Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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

Forward-Looking Statements

Throughout this section, unless otherwise noted, "we," "us," "our," "Company" and similar terms refer to Palomino Laboratories, Inc. prior to the closing of the Merger, and to the Company after the closing of the Merger. Following is a discussion and analysis of our financial condition and results of operations. You should read the following together with our financial statements and the related notes and other financial information included in this Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties as described under the heading "Forward-Looking Statements" elsewhere in this Report. You should review the disclosure under the heading "Risk Factors" in this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Basis of Presentation

The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of consolidated financial condition and results of operations presented herein. The following discussion and analysis are based on our unaudited condensed consolidated financial statements contained in this Quarterly Report, which we have prepared in accordance with United States generally accepted accounting principles. You should read the discussion and analysis together with such condensed consolidated financial statements and the related notes thereto.

Overview

The Company is a fabless semiconductor company pioneering the next generation of high-performance microLED-based optoelectronic solutions for data communication. Our mission is to enable ultra-high-speed, energy-efficient optical interconnects that replace legacy copper-based PCIe and Ethernet links in compute-intensive environments. The Company is commercializing a breakthrough platform built on advanced gallium nitride (GaN) compound semiconductor materials. This proprietary technology enables scalable and cost-efficient manufacturing of ultra-compact, high-speed optical transceivers, with significant improvements in power, size, and bandwidth density over traditional laser-based solutions. Its differentiated value proposition lies in leveraging high-efficiency microLEDs as optical sources in transceiver modules that can be seamlessly integrated into silicon packages or interposers. This approach unlocks the potential for high-density, chip-scale optical I/O-fundamentally reshaping the future of data movement in AI servers, data centers and high-performance computing systems. See "Description of Business" above.

On September 29, 2025, Unite Acquisition 3 Corp.'s wholly owned subsidiary, Palomino Acquisition Co., a Delaware corporation formed in the State of Delaware on August 19, 2025 ("Merger Sub"), merged with and into Palomino Laboratories, Inc., a privately held Delaware corporation (prior to the merger, "Private Palomino"). Pursuant to this transaction (the "Merger"), Private Palomino was renamed to Rhino Subsidiary Inc. and became the Company's wholly owned subsidiary and all of the outstanding stock of Private Palomino was converted into shares of the Company's common stock, par value $0.0001 per share. As a result, Unite ceased to be a shell company and continues as a public reporting company under the new name, Palomino Laboratories Inc.

The merger agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions. The Company operates in a single reportable segment. All revenues, expenses, and assets are reflected on a consolidated basis. Accordingly, no additional segment disclosures are required under Accounting Standards Codification (ASC) 280, "Segment Reporting.

The Merger was treated as a recapitalization and reverse acquisition for the Company for financial reporting purposes, and the Company is considered the acquirer for accounting purposes. As a result of the Merger and the change in the Company's business and operations, a discussion of the past financial results of the Company is not pertinent, and under applicable accounting principles, the historical financial results of the Company, the accounting acquirer, prior to the Merger will be considered our historical financial results.

Since the Company's inception in 2023, it has devoted substantially all of its efforts and financial resources to building the organization, including raising capital, organizing and staffing the company, business planning, and providing general and administrative support for these operations. Prior to the merger, the Company has funded its operations primarily with proceeds from the sale and issuance of SAFE Notes. From inception through March 31, 2026, the Company raised aggregate net proceeds of approximately $1,800,000 from the issuance and sale of Simple Agreement for Future Equity (SAFE) Liabilities.

During the three months ended March 31, 2026, the Company's net losses were $1,243,430, and for the three months ended March 31, 2025, the Company incurred a net losses of $985,169. Substantially all of its net losses have resulted from costs incurred from general and administrative costs associated with our operations.

Based on the Company's current operating plans, it estimates that its existing cash as of March 31, 2026 and the $16,975,412 of proceeds from the recent April private placement, will be sufficient to support operations for at least one year from the issuance date of these condensed consolidated financial statements.

The Company expects to incur additional losses and negative operating cash flow for the foreseeable future as it continues to hire additional personnel, protects its intellectual property and grows its business. The Company will need to raise additional capital to support its continuing operations and pursue its long-term business plan. Financing activities may include, but are not limited to, public or private equity offerings, debt financings, or other sources. Such activities are subject to significant risks and uncertainties.

Uncertainty in the global economy presents significant risks to the Company's business. The Company is subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including increases in inflation, fluctuating interest rates, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy or government budget dynamics, recent bank failures, geopolitical factors, including the ongoing conflicts between Russia and Ukraine and in the Middle East and the responses thereto, and supply chain disruptions. While the Company is closely monitoring the impact of the current macroeconomic and geopolitical conditions on all aspects of the Company's business, including the impacts on its employees, suppliers, vendors and business partners and the Company's future access to capital, the ultimate extent of the impact on the Company's business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside the Company's control and could exist for an extended period of time. The Company will continue to evaluate the nature and extent of the potential impacts to its business, results of operations, liquidity and capital resources.

Recent Developments

On April 20, 2026, the Company entered into subscription agreements (each a "Subscription Agreement") with certain accredited investors and sold in an initial closing of a private placement (the "Offering") an aggregate of 3,773,853 shares (the "Shares") of the Company's common stock, par value $0.0001 per share (the "Common Stock")for an aggregate purchase price of $15,095,412, at a purchase price of $4.00 per Share. A total of 374,761 warrants were issued in connection with the Offering. Total proceeds raised from this offering was $16,975,412.

On April 30, 2026, the Company and certain accredited investors mutually agreed to effect, and effected, an additional closing, with respect to 470,000 Shares for gross proceeds of $1,880,000.

In connection with the Offering, Laidlaw & Company (UK) Ltd. (the "Placement Agent") was paid at each closing (i) a cash fee equal to ten percent (10%) of the gross proceeds delivered to the Company on a closing date by parties introduced by the Placement Agent and (ii) five percent (5%) of the gross proceeds delivered to the Company on a closing date by parties introduced by the Company, as well as a non-allocable expense reimbursement equal to two (2%) of the gross proceeds delivered by Placement Agent introduced investors on a closing date to the Company, and one (1%) of the gross proceeds delivered by Company introduced investors on a closing date to the Company. The Placement also received, at the final closing of the private placement, warrants to purchase shares of Common Stock in an amount equal to ten percent (10%) of the Common Stock sold to Placement Agent introduced parties which are exercisable for five (5) years and have an exercise price equal to 120% of the lowest price per share of the shares of Common Stock issued or issuable to investors in the Offering. The Company agreed to pay certain other expenses of the Placement Agent, including the fees and expenses of its counsel, in connection with the Offering. Subject to certain customary exceptions, the Company also indemnified the Placement Agent to the fullest extent permitted by law against certain liabilities that may be incurred in connection with the Offering, including certain civil liabilities under the Securities Act of 1933, and, where such indemnification is not available, to contribute to the payments the Placement Agent and its sub-agents may be required to make in respect of such liabilities.

The Company is analyzing the warrants issued with this transaction for the accounting treatment and no conclusions have been reached as of the date of this filing.

Operating Expenses

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance, and other administrative functions. Other significant costs include facilities related expenses, legal fees related to intellectual property and corporate matters, other professional fees for accounting and consulting services, and other administrative expenses.

The Company expects that its general and administrative expense will increase for the foreseeable future as it continues to support its operations to support the growth of its business. Following the Merger, the Company also expects increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, board of director fees, investor relations costs and other expenses that it did not incur as a private company.

Research and Development Expenses

Research and development represent costs incurred to develop our technologies. These costs consist of personnel costs, including salaries, employee benefit costs, stock-based compensation expenses, lease expenses, university contribution expense, nanofabrication lab usage expense as well as depreciation and amortization expense for capitalized assets associated with these functions. We expense all research and development costs in the periods in which they are incurred.

Other Income (Expense)

Change in fair value of SAFE notes

We assessed the SAFEs as liabilities under ASC 480. We carry the SAFEs at their estimated fair value at issuance and remeasure the estimated fair value through earnings until settled. The SAFEs were settled in connection with the Merger.

Interest Income

Interest income consists of interest earned from the Company's cash and cash equivalents.

Results of Operations

The three months ended March 31, 2026, compared to the three months ended March 31, 2025

		Three Months Ended March 31,
		2026				2025				$ Change
Operating expenses:
General and administrative		$	805,363			$	17,828			$	787,535
Research and development			438,240				-				438,240
Total operating expenses			1,243,603				17,828				1,225,775
Loss from operations			(1,243,603	)			(17,828	)			(1,225,775	)
Other income:
Change in fair value of SAFE notes			-				(968,150	)			968,150
Interest income			173				809				(636	)
Net loss		$	(1,243,430	)		$	(985,169	)		$	(258,261	)

General and Administrative Expenses

General and administrative expenses were $805,363 for the three months ended March 31, 2026, compared to $17,828 in the same period of last year. The increase was primarily due to increase in public company costs and payroll and compensation costs.

Research and Development Expenses

Research and development expenses were $438,240 for the three months ended March 31, 2026, compared to $0 in the same period of last year. The increase was primarily due to building out of the Company's operations and research and development activities which included payments to third-party consulting services and employee compensation.

Change in fair value SAFE notes

We recognized a change in fair value of $0 related to the SAFE Notes for the three months ended March 31, 2026 versus $968,150 for the three months ended March 31, 2025. This change was mainly attributable to the Company's SAFE notes that were in existence during 2025. Upon the Merger in September 2025, the SAFE notes were converted into common stock.

Interest Income

For the three months ended March 31, 2026, and 2025, the Company recognized $173 and $809, respectively, of interest income related to certain cash and cash equivalents.

LIQUIDITY AND CAPITAL RESOURCES

Source of Liquidity

Company has incurred net losses and negative cash flows from operations since its inception. Through March 31, 2026, Company has primarily funded its operations through the sale and issuance of SAFE notes and common stock. The Company's current capital resources, consisting of cash and cash equivalents and the $16,975,412 of proceeds from the recent April private placement, are expected to be sufficient to fund operations for at least the next twelve months from the issuance date of its condensed consolidated financial statements. Company's future viability depends on its ability to generate cash from operating activities or to obtain additional capital to finance its operations. There can be no assurance that Company will be able to secure sufficient funding on acceptable terms, or at all, to continue its operations.

Cash flows for the three months ended March 31, 2026 and 2025

		Three Months Ended March 31,
		2026				2025
Net cash (used in) provided by operating activities		$	(1,116,468	)		$	3,052
Net cash used in investing activities			(318,336	)			-
Net cash (used in) provided by financing activities			(30,000	)			20
Net (decrease) increase in cash and cash equivalents		$	(1,464,804	)		$	3,072

Operating Activities

Net cash used in operating activities was $1,116,468 for the three months ended March 31, 2026. Cash used in operating activities reflected the Company's net loss of $1,243,430 and changes in operating assets and liabilities of $31,279 which was offset by noncash charges of $158,241 related to stock-based compensation and depreciation.

During the three months ended March 31, 2025, cash provided by operating activities was $3,052. Cash provided by operating activities reflected the Company's net loss of $985,169 and changes in operating assets and liabilities of $8,404, which was offset by noncash charges of $968,150 and $11,667, related to the change in fair value of SAFE notes and stock-based compensation, respectively.

Investing Activities

Net cash used in investing activities was $318,336 for the three months ended March 31, 2026, primarily due to the purchase of lab equipment.

There were no investing activities for the three months ended March 31, 2025.

Financing Activities

Net cash used financing activities was $30,000 for the three months ended March 31, 2026, primarily due to the payment of deferred financing costs for the April common stock issuance.

There were immaterial financing activities for the three months ended March 31, 2025.

Contractual Obligations and Commitments

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Critical Accounting Policies and Significant Judgements and Estimates

Management's discussion and analysis of Company's financial condition and results of operations is based on its financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires Company to make estimates and judgments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities in its financial statements, as well as the reported expenses incurred during the reporting periods. Company bases its estimates on historical experience and on various other factors that Company's management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While Company's significant accounting policies are described in more detail in Note 2 to its financial statements included elsewhere in this document, Company believes that the accounting policies discussed below are critical to understanding its historical and future performance, as these policies relate to the more significant areas that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on its financial condition or results of operations.

Share-based compensation

The Company measures equity classified share-based awards granted to employees, non-employees and directors based on the estimated fair value on the date of grant and recognizes compensation expense of those awards over the requisite service period, which is the vesting period of the respective award. The Company accounts for forfeitures as they occur. For share-based awards with service-based vesting conditions, the Company recognizes compensation expense on a straight-line basis over the service period. The Company classifies share-based compensation expense in its statements of operations in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified. Fair value is determined using a combination of the probability weighted expected return method and option pricing model. The Company's share-based awards comprise of restricted stock awards (RSA) and stock options. The fair value of RSAs is measured based on the grant-date fair value of the restricted stock awards.

Stock options fair value is measured using the black scholes model and the model consists of the following inputs: the expected term of the stock options is estimated using the "simplified method" as the Company does not have sufficient historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is the midpoint between the vesting period and the contractual term of the option. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of option grants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected term of the option. The expected dividend yield is 0% because the Company has not historically paid, and does not expect, for the foreseeable future, to pay a dividend on its common stock.

Estimating the fair value of share-based award requires the input of subjective assumptions, including the estimated fair value of the Company's common stock. The assumptions used in estimating the fair value of share-based awards represent management's estimate and involve inherent uncertainties and the application of management's judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different for future awards.

Recent Accounting Pronouncements

See Note 2 to Company's financial statements found elsewhere in this document for a description of recent accounting pronouncements applicable to its financial statements.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2026.

Quantitative and Qualitative Disclosures about Market Risks

Not applicable.