PALISADE BIO, INC.

Previous wording

Results of Operations — Analysis of our financial results comparing the three months ended March 31, 2026 and 2025.

Current wording

Results of Operations — Analysis of our financial results comparing the three and six months ended June 30, 2026 and 2025.

Previous wording

We are a clinical-stage biopharmaceutical company developing next-generation, once-daily, oral phosphodiesterase-4 (“PDE4”) inhibitor prodrugs designed for targeted delivery to the terminal ileum and colon. Our lead clinical product candidate, PALI-2108, is being developed as a treatment for patients living with inflammatory bowel disease ("IBD"), including ulcerative colitis ("UC") and Crohn's disease ("CD").

Current wording

We are a clinical-stage biopharmaceutical company developing next-generation prodrugs for patients with inflammatory and fibrotic diseases. Our lead clinical product candidate, PALI-2108, is being advanced into Phase 2 clinical trials as a treatment for patients living with inflammatory bowel disease ("IBD"), including ulcerative colitis ("UC") and Crohn's disease ("CD"). Despite the availability of multiple biologic and small-molecule therapies, many patients with UC and CD do not achieve durable remission, lose response over time, or discontinue treatment because of safety or tolerability limitations. We believe PALI-2108 has the potential to address these limitations through once-daily oral dosing, targeted lower-intestinal bioactivation and broad PDE4-mediated anti-inflammatory activity.

Previous wording

Our lead clinical product candidate, PALI-2108, is a once-daily, oral prodrug designed for targeted delivery of PDE4 inhibition to the terminal ileum and colon through local bacterial bioactivation. The prodrug is pharmacologically inactive until it reaches the lower intestine, where bacterial enzymes convert it into the active PDE4 inhibitor at sites of inflammation and fibrosis. This targeted activation strategy prevents absorption in the upper gut, enables sustained local exposure with controlled systemic distribution, and is engineered to reduce peak plasma levels, thereby improving the overall therapeutic index and reducing tolerability limitations such as diarrhea, nausea and headache that have constrained systemic PDE4 inhibitors.

Current wording

Our lead clinical product candidate, PALI-2108, is a once-daily, oral prodrug designed for targeted delivery of phosphodiesterase-4 ("PDE4") inhibition to the terminal ileum and colon through local bacterial bioactivation. The prodrug is pharmacologically inactive until it reaches the lower intestine, where bacterial enzymes convert it into the active PDE4 inhibitor at sites of inflammation and fibrosis. This targeted activation strategy prevents absorption in the upper gut, enables sustained local exposure with controlled systemic distribution, and is engineered to reduce peak plasma levels, thereby improving the overall therapeutic index and reducing tolerability limitations such as diarrhea, nausea and headache that have constrained systemic PDE4 inhibitors.

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 the study on November 7, 2024. 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.

Current wording

On October 9, 2024, Health Canada issued a No Objection Letter for our Phase 1 human clinical study of PALI-2108. The study of the SAD, MAD and FE cohorts and the Phase 1b UC patient cohort commenced on November 7, 2024.

Previous wording

On May 27, 2025, we announced positive results from the SAD, MAD and FE cohorts in healthy volunteers and on August 7, 2025 and September 17, 2025, we announced positive results from the UC cohort portion of the study. The clinical study successfully met its primary endpoints of safety, tolerability, and PK. Although the results are preliminary and require validation in randomized, controlled trials, we also reported that the patients included in the UC cohort demonstrated rapid and consistent clinical activity, with all five of the patients responding to treatment.

Current wording

On August 7, 2025 and September 17, 2025, we announced positive results from the open-label exploratory Phase 1b UC patient cohort portion of the study. This study also successfully met its primary endpoints of safety, tolerability, and PK. Although the results require validation in randomized, controlled clinical trials, all five of the patients in the exploratory Phase 1b UC patient cohort demonstrated clinical improvement during treatment.

Previous wording

On October 16, 2025, we dosed our first patients in an exploratory Phase 1b cohort in fibrostenotic Crohn's disease ("FSCD") to evaluate the safety, tolerability, PK, and PD of once-daily oral dosing of PALI-2108 over a 14-day treatment period as well as evaluate tissue-level pharmacology and molecular responses using paired ileal biopsies and peripheral blood mononuclear cells. The Phase 1b study incorporated paired ileal biopsies and advanced molecular analyses, including cAMP quantification and RNA sequencing, to characterize treatment-induced changes in inflammatory and fibrotic signaling pathways.

Current wording

On October 16, 2025, we dosed our first patients in the open-label exploratory Phase 1b FSCD patient cohort to evaluate the safety, tolerability, PK, and PD of once-daily oral dosing of PALI-2108 over a 14-day treatment period as well as evaluate tissue-level pharmacology and molecular responses using paired ileal biopsies and peripheral blood mononuclear cells. The study incorporated advanced molecular analyses, including cAMP quantification and RNA sequencing, to characterize treatment-induced changes in inflammatory and fibrotic signaling pathways.

Previous wording

On March 30, 2026, we announced positive results from the exploratory Phase 1b cohort in FSCD. The study demonstrated favorable safety and tolerability, robust PD target engagement in ileal tissue, and encouraging early signals of clinical activity in the five patients with FSCD that were dosed. We believe these data support the continued development of PALI-2108 as a potential first therapy designed to address both inflammatory and fibrotic components of Crohn’s disease.

Current wording

On March 30, 2026, we announced positive results from the open-label exploratory Phase 1b FSCD patient cohort. The study demonstrated favorable safety and tolerability, robust PD target engagement in ileal tissue, and encouraging early signals of clinical activity. We believe these findings support the continued development of PALI-2108 as a potential first therapy for both the inflammatory and fibrotic components of CD.

Previous wording

salaries and employee-related costs, including stock-based compensation;

Current wording

salaries and employee-related costs and benefits, including stock-based compensation;

Previous wording

Our direct research and development expenses are tracked by product candidate and consist primarily of external costs, such as fees paid under third-party license agreements and to outside consultants, CROs, clinical sites, contract manufacturing organizations (“CMOs”) and research laboratories in connection with our process development, manufacturing, preclinical and clinical development, and regulatory activities. We do not allocate employee costs and costs associated with our discovery efforts, laboratory supplies and facilities, including other indirect costs, to specific product candidates because these costs are deployed across multiple programs and, as such, are not separately classified. As needed, we manage third parties that are engaged to conduct our (i) research activities, (ii) preclinical, clinical and translational science development activities, (iii) drug manufacturing activities, and (iv) process development.

Current wording

Our direct research and development expenses are tracked by product candidate and consist primarily of external costs, such as fees paid under third-party license agreements and to outside consultants, CROs, clinical sites, contract development and manufacturing organizations (“CDMOs”) and research laboratories in connection with our process development, manufacturing, preclinical and clinical development, and regulatory activities. We do not allocate employee costs and costs associated with our discovery efforts, laboratory supplies and facilities, including other indirect costs, to specific product candidates because these costs are deployed across multiple programs and, as such, are not separately classified. As needed, we manage third parties that are engaged to conduct our (i) research activities, (ii) preclinical, clinical and translational science development activities, (iii) drug manufacturing activities, and (iv) process development.

Previous wording

The increase in research and development employee-related expenses for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, was primarily due to an approximately $2.0 million increase in non-cash share-based compensation expense and an approximately $0.4 million increase in research and development salaries and benefits expense due to higher research and development headcount necessary to support our PALI-2108 development strategy.

Current wording

The increase in research and development employee-related expenses for the three months ended June 30, 2026, compared to the three months ended June 30, 2025, was primarily due to an approximately $2.0 million increase in non-cash share-based compensation expense and an approximately $0.6 million increase in research and development salaries and benefits expense due to higher research and development headcount necessary to support our PALI-2108 development strategy.

Previous wording

Our general and administrative expenses increased by approximately $3.0 million from approximately $1.4 million for the three months ended March 31, 2025 to approximately $4.4 million for the three months ended March 31, 2026. The increase was primarily as a result of an approximately $2.5 million increase in general and administrative employee-related expenses due to an approximately $2.3 million increase in non-cash share-based compensation expense and an approximately $0.2 million increase in general and administrative salaries and benefits, and an approximately $0.5 million increase in professional fees, primarily legal fees.

Current wording

Our general and administrative expenses increased by approximately $3.6 million from approximately $1.2 million for the three months ended June 30, 2025 to approximately $4.8 million for the three months ended June 30, 2026. The increase was primarily as a result of (i) an approximately $3.0 million increase in general and administrative employee-related expenses driven by an approximately $2.7 million increase in non-cash share-based compensation expense and an approximately $0.3 million increase in general and administrative salaries and benefits, (ii) an approximately $0.3 million increase in professional fees, primarily legal fees, (iii) an approximately $0.1 million increase in shareholder services expense due to the timing of our annual meeting of stockholders, which occurred in the second quarter of 2026 compared to the prior year's annual meeting of stockholders, which occurred in the fourth quarter of 2025, (iv) an approximately $0.1 million increase in patent-related costs, and (v) an approximately $0.1 million increase in taxes and insurance.

Previous wording

Our research and development expenses increased by approximately $5.4 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase is primarily attributable to (i) an approximately $2.4 million increase in research and development employee-related expenses, (ii) an approximately $1.2 million net increase in clinical trial-related expenses associated with the ongoing clinical trials of PALI-2108, (iii) an approximately $1.2 million increase in chemistry, manufacturing and controls ("CMC") expenses, and (iv) an approximately $0.6 million reduction in research and development expenses directly related to the preclinical joint development of PALI-2108 that was recognized in the three months ended March 31, 2025 and did not recur in three months ended March 31, 2026.

Current wording

Our research and development expenses increased by approximately $11.2 million from approximately $2.6 million for the six months ended June 30, 2025 to approximately $13.8 million for the six months ended June 30, 2026. The increase is primarily attributable to (i) an approximately $5.0 million increase in research and development employee-related expenses, (ii) an approximately $6.1 million net increase in PALI-2108 program expenses, and (iii) an approximately $0.1 million net increase in legacy program expenses.

Previous wording

The October 2025 Offering, as further described below, significantly increased our available working capital and our ability to fund our operations into the foreseeable future. Based on our current operating plan and our cash and cash equivalents balance of $132.6 million as of March 31, 2026, management believes that we have sufficient capital to fund our operations through major clinical development milestones including a Phase 2 primary efficacy readout of PALI-2108 for UC that is expected in the second half of 2027 and a Phase 2 primary efficacy readout of PALI-2108 for CD that is expected in early 2028.

Current wording

The October 2025 Offering, as further described below, significantly increased our available working capital and our ability to fund our operations into the foreseeable future. Based on our current operating plan and our cash and cash equivalents balance of $125.2 million as of June 30, 2026, management believes that we have sufficient capital to fund our operations through major clinical development milestones including a primary efficacy readout of our Phase 2 ASCENTRA-UC clinical trial that is expected in the second half of 2027 and a primary efficacy readout of our planned Phase 2 ASCENTRA-CD clinical trial that is expected in early 2028.

Previous wording

Pursuant to the underwritten offering of common stock and pre-funded warrants we completed on October 2, 2025 (the "October 2025 Offering"), we issued and sold (a) 113,240,564 shares of our common stock, par value $0.01 per share, at a public offering price of $0.70 per share, and (b) 83,914,280 pre-funded warrants to purchase one share of the our common stock, par value $0.01 per share, at a public offering price of $0.6999 per share. Net proceeds from the offering, including the full exercise of the underwriter's over-allotment option, were approximately $127.6 million, consisting of gross cash proceeds of $138.0 million less underwriting discounts and commissions and other cash equity issuance costs of approximately $10.4 million. We intend to use the net proceeds from the offering for working capital and general corporate purposes, including the development of PALI-2108 for the treatment of UC and CD.

Current wording

Pursuant to the underwritten offering of common stock and pre-funded warrants we completed on October 2, 2025 (the "October 2025 Offering"), we issued and sold (a) 113,240,564 shares of our common stock, par value $0.01 per share, at a public offering price of $0.70 per share, and (b) 83,914,280 pre-funded warrants to purchase one share of our common stock, par value $0.01 per share, at a public offering price of $0.6999 per share. Net proceeds from the offering, including the full exercise of the underwriter's over-allotment option, were approximately $127.6 million, consisting of gross cash proceeds of $138.0 million less underwriting discounts and commissions and other cash equity issuance costs of approximately $10.4 million. We intend to use the net proceeds from the offering for working capital and general corporate purposes, including the development of PALI-2108 for the treatment of UC and CD.

Previous wording

As of March 31, 2026, we had $132.7 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, 2026 and 2025 (in thousands):

Current wording

As of June 30, 2026, we had $125.2 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, 2026 and 2025 (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 the 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-related expenses partially offset by lower accrued joint development expenses associated with our research collaboration and license agreement with Giiant.

Current wording

Cash used in operating activities was approximately $11.5 million for the six months ended June 30, 2026, which reflects an approximately $20.2 million net loss adjusted for (i) approximately $0.4 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 $9.1 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 (i) a net cash outflow of approximately $1.0 million driven by the payment of annual employee cash bonuses in the period, partially offset by the current period employee cash bonus accrual, (ii) a net cash outflow of approximately $0.9 million driven by increased prepaid expenses and other current assets, due primarily to the timing of payments for certain services and deferred equity issuance costs recognized that are associated with our shelf registration statement filed in May of 2026, and (iii) the recognition of a $0.5 million accounts receivable for license revenue recognized for the achievement of a milestone under the Newsoara Co-Development Agreement, of which there was none at December 31, 2025. These cash outflows were partially offset by an approximately $2.0 million cash inflow from an increase in accounts payable and accrued liabilities as of June 30, 2026, compared to December 31, 2025, primarily due to higher preclinical and translational science and CMC expenses in the period.

Previous wording

Cash used in operating activities was approximately $3.9 million for the three months ended March 31, 2026, which reflects an approximately $9.6 million net loss adjusted for (i) approximately $1.4 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 $4.3 million non-cash expense recognized for stock-based compensation and related charges. The net cash inflow from operating assets and liabilities was primarily attributable to an approximately $2.6 million cash inflow from an increase in accounts payable and accrued liabilities as of March 31, 2026, compared to December 31, 2025, primarily due to higher clinical trial-related expenses as a result of increased clinical trial activity, partially offset by net cash outflow of approximately $1.2 million driven by the payment of annual employee cash bonuses in the period.

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.

Previous wording

For the three months ended March 31, 2026, cash provided by financing activities of approximately $3.1 million was primarily attributable to net cash proceeds of approximately $3.2 million from the issuance of our common stock to an investor and the issuance of our common stock in association with the Crohn's and Colitis Foundation Research Program Funding Agreement, both of which are described in Note 5, Stockholders' Equityin Part I Item 1 of this Quarterly Report on Form 10-Q, partially offset by the payment of equity issuance costs related to the October 2025 Offering and payments made on our insurance financing arrangement, which totaled approximately $0.1 million.

Current wording

For the six months ended June 30, 2026, cash provided by financing activities of approximately $3.3 million was primarily attributable to net cash proceeds of approximately $3.3 million from the issuance of our common stock to an investor and the issuance of our common stock in association with the Crohn's and Colitis Foundation Research Program Funding Agreement, both of which are described in Note 5, Stockholders' Equityin Part I Item 1 of this Quarterly Report on Form 10-Q, and net cash proceeds of approximately $0.2 million from the exercise of our common stock purchase warrants by certain investors. These cash proceeds were partially offset by the payment of equity issuance costs of approximately $0.1 million related to certain recently completed financings and payments of approximately $0.1 million made on our insurance financing arrangement, which expired in the second quarter of 2026 and was not renewed.

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, related to our underwritten equity offering completed in December of 2024, and payments made on our insurance financing arrangement 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

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 $132.6 million as of March 31, 2026, we believe we have sufficient capital to fund our operations through major clinical development milestones including a Phase 2 primary efficacy readout of PALI-2108 for UC that is expected in the second half of 2027 and a Phase 2 primary efficacy readout of PALI-2108 for CD that is expected in early 2028. Notwithstanding, should our anticipated level of operations significantly change, we may require additional financing sooner than anticipated. Further, beyond the readout expected in early 2028, we will require additional financing to continue at our expected level of operations, which would include a potential Phase 3 clinical trial and possible commercialization of PALI-2108 for the treatment of UC and CD.

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 $125.2 million as of June 30, 2026, we believe we have sufficient capital to fund our operations through major clinical development milestones including a primary efficacy readout of our Phase 2 ASCENTRA-UC clinical trial that is expected in the second half of 2027 and a primary efficacy readout of our planned ASCENTRA-CD clinical trial that is expected in early 2028. Notwithstanding, should our anticipated level of operations significantly change, we may require additional financing sooner than anticipated. Further, beyond the readout expected in early 2028, we will require additional financing to continue at our expected level of operations, which would include a potential Phase 3 clinical trial and possible commercialization of PALI-2108 for the treatment of UC and CD.

Previous wording

Our critical accounting estimates are identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Annual Report on Form 10-K include the discussion of estimates used for accrued research and development expenses and our contingent consideration obligation. We believe there has been no significant changes in our critical accounting policies and significant judgments and estimates since those disclosed in our most recently filed Annual Report on Form 10-K.

Current wording

Our critical accounting estimates are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Annual Report on Form 10-K and include estimates related to accrued research and development expenses and our contingent consideration obligation. We believe there have been no significant changes in our critical accounting policies and significant judgments and estimates since those disclosed in our most recently filed Annual Report on Form 10-K.

Previous wording

See Note 2 to the notes to the condensed consolidated financial statements for the quarter ended March 31, 2026, included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

See Note 2 to the notes to the condensed consolidated financial statements in Part 1 Item 1 of this Quarterly Report on Form 10-Q.