Note 2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for a fair presentation, have been included in the accompanying unaudited condensed consolidated financial statements. Operating results for the three months and nine months ended September 30, 2026, and 2025 are not necessarily indicative of the results that may be expected for any other interim period(s) or for any full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the Securities and Exchange Commission on March 31, 2026.

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates, and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. Actual results could differ materially from those estimates. Events and conditions arising subsequent to the most recent balance sheet date have been evaluated for their possible impact on the financial statements and accompanying notes.

Significant Accounting Policies

Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 31, 2026. See Note 3 to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Restricted cash

Restricted cash is defined as cash held for a specific purpose and not available for immediate general business use. It is classified as a current or non-current asset based on the expected timing of release. All restricted cash is included in the unaudited condensed consolidated statement of cash flows as part of total cash and cash equivalents. Liquidity ratios exclude restricted cash to reflect actual liquidity. Restrictions are documented and reviewed quarterly. Restricted cash consists of funds held in escrow accounts and cash collateral required under certain loan agreements as more detailed in Note 7.

Classification of Preferred Stock

The Company applies the guidance of ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), when determining the classification and measurement of its preferred stock. Preferred stock subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies contingently redeemable preferred stock (if any), which includes preferred stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. At all other times, the Company classifies its preferred stock in stockholders’ equity.

Embedded Derivatives

The Company reviews the terms of convertible loan notes and other hybrid financing arrangements to determine whether there are embedded derivative instruments, including conversion options that are required to be bifurcated and accounted for separately either as a derivative financial instrument or an equity instrument. Derivatives are accounted for under ASC 815, Derivatives and Hedging. Derivative financial instruments are initially measured at fair value, and then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations as a component of net income.

The discount from face value of the liability component remaining from allocating some or all of the proceeds of the hybrid instrument to the derivative, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to consolidated statements of operations, using the effective interest method. Embedded derivatives that are bifurcated and recognized as liability instruments.

The Note A-1 contains a limited redemption feature to redeem Note A-1 principal on any trading day on which the Company’s common stock trades at or above 115% of the Nasdaq Minimum Price, in an amount up to 5% of the cumulative daily dollar trading volume in aggregate across the outstanding Notes. The Company determined that this feature is not clearly and closely related to the promissory notes host and meets the definition of a derivative. The feature has been bifurcated and is recorded as a derivative liability measured at fair value. (For further details, see “Note 7. Preferred Stock and Notes Payable”)

Debt Issuance Costs and Discount

Debt issuance costs include incremental and direct costs incurred in relation to debt, such as legal fees, accounting fees, and other direct costs of the financing. Amounts paid to the lender are a reduction in the proceeds received by the Company and are generally considered a component of issuance discount, unless it is paid to compensate the lender for the services rendered or as a reimbursement of direct costs incurred by them in relation to the debt, in which case it would be akin to a debt issuance cost.

Debt issuance costs related to a recognized promissory note liability are presented in the consolidated balance sheets as a direct deduction from the carrying amount of the debt liability rather than as an asset, consistent with the presentation of debt discounts, and are amortized to interest expense over the term of the related debt using the effective interest method.

Preferred Stock Issuance Costs

Preferred stock issuance costs consist of specific incremental costs directly attributable to the issuance of preferred stock. These include placement agent and broker fees, legal and accounting fees (including comfort letter fees), and other direct costs of the offering. In accordance with SEC Staff Accounting Bulletin (“SAB”) Topic 5.A, Expenses of Offering, these costs are charged against the gross proceeds of the offering. When preferred stock is issued together with other financial instruments in a single transaction, issuance costs are allocated among the instruments issued based on their relative values. The portion allocated to debt instruments is accounted for as described under “Debt Issuance Costs and Discount.”

Going Concern Uncertainty

Since inception, the Company has incurred substantial operating losses, principally from expenses associated with the Company’s research and development programs, clinical trials conducted in connection with the Company’s drug candidates, and applications and submissions to the FDA. The Company has not generated significant revenue and has incurred significant net losses in each year since inception. For the nine months ended September 30, 2026, the Company had a net loss of $10.8 million and used $10.2 million to fund operations. As of September 30, 2026, the Company incurred approximately $432.1 million of cumulative net losses and had $4.0 million in cash and cash equivalents to fund its operations.

The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the U.S. and worldwide resulting from the tariffs announcement by the U.S. federal government, the Russian invasion of Ukraine and the unrest in the Middle East and in Europe. The Company continues to monitor its operating activities in light of these events, and it is possible that these events could result in a variety of risks to the business. The specific impact, if any, is not readily determinable as of the date of these unaudited condensed consolidated financial statements.

The Company has based its estimates on assumptions that may prove to be wrong. The Company may need to obtain additional funds sooner or in greater amounts than it currently anticipates. Potential sources of financing include strategic relationships, public or private sales of the Company’s shares or debt and other sources. If the Company raises funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of existing stockholders may be diluted.

The actual amount of funds the Company will need to operate is subject to many factors, some of which are beyond the Company’s control. These factors include the progress of research activities; the progress of preclinical and clinical development activities; the progress of the development efforts of parties with whom the Company has entered into research and development agreements; the costs associated with additional clinical trials of drug candidates; the ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements; the ability to achieve milestones under licensing arrangements; the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and the costs and timing of regulatory approvals.

A fundamental component of the ability to continue as a going concern is the Company’s ability to raise capital as required, as to which no assurances can be provided. To address the additional funding requirements of the Company, management has undertaken the following initiatives:

The Company’s ability to continue as a going concern will depend on its ability to raise additional capital, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. There are no assurances that these future funding and operating efforts will be successful. If management is unsuccessful in these efforts, the Company’s current capital is not expected to be sufficient to fund operations for the next twelve months.

Such conditions raise substantial doubts about the Company’s ability to continue as a going concern. Based on the above, management has determined there is substantial doubt regarding our ability to continue as a going concern. The report of our independent registered public accounting firm for the year ended December 31, 2025, includes an explanatory paragraph which expresses substantial doubt about our ability to continue as a going concern.

Management’s plan includes private or public equity and debt financings, collaborations, and/or partnerships, or other strategic transactions such as raising funds from investors through its ATM program and the proposed public offering filed on Form S-1, as further described in Note 13. The Company may not be able to obtain funding on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. The Company’s ability to raise additional funds will depend, among other factors, on financial, economic and market conditions, many of which are outside of its control, and it may be unable to raise financing when needed, or on terms favorable to the Company. If the Company is unable to obtain sufficient capital to fund its operations it may be required to evaluate alternatives. The Company’s unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.