,065,484 )
(3,288,332 )
(222,848 )
(6.8% )
General and administrative
(2,745,509 )
(3,416,380 )
(670,871 )
(19.6% )
Total operating costs and expenses
(5,810,993 )
(6,704,712 )
(893,719 )
(13.3% )
Loss from operations
(2,834,582 )
(4,204,428 )
(1,369,846 )
(32.6% )
Other income (expense):
Other income (expense)
5,725
(5,708 )
11,433
200.3%
Interest income, net
147,997
249,861
(101,864 )
(40.8% )
Net loss
$ (2,680,860 )
$ (3,960,275 )
$ (1,279,415 )
(32.3% )
Revenue
Revenue for the year ended December 31, 2025 increased
by approximately $0.5 million, or 19.0%, to approximately $3.0 million from approximately $2.5 million for the year ended December 31,
2024. This increase represented an increase in royalty revenue related to our sublicense agreement with Takeda as compared to the same
period in 2024, primarily due to royalties recognized from certain countries during the year ended December 31, 2025 compared to the same
period in 2024.
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Research and Development Expense
Overall, R&D expenses for the year ended December
31, 2025 decreased by approximately $0.2 million, or 6.8%, to $3.1 million from $3.3 million in the comparable period in 2024 primarily
due to approximately $0.7 million of expense related to the impairment of long-lived assets associated with our legacy PSA technology
incurred in 2024. There was no similar expense in 2025. Excluding the $0.7 million impairment charge from total R&D expense of $3.3
million for the year ended December 31, 2024, adjusted R&D expenses for the year ended December 31, 2025 increased approximately $0.5
million, or 18.6%, to $3.1 million, from $2.6 million for the year ended December 31, 2024. The table below sets forth the R&D costs
incurred by us, by category of expense, for the years ended December 31, 2025 and 2024:
Year ended December 31,
Category of Expense
2025
2024
Impairment of long-lived assets
$ –
$ 704,431
Outside services and contract research organizations
3,018,568
1,898,121
Salaries and wages
–
562,571
Share-based expense
–
11,434
Other
46,916
111,775
Total research and development expense
$ 3,065,484
$ 3,288,332
The increase in outside services
and contract research organizations expense was primarily due to increased consulting, pre-clinical and manufacturing development efforts
as well as costs incurred in connection with the commencement of DNase exploratory studies during the year ended December 31, 2025. The
decrease in salaries and wages and share-based expense during the year ended December 31, 2025 was related to certain severance and benefits
expensed during the year ended December 31, 2024 in connection with a separation agreement entered into during the second quarter of 2024
with our former Chief Scientific Officer, for which there were none in 2025.
General and Administrative Expense
General and administrative expenses for the year ended
December 31, 2025 decreased by approximately $0.7 million, or 19.6%, to approximately $2.7 million from approximately $3.4 million in
the comparable period in 2024. The decrease was primarily due to certain severance and benefits expensed during the year ended December
31, 2024 in connection with a separation agreement entered into during the second quarter of 2024 with our former Chief Executive Officer
and, to a lesser extent, a decrease in board of director fees. This decrease was partially offset by an increase in legal and accounting
costs.
Other Income (Expense)
Other income was approximately $6,000 for the year
ended December 31, 2025 compared to approximately $6,000 of other expense for the comparable period in 2024. This increase in other income
was primarily related to favorable changes in foreign currency exchange rates during the year ended December 31, 2025 as compared to the
same period in 2024.
Interest Income, net
Interest income, net decreased to approximately $148,000
during the year ended December 31, 2025 as compared to approximately $250,000 for the same period in the prior year. This decrease is
primarily due to lower average invested funds during the year ended December 31, 2025 as compared to the same period in 2024.
Non-GAAP Measures
In our narrative discussion of operations above, we
exclude the impact of certain non-cash expenses from R&D expenses, which narrative discussion includes reconciliation of such adjusted
financial measures to the directly comparable GAAP financial measure. We believe these adjusted operating measures may provide investors
with useful information regarding our underlying performance from period to period and allow investors to better understand our results
of operations. Management uses these adjusted measures when assessing the performance of the business.
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Liquidity and Capital Resources
We incurred a net loss of
approximately $2.7 million for the year ended December 31, 2025. We had an accumulated deficit of approximately $199.9 million at December
31, 2025, as compared to an accumulated deficit of approximately $197.2 million at December 31, 2024. Working capital was approximately
$7.1 million at December 31, 2025, and approximately $5.7 million at December 31, 2024, respectively. During the year ended December 31,
2025, our working capital increased by approximately $1.4 million primarily due to net proceeds of approximately $4.0 million from our
October 2025 underwritten public offering substantially offset by our net loss for the year ended December 31, 2025.
Our principal source of liquidity
consists of cash. At December 31, 2025, we had approximately $7.9 million in cash and approximately $1.0 million in current liabilities.
At December 31, 2024, we had approximately $6.2 million in cash and approximately $0.9 million in current liabilities. We have historically
relied upon sales of our equity securities to fund our operations.
We evaluate whether there
are conditions or events, considered in the aggregate that raise substantial doubt about our ability to continue as a going concern within
one year after the date that the financial statements are issued. We have incurred substantial losses since our inception, and we expect
to continue to incur operating losses in the near-term. We believe that our existing resources will be adequate to fund our operations
for a period of at least twelve months from the date of the issuance of these financial statements. In addition, the Company raised net
proceeds of approximately $4.0 million in an underwritten public offering of common stock in October 2025. However, we anticipate we will
need additional capital in the long-term to pursue our business initiatives. While we believe that we will continue to have access to
capital resources through possible public or private equity offerings, debt financings, corporate collaborations, related party funding,
or other means to continue as a going concern, the terms, timing and extent of any future financing will depend upon several factors,
including the achievement of progress in our product development programs, our ability to identify and enter into licensing or other strategic
arrangements, our continued listing on Nasdaq, and factors related to financial, economic, geo-political, industry and market conditions,
many of which are beyond our control. The capital markets for the biotech industry can be highly volatile, which make the terms, timing
and extent of any future financing uncertain.
Cash Flows from Operating Activities
Cash flows used in operating activities for the year
ended December 31, 2025 totaled approximately $2.3 million, which was primarily due to our net loss for the period, partially offset by
non-cash charges associated with share-based expense. In addition, prepaid expenses and other decreased approximately $0.3 million and
accounts payable, accrued expenses and other current liabilities increased approximately $0.1 million during the year ended December 31,
2025 compared to the prior year. Cash flows used in operating activities for the year ended December 31, 2024 totaled approximately $2.8
million, which was primarily due to our net loss for the period, partially offset by non-cash charges associated with share-based expense.
In addition, prepaid expenses and other decreased approximately $0.2 million, other assets decreased by approximately $0.7 million due
to the impairment of long-lived assets and accounts payable, accrued expenses and other current liabilities increased approximately $0.1
million during the year ended December 31, 2024 compared to the prior year.
Cash Flows from Investing Activities
There were no cash flows from investing activities
for each of the years ended December 31, 2025 and 2024.
Cash Flows from Financing Activities
Cash flows from financing activities for the year
ended December 31, 2025 totaled approximately $4.0 million representing net proceeds from our underwritten public common stock offering
in October 2025. There were no cash flows from financing activities for the year ended December 31, 2024.
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Contractual Obligations
Contractual obligations represent future cash commitments
and liabilities under agreements with third-parties and exclude contingent liabilities for which we cannot reasonably predict future payment.
Our contractual obligations result from a property lease for office space. Although we do have obligations for CMO and CRO services, the
table below excludes potential payments we may be required to make under our agreements with CMOs and CROs because timing of payments
and actual amounts paid under those agreements may be different depending on the timing of receipt of goods or services or changes to
agreed-upon terms or amounts for some obligations, and those agreements are cancelable upon written notice by the Company and therefore,
not long-term liabilities. The contracts may also contain variable costs that are hard to predict as they are based on such things as
patients enrolled and exploratory study sites, which can vary and, therefore, are also not included in the table below. Additionally,
the expected timing of payment of the obligations presented below is estimated based on current information.
The following tables represent our contractual obligations
as of December 31, 2025, aggregated by type:
Payments Due by Period
As of December 31, 2025
Total
Less
than
1 year
1-3
years
3-5
years
More
than
5 years
Lease obligations
$ 6,655
$ 6,655
$ –
$ –
$ –
Total
$ 6,655
$ 6,655
$ –
$ –
$ –
Recent Accounting Standards
Refer to Note 3, Summary of Significant
Accounting Policies , of the accompanying financial statements set forth in Item 8.
ITEM 7A – QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not required to provide the information required by this Item because
we are a “smaller reporting company” (as defined in Rule 12b-2 of the Exchange Act).
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