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

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

Overview

Ensysce is a clinical stage pharmaceutical company developing innovative solutions for severe pain relief while reducing the fear of and the potential for opioid misuse, abuse and overdose. Our lead product candidate, PF614, is an extended release TAAP prodrug of oxycodone. TAAP modification of prescription drugs removed the ability to crush, chew or manipulate and inject to achieve the effect of the medication more quickly than by swallowing. MPAR^® adds a layer of overdose protection to each TAAP product.

Since our inception in 2003, we devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, discovering product candidates and securing related intellectual property rights and conducting research and development activities for our product candidates. We do not have any products approved for sale and we have not generated any revenue from product sales. We may never be able to develop or commercialize a marketable product.

Our lead product candidate, PF614, is in Phase 3 clinical development, PF614-MPAR is in Phase 1b clinical development and nafamostat is proceeding towards Phase 1 clinical development. Our other product candidates and our research initiatives are in preclinical or earlier stages of development. Our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. We have not yet successfully completed any pivotal clinical trials, nor have we obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.

We have incurred significant operating losses since inception and we expect to continue to incur net losses for the foreseeable future. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing development activities, particularly if and as we:

	●	continue preclinical studies and continues existing and initiates new clinical trials for PF614, PF614-MPAR and nafamostat, our lead product candidates being tested for chronic pain and infectious disease;
	●	advance the development of our product candidate pipeline of other product candidates, including through business development efforts to invest in or in-license other technologies or product candidates;
	●	maintain, expand and protect our intellectual property portfolio;
	●	hire additional clinical, quality control, medical, scientific and other technical personnel to support our clinical operations;
	●	seek regulatory approval for any product candidates that successfully complete clinical trials;
	●	undertake any pre-commercialization activities to establish sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval;
	●	expand our infrastructure and facilities to accommodate our growing employee base; and
	●	add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our transition to operating as a public company.

We have incurred and expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other expenses. We may never become profitable.

We require substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of private and public equity offerings, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. To the extent that we raise additional capital through the sale of private or public equity or convertible debt securities, existing ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our equity holders.

Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, issuing additional equity, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations or other strategic transactions with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

We have generated limited revenues and have incurred significant operating losses since our inception and expect to continue to incur operating losses for the foreseeable future. These factors raise substantial doubt about our ability to continue as a going concern. Our future viability is dependent on our ability to raise additional capital to finance our operations. Without raising additional capital through a future offering, we believe that current cash on hand is sufficient to fund operations into the second quarter of 2026. We based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "- Liquidity and Capital Resources." Our future viability beyond the twelve months is dependent on our ability to raise additional capital to finance our operations.

We expect to incur substantial expenses in the foreseeable future for the development and potential commercialization of our product candidates and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs. However, in order to complete our current and future preclinical studies and clinical trials, and to complete the process of obtaining regulatory approval for our product candidates, as well as to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we may require substantial additional funding in the future.

Series B Preferred Stock Financing

On November 13, 2025, we entered into a Securities Purchase Agreement (the "Purchase Agreement") with an institutional investor (the "Purchaser") providing for (i) a registered direct offering and (ii) a concurrent private placement (collectively, the "Offerings"). The registered direct offering closed on November 14, 2025.

In the registered direct offering, the Company issued 1,513 shares of Series B Preferred Stock, par value $0.0001 per share (the "Preferred Stock"), convertible into 665,922 shares of common stock, par value $0.0001 per share (the "Common Stock", the "Underlying Shares"). The Preferred Stock has a stated value of $1,100 per share, was sold at $1,000 per share, and is convertible into Common Stock at a conversion price of $2.50 per share, subject to customary anti-dilution adjustments. The Preferred Stock and the Underlying Shares were issued pursuant to an effective registration statement on Form S-3.

In the concurrent private placement, the Company issued 2,487 unregistered shares of Preferred Stock convertible into up to 1,094,078 shares of Common Stock, subject to adjustment, as well as warrants (the "Warrants") to purchase up to 880,000 shares of Common Stock, subject to adjustment. The Warrants have an exercise price of $2.50 per share, subject to customary anti-dilution adjustments, are exercisable beginning six months after issuance, and expire on the fifth anniversary of the later of (i) the effectiveness of a resale registration statement covering the Warrants and (ii) receipt of required stockholder approval ("Stockholder Approval").

The Company evaluated the terms of the Series B Preferred Stock for embedded features that may require bifurcation as derivative instruments under ASC 815. Certain features were identified that met the definition of a derivative. However, the Company concluded that the fair value of such features was not material to the financial statements and accordingly did not recognize them as separate derivative liabilities. The Company will continue to reassess this conclusion at each reporting period.

2025 April Warrant Inducement

In April 2025, we entered into an Inducement Letter with certain warrant holders for the exercise of certain outstanding warrants to purchase up to an aggregate of 630,376 share of our common stock, par value $0.0001 per share. The warrants were issued in March 2025 with an exercise price of $3.24 share. The shares of common stock issuable upon exercise of such outstanding warrants are registered pursuant to an effective register statement on Form S-3.

In consideration for the immediate exercise of the warrants for cash and the payment of an additional $0.125 per new unregistered warrant (an additional $157,594 included in our gross proceeds), pursuant to the Inducement Agreement, we agreed to issue and sell unregistered warrants to purchase shares of common stock. The new warrants (the "Common Warrants") are exercisable for an aggregate of up to 1,260,752 shares of common stock. The Common Warrants have an exercise price of $1.90 per share and are immediately exercisable for shares of common stock. One half of the Common Warrants will expire after eighteen (18) months and the other half will expire after five (5) years. Our gross proceeds from the exercise of the warrants and payment for Common Warrants was approximately $2.2 million, prior to deducting placement agent fees and estimated offering expenses.

We utilized a placement agent for the 2025 April Warrant Inducement and incurred approximately $0.3 million in legal fees and other closing costs. Additionally, we issued to the placement agent as compensation unregistered warrants to purchase up to 44,126 shares of common stock, equal to 7.0% of the aggregate number of shares of Common Stock (or warrants) placed in the transaction. The placement agent warrants expire on April 24, 2030, and have an exercise price of $4.05 per share of common stock. The closing of the offering occurred on April 24, 2025.

2025 Registered Direct Offering and 2025 March Warrant Offering

In March 2025, we entered into a Stock Purchase Agreement with certain institutional investors, pursuant to which we agreed to issue and sell in a registered direct offering, (i) an aggregate of 239,594 shares of common stock, par value $0.0001 per share at an offering price of $3.49 per share, (ii) pre-funded warrants to purchase up to 75,594 shares of common stock, at a price per pre-funded warrant equal to $3.4899, the price per share less $0.0001, for gross proceeds of approximately $1.1 million before the deduction of placement agent fees and offering expenses. The pre-funded warrants were fully exercised as of March 31, 2025, and the related common shares were issued in April 2025.

In a concurrent private placement, pursuant to the terms of the SPA, we also agreed to issue and sell unregistered warrants to purchase up to 315,188 shares of Common Stock (the "Series A-5 Warrants"), and Series A-6 warrants to purchase up to 315,188 shares of Common Stock (the "Series A-6 Warrants"), to purchase up to an aggregate 630,376 shares of Common Stock. The warrants have an exercise price of $3.24 per share and are exercisable immediately. The Series A-5 Warrants will expire eighteen (18) months after issuance and the Series A-6 Warrants will expire five (5) years after issuance. The warrants contain customary anti-dilution adjustments to the exercise price, including for share splits, share dividends, rights offering and pro rata distributions.

We agreed to pay the placement agent a cash fee equal to 7% of the aggregate gross proceeds of the offerings or $77,000. We also agreed to pay the placement agent $65,950 for expenses. We also issued to the placement agent warrants to purchase up to 22,063 shares of common stock. These warrants have an exercise price equal to $4.3625 per share and are exercisable for five years.

2024 Registered Direct Offering and 2024 August Warrant Inducement

In August 2024, we entered into a definitive Securities Purchase Agreement with certain institutional investors, pursuant to which we agreed to issue and sell in a registered direct offering, (i) an aggregate of 166,054 shares of our common stock, par value $0.0001 per share at an offering price of $7.05 per share, (ii) pre-funded warrants to purchase up to 70,827 shares of Common Stock, at a price per pre-funded warrant equal to $7.0485, the price per share less $0.0001, for gross proceeds of approximately $1.7 million before the deduction of placement agent fees and offering expenses. The pre-funded warrants were subsequently exercised in full.

We also entered into an inducement agreement with certain warrant holders for the exercise of certain outstanding warrants to purchase up to an aggregate of 480,234 shares of our common stock originally issued in February 2024, having an exercise price of $15.90 per share, at a reduced exercise price of $7.05 per share, for gross proceeds of approximately $3.4 million before the deduction of placement agent fees and offering expenses. We also agreed to amend certain existing warrants to purchase up to an aggregate of 133,334 shares of common stock that were previously issued in November 2023 and have an exercise price of $23.5125 per share such that the amended warrants will have a reduced exercise price of $7.05 per share effective upon the closing of the offering and will be exercisable from the date on which stockholder approval is received with respect to the issuance of the shares of common stock issuable upon exercise of such warrants.

In a concurrent private placement, pursuant to the terms of the inducement agreement and Securities Purchase Agreement, we also agreed to issue and sell unregistered warrants to purchase up to 1,863,706 shares of common stock. The warrants have an exercise price of $7.05 per share and are exercisable from the date on which stockholder approval is received with respect to the issuance of the shares of common stock issuable upon exercise of the warrants. One half of the warrants will expire eighteen months after they are exercisable and the other half will expire five years after they are exercisable. The warrants contain customary anti-dilution adjustments to the exercise price, including for share splits, share dividends, rights offering and pro rata distributions.

We agreed to pay the placement agent a cash fee equal to 7% of the aggregate gross proceeds of the offerings or $354,000. We also agreed to pay the placement agent $100,950 for expenses. We also issued to the placement agent warrants to purchase up to 50,200 shares of common stock. These warrants have an exercise price equal to $8.8125 per share and are exercisable for five years from the commencement of sales in the Offerings.

2024 February Warrant Inducement

In February 2024, we entered into an Inducement Letter with certain holders of existing warrants to purchase up to an aggregate of 240,120 shares of our common stock issued to the holders in connection with the 2023 May Offering. Pursuant to the Inducement Letter, the holders agreed to exercise for cash their existing warrants to purchase an aggregate of 240,120 shares of Common Stock at a reduced exercise price of $19.65 per share in consideration of our agreement to issue new unregistered Series A Warrants to purchase up to 240,120 shares of Common Stock and new unregistered Series B Warrants to purchase up to 240,120 shares of Common Stock. The Series A Warrants have an exercise price of $15.90 per share and have a term equal to eighteen months from the date of issuance. The Series B Warrants have an exercise price of $15.90 per share and will expire on May 12, 2028. The gross proceeds to us from the exercise of the warrants were approximately $4.7 million, prior to deducting placement agent fees and estimated offering expenses.

In connection with the execution of the Inducement Letter, we entered into a waiver related to the 2023 Notes' SPA it had entered into as of October 23, 2023. The SPA contained restrictions on our ability to undertake certain transactions, which included entering into the Inducement Letter. The Waiver permitted us to enter into the Inducement Letter but required repayment of the remaining $0.5 million of investor held notes issued under the SPA with a premium of $0.5 million following closing of the inducement transaction.

We utilized an exclusive placement agent for the 2024 Warrant Inducement and incurred approximately $0.3 million in legal fees and other closing costs. Additionally, we issued to the placement agent as compensation unregistered warrants to purchase up to 16,811 shares of Common Stock, equal to 7.0% of the aggregate number of shares of Common Stock (or warrants) placed in the transaction. The placement agent warrants expire on May 12, 2028, and have an exercise price of $24.5625 per share of Common Stock (equal to 125% of the reduced exercise price per Existing Warrant).

Components of Our Operating Results

Revenue

We have generated limited revenue since our inception and we do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts are successful and we commercialize our products, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales, as well as upfront, milestone and royalty payments from such collaboration or license agreements, or a combination thereof.

We have received funding under federal grants from the National Institutes of Health ("NIH") through the National Institute on Drug Abuse ("NIDA"). In September 2018 and August 2024, we were awarded a research and development grant related to the development of our MPAR® overdose prevention technology (the "MPAR Grant"). In September 2019, we were awarded a second research and development grant related to the development of our TAAP/MPAR® abuse deterrent technology for Opioid Use Disorder ("OUD") (the "OUD Grant"). Grant funds are awarded annually through a Notice of Award which contains certain terms and conditions including, but not limited to, complying with the grant program legislation, regulation and policy requirements, complying with conditions on expenditures of funds with respect to other applicable statutory requirements such as the federal appropriations acts, periodic reporting requirements, and budget requirements.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts and the development of our product candidates. We expense research and development costs as incurred, which include:

	●	expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;
	●	expenses incurred under agreements with CROs that are primarily engaged in the oversight and conduct of our drug discovery efforts and preclinical studies, clinical trials and CMOs that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;
	●	other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
	●	payments made in cash or equity securities under third-party licensing, acquisition and option agreements;
	●	employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions;
	●	costs related to compliance with regulatory requirements; and
	●	allocated facilities-related costs, depreciation and other expenses, which include rent and utilities.

We recognize external development costs as incurred. Any advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. We estimate and accrue for the value of goods and services received from CROs and other third parties each reporting period based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs.

We do not track our research and development expenses on a program-by-program basis. Our direct external research and development expenses consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and development as well as to manage our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track our costs by program and cannot state precisely the total costs incurred for each of our clinical and preclinical programs on a project-by-project basis.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will remain elevated as we continue our existing, and commence additional, planned clinical trials for PF614, PF614-MPAR® and nafamostat, as well as conduct other preclinical and clinical development, including submitting regulatory filings for our other product candidates, subject to our ability to obtain financing. We also expect our related personnel costs to increase and, as a result, we expect our research and development expenses, including costs associated with stock-based compensation, to remain elevated. In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may enter into license, acquisition and option agreements to acquire the rights to future product candidates.

At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. The successful development and commercialization of our product candidates are highly uncertain. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of the following:

	●	the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;
	●	establishing an appropriate safety and efficacy profile with investigational new drug ("IND") enabling studies;
	●	successful patient enrollment in and the initiation and completion of clinical trials;
	●	the timing, receipt and terms of any marketing approvals from applicable regulatory authorities including the FDA and non-U.S. regulators;
	●	the extent of any required post-marketing approval commitments to applicable regulatory authorities;
	●	establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;
	●	development and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
	●	obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
	●	significant and changing government regulation;
	●	launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and
	●	maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.

Any changes in the outcome of any of these variables 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

General and administrative expenses consist primarily of employee-related expenses, including salaries and related benefits, travel and stock-based compensation for personnel in executive, business development, finance, human resources, legal, information technology, and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as insurance costs and professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We expense general and administrative costs as incurred.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the continued development of our product candidates, subject to our ability to obtain financing. We also anticipate that we will continue to incur significant accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of that product candidate.

Other Income (Expense)

Change in fair value of liability classified warrants

We use a Black-Scholes option pricing model to estimate the fair value of the warrants. Changes in the fair value of the warrants are recognized through earnings for each reporting period.

Interest Expense

Interest expense consists of interest accrued on our financed directors' and officers' insurance, and interest from the 2023 Notes based on the stated interest rate. In addition, the 2023 Notes reflects amortization of the debt discount from the original issuance and a discount associated with the warrant issuances and amortization of the associated debt issuance costs that are all recorded as interest expense.

Provision for Income Taxes

We have not recorded any significant amounts related to income tax expense, we have not recognized any reserves related to uncertain tax positions, nor have we recorded any income tax benefits for the majority of our net losses we have incurred to date or for our research and development tax credits.

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or our tax returns. Deferred tax assets and liabilities are determined based on difference between the financial statement carrying amounts and tax bases of existing assets and liabilities and for loss and credit carryforwards, which are measured using the enacted tax rates and laws in effect in the years in which the differences are expected to reverse. The realization of our deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2025 and 2024, we continue to maintain a full valuation allowance against all of our deferred tax assets based on our evaluation of all available evidence.

We file income tax returns in the United States federal tax jurisdiction and state jurisdictions and may become subject to income tax audit and adjustments by related tax authorities. Our tax return period for United States federal income taxes for the tax years since 2022 remain open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions. We record reserves for potential tax payments to various tax authorities related to uncertain tax positions, if any. The nature of uncertain tax positions is subject to significant judgment by management and subject to change, which may be substantial. These reserves are based on a determination of whether and how much a tax benefit taken by us in our tax filings or whether our position is more likely than not to be realized following the resolution of any potential contingencies related to the tax benefit. We develop our assessment of uncertain tax positions, and the associated cumulative probabilities, using internal expertise and assistance from third-party experts. As additional information becomes available, estimates are revised and refined. Differences between estimates and final settlement may occur resulting in additional tax expense. Potential interest and penalties associated with such uncertain tax positions is recorded as a component of our provision for income taxes. To date, no amounts are being presented as an uncertain tax position.

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

Results of Operations

Comparison of the Years ended December 31, 2025 and 2024

		Year Ended December 31,
		2025				2024				Change
Federal grants		$	5,066,650			$	5,210,031			$	(143,381	)
Operating expenses:
Research and development			10,376,895				7,219,437				3,157,458
General and administrative			4,930,701				4,720,728				209,973
Total operating expenses			15,307,596				11,940,165				3,367,431
Loss from operations			(10,240,946	)			(6,730,134	)			(3,510,812	)
Other income (expense):
Change in fair value of liability classified warrants			10,096				16,292				(6,196	)
Interest expense			(18,767	)			(1,290,444	)			1,271,677
Other income and expense, net			73,430				17,277				56,153
Total other income (expenses), net			64,759				(1,256,875	)			1,321,634
Net loss		$	(10,176,187	)		$	(7,987,009	)		$	(2,189,178	)
Net loss attributable to noncontrolling interests			(487	)			(74	)			(413	)
Deemed dividend related to warrants down round provision			-				290				(290	)
Net loss attributable to common stockholders		$	(10,175,700	)		$	(7,987,225	)		$	(2,188,475	)

Federal Grants

Revenue from federal grants totaled $5.1 million for the year ended December 31, 2025, compared to $5.2 million for the year ended December 31, 2024, respectively. The $0.1 million difference is due to the timing of research activities eligible for funding under the OUD and MPAR grants. A decrease of $2.1 million in funding under the OUD grant that ended in August 2024 was offset by an increase of $2.0 million in funding under the MPAR grant which began in September 2024.

Research and Development Expenses

Research and development expenses were $10.4 million for the year ended December 31, 2025, compared to $7.2 million for the year ended December 31, 2024, respectively, representing a increase of $3.2 million. The increase was primarily the result of external research and development costs related to increased clinical and pre-clinical programs for PF614 and PF614-MPAR. We expect future research and development expenses to increase once we begin the Phase 3 clinical trial for PF614, with such timing dependent upon our ability to raise capital sufficient to fund these expenses.

General and Administrative Expenses

General and administrative expenses were $4.9 million for the year ended December 31, 2025, compared to $4.7 million for the year ended December 31, 2024 respectively, representing an increase of $0.2 million. We expect future general and administrative expenses to approximate current levels.

Other Income and Expense

Other income and expense for the year ended December 31, 2025, consisted primarily of interest income from cash and cash equivalents. Other income and expense for the year ended December 31, 2024, consisted primarily of interest expense associated with the amortization of the original issue discount and the debt issuance costs associated with the 2023 Notes.

Liquidity and Capital Resources

Sources of Liquidity and Capital

As of December 31, 2025, we had $4.3 million of cash and cash equivalents. Since inception, we have generated limited revenues and have incurred significant operating losses and negative cash flows from our operations, and we anticipate that we will continue to incur losses for at least the foreseeable future. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all.

We have funded our operations to date primarily with proceeds from the sale of common equity, funding under federal research grants and borrowings under convertible promissory notes. To fund future operations, we will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing research and development efforts and related general and administrative support. We anticipate that we will fund our operations through public or private equity or debt financings or other sources, such as potential collaboration agreements. We cannot make assurances that anticipated additional financing will be available to us on favorable terms, if at all.

The remaining cash funding under the MPAR federal research grant totaled $7.4 million at December 31, 2025 and is expected to be utilized by May 31, 2027. Pursuant to the terms and conditions, we are required to submit progress reports to NIDA on an annual basis and a final research performance progress report within 120 days of the performance period end date.

Going Concern

We have generated limited revenues and have incurred significant operating losses since our inception. We expect to continue to incur significant expenses and operating losses for the foreseeable future. Without capital raised through financing transactions, existing cash resources are sufficient to allow us to fund current planned operations into the second quarter of 2026, which raises substantial doubt about our ability to continue as a going concern.

For additional information on risks associated with our substantial capital requirements, please read the section titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K.

Cash Flows for the years ended December 31, 2025 and 2024

The following table summarizes our cash flows for each of the periods presented:

		Year Ended December 31,
		2025				2024
Net cash used in operating activities		$	(7,806,292	)		$	(7,502,700	)
Net cash used in investing activities			(123,643	)			-
Net cash provided by financing activities			8,738,212				9,881,173
Net increase in cash and cash equivalents		$	808,277			$	2,378,473

Operating Activities

During the years ended December 31, 2025 and 2024, we used cash in operating activities of $7.8 million and $7.5 million, respectively. The increase primarily result from the timing of vendor invoicing and payments.

Financing Activities

During the year ended December 31, 2025, net cash provided by financing activities was $8.7 million, primarily consisting of net proceeds from Series B Preferred stock financing, warrant inducements, a public offering of common stock and warrant exercises. During the year ended December 31, 2024, net cash provided by financing activities was $9.9 million, primarily consisting of net proceeds from the August 2024 public offering, warrant exercises and warrant inducements, net of transaction costs, less repayment of convertible notes of million and financed insurance premiums.

Funding Requirements

Our primary use of cash is to fund operating expenses, primarily related to our research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.

We expect our expenses, excluding non-cash expenses to recognize the fair value of warrants and convertible notes, to remain elevated in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. In addition, upon the completion of the Merger, we have incurred, and will continue to incur, additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other expenses. The timing and amount of our operating expenditures will depend largely on our ability to:

	●	advance preclinical development of our early-stage programs and clinical trials of our product candidates;
	●	manufacture, or have manufactured on our behalf, our preclinical and clinical drug material and develop processes for late state and commercial manufacturing;
	●	seek regulatory approvals for any product candidates that successfully complete clinical trials;
	●	establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own;
	●	hire additional clinical, quality control and scientific personnel;

	●	expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;
	●	obtain, maintain, expand and protect our intellectual property portfolio;

	●	manage the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims; and
	●	manage the costs of operating as a public company.

Commitments

Our commitments as of December 31, 2025 included an estimated $18.7 million related to open purchase orders and contractual obligations that occurred in the ordinary course of business, including commitments with contract research organizations for multi-year pre-clinical and clinical research studies. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and adjust requirements based on our business needs prior to the delivery of goods or the performance of services.

Working Capital

Because of the numerous risks and uncertainties associated with research, development and commercialization of biologic product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

	●	the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical trials;
	●	the costs, timing and outcome of regulatory review of our product candidates;
	●	the costs, timing and ability to manufacture our product candidates to supply our clinical and preclinical development efforts and our clinical trials;
	●	the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
	●	the costs of manufacturing commercial-grade product and necessary inventory to support commercial launch;
	●	the ability to receive additional non-dilutive funding, including grants from organizations and foundations;
	●	the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
	●	the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual property rights and defending intellectual property-related claims;
	●	our ability to establish and maintain collaborations on favorable terms, if at all; and
	●	the extent to which we acquire or in-license other product candidates and technologies.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 3 to our audited consolidated financial statements, we believe that the following accounting policy is the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when it has not yet been invoiced or otherwise notified of actual costs. Many of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and adjust if necessary. Examples of estimated accrued research and development expenses include fees paid to:

	●	vendors, including research laboratories, in connection with preclinical development activities;
	●	CROs and investigative sites in connection with preclinical studies and clinical trials; and
	●	CMOs in connection with drug substance and drug product formulation of preclinical studies and clinical trial materials.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any period.

Off-Balance Sheet Arrangements

We do not have during the periods presented, and do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Smaller Reporting Company Status

We are a "smaller reporting company" as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250 million as of the prior June 30, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30.