Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements contained herein this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "1995 Reform Act"). Except for the historical information contained herein, this report contains forward-looking statements (identified by words such as "estimate," "project", "anticipate", "plan", "expect", "intend", "believe", "hope", "strategy" and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements.

Overview

Impact Biomedical Inc. ("IBO". "Impact", "Impact BioMedical", "we", "us", "our" or the "Company") discovers, confirms, and patents unique science and technologies which can be developed into new offerings in human healthcare and wellness in collaboration with external partners through licensing, co-development, joint ventures, and other relationships, and currently trades on the NYSE American under ticker symbol IBO.

By leveraging technology and new science with strategic partnerships, we provide advances in biopharmaceuticals, over the counter direct to consumer wellness offerings, and drug discovery for the prevention, inhibition, and treatment of neurological, oncologic, and inflammatory diseases. In addition to our existing efforts, we continually search for, and evaluate, other potential new offerings to add to our portfolio.

Our business model includes partnering and potentially direct sales for commercialization and distribution. Potential licensors and development partners include pharmaceutical, consumer packaged goods companies and others, who would commercialize IBO technologies in exchange for milestone, and royalty payments. Currently, our operations are conducted, and our assets are owned through our principal subsidiaries: (i) Global BioLife, Inc. ("Global BioLife"), which was incorporated on April 14, 2017, (ii) Impact BioLife Science, Inc. ("Impact BioLife"), which was incorporated on August 28, 2020, (iii) Global BioMedical, Inc. ("Global BioMedical"), which was incorporated on April 18, 2017, and (iv) Sweet Sense, Inc. ("Sweet Sense"), which was incorporated on April 30, 2018.

Below is a list of our principal subsidiaries:

	●	Impact BioLife Science, Inc.;
	●	Global Biomedical, Inc.;
	●	Global BioLife, Inc.; and
	●	Sweet Sense, Inc.

Impact BioLife Science, Inc. We are the sole owner of the outstanding equity of Impact BioLife Science, Inc.

Global Biomedical, Inc. We own 90.9% of Global Biomedical, Inc. outstanding equity.

Global BioLife, Inc. Through our majority owned subsidiary Global Biomedical, Inc., we own 81.8% of the outstanding equity of Global BioLife, Inc.

Sweet Sense, Inc. We are the owner of 95.5% of the outstanding equity of Sweet Sense.

Impact BioMedical has several unique and proprietary technologies that are in continuing development.

Linebacker

Linebacker is a platform of small molecule electrophilically enhanced polyphenol compounds with potential application in oncology (solid tumors), inflammatory disorders, and neurology. Polyphenols are substances found in many nuts, vegetables, and berries. Linebacker compounds are modified Myricetin, which is a common plant-derived flavonoid. Myricetin exhibits a wide range of activities that include strong antioxidant and anti-inflammatory activities (source: NIH).

Linebacker can potentially be developed as monotherapy or co-therapy to down-regulate PIM (proviral integration site for Moloney murine leukemia virus) kinase which plays a key role as an oncogene in various cancers (e.g. colon, lung, prostate, breast). Additional potential applications include inflammatory disorders and neurology.

Linebacker-1 and Linebacker-2 compounds have been licensed to ProPhase Laboratories (NASDAQ: PRPH) for development and commercialization worldwide, from which Impact Biomedical could receive future milestone and royalty payments.

Laetose

Laetose™ technology demonstrates compelling potential in reducing caloric intake and glycemic index in foods, while also inhibiting tumor necrosis factor alpha (TNF-α), a cytokine associated with inflammatory chronic diseases (data on file with IBO).

The patented formulation has potential to inhibit the inflammatory and metabolic response of sugar alone and has potential applications in therapeutic administration to reduce or limit inflammatory or metabolic diseases (e.g., diabetes). Use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower caloric and glycemic index/load.

Laetose has a unique composition patent allowed in the United States and patents are pending in other countries worldwide.

IBO is actively seeking potential partners for further development and commercialization of Laetose as a consumer-packaged or biopharmaceutical offering worldwide.

Functional Fragrance Formulation ("3F")

3F is a suite of "functional fragrances" containing specialized botanical ingredients (e.g., terpenes) with potential application as an antimicrobial, or as an additive in insect repellents, detergents, lotions, shampoo, fabrics and other substances to increase effectiveness.

IBO has partnered with the Chemia Corporation (St. Louis, MO) to pursue development of the 3F technology. Chemia is a leading developer and manufacturer of fragrances and flavors.

In addition to Chemia, IBO is actively seeking potential partners for further development and commercialization of 3F worldwide, given the broad application of this technology.

Composition patents have been issued in the U.S. and are pending in other countries.

Equivir

Equivir/Equivir G technology is a novel blend of FDA Generally Recognized as Safe (GRAS) eligible polyphenols (e.g. Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are substances found in many nuts, vegetables, and berries. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper.

Equivir/Equivir G is licensed to ProPhase Laboratories for development and commercialization worldwide. ProPhase Lab's initial focus is for use as an over-the-counter offering for upper respiratory wellness. Additional applications could be pursued in the future.

Method and composition patents are issued in the U.S. and other countries.

Emerging Technology

Impact BioMedical continually evaluates additional proprietary technologies that are in various phases of development. These include, and are not limited to biopharmaceuticals, indoor air quality products, preservatives, bioplastics, personalized medicine (e.g. genomics, diagnostics), nanotechnology, cannabis products and technology, pain management, and others.

These activities include discussions with potential companies/technologies which, subject to completion of diligence, and approval of the respective management boards, could potentially expand the offerings of Impact Biomedical Inc. There is no assurance that anyone, or all, of these will result in a material transaction and this is exemplary of consistent and ongoing search and discovery efforts within Impact Biomedical Inc.

Revenue

		Three months ended September 30, 2026				Three months ended September 30, 2025				% Change				Nine months ended September 30, 2026				Nine months ended September 30, 2025				% Change
Biotech retail sales		$	21,000			$	18,000				17	%		$	31,000			$	25,000				24	%
Total revenue		$	21,000			$	18,000				17	%		$	31,000			$	25,000				24	%

Revenue consists of sales of the Company's retail sales of its Celios air purification technology. It includes online and third-party distributor sales. This is a new product line acquired in February of 2025 via the Company's transaction with DSS PureAir.

Costs and expenses

		Three months ended September 30, 2026				Three months ended September 30, 2025				% Change				Nine months ended September 30, 2026				Nine months ended September 30,2025				% Change
Cost of revenue		$	6,000			$	1,000				500	%		$	8,000			$	2,000				300	%
Sales, general and administrative compensation			156,000				259,000				-40	%			502,000				750,000				-33	%
Stock-based compensation			-				2,000				-100	%			1,440,000				5,000				28700	%
Sales and marketing			-				2,000				-100	%			1,000				22,000				-95	%
Professional Fees			96,000				234,000				-59	%			446,000				868,000				-49	%
Research and development			35,000				52,000				-33	%			158,000				230,000				-31	%
Depreciation and Amortization			284,000				288,000				-1	%			853,000				859,000				-1	%
Rent and utilities			19,000				19,000				0	%			55,000				56,000				-2	%
Other operating expenses			73,000				109,000				-33	%			207,000				345,000				-40	%
Total costs and expenses		$	669,000			$	966,000				-31	%		$	3,670,000			$	3,137,000				17	%

Costs of revenue includes all direct costs of the Company's retail sales of its Celios air purification technology. It includes online and third party distributor sales and consists of materials, third party warehousing, and transportation costs. This asset was acquired during the first quarter of 2025.

Selling, general and administrative compensation costs decreased 40% and 33%, respectively for the three and nine months ended September 30, 2026 and as compared to the three and nine months ended September 30, 2025, due to reductions in pay for a certain employee of the Company as well as a reduction in bonus accruals year over year.

Stock based compensation includes expense charges for all stock-based awards to employees, directors, and consultants. Such awards can include option grants, warrant grants, and restricted and unrestricted stock awards. In January 2026, the Company granted and issued 253,577 shares of Common Stock to various individuals including executives, board members, audit committee members, etc. The agreement included the individuals rescinding and cancelling any and all unexercised stock options previously granted. The Company recorded stock-based compensation expense of approximately $1,440,000.

Sales and marketing costs, which includes internet and trade publication advertising, press releases, travel and entertainment costs. These decreased 100% and 95% for the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 2025. The decrease in cost for the three and nine months ended September 30, 2026 is due to efforts to reduce cost.

Professional fees decreased 59% and 49% for the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 2025. These costs consist primarily of consulting and legal services associated with developing and implementing Impact BioMedical's business plan as well as cost associates with the due diligence in connection with potential merger and/or acquisitions and have decreased as all other engagements of professional services have been eliminated or significantly reduced as the Company explores mergers and/or acquisitions.

Research and development costs represent costs consisting primarily of independent, third-party testing of the various properties of each technology the Company owns, research on new technologies as well as cost to patent newly developed technologies and other related fees for the development of new technologies. Research and development decreased 33% and 31%, respectively, for the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 2025 due primarily to a decrease in spending on identifying new technologies as well as pausing the spend on several in-development technologies.

Depreciation and amortization expense decreased 1% for the three and nine months ended September 30, 2026 as compared to the same periods for September 30, 2025 and represents the amortization of the associated with the developed technology and patents acquired as part of the acquisition of Impact BioMedical by DSS as well as the amortization of the Celios patents acquired during the first quarter of 2025.

Rent and utilities represents costs associated with office space located at 1400 Broadfield Blvd, Suite 100 Houston TX which the Company began subletting from DSS during the first quarter of 2024. These costs remained flat for the three months ended September 30, 2026 as compared to the three months ended September 30, 2025 and decreased 2% for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025 as there were no rent increases.

Other operating expenses consist primarily of office supplies, IT support, travel, third party warehousing cost, and insurance costs. These costs decreased 33% and 40% for the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 2025 due primarily to efforts by management of the Company to control such costs.

Other Income (Expense)

		Three months ended September 30, 2026				Three months ended September 30, 2025				% Change				Nine months ended September 30, 2026				Nine months ended September 30, 2025				% Change
Interest income		$	4,000			$	3,000				33	%		$	10,000			$	10,000				0	%
Change in fair value of note payable, related party			-				(268,000	)			-100	%			-				(13,210,000	)			-100	%
Interest expense			-				(262,000	)			-100	%			-				(793,000	)			-100	%
Total other income (expense)		$	4,000			$	(527,000	)			101	%		$	10,000			$	(13,993,000	)			100	%

Interest income is recognized on the Company's notes receivable. Interest income was relatively increased 33% and remained flat for three and nine months ended September 30, 2026 as compared to the same periods for September 30, 2025, respectively, as the outstanding principal balance remained flat.

Change in fair value of note payable, related party is related to the promissory note with DSS ("DSS Note"). During the fiscal year ended 2024, the Company amended the terms of its outstanding principal balance of the DSS Note. Previously, the Note required repayment solely in cash; however, pursuant to the second amendment executed which went into effect on September 16, 2024, the Company now has the option to settle the Note in either cash or shares of the Company's common stock, subject to certain conditions. In accordance with ASC 480, Distinguishing Liabilities and Equity, and ASC 825, Financial Instruments, the Company remeasured the fair value of the DSS Note as of the modification date and again as of September 30, 2025. As a result, the Company recognized a fair value adjustment of $268,000 and $13,210,000 for the three and nine months ended September 30, 2025. This note was settled and paid off in October 2025.

Interest expense is recognized on the Company's debt to DSS. Interest expense decreased 100% for the three and nine months ended September 30, 2026 as compared to the three and nine months ended September 30, 2025, due to the settlement and payoff of the outstanding debt in October 2025.

Net loss

		Three months ended September 30, 2026				Three months ended September 30, 2025				% Change				Nine months ended September 30, 2026				Nine months ended September 30, 2025				% Change
Net loss		$	(644,000	)		$	(1,475,000	)			-56	%		$	(3,629,000	)		$	(17,105,000	)			-79	%

For the three and nine months ended September 30, 2026 and 2025, the Company recorded decreases in net loss of 56% and 79%. The decrease in net loss is attributable to the Company's cost is driven by the fair value adjustment to the Company's debt with DSS recorded during 2025 offset by increases in stock based compensation approximating $1,440,000 recorded in Q1 2026.

LIQUIDITY AND CAPITAL RESOURCES

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. As reflected in the accompanying financial statements the Company has incurred operating losses as well as negative cash flows from operating activities over the past two years. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year of the date that the financial statements are issued. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern.

The Company has historically met its liquidity and capital requirements primarily through debt financing. The Company's management intends to take additional actions necessary to continue as a going concern. Management's plans concerning these matters include, among other things, monetization of its intellectual properties, and tightly controlling operating costs.

Cash Flow from Continuing Operating Activities

Net cash provided by operating activities was $19,000 for the nine months ended September 30, 2026 as compared to cash used by operating activities of $1,989,000 for the nine months ended September 30, 2025. This fluctuation is driven by less payments of the Company's accounts payable by approximately $240,000, amounts due to related party of approximately $1,002,000, as well as decrease in net loss after reconciling items of approximately $712,000

Cash Flow from Investing Activities

Net cash used and provided by investing activities was $1,000 and $2,000 for the nine months ended September 30, 2026 and September 30, 2025, respectively. This activity is due to net activity on notes receivable during 2026 and 2025.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues, or expenses.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. The financial statements as of December 31, 2025, describe the significant accounting policies and methods used in the preparation of the financial statements. There are no additional material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2026.