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

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

The following Management's Discussion and Analysis of Financial Condition and Results of Operations provides information that CERo Therapeutics Holdings, Inc. ("the Company") management believes is relevant to an assessment and understanding of its results of operations and financial condition. The discussion should be read together with (i) the Company's unaudited condensed consolidated financial statements and related notes that are presented above and (ii) the Company's audited consolidated financial statements and related notes and management's discussion and analysis of financial condition and results of operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission (the "SEC") on April 15, 2026. This Management's Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements resulting from various factors. Please see "Cautionary Note Regarding Forward Looking Statements" and "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC.

Overview

CERo Therapeutics Holdings, Inc. (OTCQB: CERO) ("CERo", or the "Company"), F/K/A Phoenix Biotech Acquisition Corp. ("PBAX") was incorporated in Delaware on June 8, 2021. PBAX was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses (a "business combination").

The Company is an innovative immunotherapy company advancing the development of next generation engineered T cell therapeutics for the treatment of cancer. The Company's proprietary approach to T cell engineering, which enables it to integrate certain desirable characteristics of both innate and adaptive immunity into a single therapeutic construct, is designed to engage the body's full immune repertoire to achieve optimized cancer therapy. The Company is in early clinical development but has not yet begun product commercialization. The Company's efforts will focus on continued product development, including clinical development, to support regulatory approval to commercialize and subsequent product commercialization.

Going concern

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company's ability to continue as a going concern is dependent on its ability to raise additional capital to fund its research and development ("R&D") activities and meet its obligations on a timely basis. As of June 30, 2026, the Company reported approximately $937,512 of cash, restricted cash, and cash equivalents, a working capital deficit of approximately $30.9 million, and an accumulated deficit and stockholders' deficit of approximately $97.8 million and $30.5 million, respectively. Additionally, during the six months ended June 30, 2026, the Company used approximately $5.1 million of net cash in operating activities, has a net loss of $6.9 million and has no revenues. During the six months ended June 30, 2026, we received net proceeds from the sale of common stock in connection with ELOC fundings. Additional funds are necessary to maintain current operations and to continue R&D activities. However, there can be no assurance that sufficient funding will be available to allow the Company to successfully continue its R&D activities and planned regulatory filings with the FDA. If the Company is unable to obtain the necessary funds, significant reductions in spending and the delay or cancellation of planned activities may be necessary. These actions would have a material adverse effect on the Company's business, results of operations, and prospects. These conditions raise substantial doubt about the Company's ability to continue as a going concern within one year from the date these unaudited condensed consolidated financial statements are issued. These unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

During the six months ended June 30, 2026, we received net proceeds of $700,491 from the sale of our common stock from ELOC fundings. Furthermore, during the six months ended June 30, 2026, we issued and sold convertible notes having an aggregate principal face value of $4,579,500, and the Company received net proceeds of $3,663,600. Additional funds are necessary to maintain current operations and to continue R&D activities. However, there can be no assurance that sufficient funding will be available to allow the Company to successfully continue its R&D activities and planned regulatory filings with the FDA. If the Company is unable to obtain the necessary funds, significant reductions in spending and the delay or cancellation of planned activities may be necessary. These actions would have a material adverse effect on the Company's business, results of operations, and prospects. These conditions raise substantial doubt about the Company's ability to continue as a going concern within one year from the date the unaudited consolidated financial statements are issued. These unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Recent Developments

On April 8, 2026, we issued and sold a convertible promissory note for a purchase price of $350,000, having a principal face value of $437,500 (the "April 2026 Note") to Keystone. Pursuant to the April 2026 Note, the Company may borrow, from time to time thereunder, up to a maximum aggregate amount not to exceed a sum of $1,000,000. The April 2026 Note bears interest at a rate of 10% per annum, matures on April 9, 2027, and is convertible into shares of the Company's common stock. On April 27, 2026, we issued and sold a convertible promissory note for a purchase price of $400,000, having a principal face value of $500,000 (the "Second April Note") to Keystone. Pursuant to the Second April 2026 Note, the Company may borrow, from time to time thereunder, up to a maximum aggregate amount not to exceed a sum of $1,000,000. The Second April Note bears interest at a rate of 10% per annum, matures on April 27, 2027, and is convertible into shares of the Company's common stock. At any time after the issuance of the April 2026 Note and the Second April Note, Keystone, at its option, is entitled to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into common stock at a conversion price equal to the lesser of (i) $0.05 and (ii) 80% of the average of the 5 (five) lowest intraday trading prices during the 20 (twenty) days prior to the day that Keystone requests conversion, unless otherwise modified by mutual agreement between the parties, subject to certain adjustments and limitations, including a beneficial ownership limitation of 4.99%.

On May 28, 2026, the Company issued and sold a convertible promissory note for a purchase price of $750,000, having a principal face value of $937,500 (the "May 2026 Note") to SRX Global Inc. (f/k/a SRX Health Solutions, Inc.) ("SRX Global"). Pursuant to the May 2026 Note, the Company may borrow, from time to time thereunder, up to a maximum aggregate amount not to exceed a sum of $750,000. The May 2026 Note bears interest at a rate of 10% per annum, matures on May 28, 2027, and is convertible into shares of the Company's common stock. At any time after the issuance of the May 2026 Note, SRX Global, at its option, is entitled to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into common stock at a conversion price equal to the lesser of (i) $0.05 and (ii) 80% of the average of the 5 (five) lowest intraday trading prices during the 20 (twenty) days prior to the day that SRX Global requests conversion, unless otherwise modified by mutual agreement between the parties, subject to certain adjustments and limitations, including a beneficial ownership limitation of 4.99%.

On June 23, 2026, the Company entered into an amended and restated promissory note (the "June 2026 Note") with SRX Global, which amends and restates in its entirety the May 2026 Note. Pursuant to the June 2026 Note, the Company may borrow, from time to time thereunder, up to a maximum aggregate amount not to exceed a sum of $1,413,600 (the "Maximum Loan Amount"). Of the Maximum Loan Amount, $750,000 was funded pursuant to the May 2026 Note, and an additional $663,600 was funded on June 23, 2026. The June 2026 Note bears interest at a rate of 10% per annum, matures on May 28, 2027, and is convertible into shares of the Company's common stock. At any time after the issuance of the June 2026 Note, SRX Global, at its option, is entitled to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into common stock at a conversion price equal to the lesser of (i) $0.05 and (ii) 80% of the average of the 5 (five) lowest intraday trading prices during the 20 (twenty) days prior to the day that SRX Global requests conversion, unless otherwise modified by mutual agreement between the parties, subject to certain adjustments and limitations, including a beneficial ownership limitation of 4.99%.

On July 14, 2026, the Company entered into a second amended and restated promissory note (the "July 2026 Note") with SRX Global, which amends and restates in its entirety the May 2026 Note, as amended and restated by the June 2026 Note. Pursuant to the July 2026 Note, the Company may borrow, from time to time thereunder, up to a maximum aggregate purchase price not to exceed a sum of $2,085,200 (the "July 2026 Maximum Loan Amount"). Of the July 2026 Maximum Loan Amount, $750,000 was funded pursuant to the May 2026 Note, an additional $663,600 was funded pursuant to the June 2026 Note, and an additional $671,600 of net proceeds was funded pursuant to the July 2026 Note having a principal balance of $839,500. The July 2026 Note bears interest at a rate of 10% per annum, matures on May 28, 2027, and is convertible into shares of the Company's Common Stock. At any time after the issuance of the July 2026 Note, SRX Global, at its option, is entitled to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into Common Stock at a conversion price equal to the lesser of (i) $0.05 and (ii) 80% of the average of the 5 (five) lowest intraday trading prices during the 20 (twenty) days prior to the day that SRX Global requests conversion, unless otherwise modified by mutual agreement between the parties, subject to certain adjustments and limitations, including a beneficial ownership limitation of 4.99%.

On August 11, 2026, the Company entered into a third amended and restated promissory note (the "August 2026 Note") with SRX Global, which amends and restates in its entirety May 2026 Note, as amended and restated by the June 2026 Note and as further amended and restated by the July 2026 Note. Pursuant to the August 2026 Note, the Company may borrow, from time to time thereunder, up to a maximum aggregate amount not to exceed a sum of $2,235,200 (the "August 2026 Maximum Loan Amount"). Of the August 2026 Maximum Loan Amount, $750,000 was funded pursuant to the May 2026 Note, an additional $663,600 was funded pursuant to the June 2026 Note, an additional $671,600 was funded pursuant to the July 2026 Note, and an additional $150,000 was funded pursuant to the August 2026 Note. The August 2026 Note bears interest at a rate of 10% per annum, matures on May 28, 2027, and is convertible into shares of Company's Common Stock. At any time after the issuance of the August 2026 Note, SRX Global, at its option, is entitled to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into Common Stock at a conversion price equal to the lesser of (i) $0.05 and (ii) 80% of the average of the 5 (five) lowest intraday trading prices during the 20 (twenty) days prior to the day that SRX Global requests conversion, unless otherwise modified by mutual agreement between the parties, subject to certain adjustments and limitations, including a beneficial ownership limitation of 4.99%.

Corporate Developments

Reverse Stock Splits

At 12:01 a.m. Eastern time on January 8, 2025, we effected the Reverse Stock Split pursuant to which each 100 shares of our Common Stock outstanding immediately prior thereto was converted into 1 share of our Common Stock outstanding immediately thereafter.

At 12:01 a.m. Eastern time on June 13, 2025, we effected the Reverse Stock Split pursuant to which each 20 shares of our Common Stock outstanding immediately prior thereto was converted into 1 share of our Common Stock outstanding immediately thereafter.

FDA Designation

In July 2025, CER-1236 received an FDA Orphan Drug Designation for the treatment of acute myeloid leukemia. In September 2025, the FDA granted Fast Track Designation to our lead investigational compound, CER-1236 for acute myeloid leukemia, which is in addition to the existing Orphan Drug Designation for the same compound. The FDA's Fast Track Designation is designed to accelerate the development and review of therapies for serious or life-threatening conditions with unmet medical need. The designation provides us with the opportunity for increased FDA interactions, potential eligibility for priority review, and the ability to submit data on a rolling basis.

Other

The Company's shares of Common Stock commenced trading on OTCQB as of December 2, 2025. On January 29, 2026, after considering the written record in this matter, the Nasdaq Listing and Hearing Review Council issued its decision affirming the Panel's decision to delist the Company's securities from Nasdaq.

Results of Operations

Revenue

The Company has not recognized any revenue from any sources, including from product sales, and the Company does not expect to generate any revenue from the sale of products in the foreseeable future. If the development efforts for the Company's product candidates, each of which is a specific product and indication combination, are successful and result in regulatory approval, or if the Company executes license agreements with third parties, the Company may generate revenue from R&D services, from the achievement of development milestones or from milestones and royalties related to product sales. However, there can be no assurance as to when any revenues will be generated, if at all.

Operating Expenses

Research and Development Expenses

R&D expenses consist of discovery activities, manufacturing development and production, preclinical and clinical development, and regulatory filing for product candidates. R&D expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in R&D are capitalized until the goods or services are received. Costs incurred in obtaining technology licenses through asset acquisitions, if incurred, will be charged to R&D expense if the licensed technology has not reached technological feasibility and has no alternative future use. R&D expenses include or could include:

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employee-related expenses, including salaries, bonuses, benefits, stock-based compensation and other related costs for those employees involved in R&D efforts;

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external R&D expenses incurred under agreements with preclinical research organizations, clinical research organizations, investigative sites, centralized clinical laboratories, and consultants to conduct preclinical and clinical studies;

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costs related to manufacturing material for preclinical studies and clinical trials, including fees paid to contract development and manufacturing organizations;

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product-liability insurance for clinical development product(s);

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laboratory supplies and research materials;

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software and systems related to R&D activities;

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costs related to regulatory filing and compliance; and

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facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, and equipment.

Product candidates in later stages of 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. The Company plans to substantially increase its R&D expenses for the foreseeable future as it continues the development of its product candidates through clinical development. The Company cannot determine with certainty the timing of initiation, the duration or the costs of current or future preclinical studies and clinical trials required for regulatory approval due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. The Company anticipates that it will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and ongoing assessments as to each product candidate's commercial potential. The Company will need to, and plans to, raise substantial additional capital in the future. Future R&D expenses may vary significantly between periods and from current expectations based on factors such as:

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expenses incurred to conduct preclinical studies required to advance product candidates into clinical trials;

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per patient clinical trial costs based on a number of factors, including number of patient clinical visits, clinical laboratory testing, and potential medical imaging;

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the number of clinical trials required for approval, the number of patients who enroll in each clinical trial, and the number and geographic locations of sites included in the clinical trials;

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the length of time required to screen and enroll eligible patients, screen-failure rate, or the discontinuation rates of enrolled patients;

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potential additional safety monitoring requested by regulatory agencies;

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the cost of insurance, including product liability insurance, in connection with clinical trials; and

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suspension or termination of clinical development activities by regulators or institutional review boards for various reasons, including regulatory noncompliance or a finding that the participants are being exposed to unacceptable health risks.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive and administrative functions, including stock-based compensation, travel expenses and recruiting expenses. Other general and administrative expenses include professional fees for legal, accounting and tax-related services, consulting fees, insurance costs, and investor relations fees.

The Company anticipates that its general and administrative expenses will increase in the future as the Company increases headcount and contracted services for operational support for expanded operations and infrastructure. The Company also anticipates that general and administrative expenses will increase as a result of expenses for accounting, audit, legal and consulting services, as well as costs associated with maintaining compliance with SEC requirements, director and officer liability insurance, investor and public relations activities and other expenses associated with operating as a public company.

Other Income (Expenses), Net

Other expenses, net consists predominantly of interest income from interest bearing bank accounts, interest expense, and gains or losses on the initial valuation and revaluation of earnout, derivative liabilities and preferred stock liabilities, which represents the initial fair value and change in fair value of conversion options related to our convertible notes payable between periods.

Results of Operations for the Three Months ended June 30, 2026 and 2025

Results of operations for the three months ended June 30, 2026 and 2025 are summarized as follows:

		For the Three Months Ended June 30,												Percentage
		2026				2025				Change				Change
Operating expenses:
Research and development		$	1,736,013			$	2,753,963			$	(1,017,950	)			(37.0	)%
General and administrative			2,110,453				1,969,828				140,625				7.1	%
Total operating expenses			3,846,466				4,723,791				(877,325	)			(18.6	)%
Loss from operations			(3,846,466	)			(4,723,791	)			877,325				(18.6	)%
Other income (expenses):
Loss on foreign currency			(52	)			-				(52	)			100.0	%
Derivative expense			(3,103,533	)			-				(3,103,533	)			(100.0	)%
Gain on reevaluation of preferred stock liabilities			6,610,240				-				6,610,240				100.0	%
Share-based inducement expenses			-				(707,300	)			707,300				100.0	%
Interest income			1,025				13,776				(12,751	)			(92.6	)%
Interest expense			(690,044	)			-				(690,044	)			(100.0	)%
Total other income (expenses), net			2,817,636				(693,524	)			3,511,160				506.3	%
Net loss			(1,028,830	)			(5,417,315	)			4,388,485				(81.0	)%
Deemed dividend on Series A, B, C, D and E Preferred Stock			(28,426,624	)			(24,700,374	)			(3,726,250	)			15.1	%
Net loss attributable to common stockholders		$	(29,455,454	)		$	(30,117,689	)		$	662,235				2.2	%

Research and Development Expenses

Research and development expenses were $1,736,000 for the three months ended June 30, 2026, compared to $2,754,000 for the three months ended June 30, 2025, reflecting a decrease of $1,018,000. The decrease was related to decreased R&D activity in the 2026 period as compared to the 2025 period. During the 2025 period, the Company prepared and filed the IND for CER-1236, prepared for the clinical trials initiation, and began the clinical trial. The decrease in research and development expenses primarily reflected (i) a decrease in clinical expenses of $643,000, (ii) a decrease in scientific consulting expenses of $292,000, (iii) a decrease in rent expense of $98,000 due to the receipt of subtenant rental income and a credit received from the landlord on common area charges paid, (iv) a decrease in drug manufacturing costs of $122,000 and (v) a decrease in other costs of $87,000, offset by an increase in stock-based stock option expense of approximately $224,000.

The Company anticipates that its R&D expenses may increase in the future if the Company increases headcount, compensation expense, and contracted services for preclinical and clinical development of its product candidates, as well as for manufacturing of clinical product to be used in clinical development.

General and Administrative Expenses

General and administrative expenses were $2,110,000 for the three months ended June 30, 2026, compared to $1,970,000 for the three months ended June 30, 2025, reflecting an increase of $141,000. The increase in the three months ended June 30, 2026 over the three months ended June 30, 2025 was partially due to an increase in stock-based stock options expense of approximately $714,000 and an increase in other compensation and benefits of $54,000, offset by a decrease in professional fees of $432,000 and a decrease in other general and administrative expenses of approximately $195,000.

Other Income (Expenses), Net

Other income (expenses), net was $2,818,000 for the three months ended June 30, 2026, compared to other expenses, net of $(694,000) for the three months ended June 30, 2025, reflecting a positive change of $3,511,000. The positive change during the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was primarily due to the recording of a gain on reevaluation of preferred stock liabilities of $6,610,000 and a reduction in stock-based inducement expense of $707,000, offset by the recording of derivative expense of $3,104,000 and interest expense of $690,000 related to the issuance of convertible notes payable during the 2026 period and a decrease in interest income of $13,000.

Net loss and net loss attributable to common stockholders

For the three months ended June 30, 2026 and 2025, net loss amounted to $1,029,000 and $5,417,000, respectively, a decrease of $4,388,000, or 81.0%. During the three months ended June 30, 2026 and 2025, in connection with our Series A, Series B, Series C, Series D and Series E preferred stock conversions, we recorded deemed dividends of $28,427,000 and $24,700,000, respectively. Accordingly, for the three months ended June 30, 2026 and 2025, net loss attributable to common stockholders amounted to $29,455,000, or $0.70 per common share and $30,118,000, or $61.71 per common share, respectively.

Results of Operations for the Six Months ended June 30, 2026 and 2025

Results of operations for the six months ended June 30, 2026 and 2025 are summarized as follows:

		For the Six Months Ended June 30,												Percentage
		2026				2025				Change				Change
Operating expenses:
Research and development		$	4,074,357			$	5,661,790			$	(1,587,433	)			(28.0	)%
General and administrative			4,617,837				4,012,532				605,305				15.1	%
Total operating expenses			8,692,194				9,674,322				(982,128	)			(10.2	)%
Loss from operations			(8,692,194	)			(9,674,322	)			982,128				(10.2	)%
Other income (expenses):
Gain on foreign currency			121				-				121				100.0	%
Derivative expense			(4,000,255	)			-				(4,000,255	)			(100.0	)%
Gain on reevaluation of preferred stock liabilities			6,610,240				-				6,610,240				100.0	%
Change in fair value of earnout liabilities			19,500				-				19,500				100.0	%
Share-based inducement expenses			-				(863,550	)			863,550				100.0	%
Interest income			4,174				14,626				(10,452	)			(71.5	)%
Interest expense			(856,330	)			-				(856,330	)			(100.0	)%
Total other income (expenses), net			1,777,450				(848,924	)			2,626,374				309.4	%
Net loss			(6,914,744	)			(10,523,246	)			3,608,502				(34.3	)%
Deemed dividend on Series A, B, C, D and E Preferred Stock			(28,426,624	)			(24,964,518	)			(3,462,106	)			13.9	%
Deemed dividend related to Series C Common Warrants			-				(84,083	)			84,083				(100.0	)%
Net loss attributable to common stockholders		$	(35,341,368	)		$	(35,571,847	)		$	230,479				(0.6	)%

Research and Development Expenses

Research and development expenses were $4,074,000 for the six months ended June 30, 2026, compared to $5,662,000 for the six months ended June 30, 2025, reflecting a decrease of $1,588,000. The decrease was related to decreased R&D activity in the 2026 period as compared to the 2025 period. During the 2025 period, the Company prepared and filed the IND for CER-1236, prepared for the clinical trials initiation, and began the clinical trial. The decrease in research and development expenses reflected (i) a decrease in clinical expenses of $1,440,000, (ii) a decrease in scientific consulting expenses of $468,000, (iii) a decrease in rent expense of $295,000 due to the receipt of subtenant rental income and a credit received from the landlord on common area charges paid, and (iv) a decrease in lab and other expenses of $141,000. These decreases were offset by an increase in drug manufacturing costs of $99,000 and stock-based stock option expense of approximately $657,000.

The Company anticipates that its R&D expenses may increase in the future as the Company increases headcount, compensation expense, and contracted services for preclinical and clinical development of its product candidates, as well as for manufacturing of clinical product to be used in clinical development.

General and Administrative Expenses

General and administrative expenses were $4,618,000 for the six months ended June 30, 2026, compared to $4,013,000 for the six months ended June 30, 2025, reflecting an increase of $605,000. The increase in the six months ended June 30, 2026 over the six months ended June 30, 2025 was partially due to an increase in stock-based stock options expense of approximately $1,594,000 and an increase in insurance expense of $86,000, offset by a decrease in professional fees of $642,000, a decrease in proxy and transfer agent fees of $386,000, and a decrease in other general and administrative expenses of approximately $47,000.

Other Income (Expenses), Net

Other income (expenses), net was $1,777,000 for the six months ended June 30, 2026, compared to other expenses, net of $849,000 for the six months ended June 30, 2025, a positive change of $2,626,000. The positive change during the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was primarily due to the recording of a gain on reevaluation of preferred stock liabilities of $6,610,000 and a reduction in stock-based inducement expense of $864,000, offset by the recording of derivative expense of $4,000,000 and interest expense of $856,000 related to the issuance of convertible notes payable during the 2026 period.

Net loss and net loss attributable to common stockholders

For the six months ended June 30, 2026 and 2025, net loss amounted to $6,915,000 and $10,523,000, respectively, a decrease of $3,609,000, or 34.3%. During the six months ended June 30, 2026 and 2025, in connection with our Series A, Series B, Series C, Series D and Series E preferred stock conversions, and the redemption of Series C Preferred Stock, we recorded deemed dividends of $28,427,000 and $24,965,000, respectively. Accordingly, for the six months ended June 30, 2026 and 2025, net loss attributable to common stockholders amounted to $35,341,000, or $0.92 per common share and $35,572,000, or $107.60 per common share, respectively.

Liquidity and Capital Resources

Capital Requirements

The Company has not generated any revenue from any source and the Company does not expect to generate revenue for at least the next few years. If the Company fails to complete the timely development of, or fails to obtain regulatory approval for, its product candidates, the ability of the Company to generate future revenue will be adversely affected. The Company does not know when, or if, it will generate any revenue from its product candidates and does not expect to generate revenue unless and until the Company obtains regulatory approval and commercialization of its product candidates.

The Company expects its expenses to increase significantly in connection with its ongoing activities, particularly as it continues and expands research, preclinical development, and clinical development to support marketing approval for its product candidates. In addition, if the Company obtains approval for any of its product candidates, the Company expects to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. Furthermore, the Company expects to incur additional costs associated with operating as a public company.

The Company, therefore, anticipates that substantial additional funding will be needed in connection with its continuing operations. As of June 30, 2026, the Company had approximately $937,500 in cash, restricted cash, and cash equivalents, a working capital deficit of approximately $30.9 million, and an accumulated deficit of approximately $97.8 million. Additionally, during the six months ended June 30, 2026, the Company used approximately $5.1 million of net cash in operating activities. The Company intends to devote most of the available cash to the clinical development of its product candidates and public company compliance costs. Based on current business plans, the Company believes that the cash available as of June 30, 2026 will not fund its operations and capital requirements for 12 months after the filing of these unaudited consolidated financial statements for the six months ended June 30, 2026. During the six months ended June 30, 2026, we received net proceeds of $700,491 from ELOC fundings. Furthermore, during the six months ended June 30, 2026, we issued and sold Convertible Notes for an aggregate principal amount of $4,579,500 and we received net proceeds of $3,663,600. Additional funds are necessary to maintain current operations and to continue R&D activities. However, there can be no assurance that sufficient funding will be available to allow the Company to successfully continue its R&D activities and planned regulatory filings with the FDA. If the Company is unable to obtain the necessary funds, significant reductions in spending and the delay or cancellation of planned activities may be necessary. These actions would have a material adverse effect on the Company's business, results of operations, and prospects. These conditions raise substantial doubt about the Company's ability to continue as a going concern within one year from the date the unaudited consolidated financial statements are issued. These unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Any estimate as to how long the Company expects the net proceeds from the ELOC and convertible notes payable fundings may fund the Company's operations is based on assumptions that may prove to be wrong, and the Company could use its available capital resources sooner than its current expectations.

On October 31, 2025, the Common Stock ceased trading on Nasdaq as a result of the Panel's delisting determination. The OTC Markets are less liquid markets for the Common Stock. Such lack of liquidity may make it more difficult for us to raise capital. Changing circumstances, some of which may be beyond the Company's control, could result in less cash and cash equivalents available to fund operations or cause the Company to consume capital significantly faster than currently anticipated, and the Company may need to seek additional funds from additional sources sooner than planned.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical drug products, the Company is unable to estimate the exact amount of its operating capital requirements. The Company's future funding requirements will depend on many factors, including, but not limited to those listed under "Factors Affecting Our Performance" above.

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and the Company may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, the Company's product candidates, if approved, may not achieve commercial success. Commercial revenues, if any, will be derived from sales of product candidates that the Company does not expect to be commercially available in the near term, if at all. Accordingly, the Company will need to continue to rely on additional financing to achieve its business objectives. Adequate additional financing may not be available to the Company on acceptable terms, or at all. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the terms of these equity securities or this debt may restrict the Company's ability to operate. Any future debt financing and equity financing, if available, may involve covenants limiting and restricting the ability to take specific actions, such as incurring additional debt, making capital expenditures, entering into profit-sharing or other arrangements or declaring dividends. If the Company raises additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, it may be required to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to the Company. If the Company is unable to raise capital when needed or on acceptable terms, the Company could be forced to delay, reduce or eliminate its R&D programs or future commercialization efforts.

Cash Flows

		For the Six Months Ended June 30,
		2026				2025				Change
Net cash used in operating activities		$	(5,088,959	)		$	(9,068,702	)		$	3,979,743
Net cash provided by financing activities:			4,364,091				9,044,316				(4,680,225	)
Net (decrease) in cash, restricted cash, and cash equivalents		$	(724,868	)		$	(24,386	)		$	(700,482	)

Net cash used in operating activities

Net cash used in operating activities for the six months ended June 30, 2026 primarily reflected a net loss of $6,915,000, adjusted for the reconciliation of non-cash items such as depreciation expense of $120,000, stock-based compensation of $2,740,000, amortization of right-of-use asset of $435,000, amortization of debt discount of $747,000, gain on reevaluation of preferred stock liabilities of $6,610,000, and loss on initial and reevaluation of derivative liabilities of $4,000,000, and changes in operating asset and liabilities primarily consisting of a decrease in prepaid expenses and other current assets of $461,000, an increase in accounts payable of $636,000, an increase in accrued liabilities of $121,000, a decrease in insurance financing liability of $323,000, and a decrease in operating lease liabilities of $481,000.

Net cash used in operating activities for the six months ended June 30, 2025 primarily reflected a net loss of $10,523,000, adjusted for the reconciliation of non-cash items such as depreciation expense of $146,000, stock-based compensation of $488,000, stock-based inducement expense of $864,000, and amortization of right-of-use asset of $391,000, and changes in operating asset and liabilities primarily consisting of an increase in prepaid expenses and other current assets of $169,000, an increase in accounts payable of $562,000, a decrease in accrued liabilities of $404,000, and a decrease in operating lease liabilities of $423,000.

Net cash provided by investing activities

We did not have any investing activities during the six months ended June 30, 2026 and 2025.

Net cash provided by financing activities

Net cash provided by financing activities for the six months ended June 30, 2026 amounted to $4,364,000 as compared to $9,044,000 for the six months ended June 30, 2025.

During the six months ended June 30, 2026, net cash provided by financing activities of $4,364,000 was primarily attributable to the receipt of net proceeds of $700,000 from the sale of Common Stock under the ELOC, and net proceeds of $3,664,000 from the sale of convertible notes payable.

During the six months ended June 30, 2025, net cash provided by financing activities of $9,044,000 was primarily attributable to the receipt of net proceeds of $500,000 from the exercise of Series A Preferred Warrants, net proceeds of $2,426,000 from the sale of common stock under the ELOC, net proceeds of $2,240,000 from the sale of Series D Preferred Stock, and net proceeds from sale of common stock and pre-funded warrants of $4,273,000, offset by the cash redemption of Series C Preferred Stock of $395,000.

Critical Accounting Estimates

During the six months ended June 30, 2026, there were no material changes to our critical accounting policies from those described in our Annual Report on Form 10-K filed with the SEC on April 15, 2026.

Recent Accounting Standards

See the section titled in Note 2 to the Company's unaudited consolidated financial statements for the six months ended June 30, 2026, appearing elsewhere herein.