Dyadic International Inc: Form 10-Q for the period ended Mar 31, 2026

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, assumptions and uncertainties. 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 include, but are not limited to, those set forth in “Item 1A. Risk Factors” in this Quarterly Report. All forward-looking statements included in this Quarterly Report are based on information available to us as of the time we file this Quarterly Report and, except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements.

Overview

Description of Business

Dyadic International, Inc. (“Dyadic”, “we”, “us”, “our”, or the “Company”) d/b/a, Dyadic Applied BioSolutions, is a global biotechnology platform company headquartered in Jupiter, Florida, with operations in the U.S. and the Netherlands. We aim to develop and commercialize scalable, non-animal protein production platforms to meet growing global demand across the life sciences, food and nutrition, and bio-industrial markets.

Effective August 1, 2025, we are doing business as Dyadic Applied BioSolutions. This rebranding initiative marks a strategic transition from a research-driven organization to a commercially focused enterprise. The new name and visual identity better reflect the emphasis on delivering applied biotechnology solutions through our patented and proprietary Dapibus™ and C1 protein production platforms.

Our proprietary platforms—Dapibus™ and C1—are designed for rapid, cost-effective, and flexible production of high-value proteins, enabling partners to reduce development timelines and manufacturing costs. Our focus is to commercialize high-value, non-therapeutic proteins in the life sciences, food, nutrition and industrial bioprocessing sectors. These proteins avoid the regulatory complexity and high costs associated with therapeutic biologics, enabling faster time to revenue, broader market reach, and long-term supply agreements. Our recent significant milestones across both food and nutrition as well as fully funded legacy collaborations, such as with the Gates Foundation, underscore our strategic shift to revenue-focused bioprocessing protein platforms from therapeutic and vaccine development.

Recent Developments

Life Sciences

• Recombinant Serum Albumin (AlbuFree™ DX): In February 2026, Proliant Health and Biologicals announced the commercial launch of AlbuFree™ DX recombinant human albumin, produced using Dyadic’s production platform. Dyadic is entitled to a share of profits from commercial sales.
• OEM Distribution Agreement with IBT Bioservices: In March 2026, Dyadic entered into an OEM distribution agreement with IBT Bioservices to support commercialization of multiple recombinant proteins and enzymes through IBT’s global distribution channels. Initial product quantities, including DNase I and transferrin, have been completed and shipped to support channel commercialization activities.
• DNase-1 (RNase-free): Dyadic completed production validation of recombinant DNase I and, together with Fermbox Bio, commercially launched DNase I (RNase-free) as the first product under their expanded collaboration.
• Recombinant Transferrin and Growth Factors: Dyadic continues advancing its animal-free transferrin and fibroblast growth factor (FGF) products for use in cell culture media, diagnostics, and research, with expanded customer interest and sampling activity for recombinant bovine transferrin within the cultivated meat industry.
• Reagent Proteins and Nucleic Acid Enzymes: Dyadic continues advancing a portfolio of enzymes for DNA and RNA manipulation, including RNase inhibitors and T7 RNA polymerase.

Food and Nutrition

• Alpha-Lactalbumin: In December 2025, Dyadic signed a development and commercialization agreement with BRIG Bio to create recombinant bovine alpha-lactalbumin for global nutrition markets. Product development activities have been initiated, including initial product quality and application testing, with customer sampling activities expected to begin in mid-2026.
• Human Lactoferrin: Dyadic has established a stable cell line for recombinant human lactoferrin production and is continuing optimization and characterization efforts supporting future nutrition applications.
• Non-Animal Dairy Enzymes: Dyadic’s partner Inzymes has commercialized recombinant non-animal bovine chymosin following achievement of development milestones under its agreement with Dyadic.
• Food and Nutrition Pipeline Expansion: Dyadic anticipates broadening both partner-led and internal development programs focused on non-animal dairy proteins, selected food and nutrition enzymes, and related baking and brewing enzyme applications.

Bio-Industrial Products

• Expanded Fermbox Bio Collaboration: Dyadic expanded its collaboration with Fermbox Bio to support the development and manufacturing of animal-free recombinant proteins and enzymes across life sciences, food and nutrition, and bio-industrial markets.
• EN3ZYME™ Platform: Fermbox Bio previously launched EN3ZYME™, an enzyme cocktail produced using the Dapibus™ platform that converts agricultural residues into fermentable cellulosic sugars and fulfilled its first large scale order in 2025, with sampling activity now extending into the Asia Pacific region.

Biopharmaceutical Programs

• Gates Foundation-supported RSV and malaria monoclonal antibody programs and the CEPI/Fondazione Biotecnopolo di Siena (“FBS”) H5 avian influenza antigen program continued to advance toward preclinical evaluation, with C1-produced antigens and antibodies expressed at high yields while demonstrating binding and neutralization profiles virtually identical to CHO-derived clinical reference materials.
• Collaborative development activities with Fondazione Biotecnopolo di Siena (“FBS”) continue to demonstrate rapid antigen development timelines and the ability to progress from receipt of a codon-optimized plasmid to purified recombinant antigen candidates within weeks, while multiple preclinical animal studies evaluating C1-produced H5 (avian influenza), RSV and malaria antigens were initiated, with initial data readouts demonstrating high levels of neutralizing antibodies.

Corporate Development

• Expanding Commercial Efforts in Asia and Europe: Dyadic expanded its engagement with Intralink to include Europe in addition to Japan and South Korea, supporting broader commercial development activities and market entry initiatives for Dyadic’s animal-free proteins.
• Commercial Scale-Up Activities: Together with Fermbox Bio and other manufacturing partners, Dyadic continues scaling production capabilities for multiple recombinant proteins and enzymes, including transferrin and additional commercial-stage products, to support broader market launch activities and channel expansion.
• Expanding Commercial Partnerships and Distribution Channels: Dyadic continues prioritizing relationships with manufacturing, supply chain, and distribution partners to support commercialization and broaden market access for its growing portfolio of recombinant proteins and enzymes.
• Commercialization and Channel Expansion Strategy: Dyadic is focused on increasing product availability through both direct and partner-led commercialization efforts, including OEM distribution, regional business development partnerships, and strategic manufacturing collaborations designed to support long-term recurring product revenue opportunities.

Critical Accounting Estimates

The preparation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenue and expenses during the applicable period. Actual results may differ from these estimates under different assumptions or conditions. Such differences could be material to the consolidated financial statements.

We define critical accounting estimates as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions. In applying these critical accounting estimates, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty. Our critical accounting estimates include the following:

Revenue Recognition

The Company has launched an initial portfolio of research-use-only products for direct sales. Early-stage manufacturing is ongoing and initial shipments to distribution partners are underway. The Company also participates in the commercialization of products developed and launched by third-party collaborators, from which it is entitled to a share of revenue or profits.

As of March 31, 2026, the Company has not recognized any revenue from product sales. All our revenue to date has been research revenue from third-party collaborations and grants, as well as revenue from sublicensing agreements and collaborative arrangements, which may include upfront payments, options to obtain a license, payment for research and development services, milestone payments and royalties, in the form of cash or non-cash considerations (e.g., minority equity interest).

Revenue related to research collaborations and agreements: The Company typically performs research and development services as specified in each respective agreement on a best-efforts basis, and recognizes revenue from research funding under collaboration agreements in accordance with the 5-step process outlined in ASC Topic 606 (“Topic 606”): (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We recognize revenue when we satisfy a performance obligation by transferring control of the service to a customer in an amount that reflects the consideration that we expect to receive. Depending on how the performance obligation under our license and collaboration agreements is satisfied, we recognize the revenue either at a point in time or over time by using the input method under Topic 606 to measure the progress toward complete satisfaction of a performance obligation.

Under the input method, revenue will be recognized based on the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation. The Company believes that the cost-based input method is the best measure of progress to reflect how the Company transfers its performance obligation to a customer. In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to budgeted costs to fulfill the performance obligation. These costs consist primarily of full-time equivalent effort and third-party contract costs. Revenue will be recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligations.

A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified, and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

Revenue related to grants: The Company receives grants from governments, agencies, and other private and not-for-profit organizations. These grants are intended to be used to fund the Company’s research collaborations partially or fully, including opportunities and projects that the Company is pursuing with certain collaborators. However, most, if not all, of such potential grant revenue, is expected to be earmarked for third parties to advance the research required, including preclinical and clinical trials for vaccines and/or antibodies candidates. Revenue related to grants are presented on a gross basis on the Consolidated Statements of Operations.

Revenue related to sublicensing agreements: If the sublicense to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue allocated to the license when technology is transferred to the customer and the customer can use and benefit from the license.

Customer options: If the sublicensing agreement includes customer options to purchase additional goods or services, the Company will evaluate if such options are considered material rights to be deemed as separate performance obligations at the inception of each arrangement.

Milestone payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Company evaluates whether the achievement of the milestones is considered probable and estimates the amount to be included in the transaction price. If the milestone payment is in exchange for a sublicense and is based on the sublicensee’s subsequent sale of product, the Company recognizes milestone payment by applying the accounting guidance for royalties.

Royalties: With respect to licenses deemed to be the predominant item to which the sales-based royalties relate, including milestone payments based on the level of sales, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its sublicensing arrangements.

We invoice customers based on our contractual arrangements with each customer, which may not be consistent with the period that revenue is recognized. When there is a timing difference between when we invoice customers and when revenue is recognized, we record either a contract asset (unbilled accounts receivable) or a contract liability (deferred research and development obligations), as appropriate. If upfront fees or considerations related to a sublicensing agreement are received prior to the technology transfer, the Company will record the amount received as deferred revenue from the licensing agreement.

We are not required to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The Company adopted a practical expedient to expense sales commissions when incurred because the amortization period would be one year or less.

Accrued Research and Development Expenses

In order to properly record services that have been rendered but not yet billed to the Company, we review open contracts and purchase orders, communicate with our personnel and we estimate the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly or quarterly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and adjust if necessary. Examples of accrued research and development expenses include amounts owed to contract research organizations, to service providers in connection with research and development activities.

Stock-Based Compensation

We have granted stock options to employees, directors, and consultants. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model considers volatility in the price of our stock, the risk-free interest rate, the estimated life of the option, the closing market price of our stock and the exercise price. For purposes of the calculation, we assumed that no dividends would be paid during the life of the options. We also used the weighted-average vesting period and contractual term of the option as the best estimate of the expected life of a new option, except for the options granted to certain contractors (i.e., 2 to 5 years). The expected stock price volatility was calculated based on the Company’s own volatility. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatilities since 2016.

The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management judgment. These estimates are neither predictive nor indicative of the future performance of our stock. As a result, if other assumptions had been used, our recorded share-based compensation expense could have been materially different from that reported. In addition, because some of the performance-based options issued to employees, consultants, and other third-parties vest upon the achievement of certain milestones, the total ultimate expense of share-based compensation is uncertain.

Accounting for Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740, “Income Taxes”. Under this method, income tax expense / (benefit) is recognized for: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all the deferred tax assets will not be realized.

In determining taxable income for the Company’s consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process requires the Company to make certain estimates of our actual current tax exposure and assessment of temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company’s ability to recover its deferred tax assets, the Company must consider all available positive and negative evidence including its past operating results, the existence of cumulative losses in the most recent years and its forecast of future taxable income. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

The Company is required to evaluate the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability should be recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefits, because it represents a company’s potential future obligation to the taxing authority for a tax position that was not recognized because of applying the provision of ASC 740.

The Company classifies accrued interest and penalties related to its tax positions as a component of income tax expense. The Company currently is not subject to U.S. federal, state, and local tax examinations by tax authorities for the years before 2022.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements for information about recent accounting pronouncements.

Results of Operations

Three months ended March 31, 2026, compared to the same period in 2025

Revenue and Cost of Revenue

The following table summarizes the Company’s revenue and cost of revenue for the three months ended March 31, 2026 and 2025:

Total revenue for the three months ended March 31, 2026, amounted to $1,110,956 representing an increase of $717,384 or 182.3% compared to $393,572 for the three months ended March 31, 2025. The increase was driven by a $220,490 increase in research and development revenue primarily related to the Proliant Agreement. Additionally, grant revenue increased by $276,894 due to activities under grants from CEPI and the Gates Foundation and license and milestone revenue also increased by $200,000 as a result of achieving a contract milestone under the Inzymes Agreement.

Total cost of revenue for the three months period ended March 31, 2026, amounted to $791,840 representing an increase of $494,182 or 166.0% compared to $297,658 for the three months ended March 31, 2025. The increase was driven by a $213,677 increase in cost of research and development revenue. Cost of grant revenue increased by $280,505 due to activities under grants from CEPI and the Gates Foundation.

Research and Development Expenses

Research and development costs are expensed as incurred and include salary and benefits of research personnel, third-party contract research organization services and supply costs.

Research and development expenses for the three months ended March 31, 2026, decreased $18,910 or 3.8% to $476,069 compared to $494,979 for the same period a year ago. The decrease was driven by a slight decrease in the number of active internal research initiatives undertaken.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2026, increased by $158,993 or 10.0% to $1,755,331 compared to $1,596,338 for the same period a year ago. The increase was related to legal and accounting expenses of $221,304, incentives of $36,258, rebranding and business development expenses of $22,196, offset by a decrease in share-based compensation expenses of $110,381 and insurance expenses of $10,384.

Loss from Operations

Loss from operations for the three months ended March 31, 2026, decreased $99,782 or 5.0% to $1,902,693 compared to $2,002,475 for the same period a year ago. The decrease in loss from operations was largely attributable to an increase in total revenue of $717,384, decrease in research and development expenses of $18,910, partially offset by an increase in total cost of revenue of $494,182, and an increase in general and administrative expenses of $158,993.

Other Income (Expenses), Net

For the three months ended March 31, 2026, total other income (expenses), net, was an expense of $51,990 compared to an expense of $25,104 for the same period a year ago. The increase in other expenses is primarily due to a reduction in interest income.

Net Loss

Net loss for the three months ended March 31, 2026, was $1,954,683 compared to $2,027,579 for the same period a year ago. The decrease of $72,896 was due to a decrease of $99,782 in loss from operations, offset by an increase in other expenses of $26,866.

Liquidity and Capital Resources

In accordance with FASB Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements – Going Concern (“Topic 205-40”), management is required to evaluate whether there are conditions and events, considered in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern for at least 12 months from the issuance date of the Company’s financial statements. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

The Company expects to incur losses and have negative net cash flows from operating activities as it continues developing its DapibusTM and C1 microbial protein production platforms and related products, and as it expands its pipelines and engages in further research and development activities for internal products as well as for its third-party collaborators and licensees. The success of the Company depends on its ability to develop its technologies and products to the point of regulatory approval, commercialization, and subsequent revenue generation or through the sublicensing of the Company’s technologies and products, and its ability to raise capital to finance these developmental efforts.

On March 8, 2024, the Company issued an aggregate principal amount of $6.0 million of its 8.0% Senior Secured Convertible Promissory Notes (the “Convertible Notes”) in a private placement. The purchasers of the Convertible Notes included immediate family members and family trusts related to Mark Emalfarb, our President and Chief Executive Officer and a member of our Board of Directors, including The Francisco Trust, an existing holder of more than 5% of the Company’s outstanding common stock (collectively, the “Purchasers”). The net proceeds from the sale of Convertible Notes, after deducting offering expenses, were $5,824,326. The Company intends to use the net proceeds from the offering of the Convertible Notes for working capital and general corporate purposes.

The Convertible Notes are senior, secured obligations of Dyadic and its affiliates, and interest is payable quarterly in cash on the principal amount equal to 8% per annum. The Convertible Notes, as amended, will mature on December 31, 2027 (the “Maturity Date”), unless earlier converted, repurchased, or redeemed in accordance with the terms of the Convertible Notes. The Convertible Notes can be converted into shares of common stock, at the option of the holders of the Convertible Notes (the “Noteholders”) at any time prior to the Maturity Date.

During the year ended December 31, 2024, $910,000 of Convertible Notes were converted into 556,623 shares of common stock. For more information regarding the Convertible Notes, including the covenants related thereto, see Note 4 to the Consolidated Financial Statements.

On May 1, 2025, the Company amended the Convertible Notes to extend the Redemption Date (as defined in the Convertible Notes) to December 1, 2026.

On September 15, 2025, the Company amended the security agreement to reflect updates to the Secured Parties (as defined in the Security Agreement) thereunder, including the addition of a trust for the benefit of the Company’s Chief Executive Officer, Mark Emalfarb, as a result of his purchase and assignment to him of one of the Notes from an existing note holder in a principal amount of $1,000,000.

On December 23, 2025, the Company entered into an additional amendment to the Convertible Notes, pursuant to which (i) the Maturity Date (as defined in the Convertible Notes) was extended from March 8, 2027 to December 31, 2027, (ii) the conversion price at which the Convertible Notes are convertible into shares of the Company’s common stock was set at $1.05 per share of common stock, and (iii) except in the case of an Event of Default (as defined in the Convertible Notes), the holders no longer have the right to elect to have the Company redeem all, or any part, of the principal amount then remaining under the Convertible Notes.

The Convertible Notes contain customary covenants, and the Securities Purchase Agreement relating to the Convertible Notes also contains certain affirmative and negative covenants (including, without limitation, restrictions on our ability to incur indebtedness, permit liens, make dividends or certain debt payments or consummate certain affiliate transactions). The Company was in compliance with its covenants with respect to the Convertible Notes as of December 31, 2025.

On November 16, 2024, Dyadic entered into an agreement with the Gates Foundation relating to a grant in the amount of $3,092,000 awarded from the Gates Foundation for the cell line development of monoclonal antibodies targeting respiratory syncytial virus and malaria utilizing the Company’s C1 platform to provide globally accessible treatment options for underserved populations (the “Gates Foundation Grant”). Funds received in advance that have not been spent are recorded as restricted cash in the Company’s consolidated balance sheets.

On March 20, 2025, the Company received a funding award (the “CEPI Grant”) from Coalition for Epidemic Preparedness (“CEPI”) to advance Dyadic’s C1 platform through a $4.5 million grant through Fondazione Biotecnopolo di Siena (“FBS”) to accelerate recombinant protein vaccine development and manufacturing. The funding will support antigen design, cell line development, optimization, characterization, and scale-up to cGMP manufacturing. If successful, the next phase will focus on selecting a CEPI-priority pathogen antigen. Dyadic, as a subcontractor, will receive up to $2.4 million of the total grant funding.

On August 1, 2025, the Company completed an underwritten offering of 6,052,000 shares of the Company’s common stock (the “Offering”) pursuant to an underwriting agreement, dated July 30, 2025, between the Company and Craig-Hallum. The public offering price in the Offering was $0.95 per share of common stock. The net proceeds to the Company from the Offering were approximately $4.9 million, after deducting legal expenses, underwriting discounts and commissions, and other offering expenses. The Company has been using the net proceeds of the Offering for working capital and general corporate purposes, such as product development, sales and marketing.

On March 6, 2026, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Craig-Hallum as sales agent (the “Sales Agent”), pursuant to which the Company may offer and sell from time to time, at its option, shares of the Company’s common stock having an aggregate offering price of up to $4,238,000 from time to time through the Sales Agent, including block trades and sales made in ordinary brokers’ transactions directly on Nasdaq or any other trading market for the Company’s common stock at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices (the “At-The-Market Equity Offering Program”). Subject to the terms and conditions of the Sales Agreement, the Sales Agent will use its commercially reasonable efforts to sell the shares of the Company’s common stock from time to time, based upon the Company’s instructions (including any price, time or size limits or other parameters or conditions the Company may impose), in exchange for a commission of up to 3.0% of the aggregate gross sale proceeds. The Company is not obligated to sell any shares of common stock under the Sales Agreement, and the Company or the Sales Agent may at any time suspend or terminate offerings of shares under the At-The-Market Equity Offering Program upon notice to the other party and subject to other conditions. As of the date of this Quarterly Report, no shares have been sold under the Sales Agreement.

The Company expects its existing cash, cash equivalents, restricted cash and its investment securities, including accrued interest, totaling approximately $6.6 million as of March 31, 2026, will be sufficient to meet its operational, business, and other liquidity requirements for at least the next twelve (12) months from the date of issuance of the financial statements contained in this Quarterly Report. However, the Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. In the event our financing needs are not able to be met by our existing cash, cash equivalents and investments, we would seek to raise additional capital through strategic financial opportunities that could include, but are not limited to, future public or private equity offerings, collaboration agreements, convertible notes or other debt instruments, and/or other means. Any amount raised may be used for the further development and commercialization of product candidates, and for other working capital purposes. There is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing shareholders.

As of March 31, 2026, cash, cash equivalents, and restricted cash were $5.2 million compared to $5.9 million as of December 31, 2025. The carrying value of investment grade securities, including accrued interest as of March 31, 2026, was $1.5 million compared to $2.7 million as of December 31, 2025.

Net cash used in operating activities for the three months ended March 31, 2026 was $2.0 million, which was principally attributable to a net loss of $1.9 million, changes in operating assets and liabilities of $0.2 million, partially offset by share-based compensation expenses of $0.1 million.

Net cash provided by investing activities for the three months ended March 31, 2026 was $1.3 million, compared to $0.5 million for the three months ended March 31, 2025. The change in investing activities of $0.8 million was attributable to a reduction in purchases of held-to-maturity investment securities of $0.9 million, offset by an increase in proceeds received from maturities of investment securities of $0.1 million.

There was no financing activities for the three months ended March 31, 2026. Net cash provided by financing activities was related to proceeds from the exercise of stock options, and the amount was immaterial.

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

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Except as set forth below, there have been no changes to our risk factors from those disclosed in our Annual Report.

If we fail to comply with listing standards of Nasdaq, our common stock may be delisted, adversely affecting the liquidity and market price of our common stock, as well as our ability to obtain sufficient additional capital to fund our operations and to continue to operate as a going concern.

Our common stock is currently listed on the Nasdaq Capital Market, which has minimum requirements that a company must meet in order to remain listed. As previously disclosed, we are currently not in compliance with various of these requirements.

We are currently not in compliance with the requirement that our common stock maintain a minimum bid price per share of $1.00 (such that the share price of the common stock close not below $1.00 for 30 consecutive business days) (the “Minimum Bid Price Rule”). We would regain compliance with the Minimum Bid Price Rule if our common stock reached a closing price of at least $1.00 for a minimum of ten consecutive business days by the end of the applicable compliance deadline. In May, 2026, we filed a definitive proxy statement soliciting shareholder approval at our annual meeting for authorization for our Board to effect a reverse stock split, as a possible way to cure our Minimum Bid Price Rule deficiency (to the extent deemed by Board as in the best interests of us and our shareholders). However, given the timing of that meeting, we will be unable to cure the Minimum Bid Price Rule by Nasdaq’s initial compliance deadline of June 17, 2026, unless our common stock price independently increases to the required level by then. We intend to take all steps, provided in the best interests of us and our shareholders, to preserve our eligibility under Nasdaq rules for an additional period of up to 180 days to regain compliance with the Minimum Bid Price Rule, through December 15, 2026 (the “Additional Compliance Period”). Nasdaq may grant this extension in its discretion if on June 17, 2026, we meet the applicable market value of publicly held shares requirement for continued listing and applicable standards for initial listing on the Nasdaq Capital Market, including shareholders’ equity of $5 million. There can be no assurance that we will meet the requirements to receive an Additional Compliance Period, or that actions we taken to meet these requirements, including potential capital raises, will be executed on favorable terms or will not be dilutive to existing shareholders. To the extent that we do not obtain an Additional Compliance Period, and the closing price of the common stock price does not increase independently to allow us to regain compliance with the Minimum Bid Price Rule by June 17, 2026, Nasdaq will begin delisting proceedings for our common stock, subject to our right to appeal to a Nasdaq hearing panel. The Board may then determine to effect a reverse stock split (assuming such split is approved by shareholders) during the pendency of the delisting proceedings, as support for the Company’s contention on appeal before the Nasdaq hearing panel that Nasdaq should not delist the common stock. There can be no assurance that Nasdaq will not then determine to delist our common stock, even if we have cured the Minimum Bid Price Rule deficiency during the pendency of the listing proceedings. To the extent that we successfully obtain an Additional Compliance Period, and the closing price of the common stock price does not increase independently to allow us to regain compliance with the Minimum Bid Price Rule by December 15, 2026, the Board may determine to effect a reverse stock split (assuming such split is approved by shareholders) before the end of the Additional Compliance Period.

We are also not in compliance with a separate Nasdaq continued listing requirement, which requires us to meet any of the following minimum conditions: $2.5 million in shareholders’ equity; $35 million in market value of listed securities; or $500,000 of net income from continuing operations (the “Continued Listing Standards”). We have until September 23, 2026 (provided that Nasdaq accepts our recently-submitted compliance plan) to regain compliance with this rule. Thus, even if we cure the Minimum Bid Price Rule through a reverse stock split, we may also be unable to cure or remain in compliance with the Continued Listing Standards, which could also result in us receiving a delisting notice, subject to appeal, or we may fail to maintain compliance with other Nasdaq rules. There can be no assurance that, if we decide to appeal any delisting determination by Nasdaq to the panel, such appeal would be successful.

If our common stock is delisted from Nasdaq as a result of our failure to comply with the Minimum Bid Price Requirement, the Continued Listing Standards or any other requirement for continued listing on Nasdaq, trading of our common stock could be conducted in the over-the-counter market established for unlisted securities such as the OTCQX, the OTCQB, the OTCID Basic Market or the Pink Limited Market, but there can be no assurance that our common stock will be eligible for trading on any such alternative market. Additionally, the liquidity of our common stock would be adversely affected, the market price of our common stock could decrease, our ability to obtain sufficient additional capital to fund our operations and to continue to operate as a going concern would be substantially impaired and transactions in our common stock could lose federal preemption of state securities laws. Furthermore, there could be a reduction in our coverage by securities analysts, and broker-dealers may be deterred from making a market in or otherwise seeking or generating interest in our common stock, which could cause the price of our common stock to decline further. Moreover, delisting may also negatively affect our collaborators’, vendors’, suppliers’ and employees’ confidence in us and employee morale. If we effected a reverse stock split (assuming such split is approved by our shareholders), the liquidity of our common stock could be harmed, given the reduced number of shares of common stock that would be outstanding afterward, particularly if the share price does not increase as a result thereof.