Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8 of this report. The following discussion contains forward-looking statements. See "CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS" in Part I of this report. Forward-looking statements are not guarantees of future activities or results. Many factors could cause our actual activities or results to differ materially from those anticipated in forward-looking statements, including those discussed in "Item 1A. Risk Factors" of Part I of this report.

Overview

We are a preclinical-stage synthetic allogeneic iMSC therapy company. iMSCs are induced pluripotent stem cell-derived mesenchymal stem cells. We envision a future where cell therapies powered by synthetic iMSCs can offer new options for patients with limited treatment paths, and our mission is to transform the treatment of cancer and autoimmune disease by developing scalable, affordable, off-the-shelf cell therapies that restore hope.

2026 Public Offering

On February 6, 2026, we entered into a placement agency agreement (the "Placement Agency Agreement") with Brookline Capital Markets, a division of Arcadia Securities, LLC (the "Placement Agent"), pursuant to which we engaged the Placement Agent for the public offering of (i) 19.0 million shares (the "Shares") of our common stock and accompanying warrants to purchase 19.0 million shares of common stock (the "Milestone Warrants"), at a combined offering price of $0.50 per share of common stock and accompanying Milestone Warrant and (ii) pre-funded warrants (the "Pre-Funded Warrants") to purchase 2.0 million shares of common stock and accompanying Milestone Warrants to purchase 2.0 million shares of common stock, at a combined offering price of $0.49 per Pre-Funded Warrant and accompanying Milestone Warrant ( the "2026 Offering"). In connection with the 2026 Offering, we also entered into a securities purchase agreement (each, a "Purchase Agreement") with certain investors who purchased Shares, Pre-Funded Warrants and Milestone Warrants in the 2026 Offering.

The Pre-Funded Warrants are immediately exercisable subject to certain ownership limitations, have an exercise price of $0.01 per share, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. On February 11, 2026 and February 18, 2026, the holder of the Pre-Funded Warrants exercised 1.3 million and 0.7 million Pre-Funded Warrants, respectively, for an aggregate exercise price of approximately $20,000. There are no remaining Pre-Funded Warrants related to the 2026 Offering outstanding.

On February 6, 2026, the Milestone Warrants commenced trading on The Nasdaq Capital Market under the symbol "ERNAW." The Milestone Warrants are immediately exercisable subject to certain ownership limitations, have an exercise price of $0.68 per share, and expire on the earlier of (i) the five (5)-year anniversary of the original issuance date or (ii) the 180^th calendar day following the public release by us of clinical trial data from the first cohort of the Phase 1 study of ERNA-101.

Pursuant to the Placement Agency Agreement, we paid the Placement Agent an aggregate cash fee of approximately $0.5 million, which was equal to 6.5% of the aggregate purchase price paid by investors in the Offering (or 1.5% with respect to certain existing investors). We will also pay the Placement Agent a cash fee as compensation for gross proceeds we receive from any exercise of any Milestone Warrants sold in connection with the 2026 Offering, payable quarterly on each January 1, April 1, July 1 and October 1 following the closing of the 2026 Offering (or the following business day if such day is not a business day), at the same percentage and as calculated in the manner as set forth above. We also issued approximately 0.2 million shares of common stock to the Placement Agent, which was equal to 1.5% of the aggregate number of Shares and Pre-Funded Warrants sold in the Offering (or 0.5% with respect to sales to certain existing investors). In addition, we reimbursed the Placement Agent for its accountable offering-related legal expenses in an amount of $125,000.

The 2026 Offering closed on February 10, 2026, for aggregate gross proceeds of approximately $10.5 million before deducting Placement Agent fees and other offering expenses payable by us. We intend to use the net proceeds from the 2026 Offering to support the advancement of our development programs, working capital and general corporate purposes.

The Placement Agency Agreement and the Purchase Agreements contain customary representations, warranties and agreements by us, customary conditions to closing, indemnification obligations of us, the Placement Agent, or the investors, as the case may be, and other obligations of the parties.

Pursuant to the terms of the Purchase Agreements and the Placement Agency Agreement, we have agreed that for a period of ninety (90) days from the closing of the 2026 Offering, that neither we nor any subsidiary may (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or common stock equivalents or (ii) file any registration statement or prospectus, or any amendment or supplement thereto, in each case, subject to certain exceptions. We have also agreed not to effect or enter into an agreement to effect any issuance of common stock or common stock equivalents involving a Variable Rate Transaction, as defined in the Purchase Agreements, for a period of ninety (90) days following the closing of the 2026 Offering, subject to certain exceptions, unless waived by the Placement Agent. In addition, as part of the Purchase Agreement, subject to certain exceptions, our officers and directors entered into lock-up agreements, pursuant to which they agreed not to sell or otherwise dispose of any of the common stock for a period of ninety (90) days following the date of closing of the 2026 Offering.

On February 10, 2026, we also entered into a Warrant Agent Agreement with the transfer agent pursuant to which the transfer agent agreed to act as warrant agent with respect to the Milestone Warrants.

Amendments to Restated Articles of Incorporation, as Amended

Effective June 2, 2025, we filed a certificate of amendment to our Restated Certificate of Incorporation, as amended (the "Amended COI"), with the Secretary of State of Delaware to increase the authorized shares of our common stock from 100 million to 150 million (the "Authorized Shares Amendment").

Also effective June 2, 2025, we filed a certificate of amendment to our Amended COI with the Secretary of State of Delaware to allow for action required or permitted to be taken by our stockholders to be effected by written consent of such stockholders in addition to duly called annual or special meetings of such stockholders ("the Written Consent Amendment")

On June 10, 2025, we filed a certificate of amendment to our Amended COI with the Secretary of State of Delaware to effect a reverse stock split of our common stock at a ratio of 1-for-15 effective at 12:01 a.m. (the "Reverse Stock Split"). Upon the effectiveness of the Reverse Stock Split, every fifteen shares of the issued and outstanding common stock were automatically combined and reclassified into one issued and outstanding share of common stock. The Reverse Stock Split did not alter the par value of the common stock, and the number of authorized shares of common stock remains unchanged at 150 million. No fractional shares were issued in connection with the Reverse Stock Split, and no cash or other consideration was paid in connection with any fractional shares. Stockholders who otherwise would have held a fractional share after giving effect to the Reverse Stock Split instead owned one whole share of the post-reverse stock split common stock. We issued an aggregate of 153 shares for rounding up fractional shares to whole shares.

All share and per share data in this Annual Report have been adjusted for all periods presented to reflect the Reverse Stock Split.

The Authorized Shares Amendment, Written Consent Amendment, and Reverse Stock Split Amendment were approved by our stockholders at our 2025 Annual Meeting of Stockholders on June 2, 2025 (the "Annual Meeting").

2025 Private Placement of Equity

On March 31, 2025, we entered into a securities purchase agreement (the "SPA") with certain accredited investors and a related registration rights agreement. Pursuant to the SPA, we agreed to issue and sell to the investors, and the investors agreed to purchase, in a private placement, an aggregate of approximately 4,621,000 shares of common stock at a purchase price of $1.569 per share (or pre-funded warrants in lieu of common stock at a purchase price of $1.494 per pre-funded warrant). The pre-funded warrants will be exercisable until exercised in full at a nominal exercise of $0.075 per share and may not be exercised to the extent such exercise would cause the holder to beneficially own more than 4.99% or 9.99%, as applicable, of our outstanding common stock.

Upon the initial closing of the SPA on April 2, 2025 (the "First Closing"), we sold to the investors an aggregate of approximately 662,000 shares of common stock and 34,000 pre-funded warrants (such shares, including the shares underlying the pre-funded warrants, equal to 19.99% of our outstanding shares as of March 31, 2025). Following shareholder approval at the Annual Meeting, on June 9, 2025, we sold to the investors an aggregate of approximately 3,182,000 shares of common stock and 622,000 pre-funded warrants, and on June 27, 2025, we sold the remaining approximately 121,000 shares of common stock (the June 9, 2025 and June 27, 2025 issuances collectively referred to as the "Second Closing"). The Company raised approximately $7.2 million in gross proceeds under the SPA.

Basis of Presentation

Revenue

Revenue is related to an exclusive option and license agreement we had with a customer, under which we granted the customer an option to obtain an exclusive sublicense to certain of our technology for preclinical, clinical and commercial purposes in exchange for a non-refundable up-front payment to us of $0.3 million. We also began developing certain induced pluripotent stem cell lines in exchange for a cell line customization fee. The customer paid us $0.4 million towards the customization fee, which we were recognizing ratably over the customization period for the year ended December 31, 2024. The Company did not recognize any revenue during the year ended December 31, 2025.

In September 2024, we entered into an agreement with Factor Limited (and together with Factor Bioscience Inc. and its other affiliates, "Factor Bioscience") whereby we assigned the customer contract to Factor Bioscience (the "Assignment Agreement"). The Assignment Agreement with Factor Bioscience assigned all our rights and obligations under the customer contract to Factor Bioscience. Payments to us related to the customer contract will now be subject to the Assignment Agreement, which provides for Factor Bioscience paying us thirty percent (30%) of all amounts it receives from the customer in the event that the customer obtains a sublicense from Factor Bioscience. Upon receipt of future payments for the customization activities set forth in the customer contract, Factor Bioscience will pay us twenty percent (20%) of all amounts Factor Bioscience receives from the customer. For the year ended December 31, 2025, we received approximately $0.5 million from Factor Bioscience under the Assignment Agreement, which is recognized as other income in the consolidated statements of operations, as this income did not qualify as revenue.

Because we have no further obligations under the agreement with the customer, there is no revenue recognized for the year ended December 31, 2025. For additional information, see Note 4 to the accompanying consolidated financial statements. We have no other revenue generating contracts at this time.

Cost of Revenues

We recognize direct labor and supplies associated with generating our revenue as cost of revenues. We were also obligated to pay Factor Bioscience20% of any amounts we received from the customer contract discussed above under a previous license agreement we had with Factor Bioscience, which has since been terminated, and such costs were also recognized as cost of revenues.

Research and Development Expenses

We expense our research and development costs as incurred. Research and development expenses consist of costs incurred for company-sponsored research and development activities. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended.

The major components of research and development costs include salaries and employee benefits, stock-based compensation expense, supplies and materials, preclinical study costs, expensed licensed technology, consulting, scientific advisors and other third-party costs, as well as allocations of various overhead costs related to our product development efforts.

We have contracted with third parties to perform various services. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. We accrue for third party expenses based on estimates of the services received and efforts expended during the reporting period. If the actual timing of the performance of the services or the level of effort varies from the estimate, the accrual is adjusted accordingly. The expenses for some third-party services may be recognized on a straight-line basis if the expected costs are expected to be incurred ratably during the period. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the preclinical study or similar conditions.

General and Administrative Expenses

Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel, legal and other professional fees, travel, insurance, and other corporate costs.

Comparison of the Years Ended December 31, 2025 and 2024

		Year ended December 31,
(In thousands)		2025				2024				Change
Revenue		$	-			$	582			$	(582	)
Cost of revenues			-				96				(96	)
Gross profit			-				486				(486	)
Operating expenses:
Research and development			4,156				4,604				(448	)
General and administrative			5,163				13,132				(7,969	)
Gain on lease termination			-				(1,576	)			1,576
Total operating expenses			9,319				16,160				(6,841	)
Loss from operations			(9,319	)			(15,674	)			6,355
Other expense, net:
Forward sales contract expense			(5,847	)			-				(5,847	)
Gain (loss) on extinguishment of debt			765				(22,440	)			23,205
Change in fair value of convertible notes			-				1,017				(1,017	)
Change in fair value to bridge notes derivative liability			-				(1,459	)			1,459
Change in fair value of warrant liabilities			1				414				(413	)
Change in fair value of contingent consideration			-				66				(66	)
Interest income			83				249				(166	)
Interest expense			(27	)			(6,752	)			6,725
Other income, net			215				70				145
Total other expense, net			(4,810	)			(28,835	)			24,025
Loss before income taxes			(14,129	)			(44,509	)			30,380
Benefit (provision) for income taxes			45				(30	)			75
Net loss		$	(14,084	)		$	(44,539	)		$	30,455

Revenue

During the year ended December 31, 2024, we recognized revenue related to the cell line customization activities we performed for a customer, including the acceleration of recognizing approximately $0.5 million of deferred revenue related to nonrefundable payments we received from the customer due to the Assignment Agreement we entered into on September 24, 2024 with Factor Limited discussed earlier. We did not have any revenue recognizing contracts during the year ended December 31, 2025.

Cost of Revenue

During the year ended December 31, 2024, our cost of revenues included direct labor and materials to perform customization cell line activities for a customer. We did not have any cost of revenues during the year ended December 31, 2025.

Research and Development Expenses

		Years ended December 31,
		2025				2024				Change
(in thousands)
MSA/license fees		$	1,847			$	3,017			$	(1,170	)
Payroll-related			502				591				(89	)
Professional fees			812				291				521
Study fees			667				468				199
Other expenses, net			328				237				91
Total research and development expenses		$	4,156			$	4,604			$	(448	)

Total research and development expenses decreased by approximately $0.5 million for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to decreased MSA/license fees as a result of the new Factor L&C Agreement and payroll-related expenses, offset by increased professional fees due to an increase in consulting services, third party study fees related to our development programs, and other expenses incurred for the year ended December 31, 2025 compared to the year ended December 31, 2024.

General and Administrative Expenses

		Years ended December 31,
		2025				2024				Change
(in thousands)
Occupancy expense		$	29			$	5,074			$	(5,045	)
Professional fees			1,668				4,168				(2,500	)
Insurance			269				497				(228	)
Payroll-related			1,431				1,607				(176	)
Stock-based compensation			1,433				1,431				2
Other expenses, net			333				355				(22	)
Total general and administrative expenses		$	5,163			$	13,132			$	(7,969	)

Our general and administrative expenses decreased by approximately $8.0 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to decreases in occupancy expense as a result of terminating our Somerville sublease effective August 31, 2024, professional fees related to a reduction in legal services for litigation matters and consultants, insurance expense due to lower premiums and payroll-related expenses during the year ended December 31, 2025 compared to the year ended December 31, 2024.

Gain on Lease Termination

In August 2024, we and the sublessor of our Somerville sublease entered into a sublease termination agreement effective August 31, 2024. Pursuant to this sublease termination agreement, we agreed to surrender and vacate the premises, all of our right, title and interest in all furniture, fixtures and laboratory equipment at the premises will become the property of the sublessor, and both parties will be released of their obligations under the sublease. As a result of the sublease termination, we recognized a gain on lease termination of approximately $1.6 million for the year ended December 31, 2024. There was no similar transaction during the year ended December 31, 2025.

Forward sales contract expense

For the year ended December 31, 2025, we recognized $5.8 million in expense related to a forward sales contract for the sale of shares of the Company's common stock and prefunded warrants (the "2025 Private Placement"), $5.3 million of which was initially recognized at the contract inception date because the fair value of the shares that were expected to be issued under a securities purchase agreement (the "2025 SPA") exceeded the proceeds, and the remaining $0.5 million loss was related to the change in fair value that was remeasured immediately prior to the respective settlement of the shares issued under the 2025 SPA. See Note 15 to the accompanying consolidated financial statements for more information on the 2025 Private Placement. There was no similar transaction for the year ended December 31, 2024.

Gain (Loss) on Extinguishment of Debt

During the year ended December 31, 2025, we recognized a gain on extinguishment of debt of approximately $0.8 million related to liabilities that have been deemed to be time-barred from collection under the respective state laws. See Note 10 to the accompanying consolidated financial statements for more information.

During the year ended December 31, 2024, we recognized a $22.4 million loss on extinguishment of debt related to (i) agreements to exchange certain convertible notes and warrants into shares of our common stock (the "Exchange Agreements") and (ii) a securities purchase agreement for the sale of common stock (the "2024 Private Placement"), both of which were entered into on September 24, 2024. See Note 15 to the accompanying consolidated financial statements for more information on these transactions.

Change in Fair Value of Convertible Notes

Because the modification of our convertible notes was accounted for as an extinguishment of debt and marked to fair value upon entering into the Exchange Agreements, we recognized income of approximately $1.0 million during the year ended December 31, 2024 related to the change in fair value of the convertible notes. This was due to such convertible notes being marked to fair value as of October 29, 2024 when such convertible notes were converted to shares of common stock. There was no similar transaction during the year ended December 31, 2025.

Change in Fair Value of Bridge Notes Derivative Liability

We recognized expense of $1.6 million during the year ended December 31, 2024 related to the initial measurement of the incremental fair value of a derivative liability for convertible bridge notes we entered into (the "Bridge Notes") over the carrying value of the Bridge Notes due to bifurcation of an embedded conversion feature. This expense was offset by a $0.2 million credit for the change in fair value of the Bridge Notes derivative liability due to remeasuring the liability at each reporting period or immediately prior to converting the Bridge Notes into shares of our common stock. There was no similar transaction during the year ended December 31, 2025. See Note 11 to the accompanying consolidated financial statements for more information on the Bridge Notes.

Change in Fair Value of Warrant Liabilities

The change in the fair value of the warrant liabilities for the year ended December 31, 2025 was de minimis. We recognized income of $0.4 million for the year ended December 31, 2024 for the change in the fair value of our warrant liabilities, which includes certain warrants under the Exchange Agreements that were reclassified to a liability in September 2024 and then exchanged for shares of common stock in October 2024. See Note 15 to the accompanying consolidated financial statements for more information on the exchanged warrants.

Change in Fair Value of Contingent Consideration

As of December 31, 2024, we remeasured a contingent liability and recognized a credit of less than $0.1 million for the year ended December 31, 2024 due to a decrease in the fair value of the liability. There were no amounts recognized for the year ended December 31, 2025. The contingent consideration liability will expire in April 2026.

Interest Income

We recognized a decrease in interest income of approximately $0.2 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 due to lower cash balances in interest-bearing accounts.

Interest Expense

We recognized a decrease in interest expense for the year ended December 31, 2025 of approximately $6.7 million compared to the year ended December 31, 2024 primarily due to no longer having convertible notes outstanding during the year ended December 31, 2025 as a result of the Exchange Agreements entered into during the year ended December 31, 2024.

Other Income, Net

During the year ended December 31, 2025, we recognized approximately $0.5 million of income from Factor Limited as a result of the Assignment Agreement, offset by approximately $0.2 million of financing fees that we expensed for the 2025 Private Placement, as the related securities purchase agreement was accounted for as a liability until its settlement. See Note 15 to the accompanying consolidated statement of operations for more information on the 2025 Private Placement.

For the year ended December 31, 2024, we recognized other income related to amounts earned from Factor Limited under the Assignment Agreement of approximately $0.1 million.

Benefit (Provision) for Income Taxes

For the year ended December 31, 2025, we incurred state minimum income tax liabilities related to our operations. However, we recognized an overall income tax benefit due to a reduction of a deferred tax liability, which was recorded through the accompanying consolidated statement of operations. We continue to maintain a full valuation allowance for all deferred tax assets, including our net operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets. The effective tax rate differs from the statutory tax rate due primarily to our full valuation allowance.

Liquidity and Capital Resources

As of December 31, 2025, we had cash of approximately $1.9 million, and we had an accumulated deficit of approximately $245.6 million. We have to date incurred operating losses, and we expect these losses to continue in the future. For the year ended December 31, 2025, we incurred a net loss of $14.1 million, and we used $7.0 million of cash in operating activities.

On March 11, 2025 and March 20, 2025, we received $1.5 million and $0.8 million, respectively, for the issuance of two promissory notes with an aggregate principal amount of $2.3 million to an investor. The promissory notes had a maturity date of the earlier of (i) June 15, 2025 or (ii) upon us receiving greater than $5 million in aggregate proceeds from a subsequent capital raise. Interest accrued at a rate of 5.0% per annum, payable at maturity. During the year ended December 31, 2025, the Company repaid the notes in full for $2.3 million, including accrued interest.

During the year ended December 31, 2025, we raised $7.2 million in gross proceeds from the 2025 Private Placement. We used a portion of the proceeds from this financing to repay the notes, as discussed above.

On May 1, 2025, our $10.0 million standby equity purchase agreement ("SEPA") with Lincoln Park Capital Fund, LLC ("Lincoln Park") expired. The Company did not sell any shares of common stock under the SEPA during either of the years ended December 31, 2025 or 2024. We do not currently have a new SEPA in place.

On February 10, 2026, we received approximately $9.6 million in net proceeds from the 2026 Offering of (i) 21.0 million shares of the Company's common stock or pre-funded warrants and (ii) accompanying warrants to purchase 21.0 million shares of the Company's common stock (the "Milestone Warrants").

Based on our current financial condition and forecasts of available cash, we will not have sufficient capital to fund our operations for the 12 months following the issuance date of the accompanying consolidated financial statements. We can provide no assurance that we will be able to obtain additional capital when needed, on favorable terms, or at all. If we cannot raise capital when needed, on favorable terms or at all, we will need to reevaluate our planned operations and may need to reduce expenses, file for bankruptcy, reorganize, merge with another entity, or cease operations. If we become unable to continue as a going concern, we may have to liquidate our assets, and might realize significantly less than the values at which they are carried on our financial statements, and stockholders may lose all or part of their investment in our common stock. See the risk factor in Item 1A of Part II of this report titled, "We will require substantial additional capital to fund our operations, and if we fail to obtain the necessary financing, we may not be able to pursue our business strategy."

Historically, the cash used to fund our operations has come from a variety of sources and predominantly from sales of shares of our common stock and convertible notes. We will continue to evaluate and plan to raise additional funds to support our working capital needs through public or private equity offerings, debt financings, strategic partnerships, out-licensing our intellectual property, grants or other means. There can be no assurance that capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders. Our ability to raise capital through sales of our common stock will depend on a variety of factors including, among others, market conditions, the trading price and volume of our common stock, and investor sentiment. In addition, macroeconomic factors and volatility in the financial market, which may be exacerbated in the short term by concerns over inflation, interest rates, impacts of the wars in Ukraine and the Middle East, strained relations between the U.S. and several other countries, and social and political discord and unrest in the U.S., among other things, may make equity or debt financings more difficult, more costly or more dilutive to our stockholders.

In addition, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders, and debt financings may subject us to restrictive covenants, operational restrictions and security interests in our assets. If we raise capital through collaborative arrangements, we may be required to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us.

We prepared the accompanying consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of business. As discussed above, there is substantial doubt about our ability to continue as a going concern because we do not have sufficient cash to satisfy our working capital needs and other liquidity requirements over at least the next 12 months from the date of issuance of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern.

Cash Flows

Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:

		For the years ended December 31,
(in thousands)		2025				2024				Change
Cash (used in) provided by:
Operating activities		$	(7,017	)		$	(15,836	)		$	8,819
Investing activities			(37	)			(365	)			328
Financing activities			7,209				6,260				949
Net increase (decrease) in cash and cash equivalents		$	155			$	(9,941	)		$	10,096

Net Cash Used in Operating Activities

There was a decrease of approximately $8.8 million in cash used in operating activities for the year ended December 31, 2025 compared to the year ended December 31, 2024. This change was due a $6.8 million decrease in net loss, after giving effect to adjustments made for non-cash transactions, primarily due to a decrease in occupancy expense and professional fees, and by a decrease of $2.0 million in cash used in operating assets and liabilities for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily related to terminating our facility sublease and reduced payments to Factor limited.

Net Cash Used in Investing Activities

We used approximately $0.4 million to pay for the purchases of property and equipment during the year ended December 31, 2024. There was an immaterial amount of investing activities during the year ended December 31, 2025.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2025 includes $2.3 million of gross proceeds received from the issuance of two promissory notes and $4.9 million of proceeds received from the 2025 Private Placement, net of offsetting $2.3 million of a receivable related to 2025 Private Placement due from a related party with the outstanding notes payable, including accrued interest, due to the same related party.

Net cash provided by financing activities for the year ended December 31, 2024 includes $6.3 million of gross proceeds received from (i) the issuance of convertible notes in January 2024 and the fees related to such issuance and (ii) proceeds received from the Bridge Notes and 2024 Private Placement.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses during the reporting periods. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and other factors we believe are reasonable based on the circumstances, the results of which form our management's basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Goodwill Impairment Evaluation

Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and the liabilities assumed. Goodwill is not amortized but is tested for impairment annually or more frequently if events occur or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events. Management evaluates our company as a single reporting unit, therefore, our goodwill is tested for impairment at the entity level. Goodwill is tested for impairment as of December 31^st of each year, or more frequently as warranted by events or changes in circumstances mentioned above. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further quantitative testing would be necessary. A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded in an amount equal to the excess fair value.

The Company performed its annual qualitative assessments as of December 31, 2025 and 2024, and based on those assessments, the Company was unable to conclude that it was more likely than not that the fair value of the entity exceeded its carrying value as of such date. As a result, the Company performed a step-one quantitative assessment and concluded that the fair value of the reporting unit was greater than the carrying value as of December 31, 2025 and 2024, and the goodwill was considered not impaired. Therefore, the Company did not recognize an impairment charge during the years ended December 31, 2025 and 2024. However, the decline in the Company's stock price during the first quarter of 2026 has increased the likelihood that the fair value of the reporting unit may be below its carrying value as of March 31, 2026, which could result in the recognition of a goodwill impairment charge for the three months ended March 31, 2026.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In December 2023, the Financial Accounting Standard Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2023-09, Improvements to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU No. 2023-09 was effective for fiscal years beginning after December 15, 2024 and allowed for adoption on a prospective basis, with a retrospective option. We adopted this ASU on a prospective basis, and it did not have an impact to our consolidated financial statements, but it did result in additional disclosures made in the notes to the consolidated financial statements.

Recently Issued Accounting Standards to be Adopted

In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements - Codification Amendment in Response to the SEC's Disclosure Update and Simplification Initiative. This ASU modified the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC's regulations. The amendments to the various topics should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC's removal of the related disclosure. If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, then this ASU will not become effective. Early adoption is prohibited. We do not expect the amendments in this ASU to have a material impact on our consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). This ASU is intended to improve disclosures about a public business entity's expenses by requiring disaggregated disclosure, in the notes to the financial statements, of prescribed categories of expenses within relevant income statement captions. ASU No. 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027 (as clarified in ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date). Early adoption is permitted. The new standard may be applied either on a prospective or retrospective basis. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-04, Debt - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This ASU clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU No. 2024-04 is effective for annual reporting periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods. Early adoption is permitted, and the amendments may be applied on either a prospective or retrospective basis. We do not expect the amendments in this ASU to have a material impact on our consolidated financial statements.

In September 2025, the FASB issued ASU No. 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This ASU modernizes the accounting for internal-use software costs by removing all references to prescriptive and sequential software development stages and instead requires capitalization when (i) management has authorized and committed to funding the software project and (ii) it is probable that the project will be completed and the software will be used to perform the function intended have both occurred. ASU No. 2025-06 is effective for fiscal years beginning after December 15, 2027, and interim reporting periods, with early adoption permitted. We do not expect the amendments in this ASU to have a material impact on our consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. This ASU includes a disclosure principle that requires entities to disclose events since the end of the last reporting period that have a material impact on the entity, which is modeled after the SEC disclosure requirement. This ASU also clarifies the applicability of Topic 270, the types of interim reporting, and the form and content of interim financial statements in accordance with GAAP. For public business entities, this ASU is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. We do not expect the amendments in this ASU to have a material impact on our consolidated financial statements.

In December 2025, the FASB issued ASU No. 2025-12, Codification Improvements. The amendments in this update represent changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. The amendments in this ASU are varied in nature and may affect the application of guidance in cases in which the original guidance may have been unclear. This ASU is effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. We do not expect the amendments in this ASU to have a material impact on our consolidated financial statements.