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

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

You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled "Risk Factors." You should carefully read the "Cautionary Note About Forward-Looking Statements" and "Risk Factors" sections of this Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from the results described below.

Overview

We are a developmental stage pharmaceutical company dedicated to discovering, developing and commercializing innovative botanical drugs to treat patients suffering from inflammatory diseases. Our mission is to address significant unmet medical needs and to improve patients' lives by harnessing the power of natural substances. We are dedicated to discovering, developing and commercializing botanical medicines for treating patients with immune and inflammatory diseases and to develop therapies that may offer potential benefits to patients with unmet clinical needs in various fields, such as autoimmune diseases, metabolic diseases and viral infections. We are committed to "Bringing hope and healing through the wisdom of plants."

Our business strategy is centered on developing innovative botanical drugs, with a focus on Phyto-N as our lead candidate, for the treatment of inflammatory diseases. Phyto-N is a proprietary botanical extract with chemical components and pharmacological activities that harnesses potential anti-inflammatory properties of a medicinal plant with a long history of human use. Phyto-N has a long history of use in Chinese traditional medicine, which focuses on an alternative herbal medical practice, and has shown positive results in animal models of multiple inflammatory diseases. We aim to prioritize the development of Phyto-N and its active compounds, to conduct further preclinical and clinical studies to evaluate its therapeutic potential and safety profile, and if warranted, to seek the necessary regulatory approval in order to commercialize Phyto-N.

On August 27, 2025, the Company closed its IPO of 3,750,000 shares of the Common Stock, at a public offering price of $4.00 per share, for gross proceeds of $15,000,000. Under the terms of an underwriting agreement dated August 25, 2025 with Dominari Securities, LLC (the "Underwriting Agreement"), the Company granted the underwriters an option to purchase up to 562,500 additional shares at the initial public offering price, and on September 12, 2025, underwriters exercised their option in full and purchased all of the Company's shares under the over-allotment option, resulting in additional gross proceeds of $2,250,000 and net proceeds of $2,070,000 to the Company. The Company is utilizing the net proceeds from the IPO primarily for (i) the development of its lead product candidate, Phyto-N, for the treatment of ulcerative colitis; (ii) to conduct FDA-required GLP toxicology and pharmacokinetic studies for Phyto-N in ulcerative colitis, (iii) to prepare and submit an IND application.

We are planning to submit an IND for the treatment of ulcerative colitis in the fourth quarter of 2026. If allowed to proceed by the FDA, a Phase I trial will be initiated 30 days post-IND submission. If the Phase I trial is completed with positive results, we intend to proceed with a Phase II trial for ulcerative colitis as our lead indication. Contingent upon the success of our ulcerative colitis trials, available funding, and other strategic considerations, Curanex may subsequently initiate additional Phase II trials in other high-value indications such as atopic dermatitis, coronavirus (COVID-19), gout, diabetes, and NAFLD, or may seek to license out these indications to third parties at the Phase II stage. This multiple indication strategy represents our long-term vision to explore and maximize the value of Phyto-N and build a robust pipeline of botanical drug candidates targeting inflammatory diseases. The successful completion of these clinical trials could position Phyto-N as a potential botanical drug candidate for multiple inflammatory indications, addressing specific unmet medical needs. If approved, Phyto-N could provide patients with new treatment options for various inflammatory conditions.

Our Business Model

We anticipate that our future revenue streams will primarily derive from the commercialization of our botanical drug products. Our lead product candidate, Phyto-N, is currently in pre-clinical studies stage. We plan to file an IND application in the fourth quarter of 2026, with ulcerative colitis to be our first application. As we progress towards clinical development, we will continue to invest in translational research to further elucidate the mechanisms of action, biomarkers, and patient stratification strategies for Phyto-N. These efforts will support our precision medicine approach and help us optimize the design and execution of our clinical trials to explore the chances of success. However, there is no guarantee that we will receive regulatory approval or successfully reach commercialization or generate any revenue. The process of obtaining regulatory approval is lengthy, expensive, and uncertain. Assuming we successfully navigate the regulatory process and obtain approval for our products, we anticipate the following potential revenue streams:

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Product Sales: Upon regulatory approval, we would expect to generate revenue through the sale of our drug products to healthcare providers, specialty pharmacies, and distributors. Our pricing strategy would be based on the value our therapies provide to patients, the healthcare system, and society, taking into account factors such as clinical efficacy, safety, and pharmacoeconomic benefits.

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Collaborations and Licensing: We plan to explore strategic collaborations and licensing agreements with other pharmaceutical companies to co-develop, co-promote, or out-license our drug candidates. These agreements could potentially provide upfront payments, milestone payments, and royalties on future product sales, diversifying our revenue streams and mitigating development risk.

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Research Grants and Contracts: We intend to pursue non-dilutive funding opportunities, such as research grants and contracts from government agencies, foundations, and other organizations. These funds could support our early-stage research and help us validate our therapeutic concepts and generate proof-of-concept data. However, as of the date of this Annual Report, we have not received any research grants or contracts.

Significant Risks and Uncertainties

The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with public health crises and global geopolitical tensions may have a material adverse effect on our business, financial condition, results of operations and growth prospects. The resulting fluctuations in inflation rates may materially affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of our clinical trial materials and supplies, interest rates and overhead costs may adversely affect our operating results. Relatively high interest rates also present a challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Furthermore, economic conditions have produced downward pressure on share prices. We may experience increases in the future on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, global geopolitical tensions, worsening global macroeconomic conditions, and employee availability and wage increases, which may result in additional stress on our working capital resources. Moreover, there is great uncertainty with respect to potential changes in trade regulations, ongoing changes to U.S. and international tariffs and other trade restrictions and trade barriers, renegotiation of international trade agreements or further escalation of trade tension, sanctions and export controls which also increase volatility in the global economy.

In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: identifying, acquiring or in-licensing products or product candidates; obtaining regulatory approval of product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; the challenges of protecting and enhancing our intellectual property rights; and complying with applicable regulatory requirements.

Results of Operations

Comparison of Results of Operations for the Year Ended December 31, 2025 and 2024

Revenue and Cost of Sales

We are a clinical-stage biotechnology company and have not generated revenue from product sales to date. We did not generate any revenue during the years ended December 31, 2025, or 2024. This is consistent with our focus on advancing the development of our botanical drug candidates and progressing toward our clinical and regulatory milestones.

We anticipate generating revenue only upon successful commercialization of our product candidates or from entering into strategic licensing agreements. However, there is no assurance as to the timing or likelihood of these events.

Operating Expenses

General and Administrative Expenses

General and administrative expenses were $1,253,203 for the year ended December 31, 2025, compared to $290,386 for the year ended December 31, 2024. The increase of $962,817 was primarily attributable to higher personnel-related expenses, including approximately $623,000 of increased payroll costs, as our founder and certain members of senior management began receiving compensation following the completion of our IPO, whereas little or no cash compensation had been paid to these individuals prior to that time. The increase also reflects higher professional fees and other costs associated with operating as a public company, including expenses related to the preparation for and completion of our IPO and ongoing public company compliance and reporting requirements.

Research and Development Expenses

Research and development ("R&D") expenses were $2,985,873 for the year ended December 31, 2025, compared to $74,676 for the year ended December 31, 2024. The increase of $2,911,197 was primarily attributable to expanded research and development activities following the Company's IPO, including costs associated with IND-enabling studies and related research activities for ulcerative colitis, atopic dermatitis, COVID-19, diabetes, nonalcoholic fatty liver disease ("NAFLD"), and gout.

The increase also reflects the recognition of costs under the Company's updated accounting policy to expense R&D costs over the related contract performance periods. As of December 31, 2025, the Company recorded approximately $6.2 million in prepaid R&D expenses, representing advance payments to contract research organizations ("CROs") and contract development and manufacturing organizations ("CDMOs") for services to be performed under ongoing IND-related studies.

The Company expects R&D expenses to remain significant as these studies progress, although the timing and amount of such expenses may vary depending on the pace of research activities and the advancement of its development programs.

Interest Expense

Interest expense was $8,537 for the year ended December 31, 2025, compared to $nil for the year ended December 31, 2024. The interest expense recognized in 2025 primarily relates to borrowings under two short-term promissory notes issued to Dian Ying Jing, one of our founders, Secretary and the spouse of our Chief Executive Officer. The notes had an interest rate of 4.34% per annum and were issued in February 2025 and May 2025 with an aggregate principal amount of $400,000. The Company repaid the outstanding principal and accrued interest on these notes in September 2025. No comparable borrowings were outstanding in 2024.

Other Income

Other income was $22,507 for the year ended December 31, 2025, compared to $3,554 for the year ended December 31, 2024. The increase was primarily attributable to higher interest income earned on the Company's cash balances. The higher interest income in 2025 primarily reflects increased cash balances following the receipt of net proceeds from the Company's IPO.

Net Loss

The Company recorded a net loss of $4.2 million for the year ended December 31, 2025, compared to a net loss of $361,506 for the year ended December 31, 2024. The increase in net loss was primarily attributable to higher operating expenses in 2025, including a significant increase in research and development expenses related to the Company's expanded IND-enabling studies, as well as higher general and administrative expenses associated with increased personnel costs and professional fees related to preparing for and operating as a public company following the Company's IPO.

Liquidity and Capital Resources

As of December 31, 2025, we had cash and cash equivalents of $4,973,134, compared to $148,891 as of December 31, 2024. The increase in cash and cash equivalents was primarily attributable to net proceeds of approximately $15.3 million received from the Company's IPO completed in August 2025 and the exercise in full of the underwriters' over-allotment option in September 2025.

We believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital requirements for at least the next twelve months from the date of this Annual Report on Form 10-K. We may, however, require additional capital to support our ongoing research and development activities and future clinical development programs. Accordingly, we may seek to raise additional funds through equity or debt financings or other strategic arrangements. There can be no assurance that such financing will be available on acceptable terms, or at all.

Cash Flow

Cash Flows from Operating Activities

Net cash used in operating activities was $10,484,452 for the year ended December 31, 2025, compared to $555,575 for the year ended December 31, 2024. The increase in cash used in operating activities was primarily attributable to higher operating expenses as the Company expanded its research and development activities following the completion of its IPO.

Cash used in operating activities in 2025 primarily reflected the Company's net loss of $4,225,106 and a significant increase in prepaid expenses of $6,253,298, which largely consisted of advance payments made to contract research organizations ("CROs") and contract development and manufacturing organizations ("CDMOs") for services to be performed under ongoing investigational new drug ("IND") enabling studies. These uses of cash were partially offset by non-cash charges, including amortization of right-of-use assets of $79,396 and IP development impairments of $74,676, as well as changes in other working capital accounts.

Cash Flows from Financing Activities

Net cash provided by financing activities was $15,308,695 for the year ended December 31, 2025, compared to $630,100 for the year ended December 31, 2024. The increase was primarily attributable to net proceeds of $15,655,192 received from the Company's IPO completed in August 2025, partially offset by $346,497 in offering-related costs paid during the period.

Net cash provided by financing activities for the year ended December 31, 2024 consisted primarily of proceeds from the issuance of common stock of $630,000 and proceeds from the issuance of preferred stock of $100.

Contractual Obligations and Contingencies

As of December 31, 2025, the Company's material contractual obligations primarily consisted of operating lease commitments related to its office facilities and motor vehicle leases.

On January 1, 2025, the Company assumed an office lease from Duraviva Pharma Inc., a New York corporation under common control, pursuant to a lease assignment agreement. The lease term extends through August 31, 2026 and is classified as an operating lease. In addition, during the fourth quarter of 2025, the Company entered into lease agreements for three motor vehicles with non-cancelable lease terms ranging from 36 to 51 months.

As of December 31, 2025, the Company recognized right-of-use assets of $352,616 and operating lease liabilities of $346,699 in its consolidated balance sheet in accordance with ASC 842. Total future minimum lease payments under these operating leases were $374,729, of which $136,921 is payable in 2026, $89,964 in 2027, $86,766 in 2028, and $61,078 in 2029. After giving effect to imputed interest of $28,030, the present value of lease liabilities was $346,699 as of December 31, 2025.

The Company is not currently a party to any material legal proceedings and does not have any other material contractual obligations, commitments, or contingencies as of December 31, 2025.

Emerging Growth Company and Smaller Reporting Company Status

We operate as an emerging growth company (EGC) under the JOBS Act, allowing us to delay the adoption of new or revised accounting standards. Additionally, we qualify as a smaller reporting company (SRC) under SEC regulations, enabling us to provide scaled disclosures to streamline our reporting process.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. GAAP and require management to make estimates and assumptions. A summary of our significant accounting policies is included in Note 1 of our audited financial statements included in this Form 10-K. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our estimates and assumptions are based on historical experiences and changes in the business environment. However, actual results may differ from estimates under different conditions, sometimes materially. Critical accounting policies and estimates are defined as those that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. The Company's critical accounting estimates include its assessment of going concern and the valuation allowance on deferred tax assets, which are described below.

Going Concern

The Company evaluates, for each reporting period, whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. This assessment requires significant judgment and is based on factors including the Company's current liquidity position, expected operating losses, and management's plans to mitigate such conditions, including potential financing activities. Changes in these assumptions or the Company's ability to execute its plans could materially affect the conclusion of the going concern assessment.

Valuation Allowance on Deferred Tax Assets

The Company recognizes deferred tax assets for net operating loss carryforwards and evaluates the need for a valuation allowance based on whether it is more likely than not that such deferred tax assets will be realized. This assessment requires significant judgment, including the evaluation of future taxable income, the reversal of existing temporary differences, and tax planning strategies. Based on the Company's history of operating losses, the Company has recorded a full valuation allowance against its deferred tax assets. Changes in assumptions regarding future profitability could materially impact on the amount of valuation allowance recognized in future periods.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements as of December 31, 2025, as defined under Item 303(a)(4) of Regulation S-K.