PALISADE BIO, INC.

Previous wording

Results of Operations — Analysis of our financial results comparing the three months ended March 31, 2025 and 2024.

Current wording

Results of Operations — Analysis of our financial results comparing the three and six months ended June 30, 2025 and 2024.

Previous wording

Our lead product candidate, PALI-2108, is a prodrug inhibitor designed to help treat UC and FSCD by targeting the key PDE4 in colon tissues and preventing it from breaking down cyclic Adenosine Monophosphate (“cAMP”) molecules that regulate inflammation in the body. By inhibiting PDE4, intracellular cAMP molecule levels become elevated, which may lead to a reduction of inflammatory molecules and an increase of anti-inflammatory molecules within tissues of the colon. Additionally, we believe that PALI-2108 may help prevent the movement of inflammatory cells from the blood into colon tissues, thereby lowering the activity of certain proteins that contribute to fibrosis (a type of tissue scarring).

Current wording

Our lead product candidate, PALI-2108, is a prodrug inhibitor designed to help treat FSCD and UC by targeting the key PDE4 in colon tissues and preventing it from breaking down cyclic Adenosine Monophosphate (“cAMP”) molecules that regulate inflammation in the body. By inhibiting PDE4, intracellular cAMP molecule levels become elevated, which may lead to a reduction of inflammatory molecules and an increase of anti-inflammatory molecules within tissues of the colon. Additionally, we believe that PALI-2108 may help prevent the movement of inflammatory cells from the blood into colon tissues, thereby lowering the activity of certain proteins that contribute to fibrosis (a type of tissue scarring).

Previous wording

The Phase 1 clinical study of PALI-2108 is a single-center, randomized, double-blinded, placebo-controlled clinical study focused on safety, tolerability, and pharmacokinetics (“PK”) in both healthy volunteers and UC patients. The clinical study includes an open-label UC patient cohort with multiple dosing arms in which we will evaluate the pharmacodynamics of PALI-2108 in healthy volunteers. We plan to complete enrollment of approximately 90 subjects across several arms of this Phase 1 clinical study including, (i) at five subject cohorts receiving a Single Ascending Dose (“SAD”) with a crossover to evaluate food effects (“FE”), (ii) three or more subject cohorts receiving a Multiple Ascending Dose (“MAD”), and (iii) at least one multiple dose in a UC patient cohort. The primary objective of the study is to assess the safety and tolerability of single (healthy subjects) and repeated (healthy subjects and UC patients) oral doses of PALI-2108. Secondary objectives include determining plasma, urine, colon tissue, and fecal (MAD healthy subjects and UC patients only) PK, as well as the FE of PALI-2108 and its metabolites following a single oral dose in healthy subjects and repeated oral doses in both healthy subjects and UC patients. We anticipate announcing topline data from this study during the second quarter of 2025. If the trial meets its primary objectives, we plan to initiate a Phase 1b/2a clinical study in UC patients and FSCD patients in the first quarter of 2026.

Current wording

The Phase 1 clinical study of PALI-2108 is a single-center, randomized, double-blinded, placebo-controlled clinical study focused on safety, tolerability, and pharmacokinetics (“PK”) in both healthy volunteers and UC patients. The clinical study includes an open-label UC patient cohort with multiple dosing arms in which we will evaluate the pharmacodynamics ("PD") of PALI-2108 in healthy volunteers.

Previous wording

On October 9, 2024, Health Canada issued a No Objection Letter for our Phase 1 human clinical study of PALI-2108 for the treatment of UC. We officially began studying on November 7, 2024. To date, we have dosed all five SAD cohorts, all four MAD cohorts, and the FE crossover. Each of the SAD and MAD cohorts consisted of eight subjects, with six subjects receiving the drug and two subjects receiving a placebo. The FE study included two cohorts each of six subjects, of which one cohort was in a fasted state and the other cohort in a fed state. Finally, we have initiated the dosing of a cohort of UC patients, of which four patients have completed the study to date.

Current wording

On October 9, 2024, Health Canada issued a No Objection Letter for our Phase 1 human clinical study of PALI-2108 for the treatment of UC. We officially began studying on November 7, 2024. To date, we have completed the dosing of 89 subjects across all planned cohorts of the study. Each of the five Single Ascending Dose (“SAD”) cohorts and the four Multiple Ascending Dose (“MAD”) cohorts consisted of eight subjects, with six subjects receiving the drug and two subjects receiving a placebo. The food effects (“FE”) study included two cohorts each of six subjects, of which one cohort was in a fasted state and the other cohort in a fed state. Finally, we have completed the dosing of all five UC patients in the UC cohort of the study.

Previous wording

In addition to conducting clinical studies in Canada, we anticipate submitting an Investigational New Drug Application (“IND”) with the United States Food and Drug Administration ("FDA") during 2025. If our IND is approved, we anticipate commencing clinical trials of PALI-2108 in the U.S. during the first quarter of 2026.

Current wording

In addition to conducting clinical studies in Canada, we anticipate submitting an Investigational New Drug Application (“IND”) with the United States Food and Drug Administration ("FDA"). If our IND is approved, we anticipate commencing clinical trials of PALI-2108 in the U.S. during the first half of 2026.

Previous wording

Through the majority of 2024, the nature of our research and development expenses incurred related primarily to the preclinical activities associated with our joint development of PALI-2108 with our collaboration partner, Giiant Pharma Inc. ("Giiant"). With the approval to commence the Phase 1 clinical trial of PALI-2108, which we received from Health Canada on October 9, 2024, pursuant to terms of the research and collaboration agreement that we have with Giiant ("Giiant License Agreement"), we have assumed all development, manufacturing, regulatory and commercialization activities and costs of PALI-2108. Therefore, we expect our clinical research and development costs directly attributable to the clinical trials of PALI-2108 to continue to increase through 2025 as compared to the prior year periods, offset by a decrease in joint development costs associated with the Giiant License Agreement.

Current wording

Through the majority of 2024, the nature of our research and development expenses incurred related primarily to the preclinical activities associated with our joint development of PALI-2108 with our collaboration partner, Giiant Pharma Inc. ("Giiant"). With the approval to commence the Phase 1 clinical trial of PALI-2108, which we received from Health Canada on October 9, 2024, pursuant to terms of the research and collaboration agreement that we have with Giiant ("Giiant License Agreement"), we have assumed all development, manufacturing, regulatory and commercialization activities and costs of PALI-2108. Therefore, we expect our clinical research and development costs directly attributable to the clinical trials of PALI-2108 to be higher in 2025 as compared to the prior year periods, offset by a decrease in joint development costs associated with the Giiant License Agreement.

Previous wording

Our management has evaluated all conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements are issued, including: (i) our available cash as of the date of this filing will not be sufficient to fund our anticipated level of operations for the next 12 months; (ii) we will require additional financing by the end of 2025 to continue at our expected level of operations; and (iii) if we fail to obtain the needed capital, we will be forced to delay, scale back, or eliminate some or all of our development activities or perhaps cease operations. In the opinion of management, these factors, among others, raise substantial doubt about our ability to continue as a going concern as of the filing date of this Quarterly Report on Form 10-Q and for one year from the issuance of the condensed consolidated financial statements.

Current wording

Our management has evaluated all conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements are issued, including: (i) our available cash as of the date of this filing will not be sufficient to fund our anticipated level of operations for the next 12 months; (ii) we will require additional financing prior to or in the first quarter of 2026 to continue at our expected level of operations; and (iii) if we fail to obtain the needed capital, we will be forced to delay, scale back, or eliminate some or all of our development activities, or perhaps cease operations. In the opinion of management, these factors, among others, raise substantial doubt about our ability to continue as a going concern as of the filing date of this Quarterly Report on Form 10-Q and for one year from the issuance of the condensed consolidated financial statements.

Previous wording

The approximately $1.3 million, or 57%, decrease in research and development expenses for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 is primarily attributable to an approximately $2.2 million decrease in expenses that were directly related to the preclinical joint development of PALI-2108 and a $0.1 million decrease in employee-related expenses, partially offset by an approximately $1.1 million increase in clinical trial costs associated with Phase 1 clinical trial of PALI-2018.

Current wording

The approximately $1.0 million, or 36%, decrease in research and development expenses for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 is primarily attributable to an approximately $1.9 million decrease in expenses that were directly related to the preclinical joint development of PALI-2108 and a $0.2 million decrease in employee-related expenses, partially offset by an approximately $1.1 million net increase in clinical trial expenses associated with Phase 1 clinical trial of PALI-2108 and additional chemistry, manufacturing and controls ("CMC") expenses.

Previous wording

We commenced our Phase 1 clinical trial of PALI-2108 in November of 2024. Accordingly, we recognized clinical trial-related costs of approximately $1.1 million during the three months ended March 31, 2025, compared to virtually none during the three months ended March 31, 2024. Preclinical joint development costs during the three months ended March 31, 2024 were higher than our clinical trial-related costs during the three months ended March 31, 2025 primarily due to higher investment in the manufacturing of the PALI-2108 drug substance during the three months ended March 31, 2024.

Current wording

We commenced our Phase 1 clinical trial of PALI-2108 in November of 2024 and reported top-line results of the study on May 27, 2025 and August 7, 2025. Accordingly, we recognized clinical trial-related expenses of approximately $0.8 million during the three months ended June 30, 2025, compared to clinical trial-related expenses of approximately $0.1 million during the three months ended June 30, 2024. Additionally, we recognized CMC expenses of approximately $0.4 million during the three months ended June 30, 2025.

Previous wording

With the approval to commence the Phase 1 clinical trial of PALI-2108, which we received from Health Canada on October 9, 2024, pursuant to terms of the Giiant License Agreement, we have assumed all development, manufacturing, regulatory and commercialization activities and costs of PALI-2108. Accordingly, preclinical joint development costs were approximately $1.6 million for the three months ended March 31, 2024 compared to zero for the three months ended March 31, 2025. In addition, during the three months ended March 31, 2025 we recognized a reduction in joint development costs of $0.7 million that was related to funds received by us from Giiant pursuant to the joint development plan, resulting in a total net decrease in preclinical joint development expenses of approximately $2.2 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Current wording

Preclinical joint development expenses were approximately $3.5 million for the six months ended June 30, 2024 compared to less than $0.1 million for the six months ended June 30, 2025. In addition, during the six months ended June 30, 2025 we recognized a reduction in joint development costs of $0.7 million that was related to funds received by us from Giiant pursuant to the joint development plan, resulting in a total net decrease in preclinical joint development expenses of approximately $4.1 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024.

Previous wording

We expect to incur substantial operating losses for the foreseeable future. We will need to raise additional capital through a combination of equity offerings, debt financings, collaborations, and other similar arrangements. Our ability to raise additional capital may be adversely impacted by: (i) general political or economic conditions, (ii) an economic slowdown or recession, (iii) inflation, (iv) tariffs, sanctions, trade restrictions, or other U.S. and foreign regulatory requirements, (v) rising interest rates, (vi) ongoing supply chain disruptions, (vii) the ongoing global conflicts, including those in the Ukraine and the Middle East, and (viii) limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry. In the event that we are unable to access additional capital, we may need to curtail or greatly reduce our operations, which could have a materially adverse impact on our business, financial condition, and results of operations.

Current wording

We expect to incur substantial operating losses for the foreseeable future. We will need to raise additional capital through a combination of equity offerings, debt financings, exercise of our common stock warrants, collaborations and licensing of our intellectual property, and other similar arrangements. Our ability to raise additional capital may be adversely impacted by: (i) general political or economic conditions, (ii) an economic slowdown or recession, (iii) inflation, (iv) tariffs, sanctions, trade restrictions, or other U.S. and foreign regulatory requirements, (v) rising interest rates, (vi) ongoing supply chain disruptions, (vii) the ongoing global conflicts, including those in the Ukraine and the Middle East, and (viii) limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry. In the event that we are unable to access additional capital, we may need to curtail or greatly reduce our operations, which could have a materially adverse impact on our business, financial condition, and results of operations.

Previous wording

As of March 31, 2025, we had $7.3 million in cash, cash equivalents and restricted cash. The following table shows a summary of our cash flows for the three months ended March 31, 2025 and 2024 (in thousands):

Current wording

As of June 30, 2025, we had $5.4 million in cash, cash equivalents and restricted cash. The following table shows a summary of our cash flows for the six months ended June 30, 2025 and 2024 (in thousands):

Previous wording

Cash used in operating activities was approximately $2.3 million for the three months ended March 31, 2025, which reflects an approximately $2.2 million net loss adjusted for (i) approximately $0.2 million of net cash outflows related to changes in operating assets and liabilities, and (ii) certain non-cash items impacting the net loss, consisting primarily of an approximately $0.1 million non-cash expense recognized for stock-based compensation and related charges. The net cash outflow from operating assets and liabilities was primarily attributable to a net cash outflow of approximately $0.6 million driven by the payment of annual employee cash bonuses in period, partially offset by an increase in accounts payable and accrued liabilities as of March 31, 2025, compared to December 31, 2024. The increase in accounts payable and accrued liabilities was primarily due to higher accrued clinical trial expenses partially offset by lower accrued joint development expenses associated with the Giiant License Agreement.

Current wording

Cash used in operating activities was approximately $4.2 million for the six months ended June 30, 2025, which reflects an approximately $5.0 million net loss adjusted for (i) approximately $0.6 million of net cash inflows related to changes in operating assets and liabilities, and (ii) certain non-cash items impacting the net loss, consisting primarily of an approximately $0.1 million non-cash expense recognized for stock-based compensation and related charges, and an approximately $0.1 million non-cash expense related to the write-off of certain deferred equity issuance costs associated with our shelf registration statement that expired in April of 2025. The net cash inflow from operating assets and liabilities was primarily attributable to a net cash inflow of approximately $1.2 million from an increase in accounts payable and accrued liabilities as of June 30, 2025 compared to December 31, 2024, partially offset by net cash outflow of approximately $0.5 million driven by the payment of annual employee cash bonuses in six months ended June 30, 2025 and a $0.1 million cash outflow related to payments of our operating lease. The increase in accounts payable and accrued liabilities was primarily due to higher clinical trial-related expenses as a result of increased clinical trial activity, partially offset by lower accrued joint development expenses associated with the Giiant License Agreement.

Previous wording

Cash used in operating activities was approximately $3.2 million for the three months ended March 31, 2024, which reflects an approximately $3.5 million net loss adjusted for (i) approximately $0.2 million of net cash inflows related to changes in operating assets and liabilities and (ii) certain non-cash items impacting the net loss, consisting primarily of an approximately $0.1 million non-cash expense recognized for stock-based compensation and related charges. The net cash inflow from operating assets and liabilities was driven by a cash outflow of approximately $0.6 million from the payment of annual employee cash bonuses in the period that was more than offset by a cash inflow of approximately $0.8 million from: (i) a decrease in prepaids and other current assets and other noncurrent assets, which was primarily attributable to the amortization of the current and non-current portions of the Company's prepaid insurance policies, and (ii) an increase in accounts payable and accrued liabilities, which was primarily due to an increase in accrued joint development expenses associated with the Giiant License Agreement and the timing of accounts payable payments that were partially offset by accrued severance payments and lower accrued director stipends.

Current wording

Cash used in operating activities was approximately $6.7 million for the six months ended June 30, 2024, which reflects an approximately $7.6 million net loss adjusted for (i) approximately $0.3 million of net cash inflows related to changes in operating assets and liabilities, and (ii) certain non-cash items impacting the net loss, consisting primarily of an approximately $0.5 million non-cash expense recognized for stock-based compensation and related charges, and an approximately $0.1 million non-cash expense associated with the issuance of our common stock as payment for vendor services provided. The net cash inflow from operating assets and liabilities was primarily attributable to a net cash outflow of approximately $0.5 million driven by the payment of annual employee cash bonuses in the first quarter of 2024 and a $0.1 million cash outflow related to payments of the our operating lease that was more than offset by a cash inflow of approximately $0.9 million from: (i) a decrease in prepaids and other current assets and other noncurrent assets, which was primarily attributable to the amortization of the current and non-current portions of our prepaid insurance policies, and (ii) an increase in accounts payable and accrued liabilities, which was primarily due to an increase in accrued joint development expenses associated with the Giiant License Agreement that were partially offset by a decrease in accrued severance payments, lower accrued Board of Director ("Board") and Board committee fees, and lower accounts payable due to the timing of payments.

Previous wording

For the three months ended March 31, 2025, cash used in financing activities of approximately $0.3 million was attributable to the payment of equity issuance costs of approximately $0.2 million, primarily related to our underwritten equity offering completed in December of 2024, and payments made on our insurance financing arrangements of approximately $0.1 million.

Current wording

For the six months ended June 30, 2025, cash used in financing activities of approximately $0.3 million was attributable to the payment of equity issuance costs of approximately $0.2 million, primarily related to our underwritten equity offering completed in December of 2024, and payments made on our insurance financing arrangement of approximately $0.1 million.

Previous wording

For the three months ended March 31, 2024, cash provided by financing activities of approximately $2.0 million was attributable to net cash proceeds of approximately $2.2 million from the exercise of common stock warrants in conjunction with warrant inducement agreements entered into between us and certain investors in February of 2024, partially offset by payments made on the Company's insurance financing arrangements of approximately $0.2 million.

Current wording

For the six months ended June 30, 2024, cash provided by financing activities of approximately $5.6 million was attributable to net cash proceeds of approximately $2.2 million from the exercise of common stock warrants in conjunction with warrant inducement agreements entered into between us and certain investors in February of 2024 and net cash proceeds of approximately $3.6 million from our equity financing completed in May of 2024, partially offset by payments made on the our insurance financing arrangement of approximately $0.2 million.

Previous wording

Commencing on June 1, 2022, we are subject to contractual monthly lease payments of $10,850, plus certain utilities, for the first 12 months with 3 percent escalations at the first, second and third lease commencement anniversaries. As of March 31, 2025, the total remaining future minimum lease payments associated with the Corporate Office Lease of approximately $59,000, including imputed interest of approximately $1,000 calculated using a discount rate of 10.75%, will be paid over the remaining lease term of approximately 0.4 years.

Current wording

Commencing on June 1, 2022, we are subject to contractual monthly lease payments of $10,850, plus certain utilities, for the first 12 months with 3 percent escalations at the first, second and third lease commencement anniversaries. As of June 30, 2025, the total remaining future minimum lease payments associated with the Corporate Office Lease of approximately $24,000, which includes an immaterial amount of imputed interest, will be paid in 2025 over the remaining lease term of approximately 0.2 years.

Previous wording

In June of 2024, we entered into an agreement to finance insurance policies that renewed in May of 2024. The insurance financing arrangement is secured by the associated insurance policy. We made the final principal payment required by the insurance financing arrangement during the three months ended March 31, 2025. Accordingly, there is no outstanding balance due as of March 31, 2025. We expect to renew the insurance policy, and enter into an associated insurance financing arrangement accordingly, in late May of 2025.

Current wording

In June of 2025, we entered into an agreement to finance insurance policies that renewed in May of 2025. The insurance financing arrangement is secured by the associated insurance policy. As of June 30, 2025, the aggregate remaining balance under the insurance financing arrangement of approximately $0.3 million is payable over a 9-month period with the first payment payable on June 30, 2025.

Previous wording

We have incurred significant operating losses and negative cash flows from operations since our inception. To date, we have not been able to generate significant revenues nor achieve operating profitability. Based upon our cash and cash equivalents balance of $7.2 million as of March 31, 2025, we believe we have sufficient cash to fund our currently planned operations through the fourth quarter of 2025. Notwithstanding, should our anticipated level of operations significantly change, we may require additional financing sooner than anticipated. Beyond the fourth quarter of 2025 we will require additional financing to continue at our expected level of operations. If we fail to obtain the capital needed, we will be forced to delay, scale back, or eliminate some or all of our development activities, or potentially cease our operations.

Current wording

We have incurred significant operating losses and negative cash flows from operations since our inception. To date, we have not been able to generate significant revenues nor achieve operating profitability. Based upon our cash and cash equivalents balance of $5.4 million as of June 30, 2025 and the gross cash proceeds of $3.9 million received from the July 2025 Warrant Inducement Transaction, we believe we have sufficient cash to fund our currently planned operations into the first quarter of 2026 and beyond that we will need to raise additional capital to continue at our expected level of operations. Notwithstanding, should our anticipated level of operations significantly change, we may require additional financing sooner than anticipated. If we fail to obtain the capital needed, we will be forced to delay, scale back, or eliminate some or all of our development activities, or potentially cease our operations.