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 financial statements and related notes thereto included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions, which are based on the beliefs of our management. 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 "Risk Factors" section of this Annual Report.

Company Overview

HCW Biologics Inc. ("HCW Biologics" or the "Company") is a clinical-stage biopharmaceutical company developing transformative fusion immunotherapeutics to support or treat diseases promoted by chronic inflammation. We have created novel compounds that represent a new class of drugs that we believe have the potential to fundamentally change the treatment of autoimmune disorders and other proinflammatory diseases, cancer and senescence-associated dysplasia. Among other things, we have begun commercialization of certain commercial-ready proprietary compounds for use as reagents in the production of immunotherapeutics for the treatment of infectious diseases and cancer. We want our products to improve patients' healthspan as well as their quality of life, and possibly extend longevity.

By leveraging our extensive immunology expertise, we have developed fusion immunotherapeutics representing a new class of drug that we believe has the potential to fundamentally change the treatments for autoimmune diseases, cancer, senescence-associated dysplasia, and many other diseases promoted by chronic inflammation - and in doing so, improve patients' quality of life and possibly extend longevity.

HCW Biologics has an experienced team led by Dr. Hing C. Wong, our Founder and CEO, who discovered and developed the immunotherapeutic Anktiva® (also known as ALT-803, an IL-15 receptor agonist) through pivotal trials. This blockbuster immunotherapeutic treatment for cancer was sold to ImmunityBio, Inc. in 2017 in a $1.0 billion acquisition. In April 2024, Anktiva® was approved by the U.S. Food and Drug Administration for its first indication, the treatment of BCG-Unresponsive Non-Muscle Invasive Bladder Cancer.

The Company utilized its proprietary drug discovery and development platforms to create novel fusion immunotherapeutics, including multi-specific cytokines, targeted second- generation immune checkpoint inhibitors, and immune-cell engagers, which have the capabilities to rebalance immune cells to reestablish immune tolerance or rejuvenate subsets of immune cells that specifically target cancerous and infected cells, and accumulated, nonfunctional senescent cells. Our specialty is to develop treatments administered by subcutaneous injection, with an eye toward cost containment and cost savings as well as quality-of-life for patients.

Advancing our programs may be accomplished through Company-sponsored programs or with a corporate partner. Business development transactions are considered a key aspect of our financing strategy. We continually assess our programs to determine the optimal path to successfully complete clinical development and launch commercialization.

The Company has selected the following compounds for our clinical development programs, which are currently being developed in Company-sponsored programs:

Business Highlights

Clinical Development

Business Development Transactions

Beijing Trimmune Biotech Co., Ltd. License

The Company is developing HCW11-006 through a corporate partnership with Beijing Trimmune Biotech Co., Ltd. ("Trimmune"). Trimmune is a new operating entity formed for the purpose of development and commercialization of HCW11-006, by WY Biotech Co., Ltd. ("WY Biotech"), a China-based company specializing in the early-stage development of recombinant protein drugs and gene/cell therapies, and the Company. Trimmune investors include CITIC Medical Fund, a multi-billion-dollar investment fund focused on innovative companies primarily targeting pharmaceuticals, biotechnology, medical devices, and diagnostics, and TigerYeah Capital Fund of TigerMed, a global leading Contract Research Organization. Trimmune is led by a team with an impressive track record for success in the development and commercialization of innovative drugs that treat diseases with large, unmet medical needs for the Chinese market. HCW11-006 is a preclinical molecule that combines several different immune functional domains as part of a group of compounds characterized as multi-functional immune cell stimulators.

As of March 16, 2026, we received the full payment of the upfront licensing fee for the exclusive worldwide license for HCW11-006, a preclinical molecule, from Trimmune. The Company received $3.5 million in gross proceeds, or $2.9 million net of taxes. In addition to the cash portion of the upfront license fee, before taxes, the Company also received a minority co-founder equity interest in Trimmune. In addition, for additional compensation, Trimmune has a option to license the China rights to HCW9302.

HCW Biologics is eligible to receive additional payments under the license, including development milestone payments and double-digit royalties on future product sales, as well as a portion of the proceeds from certain future transaction(s) involving the licensed molecule, if and when such transaction(s) occur. Upon completion of Phase 1 by the licensee, the Company may exercise its Opt-In Rights to reclaim the rights to the Americas market. For an additional fee, Trimmune may exercise an option to license the China rights to HCW9302, the Company's clinical-stage molecule, currently being evaluated in a Phase 1 trial in an autoimmune disorder.

Commercial-Ready Molecules Used as Reagents

During the year ended December 31, 2025, the Company launched two of its proprietary fusion protein molecules as commercial-ready molecules used as reagents to be used to support the production of immunotherapeutics to treat infectious diseases and cancer. While the Company's focus remains on the development of fusion immunotherapeutics for the treatment of diseases promoted by chronic inflammation, the Company intends to market these reagents directly or through a corporate partnership to generate revenue which could offset development costs for its immunotherapeutic treatments. On March 13, 2026, Science Advances, a peer-reviewed, high-impact journal, released a publication with the Company's data that showed the Company's proprietary, commercial-ready compound, HCW9206, could fundamentally change how CAR-T cell therapies are manufactured and potentially improve how they perform against diseases such as cancer and HIV. These findings support the Company's belief that HCW9206 is a leap forward in both clinical potential and manufacturing efficiency.

Financing

During the second half of 2025, the Company sold 600,000 shares of Common Stock through its Standby Equity Purchase Agreement ("SEPA") with Square Gate Capital for an aggregate of approximately $2.5 million in gross proceeds. As of November 20, 2025, the Company will be restricted from using the SEPA for a standstill period of 6 months, in accordance with terms of the November 2025 Inducement Transaction.

On May 15, 2025, the Company raised $5.0 million before commissions and transaction costs payable by us through the sale of 671,150 Units for $7.45 per Unit, each consisting of one share of Common Stock (or Pre-funded Warrant that may be exercised to purchase one share of Common Stock) plus two Common Stock Warrants each of which can be exercised to purchase one share of Common Stock. The Common Stock Warrants had an exercise price of $7.45 per share, were exercisable immediately upon issuance, and will expire on the five-year anniversary of the original issuance date.

On November 20, 2025, the Company raised $4.0 million before commissions and transaction costs payable by us through an inducement to exercise warrants to purchase 1,510,205 shares of Common Stock at $2.66 per share. These warrants were issued in November 2024 and May 2025, and immediately before the transaction had an exercise price of $7.45 per share. In addition, the Company agreed to issue to the investor unregistered warrants to purchase an aggregate of 3,020,410 shares of the Company's Common Stock with an exercise price of $2.41 per share (the "New Warrants"). The New Warrants will be immediately exercisable and will expire on the five and one-half year anniversary of the original issuance date. On January 29, 2026, the SEC declared effective a resale registration statement on Form S-1 (File Number 333-292652) covering the New Warrants.

On February 19, 2026, the Company raised $1.5 million before commission and transaction costs payable by us through the sale of 2,477,292 Units for $0.6055 per Unit, each consisting of one share of Common Stock (or Pre-funded Warrant that may be exercised to purchase one share of Common Stock) plus one Common Stock Warrant each of which can be exercised to purchase one share of Common Stock. In a private transaction, the Company agreed to reprice the 3,020,410 warrants that were issued in November 2025 from $2.41 per share to $0.0655 per share. The investor's ability to exercise the Common Stock Warrants issued in this transaction and the reduction of the exercise price for the warrants issued in November 2024 are both subject to stockholder approval. The Company filed a definitive proxy on March 13, 2026 for a Special Stockholders' Meeting to be held on April 27, 2026.

Compliance with Nasdaq Listing Rules

An important part of the Company's future financing plans is the ability to access the public markets for the sale of securities. This requires that the Company remain in compliance with all Nasdaq Listing Rules. As of the date of issuance of these financial audited statements, the Company is compliant with all listing rules of the Nasdaq Capital Market tier.

When we were notified of deficiencies in compliance with Nasdaq listing rules, we requested and were granted an opportunity to present our plan to regain compliance to Nasdaq. On October 13, 2025, the Panel granted the Company an extension in which to regain compliance with all continued listing rules of the Exchange. The Panel's determination follows the Company's hearing on September 25, 2025, at which the Company presented, and the Panel considered, the Company's plan to regain compliance with the Equity Rule. The Panel granted the Company's request for continued listing on the Exchange, subject to, among other things, the Company demonstrating compliance with the Equity Rule by December 31, 2025, and with all other Exchange continued listing rules by February 16, 2026.

On February 26, 2026, the Nasdaq Hearings Panel found that the Company regained compliance with all continued listing rules of The Nasdaq Capital Market. Pursuant to Listing Rule 5815(d)(4)(B), the Company will be subject to a Mandatory Panel Monitor. Pursuant to Listing Rule 5815(d)(4)(B), the Company will be subject to a Mandatory Panel Monitor for a period of one year from the date of this letter. If, within that one-year monitoring period, Staff finds the Company again out of compliance with the Equity Rule that was the subject of the exception, the Staff will issue a Delist Determination Letter. In such a case, the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable.

Contract Development and Manufacturing Facility for Biologics

The Company remains committed to establishing some control over our clinical supply of materials, and the supply of licensed molecules for our licensees, as well as other clinical-stage companies developing biologics. We have retained manufacturing rights for the licensed molecules under our license agreements. With the threat of pharmaceutical tariffs hanging over the biopharmaceutical industry and a push to "re-shore" manufacturing, especially pharmaceuticals, a growing list of major drug makers are bolstering their manufacturing footprints in the U.S.

For the year ended December 31, 2025, the Company recognized an impairment of $1.5 million related to its Property. In its assessment of potential indicators of impairment of the asset, the Company concluded that during the year, legal procedures were initiated by holders of mechanics liens against the Company's Property with claims for nonpayment on April 17, 2025, and the Company was notified by Cogent Bank that it exercised its discretion to make a demand that the Company cure the mechanics liens on October 24, 2025. See See Part I, Item 3. - "Legal Proceedings." The Company has continued to pursue financing alternatives to provide the funding needed to come current in past amounts due and complete the construction and renovation of the Property.

Trends and Uncertainties

Inflationary Cost Environment, Banking Crisis, Supply Chain Disruption and the Macroeconomic Environment

Our operations have been affected by many headwinds, including inflationary pressures, tariffs, rising interest rates, ongoing global supply chain disruptions resulting from increased geopolitical tensions such as the war between Russia and Ukraine, the war in the Middle East, China-Taiwan relations, financial market volatility and currency movements. These headwinds, specifically the supply chain disruptions, have adversely impacted our ability to procure certain services and materials, which in some cases impacts the cost and timing of clinical trials and IND-enabling activities. In addition, we have been impacted by inflation when procuring materials required for the buildout of our new headquarters, the costs for recruiting and retaining employees and other employee-related costs. Further, rising interest rates would also increase borrowing costs to the extent that the Company takes on any additional debt. The Company uses a number of strategies to effectively navigate these issues, including product redesign, alternate sourcing, and establishing contingencies in budgeting and timelines. However, the extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable.

For discussion of risks related to potential impacts of supply chain, inflation, geopolitical and macroeconomic challenges on our operations, business results and financial condition, see Part I, Item 1A. "Risk Factors" in this Annual Report.

Components of Results of Operations

Revenues

We have no products approved for commercial sale and have not generated any revenue from commercial product sales of internally-developed immunotherapeutic products for the treatment of autoimmune disorders, cancer and senescence-associated dysplasia. Since inception, our sole source of revenue is from license and a clinical development supply agreement.

Wugen License

The Company entered the Wugen License with Wugen at the end of 2020, and we entered a development supply agreement with Wugen to provide it with clinical development materials needed for research and clinical development in Q1 2021. During the year ended December 31, 2025, the Company agreed to a request from Wugen to suspend the Wugen License, which will run for a period of one year from the effective date of the suspension, or until May 29, 2026. The Company expects to generate revenue for ancillary services provided to Wugen during this time, as provided for under the amended Wugen license. During the suspension, the Company is free to enter licenses with other parties for the molecules that are subject of the Wugen license.

Consideration under our contract included a nonrefundable upfront payment, development, regulatory and commercial milestones, and royalties based on net sales of approved products. In addition, the Company earned revenue from supplying Wugen with clinical and research grade materials for clinical development and commercialization of licensed products under a separate development supply agreement. For the recognition of revenue, we assessed which activities in the Wugen License should be considered distinct performance obligations that should be accounted for separately. We develop assumptions that require judgement to determine whether the license to our intellectual property is distinct from the research and development services or participation in activities under the Wugen License.

Performance obligations relating to the granting a license and delivery of licensed product and R&D know-how were satisfied when transferred upon the execution of the Wugen License on December 24, 2020. The Company recognized revenue for the related consideration at a point in time. The revenue recognized from a transaction to supply clinical and research grade materials entered into under the MSA and covered by a Statement of Work ("SOW"), represents one performance obligation that is satisfied over time. The Company recognizes revenue generated for supply of material for clinical development using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company's progress toward completion.

Trimmune License

We expect to derive revenue from a license agreement granting rights for development and commercialization of in vivo applications using HCW11-006. Consideration under our contract included a nonrefundable upfront payment, development, regulatory and commercial milestones, as well as royalties based on net sales of approved products. This closing occurred in the first quarter of 2026.

Operating Expenses

Our operating expenses are reported as research and development expenses and general and administrative expenses.

Research and Development

Our research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

We expense research and development costs as they are incurred. Costs for contract manufacturing are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the agreement, and the pattern of payments for goods and services will change depending on the material. Nonrefundable advance payments for goods or services to be received in future research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.

We expect research and development expenses to increase substantially for the foreseeable future as we continue the development of our product candidates. We cannot reasonably determine the nature, timing, and costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. Product candidates in later stages of development generally have higher development costs than those in earlier stages. See "Risk Factors -- Risks Related to the Development and Clinical Testing of Our Product Candidates," elsewhere in this Annual Report for a discussion of some of the risks and uncertainties associated with the development and commercialization of our product candidates. Any changes in the outcome of any of these risks and uncertainties with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

General and administrative expenses consist primarily of employee-related expenses for executive, legal, finance, accounting, human resources and other administrative personnel, as well as professional fees (including legal, audit and tax services), insurance costs, facilities expenses, and other public company compliance costs.

We expect general and administrative expenses incurred in the normal course of business for other purposes, such as costs for recruitment and retention of personnel, service fees for consultants, advisors and accountants, as well as costs to comply with government regulations, corporate governance, internal control over financial reporting, insurance and other requirements for a public company, to continue to increase for the foreseeable future as we build our clinical programs.

Legal Expenses (Recoveries), Net

Legal expenses (recoveries), net consist of legal fees incurred in connection with the Arbitration and related proceedings involving the Company and Dr. Hing C. Wong, net of insurance reimbursements received.

Nonoperating Loss

On May 1, 2024 with the SEC, the Company became aware that it was the victim of a criminal scheme involving the impersonation of a purchaser upon the default on a legally binding commitment to purchase $8.0 million of secured notes from the Company. The scheme resulted in the misdirection of approximately $1.3 million held in Company accounts to a fraudulent account controlled by a third party. The Company is pursuing all available remedies to recover this loss. Given the limited success that these efforts have had to date for the recovery of funds, the Company recognized a nonoperating loss of $1.3 million in for the year ended December 31, 2024 in the accompanying audited statement of operations.

Impairment of Long-Lived Asset

For the year ended December 31, 2025, the Company recognized an impairment of $1.5 million related to its building. In its assessment of potential indicators of impairment of the asset, the Company concluded that during the year, legal procedures were initiated by holders of mechanics liens against the Company's property with claims for nonpayment on April 17, 2025, and the Company was notified by Cogent Bank that it exercised its discretion to make a demand that the Company cure the mechanics liens on October 24, 2025.

Interest Expense

Interest expense includes interest paid on debt. This includes interest due on the Cogent Bank loan, Secured Notes issued by the Company and accretion of original issue discount and accretion of debt issuance costs.

On August 15, 2022, we entered into a loan and security agreement with Cogent Bank to partially fund our purchase of the property we acquired on that same date (the "2022 Loan"). We borrowed $6.5 million under this agreement. Amounts outstanding on the term loan accrue interest at a rate per annum equal to 5.75%. We were obligated to make interest-only payments on this loan from September 2022 through August 2023 and principal and interest payments in 48 equal monthly installments, based on a 25-year maturity schedule, commencing September 15, 2023.

From March 31, 2024 to October 30, 2024, the Company issued $6.9 million in Secured Notes in multiple closings. During the second quarter of 2025, certain noteholders agreed to restructure amounts owed by the Company and convert to equity. Noteholders who purchased notes for $325,000 did not elect to convert their Secured Notes. The Secured Notes bear interest at an annual rate of 9%, payable quarterly in arrears. These noteholders are also entitled to a fixed bonus, payable on the Maturity Date, which is accreted on a straight line basis.

On May 8, 2025, the Company issued a $150,000 promissory note with a personal guarantee from the Company's Founder and Chief Executive Officer, which has an original issue discount of $75,000 which is accreted on a straight-line basis from the date of issuance to the Maturity Date of February 7, 2026 (the "Secured Promissory Note"). The Company repaid $225,000 on February 6, 2026.

Change in Fair Value of Investment and Contingent Liability

The Company accounts for our investment in Wugen shares at fair value beginning in the second quarter of 2025. Similarly, the Company's contingent liability is recorded at fair value. A change in fair value of investment and contingent liability is recognized through earnings. Prior to that time, the Company accounted for the Wugen shares using the fair value measurement alternative. Therefore, the value of the investment in Wugen, and similarly the contingent liability, is recognized at fair value each reporting period based on available market information and valuation techniques.

Gain (Loss) on Sale of Put Shares

The Company recognizes an unrealized or realized gain or loss on put shares when we sell shares of Common Stock under the SEPA, which is recognized through earnings.

Gain on Extinguishment of Liability

The Company executed a settlement agreement relating to approximately $7.5 million of outstanding legal fees included in the Company's outstanding trade payables. The term of the settlement include $2.0 million of cash settlement payments and a $5.5 million contingent promissory note providing for certain potential payments if the Company achieves certain defined milestones in the future that are considered remote. As such, the Company recognized a $5.5 million gain on extinguishment of liability.

Other Income, Net

Other income, net consists of interest earned on our cash, cash equivalents, unrealized gains and losses related to our investments in U.S. government-backed securities, and other income and expenses related to non-operating activities.

Results of Operations

The following table summarizes our results of operations for the years ended December 31, 2024 and 2025:

Revenue

For the year ended December 31, 2024, we recognized $2.6 million of revenue and cost of revenues of $1.6 million. Revenues were derived exclusively from the sale of licensed molecules to Wugen. There is currently one ongoing Phase 1 clinical study evaluating WU-NK-101, the Wugen product candidate created using the licensed molecules, in solid tumors.

For the year ended December 31, 2025, we recognized $54,232 of revenue and cost of revenues of $43,386. Revenues were derived exclusively from the sale of licensed molecules to Wugen. The drop in revenue is attributed to a strategic decision made by Wugen to focus its resources on its CAR-T program, WU-CART-007, which was recently granted a Breakthrough Therapy Designation (Soficabtagene Geleucel "Sofi-cel"), an allogeneic CAR-T therapy for the treatment of T-cell malignancies. There is an ongoing pivotal study of Sofi-cel for Relapsed or Refractory T-Cell ALL/LBL in Pediatric and Adult Patients. As part of the nonrefundable upfront license fee paid by Wugen, the Company received shares of Wugen common stock as non-cash consideration. The Company continues to hold these shares as of December 31, 2025.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2025:

Research and development expenses decreased by $1.0 million, or 15%, from $6.4 million for the year ended December 31, 2024 to $5.4 million for the year ended December 31, 2025. This decrease was primarily attributable to decreased expenses for manufacturing and materials.

Salaries, benefits and related expenses increased by $271,994, or 10%, from $2.8 million for the year ended December 31, 2024 to $3.1 million for the year ended December 31, 2025. This increase was primarily attributable to the suspension of the Wugen license in the second quarter of 2025, which included suspension of the $500,000 annual reimbursement of research and development expenses. As a result, the Company received $62,500 in reimbursements from Wugen for the year ended December 31, 2025. The increase in salaries and related taxes for the year ended December 31, 2025 was partially offset by decreases of $57,799 in employee benefits and $13,182 in expenses for stock-based compensation. The Company had a staff reduction in May 2024, and continues to operate with the reduced headcount.

Manufacturing and materials expenses decreased by $1.1 million, or 75%, from $1.4 million for the year ended December 31, 2024 to $354,705 for the year ended December 31, 2025. For the year ended December 31, 2024, costs were primarily attributable to the production of a high-expressing cell line of HCW9101, an internally-developed affinity ligand used in our manufacturing processes. For the year ended December 31, 2025, expenses for manufacturing and materials primarily attributable to the production of HCW9101 and ancillary costs, such as storage and insurance for drug supply that was already manufactured and ready for future use.

Expenses associated with preclinical activities increased by $71,198, or 8%, from $859,701 for the year ended December 31, 2024 to $930,899 for the year ended December 31, 2025. For the year ended December 31, 2024, we launched our new TRBC drug discovery and development platform in the fourth quarter. In the second half of the end ended December 31, 2024, we completed IND-enabling studies for the IND application for HCW9302, to seek authorization for a clinical study to evaluation HCW9302 in patient with an autoimmune disease. For the year ended December 31, 2025, preclinical studies were performed to develop the data to base the selection of lead product candidates for our TRBC-based clinical development programs. The increase was primarily attributable to increases of $159,645 for additional studies conducted with our collaborators and $107,383 in the cost of experimental material for those studies, partially offset by a decline of $195,830 for drug testing costs.

Expenses associated with clinical trials, including patient fees, ancillary studies, clinical site operating expenses, professional fees related to regulatory filings and outside collaborations, decreased by $87,623, or 16%, from $558,215 for the year ended December 31, 2024 to $470,592 for the year ended December 31, 2025. For the year ended December 31, 2024, the Company completed two clinical studies to evaluate HCW9218 in cancer indications. These rights were transferred to ImmunityBio and its affiliates as a result of the Settlement and General Release reached in the third quarter of 2024. See Part I, Item 3. - "Legal Proceedings." For the year ended December 31, 2025, the Company was cleared to begin its clinical trial to evaluate HCW9302 in patients with an autoimmune disease in the first quarter and we dosed the first patient in the third quarter. There are currently two active sites enrolling patients for this study, including The Ohio State University and James A. Haley Veterans' Hospital.

Other expenses, which include overhead allocations, decreased by $130,650, or 17%, from $747,974 for the year ended December 31, 2024 to $617,324 for the year ended December 31, 2025. This decrease is primarily attributable to decreases of $120,193 in allocation for depreciation, $10,593 in general office and facilities related expenses and $5,513 in travel and travel-related expenses, which were partially offset by an increase of $8,198 in rent and occupancy costs.

General and Administrative Expenses

The following table summarizes our general and administrative expense for the years ended December 31, 2024 and 2025:

General and administrative expenses increased by $884,832, or 13%, from $6.8 million for the year ended December 31, 2024 to $7.7 million for the year ended December 31, 2025. The increase is primarily attributable to the change in the activities at the Company for the year ended December 31, 2025, compared with the prior period. As of July 13, 2024, the Company, Dr. Wong, and ImmunityBio and its affiliates entered into a Settlement Agreement that is described in Part I, Item 3. - "Legal Proceedings." The Settlement Agreement eliminated the uncertainty of the outcome of the previously disclosed Arbitration proceedings and provided clarity for the future direction and emphasis of our clinical development strategy. After the Settlement Agreement, there was marked increase in activities related to regaining compliance for Nasdaq listing rules, strengthening internal controls over financing reporting and raising capital for the relaunch of the Company's clinical development and business development programs. Thus, professional fees increased for the year ended December 31, 2025 when compared to the prior year.

Salaries, benefits and related expenses increased by $220,817, or 9%, from $2.6 million for the year ended December 31, 2024 to $2.8 million for the year ended December 31, 2025. The increase is primarily attributable to an increases of $186,337 in salaries and related taxes and $298,159 due to the waiver of a performance-based bonus by officers in the second quarter of 2024, partially offset by decreases of $227,207 in expense for stock-based compensation and $15,028 in employee benefits. There were no bonus payments to officers for the year ended December 31, 2025.

Professional fees increased by $823,561, or 70%, from $1.2 million for the year ended December 31, 2024 to $2.0 million for the year ended December 31, 2025. These expenses were incurred during the normal course of business, and include legal fees for corporate activities, fees incurred in prosecuting patents, as well as audit, tax and advisory fees. The increase is primarily attributed to an increase of $143,701 in corporate legal fees and $656,798 for other professional services. The increases in other professional services include increases of $188,979 for services and fees related to regaining compliance with Nasdaq listing rules; $171,380 for audit fees, reflecting change in auditors on September 20, 2024 and the complexity of financial transactions for the year ended December 31, 2025; $149,955 for technical advisors needed to bolster our resources and address weaknesses in internal controls over financial reporting; and $60,480 for the services of an interim controller.

Facilities and office expenses decreased by $221,708, or 34%, from $654,996 for the year ended December 31, 2024 to $433,288 for the year ended December 31, 2025, primarily due to decreases of $240,138 for software licenses and services needed for active clinical trials and $9,880 for janitorial and disposal services.

For the year ended December 31, 2024, there was $527,304 in accretion for the fixed bonus payment for Senior Notes issued during 2024. As of October 31, 2024, the Company received approximately $6.9 million from the issuance of Secured Notes. The terms of the Senior Notes were amended in the third quarter of 2024, adding the provision for the fixed bonus payment if the Senior Notes are held to Maturity.

For the year ended December 31, 2025, there was $405,222 in accretion for the fixed bonus payment for Senior Notes. In May 2025, as part of the Nasdaq Compliance Plan, the Company entered into the Second Amendment to its Secured Note in which certain Secured Note noteholders agreed to restructure their Secured Notes. At the time of the restructuring, the net carrying amount of the restructured Secured Notes was $7.4 million including principal of $6.6 million and accumulated accretion of a fixed bonus payable upon Maturity Date of $860,462. On May 7, 2025, the Company extinguished $7.4 million of debt through the issuance of 253,083 shares of Common Stock, warrants to purchase 126,540 shares of Common Stock, and rights to receive a pro rata share of 49.11% of the proceeds or shares from the Company's investment in Wugen. On January 29, 2026, the SEC declared effective a resale registration statement on Form S-1 (File Number 333-292652) covering the resale of shares of Common Stock and warrants issued to such note holders.

Other expenses increased by $215,559, or 15%, from $1.4 million for the year ended December 31, 2024 to $1.7 million for the year ended December 31, 2025. The increase is primarily due to increases of $190,361 for financing costs which includes expenses related to registering the shares underlying the SEPA, as required by the terms of our agreement, and commissions earned on sale of shares of Common Stock under the SEPA and $134,744 increase in property and casualty insurance, partially offset by decreases of $77,737 in other insurance costs and $23,592 in travel-related expenses.

Legal Expenses (Recoveries), Net

For the year ended December 31, 2024, the Company incurred $15.9 million in legal expenses in connection with the Arbitration. The Arbitration was settled on July 13, 2024, and the Arbitration and related Complaint were dismissed with prejudice as of December 31, 2024. For the year ended December 31, 2025, the Company received a $2.0 million insurance reimbursement for fees incurred in connection with the defense of Dr. Hing C. Wong, and incurred $529,191 in legal expenses in connection with the Arbitration. Prospectively, we anticipate we will incur some expenses for costs of remaining in compliance with the terms of the Settlement Agreement.

Interest Expense

The Company paid $280,794 and $366,358 in cash for interest for the years ended December 31, 2024 and 2025, respectively, related to the 2022 Loan. Interest was expensed in both periods.

For the years ended December 31, 2024 and 2025, the Company recognized an interest expense of $350,343 and $235,303, respectively, related to the Secured Notes.

For the year ended December 31, 2025, Company recognized $64,722 of accretion expense for the Secured Promissory Note and $86,516 of interest expense related to the EirGenix settlement agreement.

For the years ended December 31, 2024 and 2025, the Company recognized $10,367, for the amortization of debt issuance costs related to the 2022 Loan included within Interest expense on the audited statements of operations.

For the years ended December 31, 2024 and 2025, the Company recognized other costs of $12,780 and $81,785, respectively.

Change in Fair Value of Investment

The Company recognized a $273,422 loss due to the change in fair value of the investment in Wugen shares for year ended December 31, 2025. The decrease in fair value resulted from dilution of the Company's ownership interest following Wugen's issuance of preferred stock in a capital raise during the year ended December 31, 2025. There was no change in fair value of the investment in Wugen shares in the comparable period in 2024. The net change in fair value was recognized through earnings on the accompanying audited statement of operations for the year ended December 31, 2025.

Change in Fair Value of Investment and Contingent Liability

The Company recognized a $1.1 million gain due to the change in fair value of the contingent liability for year ended December 31, 2025. There was no change in fair value of the contingent liability in the comparable period in 2024. The net change in fair value was recognized through additional paid in capital during conversion on the accompanying audited statement of equity (deficit) and earnings on the accompanying audited statement of operations for the year ended December 31, 2025.

Loss on Sale of Put Shares

For the year ended December 31, 2025, the Company recognized $263,974 for a loss on the sale of put shares, related to the 600,000 shares sold using the Company's SEPA. The Company entered the SEPA agreement in the first quarter of 2025.

Other Income, Net

Other income, net had a de minimis decrease of $18,614, from $86,990 for the year ended December 31, 2024 to $68,376 for the year ended December 31, 2025.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2025, the Company had $2.0 million in cash and cash equivalents, including money market investments, and as a result, there was substantial doubt over whether the Company had sufficient capital to operate for the next twelve months from the issuance date of this Annual Report. We considered elements of our financing plan that were probable and likely to be implemented within the next year. While we have already begun to successfully execute our financing plan, including raising $16.3 million for the year ended December 31, 2024 and $11.5 million for the year ended December 31, 2025. In addition, during year ended December 31, 2025, the Company strengthened our balance sheet by extinguishing $7.7 million of debt through restructuring and conversion to equity, including restructuring $7.4 million of Secured Notes and accumulated accretion of a fixed bonus payable upon Maturity Date and converting $270,000 of unsecured promissory notes according to the terms in the agreement, as well as entering settlement agreements with vendors regarding past due amounts owed which resulted in reducing accounts payable by $5.5 million as of December 31, 2025.

In addition to equity financings, we also use business development transactions as a key strategy in our financing plan. We continuously assess our product portfolio, especially when milestones are achieved, to determine the optimal approach to continuing with clinical development. Since the inception of the Wugen License in December 2020, the Company has recognized cumulative revenues of $16.2 million. During the year ended December 31, 2025, the Company agreed to a request from Wugen to suspend the Wugen License, including Wugen's clinical trial due diligence obligations and its obligation to pay $500,000 annually to reimburse the Company for certain research and development expenses. The suspension will run for a period of one year from the effective date and will end on May 29, 2026. During the suspension, the Company has the exclusive right to seek alternate licensees and terminate the license in order to enter other business development transactions related to the ex vivo rights of licensed molecules. We are actively engaged in discussions with several large biologics manufacturing companies with interest in a license for these molecules.

For the year ended December 31, 2025, the Company raised $11.5 million in gross proceeds in the following transactions:

Subsequent to the year ended December 31, 2025, the Company raised $5.0 million in gross cash proceeds in the following transactions:

An important part of the Company's future financing plans is the ability to access the public markets for the sale of securities. This requires that the Company remain in compliance with all Nasdaq Listing Rules. The Company was granted hearings with the Nasdaq Hearing Panel to present its Nasdaq Compliance Plan ("Compliance Plan").

On March 3, 2025, the Nasdaq Hearings Panel (the "Panel") of The Nasdaq Stock Market LLC ("Nasdaq" or the "Exchange") granted the Company an extension in which to regain compliance with all Nasdaq continued listing rules. The Panel's determination follows a hearing on February 13, 2025, at which the Panel considered the Company's plan to regain compliance with Listing Rules 5450(a)(1), 5450(b)(2)(A) and 5450(b)(2&3)(C), the minimum bid price ("Bid Price"), the market value of publicly held securities ("MVPHS") and the market value of listed securities ("MVLS") rules, respectively. As a result of the extension, the Panel granted the Company's request for continued listing on the Exchange, provided that the Company demonstrates compliance with the Bid Price Rule by April 28, 2025, and all other Exchange continued listing rules by June 15, 2025.

On January 7, 2026, the Company received written notice from the Listing Qualifications Staff that as of December 31, 2025, the Company was compliant with all listing rules, in particular, Listing Rule 5550(b)(1), or the Equity Rule, to achieve and maintain a minimum balance of $2.5 million in stockholders' equity. Pursuant to Listing Rule 5815(d)(4)(B), the Company will be subject to a Mandatory Panel Monitor for a period of one year from the date of this letter. If, within that one-year monitoring period, Staff finds the Company again out of compliance with the Equity Rule that was the subject of the exception, notwithstanding Rule 5810(c)(2), the Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. On March 26, 2026, the Company received a written notice from the Staff which notified the Company that, for the 30 consecutive business days, the Company's security did not maintain a minimum bid price of $1 per share, in accordance with Nasdaq Listing Rule 5810(c)(3)(A) ("Bid Price Rule"). Due to the fact that the Company effected a 1-for-40 reverse stock split on April 11, 2025, the Company was not afforded a 180-calendar day period to demonstrate compliance. The Company plans to request an appeal of this determination in a timely manner.

As reported in the Company's Form 8-K filed on July 18, 2024 and further described in Part I, Item 3. - "Legal Proceedings" below, as of July 13, 2024, the Company and Dr. Hing C. Wong, the Company's Founder and Chief Executive Officer, entered into a confidential Settlement Agreement and Release (the "Settlement Agreement") with ImmunityBio and its affiliates. The Settlement Agreement includes mutual general releases by and among the parties thereto. No party is required to make any monetary payments to any other party or person under the Settlement Agreement and each party will bear its own expenses incurred in connection with the matter. In accordance with the provisions of the Settlement Agreement, upon completion of remedial procedures, the parties stipulated that the Arbitration and Complaint should be dismissed. The Arbitration and related Complaint were dismissed on December 24, 2024.

The Company entered into the Settlement Agreement to avoid the costs, disruption and distraction of further litigation. In the accompanying audited balance sheet, as of December 31, 2024, the Company had a balance of $13.5 million due for legal fees incurred as a result of mounting a defense for the Company and Dr. Hing C. Wong, our Founder and Chief Executive Officer. In January 2025, the Company received a $2.0 million insurance payment which was used to offset obligations for Dr. Wong's legal fees. On December 30, 2025, the Company entered a settlement agreement with Cooley LLP ("Cooley") related to the remaining balance of $7.5 million still outstanding for the payment of legal fees incurred in connection the defense of Dr. Wong. As a result of that agreement, the Company, Dr. Wong and Cooley agreed to settle a $7.5 million obligation for $2.0 million in cash and contingent payments up to $5.5 million upon achievement of certain triggering events, all of which were deemed to be remote as of December 31, 2025. In accordance with the terms of the settlement agreement, $500,000 was paid on December 31, 2025. Based on an amendment to the settlement agreement, the Company paid $750,000 on March 20, 2026, and will pay the remaining $750,000 upon the earlier of the completion of a financing for at least $6.0 million in gross proceeds or August 31, 2026. After this settlement, as of December 31, 2025, the Company has a liability of $6.2 million for remaining amounts owed for legal fees related to the Arbitration which continue to remain outstanding.

On December 9, 2025, the Company entered into a settlement agreement with its contract development and manufacturing organization, EirGenix, Inc. ("EirGenix"). Outstanding obligations owed to EirGenix Inc. related to manufacturing costs were $1.7 million. The parties agreed to reduce this amount to $1.2 million, of which the Company paid $620,000 on March 3, 2026 and will pay an additional $620,000 on or before April 30, 2026.

The Company owns a property which we are renovating to create offices, laboratories, and a biologics manufacturing facility to produce clinical trial quantities of material to serve our needs, the needs of our licensees, and other small clinical-stage immunotherapeutic companies. We are actively seeking financing to complete this project. On August 15, 2022, the Company entered into a loan and security agreement (the "2022 Loan Agreement") with Cogent Bank, pursuant to which it received $6.5 million in proceeds to purchase our property at which the Company planned to build a facility to manufacture biologics and upgrade its research laboratory facilities. The loan is secured by a first priority lien on the property. As of December 31, 2025, certain subcontractors had filed mechanics liens related to unpaid invoices issued in connection with construction. The 2022 Loan Agreement contains a provision for a discretionary default in the event that the Company fails to pay sums due in connection with construction of any improvements; however, as of the reporting date, the lender has not elected to do so. As of December 31, 2025, the Company has reported the balance $6.2 million for this loan as Short-term debt, net. As discussed below, on October 24, 2025, the Company was notified by Cogent Bank that it exercised its discretion to make a demand that the Company cure mechanics liens.

As of December 31, 2025, certain subcontractors had filed mechanics liens related to unpaid invoices issued in connection with the facility. On January 22, 2025, the Company entered into a forbearance agreement with BE&K Building Group ("BE&K"), its general contractor, to allow the Company until March 31, 2025 to continue efforts to find the financing required to complete the construction and renovation of the property. Pursuant to the forbearance agreement, the Company made an initial payment of $1.0 million in partial satisfaction of amounts owing to BE&K and its subcontractors. As the Company reported in a Form 8-K, on April 17, 2025, the Company received a summons and a copy of a complaint filed by BE&K in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida (the "BE&K Complaint"). Other Defendants named in the BE&K Complaint who are subcontractors elected to file counterclaims and cross-claims as part of their responses to the BE&K Complaint. To our knowledge as of the date hereof, Cogent Bank, also named as a Defendant in the BE&K Complaint, has not elected to take legal action at this time. In addition, on April 28, 2025, the Company received a summons and a copy of a complaint filed by Fisk Electric Company (which is a defendant in the BE&K Complaint) in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida (the "Fisk Complaint") against the Company, BE&K, and the other defendants in the BE&K Complaint. On August 8, 2025, B&I Contractors, Inc. ("B&I"), one of the defendants in the BE&K Complaint, filed a motion for summary judgment (the "MSJ") as to the Count I (Foreclosure of Construction Lien). The Company responded in a timely manner. The cases have been consolidated, and a Case Management conference was held. On February 19, 2026, a stipulation was submitted to the Court for a settlement and release agreement between the Company and B&I calling for payment of a total of $860,000 in installments in settlement of amounts owed and an allowance for interest and other fees the last installment of which is payable on or before May 31, 2026. There was no gain or loss on the settlement with B&I.

On October 24, 2025, the Company was notified by Cogent Bank that it exercised its discretion to make a demand that the Company cure the mechanics liens no later than thirty (30) days after receipt of this letter in strict compliance with Section 7.2(3) of the Loan Agreement by: (i) paying and discharging all of the Claims of Lien and causing satisfactions to be recorded in the Public Records of Broward County, Florida for all of the Claims of Lien, and (ii) resolving all litigation against the Borrower and the mortgaged property described in the Mortgage and causing such claims in the Foreclosure Actions to be dismissed and all related notices of lis pendens to be released. The Company and Cogent Bank have had negotiations to come to terms on a forbearance agreement to provide additional time for the Company to comply with the demands Cogent Bank made in the demand letter.

The accompanying audited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above. The Company believes that substantial doubt exists regarding its ability to continue as a going concern for at least 12 months from the date of issuance of the Company's audited financial statements, without additional funding or financial support. After considering management's plan for financing and funds raised that are probable to occur within one year, as well as that the Company expects to continue to incur losses from operations for the foreseeable future, management concluded that the substantial doubt that existed in its going concern analysis as of September 30, 2025 was not alleviated.

Because of the numerous risks and uncertainties associated with the clinical development and commercialization of immunotherapeutics, we are unable to estimate the exact amount of capital requirements to pursue these activities. Our funding requirements will depend on many factors, including, but not limited to:

A change in the outcome of any of these or other factors with respect to the clinical development and commercialization of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures.

Summary of Statements of Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2024 and 2025:

Operating Activities

Net cash used in operating activities was $14.2 million for the year ended December 31, 2024 and $13.4 million for the year ended December 31, 2025.

Cash used in operating activities for the year ended December 31, 2024 consisted primarily of a net loss of $30.0 million, which includes $15.9 million of legal expenses related to legal proceedings and a $1.3 million loss related to a misdirection of funds resulting from the Company being a victim of criminal activity. Cash provided by operating activities included an $11.9 million increase resulting from the increase of accounts payable and other liabilities; a $1.0 million increase resulting from a decrease in accounts receivable; and an $831,622 increase related to a decrease in prepaid expenses and other assets. Adjustments for noncash changes also gave rise to an increase in cash from operating activities, including increases of $1.2 million for depreciation, amortization and accretion and a $1.0 million from unrealized losses.

Cash used in operating activities for the year ended December 31, 2025 consisted primarily of net loss for the period of $8.0 million, including a $1.5 million impairment on a long-lived assets, a gain on the extinguishment of liability related to arbitration legal fees of $5.5 million, a decrease in accounts payable of $3.5 million and an adjustment for the change in fair value of a contingent liability in the amount of $1.1 million. Cash provided by operating activities include $1.0 million in depreciation and accretion expense, $768,623 for stock-based compensation, $150,000 for a Commitment Fee paid in shares of the Company's Common Stock, $273,422 for the change in fair value of investments, $263,974 for a loss on the sale of Put Shares issued under the provisions of the SEPA and $692,015 net decrease in accounts receivable, prepaid expenses and other assets.

Investing Activities

For the year ended December 31, 2024, cash used in investing activities was $261,617, consisting of cash used for construction of our new headquarters and manufacturing facility. There was no cash used in or provided by investing activities for the year ended December 31, 2025.

Financing Activities

For the year ended December 31, 2024, cash provided by financing activities was $15.6 million, consisting of $6.5 million of cash provided through the issuance of Common Stock, $6.9 million of cash provided through the issuance of Secured Notes, $2.9 million of cash provided through the issuance of Common Stock Warrants, partially offset by $119,398 of cash used for debt repayment and $638,045 of cash used for issuance costs for Common Stock and Common Stock Warrants.

For the year ended December 31, 2025, cash provided by financing activities was $10.7 million, consisting of gross proceeds of $5.5 million of cash provided through the issuance of Common Stock, $2.5 million from the sale of Common Stock under the Company's Standby Equity Purchase Agreement, $3.8 million of cash provided through the issuance of Pre-funded Warrants and $150,000 in gross proceeds upon the issuance of a promissory note, partially offset by $127,623 of cash used for debt repayment and $1.2 million of cash used for issuance costs for Common Stock and Pre-funded Warrants.

Noncash Transactions

During the year ended December 31, 2025, there were significant noncash transactions. The Company restructured and extinguished $7.4 million of Secured Notes and accumulated accretion for a fixed bonus payable upon Maturity Date, in exchange for shares of Common Stock, warrants to exercise for Common Stock, and the right to receive proceeds upon the liquidation or sale of a portion of the Company's shares of Wugen common stock. Because this was a transaction with related parties, the $3.5 million gain from restructuring was recorded to additional paid-in capital for the year ended December 31, 2025.

Also during this period, the Company closed on financing transactions with an existing investor, giving rise to a dividend to an investor as a result of the difference between gross proceeds from the transactions and the fair value of securities issued. These transactions consisted of a $5.0 million equity financing, which included the repricing of previously issued warrants, and a $4.0 million warrant inducement transaction, which involved repricing existing warrants and exercise of those warrants at the new price, as well as issuance of additional warrants to purchase the Company's Common Stock. The Company estimated the fair value of the securities issued and repriced warrants was $23.3 million for both transactions. The difference between the gross proceeds and fair value was recognized as an equity dividend to investor of $14.3 million, which the Company recorded in additional paid-in capital as of December 31, 2025.

Contractual Obligations and Commitments

The Company has a non-cancellable operating lease agreements related to our facilities in Miramar, Florida. Effective on March 1, 2022, we entered into a lease extension for our current location for a period of two years, ending February 29, 2024. On January 30, 2024, we entered into a new one-year lease for the same location, effective on March 1, 2024. On January 27, 2025, we entered into a Lease Modification and Extension Agreement for a one-year lease for the same location, effective on March 1, 2025. On February 2, 2026, we entered a Lease Modification and Extension Agreement for a one-year lease, effective on March 1, 2026.

We have commitments with a third-party manufacturing organization to supply us with clinical grade materials. As of December 31, 2025, we are under contract for obligations of $396,100 that we expect to pay during the year ending December 31, 2026. In the normal course of business, we enter into contracts for non-clinical studies, preclinical testing, and other services and products. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancellable obligations under these agreements are not material.

Cogent Loan Agreement

On August 15, 2022, we entered into a loan and security agreement with Cogent Bank to partially fund our purchase of the property that will become our new headquarters. The agreement provides for a term loan of up to $6.5 million. Amounts outstanding on the term loan will accrue interest at a fixed rate per annum equal to 5.75%. We were obligated to make interest-only payments on the term loan from September 2022 through August 2023 and principal and interest payments in 47 equal monthly installments, based on a 25-year amortization schedule, commencing September 15, 2023 followed by one final balloon payment of all remaining principal, interest and fees due on the maturity date of August 15, 2027. Our obligations under the agreement are secured by, among other things, a mortgage on our new corporate headquarters and related real property. As of December 31, 2025, $6.2 million was outstanding under the term loan and we were in current in our interest and principal payments. In accordance with the terms of our loan and security agreement, the Company maintains an account at Cogent Bank as security, with a balance sufficient for the payment of interest, principal and insurance costs for a period of 90 - 120 days.

On October 24, 2025, Cogent Bank notified the Company in written demand pursuant to Section 7.2(3) of the Loan Agreement requiring the Company cure the mechanics liens no later than thirty (30) days. The demand required the Company to (i) satisfy and discharge all the Claims of Lien and record appropriate satisfactions to be recorded in the Public Records of Broward County, Florida for all of the Claims of Lien, and (ii) resolve all pending litigation against the Borrower and the mortgaged property described in the Mortgage and causing such claims in the Foreclosure Actions to be dismissed and all related notices of lis pendens to be released. The Company and Cogent Bank have had negotiations to come to terms on a forbearance agreement to provide additional time for the Company to comply with the demands Cogent Bank made in the demand letter.

Settlement Agreements for Payment of Past Due Amounts

The Company entered into the Settlement Agreement to avoid the costs, disruption and distraction of further litigation. As of December 31, 2024, the Company had a balance of $13.5 million due for legal fees incurred as a result of mounting a defense for the Company and our Chief Executive Officer. In January 2025, the Company received a $2.0 million insurance payment which was used to offset obligations for legal fees for Dr. Hing C. Wong, our Chief Executive Officer. On December 30, 2025, the Company and Dr. Wong entered a settlement agreement with Cooley LLP ("Cooley") related to a past due obligation arising from legal fees incurred in connection the defense of Dr. Wong. As a result of that agreement, the Company, Dr. Wong and Cooley agreed to settle a $7.5 million obligation for $2.0 million in cash and contingent payments up to $5.5 million upon achievement of certain triggering events, all of which were deemed to be remote as of December 31, 2025. In accordance with the terms of the settlement agreement, $500,000 was paid on December 31, 2025. Based on an amendment to the settlement agreement, the Company paid $750,000 on March 20, 2026, and will pay the remaining $750,000 upon the earlier of the completion of a financing for at least $4.0 million in gross proceeds or August 31, 2026.

On December 9, 2025, the Company entered into a settlement agreement with its contract development and manufacturing organization, EirGenix, Inc. ("EirGenix"). Outstanding obligations owed to EirGenix Inc. related to manufacturing costs were $1.7 million. The parties agreed to reduce this amount to $1.2 million if the amount was paid in full by April 30, 2026. The Company paid $620,000 on March 3, 2026.

On February 19, 2026, a stipulation was submitted to the Court for a settlement and release agreement between the Company and B&I calling for payment of a total of $860,000 in installments in settlement of amounts owed and an allowance for interest and other fees the last installment of which is payable on or before May 31, 2026.

Critical Accounting Policies, Significant Judgements and Use of Estimates

The audited financial statements included elsewhere in this Annual Report are prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"), which requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the periods presented. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. We believe the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in developing estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. Refer to Note 1 to our audited financial statements included elsewhere in this Annual Report for our significant accounting policies related to our critical accounting estimates.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgements and estimates.

Revenue Recognition

We recognize revenue under the guidance of Topic 606. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of Topic 606, we perform the following five steps: (i) identification of the contract(s) with the customer, (ii) identification of the promised goods or services in the contract and determination of whether the promised goods or services are performance obligations, (iii) measurement of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer.

If all conditions are not met for revenue recognition, the Company recognizes deferred revenue. The Company's policy is to recognize deferred revenue only to the extent product release occurred after meeting specification required, product is shipped, and cash payment is received.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between fair value measurements based on market data (observable inputs), and those based on our own assumptions (unobservable inputs). This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Investments

As part of its financing strategy, the Company may enter into licensing or collaboration agreements under which it receives consideration in the form of a minority equity interest in a counterparty, in lieu of or in addition to cash payments. These financial instruments are presented within Investments in the accompanying audited balance sheets.

When consideration is an equity interest in a private entity whose equity has limited marketability with no readily determinable fair value and for which the Company does not have significant influence over the investee, the Company measures the equity interest using the measurement alternative, at cost less impairment, adjusted for observable price changes in orderly transactions for the identical or similar investment of the same issuer (ASC Topic 321, Investments - Equity Securities), unless the fair value method is otherwise elected. If the Company elects to measure an equity security at fair value, the entity shall measure all identical or similar investments of the same issuer, including future purchases of identical or similar investments of the same issuer, at fair value. The election to measure those securities at fair value shall be irrevocable. Any resulting gains or losses on the securities for which that election is made shall be recorded in earnings at the time of the election. See Note 3. Fair Value of Financial Instruments.

In the period ended June 30, 2025, the Company elected to account for its Wugen common shares at fair value. The Company utilized a valuation report that used the adjusted enterprise valuation method to fair value the Wugen common shares, which is considered a Level 3 input. Management believes the valuation assumptions used are reasonable and appropriate for estimating the carrying value of the Wugen investment and the corresponding change in fair value recognized in earnings. The fair value of the Wugen common shares is also used to fair value the contingent liability the Company recognizes for rights granted to converting noteholders to a portion of the proceeds received in the liquidation or sale of the Wugen shares.

During the year ended December 31, 2025, Wugen has its first closing for a Series C Preferred Stock equity offering. While this closing was completed with only existing investors and was not widely marketed, we considered that these parties invested nearly $100.0 million through the purchase of shares in cash to through conversion of debt. In addition, they are sophisticated investors who are market participants with knowledge of the life sciences industry as well as Wugen. Therefore, we considered this first closing of the Series C Preferred Stock equity offering to be an orderly transaction. Wugen may have subsequent closings for this offering in the future, at which time the Company will assess the impact on our investment in Wugen common shares. During the period, the Company utilized a combination of valuation techniques, consisting of adjusted enterprise valuation method and the backsolve method (based on the capital raise described above) to estimate the fair value. Wugen is a private company, and we have a limited amount of information available to us. We are aware of the sensitivity of the backsolve method to the quality of inputs, which can sometimes be subjective, especially when relying on a single recent funding event. To mitigate the risks of using a backsolve valuation approach, the Company used the adjusted enterprise valuation method in combination with the backsolve method.

The Company concluded that the fair value of the Wugen investment is $1.3 million and recognized an unrealized net loss of $273,422 as of December 31, 2025. The Company also concluded the fair value of the related contingent liability for the rights to proceeds from the sale or liquidation of Wugen shares is $692,531 and recognized an unrealized net gain of $1.1 million as of December 31, 2025. A portion of the change in fair value of the contingent liability was recorded in additional paid-in capital upon conversion of the Secured Notes.

Standby Equity Purchase Agreement

The Company and Square Gate Capital Master Fund, LLC - Series 4 ("Square Gate") entered a Standby Equity Purchase Agreement ("SEPA") providing for an equity line of credit with Square Gate on February 20, 2025. This agreement provides a mechanism for submission by the Company and acceptance by Square Gate of Put Notices under the SEPA pursuant to which Square Gate and the Company may agree to and execute one purchase and sale of Put Shares ("Standard Put Shares"). The Standard Put Notice has a pricing mechanism based on a volume-adjusted weighted average trading price over three days following the acceptance of the Standard Put.

On August 14, 2025, the parties entered into a First Amendment to the SEPA (the "First Amendment") to provide a mechanism for submission by the Company and acceptance by Square Gate of Put Notices under the SEPA pursuant to which Square Gate and the Company may agree to and execute multiple purchases and sales of Put Shares on the same trading day ("Intraday Put Shares"). Under the First Amendment, among other things, the purchase price of the Intraday Put Shares will be the lowest traded price during a specified valuation time period which begins with the acceptance of the Intraday Put and ends when trading volume reaches 1000% of the amount of shares included in the Intraday Put.

A SEPA is an equity-linked instrument for which an investor has the right, but not the obligation, to purchase shares of the entity's common stock over a specified period of time. The SEPA creates a purchase put option for the overarching arrangement which was determined to be a derivative. Economically, before the entity has elected to sell shares, a SEPA represents a purchased put option on the entity's own equity. However, once the entity "draws" on the SEPA, the related number of shares issued constitutes a financial instrument. Thus, a SEPA contains both a purchased put option element and a forward share issuance element. This generally means that a SEPA generally does not qualify for equity classification. Accordingly, entities must recognize an asset or liability for its SEPA. Such asset or liability must be measured at fair value, with changes in fair value recognized in net (loss) income. Further, individual draws must also be evaluated to determine if they meet criteria for equity classification.

With regards to the individual draws for a Standard Put under the SEPA, an individual draw would create a separate financial instrument with settlement criteria that does not meet indexation guidance. While the number of shares is known at inception and therefore not subject to the overarching share cap, there are two inputs into the settlement amount paid by the Investor which are not inputs into a fixed for fixed option: (1) the maximum amount to be funded under the SEPA of $20 million, which inherently limits the settlement amount regardless of the Company's stock price and (2) the discount which reduces the amount to be paid upon settlement.

With regards to the individual draws for an Intraday Put under the First Amendment to the SEPA, an individual draw would create a separate financial instrument with settlement criteria that does not meet the indexation guidance. While the number of shares is known at inception and therefore not subject to an overarching share cap, the only inputs into its settlement is the Company's stock price and trading volume during the pricing period.

Inputs noted above are not all inputs into a fixed for fixed option pricing model, thus the individual draw issuances are not eligible for equity classification in accordance with ASC Subtopic 815-40, Derivatives and Hedging- Contracts in Entity's Own Equity ("Subtopic 815-40"), and therefore an asset or liability will be recorded and marked to market while the financial instrument is outstanding. Upon settlement of the financial instruments, the Company should recognize the following amounts in earnings:

Other than the above, there have been no material changes to our critical accounting policies and estimates from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations- Critical Accounting Policies, Significant Judgements and Use of Estimates" in our Annual Report. For all of the significant accounting policies see Note 1 to our Annual Report.

Stock-based Compensation

As described in Note 1 and Note 11 to our audited financial statements included elsewhere in this Annual Report, we maintain a stock-based compensation plan as a long-term incentive for employees, non-employees, and directors. The plan allows for grants of incentive stock options, non-qualified stock options, and other forms of equity awards. We have granted options with service-based and performance-based vesting conditions.

We measure our stock-based awards granted to employees and directors based on the estimated fair value of the option on the date of grant (grant date fair value) and recognize compensation expense over the vesting period. Compensation expense is recorded as either research and development or general and administrative expenses in the statements of operations based on the function to which the related services are provided. Forfeitures are accounted for as they occur. We estimate grant date fair value using the Black-Scholes option-pricing model.

For stock option grants with service-based vesting, stock-based compensation expense represents the portion of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards on a straight-line basis, net of estimated forfeitures. For options that vest upon the achievement of performance milestones, the Company estimates fair value at the date of grant and compensation expense is recognized using the accelerated attribution method when it is determined that the performance criteria are probable of being met.

In determining the fair value of the stock-based awards, we use the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and its determination generally requires significant judgment. These assumptions include, but are not limited to:

Income Taxes

We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. In evaluating our valuation allowance, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance.

As of December 31, 2024 and 2025, we had available federal net operating loss ("NOL") carryforwards of $62.2 million and $70.0 million, respectively. We also had available state NOLs carryforwards of approximately $62.3 million and $70.2 million, as of December 31, 2024 and 2025, respectively. The federal and state NOLs will carryforward indefinitely. The federal NOLs are available to offset 80% of taxable income for state taxes for tax years starting after 2020. In addition, we had federal research and development credits carryforwards of $1.5 million and $1.7 million, as of December 31, 2024 and 2025, respectively. These credits are available to reduce future federal income taxes, if any, and carryforwards expire from 2038 through 2045 and are subject to review and possible adjustment.

Under Sections 382 and 383 of the Code, substantial changes in our ownership may limit the amount of NOL and research and development credit carryforwards that could be used annually in the future to offset taxable income. The tax benefits related to future utilization of federal and state NOL carryforwards, credit carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period. We have not completed a Section 382/383 analysis under the Code regarding the limitation of NOL and credit carryforwards. If a change in ownership were to have occurred, the annual limitation may result in the expiration of credits before utilization.

We record unrecognized tax benefits as liabilities or reduce the underlying tax attribute, as applicable, and adjust them when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

Recent Accounting Pronouncements

See Note 1 to our audited financial statements included elsewhere in this Annual Report for more information about recent accounting pronouncements.

Emerging Growth Company and Smaller Company Reporting Status

As an emerging growth company, or EGC, under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an initial public offering, or IPO, an exemption from the requirement to provide an auditor's report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements.

We may remain classified as an EGC until the December 31, 2026, although if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1.235 billion or more in any fiscal year, we would cease to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an EGC if we issue more than $1 billion of non-convertible debt over a three-year period.

We are also a "smaller reporting company," as defined in Rule 12b-2 under the Exchange Act. Similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations, such as an ability to provide simplified executive compensation information and only two years of audited financial statements in an annual report on Form 10-K, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure.