Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as may be amended, supplemented, or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.

Throughout this Quarterly Report on Form 10-Q, references to "we," "our," "us," the "Company," or "Canton Strategic Holdings," refer to Canton Strategic Holdings, Inc., individually, or as the context requires, collectively with its subsidiary.

Overview

During the year ended December 31, 2025, we began a strategic shift in our business to prioritize digital asset treasury management and investment in the digital asset ecosystem, specifically the Canton Network. From 2022 through late 2025, we primarily operated as a biotechnology company developing therapeutic candidates in inflammatory and immunologic conditions. In November 2025, we undertook a strategic shift to prioritize a disciplined digital asset treasury strategy.

In connection with this shift, in November 2025 we completed a private placement offering, strengthening our liquidity and supporting our digital asset treasury strategy. Concurrently, we entered into an at-the-market equity program through a shelf registration statement. In January 2026, we completed a registered direct offering of common stock and pre-funded warrants, further strengthening our capital position.

Our digital asset treasury strategy is centered on acquiring, holding and deploying CC and supporting the Canton Network through validator operations, application support and ecosystem participation.

Our results of operations for the three months ended March 31, 2026 reflect our two reportable segments: legacy biotechnology operations, and our digital asset treasury strategy initiated in November 2025. See Note 9 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional segment financial performance information.

Components of Results of Operations

Revenue

We have not recognized revenue since inception or for the three months ended March 31, 2026 and 2025.

Research and Development Expenses

Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials, and manufacture drug supplies and materials as well as stock-based compensation for our research and development personnel. Research and development expenses are charged to operations as incurred.

We accrue costs incurred by external service providers, including contract research organizations and clinical investigators, based on estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.

We cannot determine with certainty the duration and costs of future clinical trials of our product candidates or any other product candidates we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our current and future product candidates will depend on a variety of factors, including:

●	the scope, rate of progress, expense and results of clinical trials of our current product candidates, as well as of any future clinical trials of our future product candidates and other research and development activities that we may conduct;
●	uncertainties in clinical trial design and patient enrollment rates;
●	the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability;
●	significant and changing government regulations and regulatory guidance; and
●	the timing and receipt of any marketing approvals.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and consulting related expenses, including stock-based compensation for our general and administrative personnel. General and administrative expenses also include professional fees and other corporate expenses, including legal fees relating to corporate matters; professional fees for accounting, auditing, tax, and consulting services; insurance costs; travel expenses and other operating costs that are not specifically attributable to research activities. General and administrative expenses also include expenses related to our canton-centric digital asset treasury strategy.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our digital asset treasury strategy and continued research activities and development of our product candidates. We also incur expenses associated with being a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, directors and officers insurance expenses, corporate governance expenses, investor relations activities and other administrative and professional services.

Interest Income

Interest income consists of interest income from funds held in our cash accounts.

Unrealized Loss from Digital Asset Holdings

The unrealized gain (loss) from digital assets holdings represents the change in fair value of our digital assets. We use a USD/CC reference price from a crypto market data provider for purposes of periodic fair value remeasurement.

Results of Operations

Comparison of the Three Months Ended March 31, 2026 and 2025

The following table sets forth key components of our results of operations for the three months ended March 31, 2026 and 2025.

		Three Months Ended March 31,
		2026				2025				Change
Consolidated Statements of Operations Data:
Operating expenses:
Research and development		$	267,823			$	594,070			$	(326,247	)
General and administrative			36,600,488				1,952,599				34,647,889
Total operating expenses			36,868,311				2,546,669				34,321,642
Other income (expense):
Interest expense			-				(8,471	)			8,471
Interest income			318,178				13,436				304,742
Unrealized loss from digital assets holdings			(15,013,304	)			-				(15,013,304	)
Total other income (expense)			(14,695,126	)			4,965				(14,700,091	)
Total loss before income taxes		$	(51,563,437	)		$	(2,541,704	)		$	(49,021,733	)

Research and Development Expenses

Research and development expenses decreased by $0.3 million, or 55%, to $0.3 million for the three months ended March 31, 2026 from $0.6 million for three months ended March 31, 2025. The decrease was driven by less research and development activity in our programs.

General and Administrative Expenses

General and administrative expenses increased by $34.6 million, or 1174%, to $36.6 million for the three months ended March 31, 2026 from $2.0 million for the three months ended March 31, 2025. The digital asset treasury strategy drove the increased general and administrative expense. The change in general and administrative expenses was primarily due to increases of (i) $32.1 million in stock based compensation (see Note 5 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), (ii) $0.8 million in compensation expenses including accrued bonuses, (iii) $0.8 million in legal and other professional services (iv) $0.2 million in insurance expenses.

Interest Expense

Interest expense decreased by $8,471, or 100%, to $0 for the three months ended March 31, 2025 from $8,471 for the three months ended March 31, 2025. The interest expense incurred in 2025 was primarily related to a director and officer insurance premium financing liability as well as a note payable. We have paid such obligations in full as of December 31, 2025 and did not incur any interest expense for the three months ended March 31, 2026.

Interest Income

Interest income increased by approximately $0.3 million, or 2268%, to $0.3 million for the three months ended March 31, 2026 from $0.01 million for the three months ended March 31, 2025. The increase in interest income was due to the increase in investible cash and equivalents.

Unrealized Loss from Digital Assets Holdings

We recorded an unrealized loss from digital assets holdings of $15.0 million for the three months ended March 31, 2026. We did not have any loss (or gain) from digital asset holdings for the three months ended March 31, 2025. We did not own digital assets prior to the Cryptocurrency Offering in November 2025. The current period unrealized loss is a result of the reference price of CC as of March 31, 2026 being less than the weighted average cost of our CC holdings. See Note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information about our digital assets holdings

Liquidity and Capital Resources

On November 3, 2025, we raised net proceeds of over $537 million through a private placement offering, and on January 21, 2026 we raised approximately $53 million in a registered direct offering and have raised approximately $35 million year to date pursuant to the 2025 ATM Agreement and March 2026 ATM Agreement. We believe we have sufficient liquidity to fund anticipated cash requirements for operations and working capital purposes through at least March 2027.

Cash Flow Activities for the Three Months Ended March 31, 2026 and 2025

The following table sets forth a summary of our cash flows for the periods presented.

		Three Months Ended March 31,
		2026				2025
Net cash used in operating activities		$	(7,635,188	)		$	(2,689,001	)
Net cash used in investing activities			(54,822,298	)			-
Net cash provided by financing activities			86,956,878				205,568
Net increase (decrease) in cash		$	24,499,392			$	(2,483,433	)

Cash Flows from Operating Activities

Cash used in operating activities for the three months ended March 31, 2026 was $7.6 million which consisted of net loss of $47.3 million, adjusted for non-cash stock-based compensation of approximately $32.3 million, unrealized loss from digital asset holdings of approximately $15.0 million, a decrease of $4.2 million for deferred tax benefit, and a net decrease in operating assets and liabilities of approximately $3.3 million.

Cash used in operating activities for the three months ended March 31, 2025 was $2.7 million which consisted of net loss of $2.5 million, and a net decrease in operating assets and liabilities of approximately $0.4 million partially offset by non-cash stock-based compensation of approximately $0.2 million.

Cash Flows from Investing Activities

Cash used in investing activities for the three months ended March 31, 2026 was $54.8 million, representing the purchase of digital assets. There were no cash flows from investing activities during the three months ended March 31, 2025.

Cash Flows from Financing Activities

Cash provided by financing activities for the three months ended March 31, 2026 was $87.0 million. The net increase in financing activities was due to proceeds from the January 2026 Offering of $54.9 million, proceeds from the 2025 ATM Agreement and March 2026 ATM Agreement offerings of $35.5 million, proceeds from the exercise of warrants of less than $0.1 million. These increases were offset by payments of issuance costs of $3.6 million.

Cash provided by financing activities for the three months ended March 31, 2025 was $0.2 million. The net increase in financing activities was due to proceeds from the insurance premium financing liability of $0.3 offset by payments of the insurance premium financing liability of $0.1 million and repayments of the note payable of less than $0.1 million.

Critical Accounting Policies and Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. We consider the following areas to be our critical accounting estimate: fair value of digital assets, research and development expense recognition, stock-based compensation, allowances of deferred tax assets, and cash flow assumptions regarding going concern considerations. Although management believes the estimates that have been used are reasonable, actual results could vary from the estimates that were used.

Critical Accounting Policies

Digital Assets

We account for digital assets, which are comprised of CC, as indefinite-lived intangible assets in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350-60, Intangibles-Goodwill and Other-Crypto Assets. Our digital assets are initially recorded at cost. Subsequently, they are measured at fair value with the gain or loss associated with remeasurement of the digital assets recognized in net income (loss) during each reporting period. Upon disposal of a digital asset (e.g., by sale, exchange or transfer), we derecognize the asset and recognize a realized gain or loss in net income, calculated as the difference between the sale proceeds and the asset's carrying amount.

The fair value of the digital assets is determined based on the quoted price in its principal market at the time of measurement. We determine its principal market as the market that it has access to and has the greatest volume and level or orderly transactions in accordance with FASB ASC 820, Fair Value Measurement. We track the cost of its digital assets using the first-in-first-out (FIFO) method.

Research and development

Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on our estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the services completed.

Stock-based compensation

Stock-based compensation represents the cost related to stock-based awards granted to our employees, directors, consultants, and affiliates. We measure stock-based compensation costs at the grant date, based on the estimated fair value of the award and recognize the cost over the requisite service period.

We recognize compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each option grant to employees, non-employees and directors is estimated as of the date of grant using the Black-Scholes option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to January 12, 2022, we were a private company and our common stock has only been publicly traded since that date. As a result, we lack company-specific historical and implied volatility information. Therefore, we have estimated our expected stock price volatility based on the historical volatility of a publicly traded set of peer companies. The expected term of stock options granted was between five and seven years. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

Recently Issued and Adopted Accounting Standards

See Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act (the "JOBS Act") was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.

Subject to certain conditions set forth in the JOBS Act, as an "emerging growth company," we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor's attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and (ii) complying with the requirement adopted by the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor's report on financial statements. We will remain an "emerging growth company" until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.