Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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

Statements in this Quarterly Report on Form 10-Q that are not strictly historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. You can identify these forward-looking statements because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors. Some of these factors are more fully discussed in the section of this Quarterly Report on Form 10-Q entitled "Risk Factors" and elsewhere herein. We do not undertake to update any of these forward-looking statements or announce the results of any revisions to these forward-looking statements except as required by law.

We recommend investors read this entire Quarterly Report on Form 10-Q, including the "Risk Factors" section, the condensed consolidated financial statements, and related notes thereto. As used in this Quarterly Report on Form 10-Q, unless the context indicates or otherwise requires, "Palisade," "Palisade Bio," the "Company," "we," "us," and "our" or similar designations in this report refer to Palisade Bio, Inc., a Delaware Corporation, and its subsidiaries. Any reference to "common shares" or "common stock," refers to our $0.01 par value common stock. Any reference to "Series A Preferred Stock" refers to our Series A 4.5% Convertible Preferred Stock. Any reference herein that refers to preclinical studies also refers to nonclinical studies.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided, in addition to the accompanying condensed consolidated financial statements and notes, to assist you in understanding our results of operations, financial condition and cash flows. The MD&A is organized as follows:

Executive Overview

We are a clinical-stage biopharmaceutical company focused on developing and advancing novel therapeutics for patients living with autoimmune, inflammatory, and fibrotic diseases. Our lead product candidate, PALI-2108, is being developed as a treatment for patients living with inflammatory bowel disease ("IBD"), including ulcerative colitis ("UC") and fibrostenotic Crohn's disease ("FSCD").

Our Precision Medicine Approach

We are developing a biomarker-based patient selection approach that we believe may aid clinicians in identifying patients who may better respond to PALI-2108, thereby improving the rate of clinical response previously demonstrated with enzyme phosphodiesterase-4 ("PDE4") inhibitors. Our approach involves the use of clinical and multiomics data from large patient populations to identify PDE4-related biomarkers that are correlated with IBD, its severity, and which are modified with local PDE4-inhibitor therapy in the colon. Based on our research, we have initiated the development of corresponding biomarker assays for these PDE4-related biomarkers that we expect to use in our current and future clinical studies with the aim of developing regulatory approved tests for selecting potential responders to PALI-2108.

PALI-2108

Our lead product candidate, PALI-2108, is a prodrug inhibitor designed to help treat UC and FSCD by targeting the key PDE4 in colon tissues and preventing it from breaking down cyclic Adenosine Monophosphate ("cAMP") molecules that regulate inflammation in the body. By inhibiting PDE4, intracellular cAMP molecule levels become

elevated, which may lead to a reduction of inflammatory molecules and an increase of anti-inflammatory molecules within tissues of the colon. Additionally, we believe that PALI-2108 may help prevent the movement of inflammatory cells from the blood into colon tissues, thereby lowering the activity of certain proteins that contribute to fibrosis (a type of tissue scarring).

With a glucuronic-derived sugar moiety, PALI-2108 remains minimally absorbed until activated by the colonic bacterium enzyme β-glucuronidase. We believe that localized bioactivation may help focus the effects of PALI-2108 where it would be most beneficial to a patient suffering from IBD.

Phase 1 Clinical Study of PALI-2108

The Phase 1 clinical study of PALI-2108 is a single-center, randomized, double-blinded, placebo-controlled clinical study focused on safety, tolerability, and pharmacokinetics ("PK") in both healthy volunteers and UC patients. The clinical study included an open-label UC patient cohort with multiple dosing arms in which we will evaluate the pharmacodynamics ("PD") of PALI-2108 in healthy volunteers.

On October 9, 2024, Health Canada issued a No Objection Letter for our Phase 1 human clinical study of PALI-2108 for the treatment of UC. We officially began studying on November 7, 2024. We have completed the dosing of 89 subjects across all planned cohorts of the study. Each of the five Single Ascending Dose ("SAD") cohorts and the four Multiple Ascending Dose ("MAD") cohorts consisted of eight subjects, with six subjects receiving the drug and two subjects receiving a placebo. The food effects ("FE") study included two cohorts each of six subjects, of which one cohort was in a fasted state and the other cohort in a fed state. Finally, we have completed the dosing of all five UC patients in the UC cohort of the study.

On May 27, 2025, we announced positive results from the SAD, MAD and FE cohorts in healthy volunteers and on August 7, 2025 and September 17, 2025, we announced positive results from the UC cohort portion of the study. The clinical study successfully met its primary endpoints of safety, tolerability, and PK. We also reported that the patients included in the UC cohort demonstrated rapid and consistent clinical activity, with all five of the patients responding to treatment. We also reported that while the study was shorter in duration than standard induction trials and not powered for efficacy, there was promising signals of clinical improvement.

On October 16, 2025, we dosed our first patients in an exploratory Phase 1b cohort in FSCD while we complete longer-term chronic safety and toxicology studies. The exploratory Phase 1b cohort in FSCD will evaluate the safety, tolerability, PK, and PD of once-daily oral dosing of PALI-2108 over a 14-day treatment period as well as evaluate tissue-level pharmacology and molecular responses using paired ileal biopsies and peripheral blood mononuclear cells. Analyses will include single-nucleus and single-cell RNA sequencing to characterize treatment-induced changes in inflammatory and fibrotic signaling. Exploratory endpoints include endoscopic, histologic, and intestinal ultrasound measures to assess structural and inflammatory features of FSCD lesions.

The exploratory Phase 1b cohort in FSCD is expected to be followed by the initiation of Phase 2 clinical programs to assess PALI-2108's efficacy, safety, and tolerability in patients with FSCD, as well as those with moderate to severe UC.

Planned Clinical Trial in the United States

In addition to conducting clinical studies in Canada, we anticipate data from the exploratory Phase 1b cohort in FSCD together with results from the Phase 1a/1b UC program will support an Investigational New Drug Application ("IND") submission to the United States Food and Drug Administration ("FDA") in the first half of 2026.

October 2025 Offering

On October 2, 2025, we closed on an underwritten public offering to issue and sell 197,154,844 shares of common stock and common stock equivalents for gross proceeds, including the full exercise of the underwriter's over-allotment option, of approximately $138.0 million prior to deducting underwriting discounts and commissions and other estimated offering expenses (the "October 2025 Offering"). We intend to use the net proceeds from the offering for working capital and general corporate purposes, including the development of PALI-2108 for the treatment of UC and FSCD.

July 2025 Warrant Inducement Transaction

On July 23, 2025, we entered into a warrant inducement agreement to exercise certain of our existing common stock warrants to purchase an aggregate of 4,318,905 shares of our common stock (the "July 2025 Warrant Inducement"). The transaction closed on July 25, 2025 for gross cash proceeds of approximately $3.9 million prior to deducting

solicitation agent fees and transaction expenses. We intend to use the net proceeds from the warrant inducement transaction for working capital and general corporate purposes, including the development of PALI-2108 for the treatment of UC and FSCD.

Reverse Stock Split

On October 17, 2025, our stockholders approved a proposal to amend the Company's Amended and Restated Certificate of Incorporation to effect a reverse stock split. The proposal authorizes but does not require our Board of Directors (the "Board") to effect a reverse stock split of our common stock at a reverse stock split ratio of not less than 1-for-5 and not greater than 1-for-50, with the exact ratio to be set within that range at the discretion of our Board, without further approval or authorization of our stockholders, and to be effected on or before December 31, 2025. Our Board has not yet effected this reverse stock split authorized by our stockholders.

RESULTS OF OPERATIONS

Research and Development Expenses

Our research and development costs include:

Through the majority of 2024, the nature of our research and development expenses incurred related primarily to the preclinical activities associated with our joint development of PALI-2108 with our collaboration partner, Giiant Pharma Inc. ("Giiant"). With the approval to commence the Phase 1 clinical trial of PALI-2108, which we received from Health Canada on October 9, 2024, pursuant to terms of the research and collaboration agreement that we have with Giiant ("Giiant License Agreement"), we have assumed all development, manufacturing, regulatory and commercialization activities and costs of PALI-2108. Therefore, we expect our clinical research and development costs directly attributable to the clinical trials of PALI-2108 to be higher in 2025 as compared to the prior year periods, offset by a decrease in joint development costs associated with the Giiant License Agreement.

Our direct research and development expenses are tracked by product candidate and consist primarily of external costs, such as fees paid under third-party license agreements and to outside consultants, CROs, clinical sites, contract manufacturing organizations ("CMOs") and research laboratories in connection with our preclinical development, process development, manufacturing, clinical development, and regulatory activities. We do not allocate employee costs and costs associated with our discovery efforts, laboratory supplies and facilities, including other indirect costs, to specific product candidates because these costs are deployed across multiple programs and, as such, are not separately classified. As needed, we manage third parties that are engaged to conduct our (i) research activities, (ii) preclinical, clinical and translational science development activities, and (iii) process development. When we perform any research and development or manufacturing activities under a co-development agreement, we record the expense reimbursement from the co-development partner as a reduction to research and development expense once the reimbursement amount is approved for payment by the co-development partner. Pursuant to agreements where we perform research and development activities under a joint development plan, such as our research and collaboration with Giiant, qualifying development costs are expensed as research and development costs as incurred. We recognize expense payments from Giiant, if any, as a reduction to research and development expense once the expense payments are realized or realizable, which is when we receive the cash or we have an undisputed claim to the cash that is probable of collection.

General and Administrative Expenses

General and administrative expenses consist primarily of salary and employee-related costs and benefits, professional fees for legal, intellectual property, investor and public relations, accounting and audit services, insurance costs, director and committee fees, and general corporate expenses.

Results of Operations

Comparison of the three months ended September 30, 2025 and 2024

The following table summarizes our results of operations for the three months ended September 30, 2025 and 2024 (in thousands):

Research and Development Expenses

Our research and development expenses decreased approximately $0.7 million, or 35%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The decrease is primarily attributable to an approximately $1.1 million decrease in expenses that were directly related to the preclinical joint development of PALI-2108 and an approximately $0.5 million decrease in chemistry, manufacturing and controls ("CMC") expenses. These decreases were partially offset by an approximately $0.2 million net increase in clinical trial-related expenses associated with Phase 1 clinical trial of PALI-2108, approximately $0.5 million in non-cash expenses associated with a net increase in the fair value of the contingent consideration liability pursuant to the Giiant License Agreement, and an approximately $0.2 million increase in research and development employee-related expenses.

With the approval to commence the Phase 1 clinical trial of PALI-2108, which we received from Health Canada on October 9, 2024, pursuant to terms of the Giiant License Agreement we have assumed all development, manufacturing, regulatory and commercialization activities and costs of PALI-2108. Accordingly, preclinical joint development expenses decreased year-over-year and were approximately $0.9 million for the three months ended September 30, 2024 compared to virtually none for the three months ended September 30, 2025. In addition, in the three months ended September 30, 2025 we recognized a reduction in joint development expenses of $0.2 million that was related to funds received by us from Giiant pursuant to the joint development plan, resulting in a total net decrease in preclinical joint development expenses of approximately $1.1 million for the three months ended September 30, 2025, compared to the three months ended September 30, 2024.

We commenced our Phase 1 clinical trial of PALI-2108 in November of 2024 and reported top-line results of the study in the second and third quarters of this year. Concurrent with the commencement of the study, we recognized CMC expenses of approximately $0.7 million in the three months ended September 30, 2024 compared to approximately $0.2 million in the three months ended September 30, 2025, a decrease of approximately $0.5 million. We recognized clinical trial-related expenses of approximately $0.5 million in the three months ended September 30, 2025, compared to clinical trial-related expenses of approximately $0.3 million during the three months ended September 30, 2024, an increase of approximately $0.2 million.

Pursuant to the Giiant License Agreement, we owe Giiant certain payments upon the achievement of development milestones associated with PALI-2108. Concurrent with the expected dosed our first patients in an exploratory Phase 1b cohort in FSCD, which occurred on October 16, 2025, we recognized an approximate $0.3 million non-cash loss in three months ended September 30, 2025 with the fair value remeasurement of the associated contingent consideration liability. In the three months ended September 30, 2024, we recognized an approximate $0.2 million non-cash gain on the fair value remeasurement of the contingent consideration liability, resulting in a net non-cash loss year-over-year of approximately $0.5 million.

General and Administrative Expenses

General and administrative expenses increased by less than $0.1 million, or 5%, for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, primarily as result of an approximately $0.1 million increase in general and administrative employee-related expenses, and an approximately $0.1 million increase in shareholder services and legal expenses. The increase in shareholder and legal expenses was primarily due to a special shareholder meeting scheduled to occur in the third quarter of 2025 to approve the issuance of common shares underlying the common stock warrants issued in the July 2025 Warrant Inducement, and the timing of the annual shareholder meeting, which occurred in the early fourth quarter of 2025 compared to last year's annual meeting, which occurred in early third quarter of 2024. Partially offsetting these increases was a decrease in consultants and contract labor of approximately $0.1 million in the three months ended September 30, 2025, compared to the three months ended September 30, 2024.

Other (expense) income

Other income, net, for the three months ended September 30, 2025 and 2024 consists of dividend income from our investments of excess cash in money market funds with maturities of three months or less. The year-over-year decrease is due to a reduction in the cash balance invested during the three months ended September 30, 2025, compared to the three months ended September 30, 2024.

Comparison of the nine months ended September 30, 2025 and 2024

The following table summarizes our results of operations for the nine months ended September 30, 2025 and 2024 (in thousands):

Research and Development Expenses

Our research and development expenses decreased approximately $3.0 million, or 42%, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The decrease is primarily attributable to an approximately $5.2 million decrease in expenses that were directly related to the preclinical joint development of PALI-2108, an approximately $0.2 million decrease in CMC expenses, and an approximately $0.1 million decrease in employee-related expenses. The decreases were partially offset by an approximately $2.0 million net increase in clinical trial-related expenses associated with Phase 1 clinical trial of PALI-2108, and an approximately $0.5 million net non-cash loss associated with an increase in the fair value of the contingent consideration liability pursuant to the Giiant License Agreement.

Preclinical joint development expenses were approximately $4.3 million for the nine months ended September 30, 2024 compared to less than $0.1 million for the nine months ended September 30, 2025. In addition, during the nine months ended September 30, 2025, we recognized a reduction in joint development costs of $0.9 million that was related to funds received by us from Giiant pursuant to the joint development plan, resulting in a total net decrease in preclinical joint development expenses of approximately $5.2 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. CMC expenses decreased to approximately $0.5 million for the nine months ended September 30, 2025, compared to CMC expenses of approximately $0.7 million for the nine months ended September 30, 2024.

Research and development employee-related expenses decreased approximately $0.1 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024 primarily due to a non-cash

share-based compensation expense associated with the accelerated vesting of all outstanding employee time-based restricted stock units ("RSUs") recognized in the nine months ended September 30, 2024 that did not repeat in the nine months ended September 30, 2025.

We recognized clinical trial-related expenses of approximately $2.4 million for the nine months ended September 30, 2025, compared to clinical trial-related expenses of $0.4 million for the nine months ended September 30, 2024, an increase of approximately $2.0 million due primarily to the commencement of our Phase 1 clinical trial of PALI-2108 in November of 2024.

We recognized an approximate $0.3 million non-cash loss in the nine months ended September 30, 2025 as a result of the fair value remeasurement of the contingent consideration liability under the Giiant License Agreement, and an approximate $0.2 million non-cash gain on the fair value remeasurement of the contingent consideration liability in the nine months ended September 30, 2024, resulting in a net non-cash loss year-over-year of approximately $0.5 million.

General and Administrative Expenses

General and administrative expenses decreased by approximately $0.4 million, or 10%, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, primarily as result of (i) an approximately $0.1 million decrease in general and administrative employee-related expenses due to a non-cash share-based compensation expense of approximately $0.1 million associated with the accelerated vesting of all outstanding employee time-based RSUs recognized in the in the nine months ended September 30, 2024 that did not repeat in the nine months ended September 30, 2025, (ii) an approximately $0.3 million decrease in consultants and contract labor, and (iii) and approximately $0.1 million decrease in insurance expenses due to lower insurance premiums. These decreases were partially offset by an approximately $0.1 million increase in professional fees.

Other (expense) income

Other income, net, for the nine months ended September 30, 2025 and 2024 consists of dividend income from our investments of excess cash in money market funds with maturities of three months or less. The year-over-year decrease is due to a reduction in the cash balance invested during the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024.

Liquidity and Capital Resources

We expect to incur substantial operating losses for the foreseeable future. Since our inception, we have financed our operations through the sales of our securities, issuance of debt, the exercise of common stock warrants, and to a lesser degree, grants and research contracts as well as the licensing of our intellectual property to third parties.

Management believes the October 2025 Offering for gross proceeds of $138 million, as further described below, will provide sufficient capital to fund our operations through major clinical development milestones including a Phase 2 primary efficacy readout of PALI-2108 for UC in the second half of 2027 and a Phase 2 primary efficacy readout of PALI-2108 for FSCD in the first half of 2028.

Future capital requirements will depend upon many factors, including the timing and extent of spending on research and development and market acceptance of our products, if approved for commercial sale. We will require additional funding to conduct future clinical activities. We may seek additional funding through public and private financings, debt financings, collaboration agreements, strategic alliances and licensing agreements. Although we have been successful in raising capital in the past, there is no assurance of success in obtaining such additional financing on terms acceptable to us, if at all, and there is no assurance that we will be able to enter into collaborations or other arrangements. If we are unable to obtain funding, it could force delays, reduce or eliminate research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our future business prospects, and the ability to continue operations.

October 2025 Offering

Pursuant to the October 2025 Offering, we issued and sold (a) 113,240,564 shares of common stock, par value $0.01 per share, at a public offering price of $0.70 per share, and (b) 83,914,280 pre-funded warrants to purchase one share of the Company's common stock, par value $0.01 per share, at a public offering price of $0.6999 per share. Gross proceeds from the offering, including the full exercise of the underwriter's over-allotment option, were approximately $138.0 million, prior to deducting underwriting discounts and commissions and other estimated offering expenses.

We intend to use the net proceeds from the warrant inducement transaction for working capital and general corporate purposes, including the development of PALI-2108 for the treatment of UC and FSCD.

Warrant Inducement Transaction

On July 23, 2025, we entered into a warrant inducement agreement (the "July 2025 Warrant Inducement Agreement") with an accredited and institutional holder (the "July 2025 Warrant Holder") of certain of the our existing common stock warrants ( the "July 2025 Existing Warrants") to exercise the July 2025 Existing Warrants to purchase up to an aggregate of 4,318,905 shares of our common stock. Pursuant to the July 2025 Warrant Inducement Agreement, the exercise price of each July 2025 Existing Warrant exercised was reduced from $1.40 per share to $0.9047 per share. In consideration for the immediate exercise of the July 2025 Existing Warrants, the July 2025 Warrant Holder received new warrants (the "July 2025 Replacement Warrants") to purchase shares of common stock in a private placement. Pursuant to the July 2025 Warrant Inducement Agreement, the July 2025 Warrant Holder received two July 2025 Replacement Warrants for each July 2025 Existing Warrant exercised. The July 2025 Replacement Warrants will be exercisable, beginning on the effective date of stockholder approval of the issuance of the common stock shares underlying the July 2025 Replacement Warrants ("Warrant Stockholder Approval"), into an aggregate of up to 8,637,810 shares of our common stock, at an exercise price of $0.9047 per share, and a term of exercise equal to five years from the date of Warrant Stockholder Approval. We have not yet received Warrant Stockholder Approval.

The transaction closed on July 25, 2025 with the Company receiving net cash proceeds of approximately $3.4 million, which consisted of gross cash proceeds of $3.9 million from the exercise of the July 2025 Existing Warrants less cash equity issuance costs of approximately $0.5 million.

Cash Flows

As of September 30, 2025, we had $5.3 million in cash, cash equivalents and restricted cash. The following table shows a summary of our cash flows for the nine months ended September 30, 2025 and 2024 (in thousands):

Net Cash Used in Operating Activities

Cash used in operating activities was approximately $7.7 million for the nine months ended September 30, 2025, which reflects an approximately $7.9 million net loss adjusted for (i) approximately $0.5 million of net cash outflows related to changes in operating assets and liabilities, and (ii) certain non-cash items impacting the net loss, consisting primarily of (ii) an approximately $0.3 million non-cash expense recognized for the fair value remeasurement of liabilities, mainly our contingent consideration liability, (ii) an approximately $0.2 million non-cash expense recognized for stock-based compensation and related charges, (iii) an approximately $0.1 million non-cash operating lease expense, and (iv) an approximately $0.1 million non-cash expense related to the write-off of certain deferred equity issuance costs associated with our shelf registration statement that expired in April of 2025. The net cash outflow from operating assets and liabilities was primarily attributable to (ii) a net cash outflow of approximately $0.5 million from an increase in prepaid and other current assets and other noncurrent assets that was due to the deferral of issuance costs in the amount of approximately $0.6 million associated with the equity offering that closed on October 2, 2025 and a significant prepaid research and development expense of approximately $0.4 million recognized in the period, (ii) a cash outflow of approximately $0.1 million driven by the payment of annual employee cash bonuses in the first quarter of 2025, and (iii) an approximately $0.1 million cash outflow related to payments of our operating lease. These net cash outflows were partially offset by an approximately $0.3 million cash inflow from an increase in accounts payable and accrued liabilities as of September 30, 2025 compared to December 31, 2024, primarily due to higher clinical trial-related expenses as a result of increased clinical trial activity, partially offset by lower accrued joint development expenses associated with the Giiant License Agreement.

Cash used in operating activities was approximately $9.8 million for the nine months ended September 30, 2024, which reflects an approximately $11.1 million net loss adjusted for (i) approximately $0.7 million of net cash inflows related to changes in operating assets and liabilities, and (ii) certain non-cash items impacting the net loss, consisting primarily of an approximately $0.6 million non-cash expense recognized for stock-based compensation and related charges, an approximately $0.1 million non-cash expense associated with the issuance of our common stock as payment for vendor services provided, and a $0.2 million non-cash gain recognized for the remeasurement of our

contingent consideration liability. The net cash inflow from operating assets and liabilities was primarily attributable to a net cash outflow of approximately $0.3 million driven by the payment of annual employee cash bonuses in the first quarter of 2024, and an approximately $0.1 million cash outflow related to payments of the our operating lease that was more than offset by approximately $1.1 million from (i) a decrease in prepaids and other current assets and other noncurrent assets, which was primarily attributable to the amortization of the current and non-current portions of the our prepaid insurance policies, and (ii) an increase in accounts payable and accrued liabilities, which was primarily due to an increase in accrued joint development expenses associated with the Giiant License Agreement, and additional drug manufacturing accruals associated with our ramp up for the clinical trials of PALI-2108 for UC. These increases in accounts payable and accrued liabilities were partially offset by a decrease in accrued severance payments, lower accrued Board of Director ("Board") and Board committee fees, and a decrease in the current portion of our contingent consideration liability, which was zero as of September 30, 2024.

Net Cash Provided by Financing Activities

For the nine months ended September 30, 2025, cash provided by financing activities of approximately $3.1 million was primarily attributable to net cash proceeds of approximately $3.5 million from the exercise of common stock warrants in conjunction with the July 2025 Warrant Inducement, partially offset by the payment of equity issuance costs of approximately $0.2 million in the period, primarily related to our underwritten equity offering completed in December of 2024, and payments made on our insurance financing arrangement of approximately $0.2 million.

For the nine months ended September 30, 2024, cash provided by financing activities of approximately $5.4 million was attributable to net cash proceeds of approximately $2.2 million from the exercise of common stock warrants in conjunction with our warrant inducement transaction in February 2024 and net cash proceeds of approximately $3.5 million from our private placement financing completed in May of 2024, partially offset by payments made on our insurance financing arrangement of approximately $0.3 million.

Contractual Obligations

Milestone Payment

Pursuant to the Giiant License Agreement, we owe a development milestone payment of $235,000 to Giiant upon the dosing of the first patient in a Phase 1b clinical trial of PALI-2108. This milestone was achieved with the dosing of patients in our Phase 1b exploratory FSCD cohort, which occurred on October 16, 2025. The Company will settle this milestone payment in cash in the amount of $235,000 within 30 days of the date the milestone was met.

Insurance Financing Arrangement

In June of 2025, we entered into an agreement to finance insurance policies that renewed in May of 2025. The insurance financing arrangement is secured by the associated insurance policy. As of September 30, 2025, the aggregate remaining balance under the insurance financing arrangement of approximately $0.2 million is payable over a 9-month period commencing with the first payment that was payable on June 30, 2025.

Future Liquidity Needs

We have incurred significant operating losses and negative cash flows from operations since our inception. To date, we have not been able to generate significant revenues nor achieve operating profitability. Based upon our cash and cash equivalents balance including the gross cash proceeds of $138 million from our underwritten public offering that closed on October 2, 2025, we believe we have sufficient capital to fund our operations through major clinical development milestones including a Phase 2 primary efficacy readout of PALI-2108 for UC in the second half of 2027 and a Phase 2 primary efficacy readout of PALI-2108 for FSCD in the first half of 2028.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments, and assumptions that impact the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of expenses during the reporting period. Our estimates are based on historical experience, known trends, events and various other factors that we believe are reasonable under the circumstances, the results of which form the 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 under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies.

Our critical accounting estimates are identified in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Annual Report on Form 10-K include the discussion of estimates used for accrued research and development expenses and our contingent consideration obligation. We believe there has been no significant changes in our critical accounting policies and significant judgments and estimates since those disclosed in our most recently filed Annual Report on Form 10-K.

Recently Issued or Adopted Accounting Pronouncements

See Note 2 to the notes to the condensed consolidated financial statements for the quarter ended September 30, 2025, included elsewhere in this Quarterly Report on Form 10-Q.