PALISADE BIO, INC.

LIDATED FINANCIAL STATEMENTS

1. Organization, Business and Financial Condition

Unless the context indicates or otherwise requires, “Palisade,” “Palisade Bio,” the "Company,” “we,” “us,” and “our” or similar designations in this Quarterly Report on Form 10-Q ("Form 10-Q"), refer to Palisade Bio, Inc., a Delaware Corporation, and its subsidiaries. Any reference to “common shares” or “common stock,” refers to the Company's $0.01 par value common stock. Any reference to “Leading Biosciences, Inc.” or “LBS” refers to the Company’s operations prior to the completion of its merger with Seneca Biopharma, Inc. ("Seneca") on April 27, 2021 (the "Seneca Merger"). Any reference to “Series A Preferred Stock” refers to the Company's Series A 4.5% Convertible Preferred Stock. Any reference herein that refers to preclinical studies also refers to nonclinical studies.

Description of Business

The Company is a clinical-stage biopharmaceutical company developing next-generation oral therapies for immune-mediated and fibrotic diseases. The Company's lead clinical product candidate, PALI-2108, is in Phase 2 clinical trials as a treatment for patients living with inflammatory bowel disease, including ulcerative colitis and Crohn’s disease.

Liquidity

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a limited operating history, and the sales and income potential of the Company’s business and market are unproven. The Company has experienced net operating losses and negative cash flows from operations since its inception. The Company expects to continue to incur net losses in the foreseeable future. The successful transition to achieving profitability is dependent upon achieving a level of revenues adequate to support the Company’s costs. There can be no assurance that such profitability will ever be achieved. To fund its operations, the Company has historically relied primarily on equity financings.

On October 2, 2025, the Company closed on an equity offering for net proceeds to the Company of $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 (the "October 2025 Offering"), which significantly increased the Company's available working capital and its ability to fund its operations into the foreseeable future. Although the Company still anticipates incurring net operating losses and negative cash flows from operations into the foreseeable future, based on its current operating plan and based upon its cash and cash equivalents balance of $113.6 million as of September 30, 2026, management has concluded the Company has sufficient capital to fund its operations for at least a period of one year following the date that these condensed consolidated financial statements are issued.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

In management’s opinion, the accompanying interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the Company's financial position, results of operations and cash flows. The interim results of operations are not necessarily indicative of the results that may occur for the full year. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the United States ("U.S.") Securities and Exchange Commission (“SEC”). The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these condensed consolidated financial statements are read in conjunction with the consolidated financial statements and notes included in the Company’s financial statements filed in the Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on March 20, 2026 ("Form 10-K").

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, LBS and Suzhou Neuralstem Biopharmaceutical Co., Ltd. All the entities are consolidated in the Company's condensed consolidated financial statements and all intercompany activity and transactions, if any, have been eliminated.

Use of Estimates

Thepreparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments, and assumptions that impact the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet, and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s condensed consolidated financial statements relate to accrued research and development expenses and its contingent consideration obligation. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions.

Significant Accounting Policies

The Company’s significant accounting policies used in the preparation of these condensed consolidated financial statements for the three and nine months ended September 30, 2026 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company's Form 10-K.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was the same as its reported net loss for all periods presented.

Reclassifications

Certain prior year amounts have been reclassified within the unaudited condensed consolidated financial statements to conform with current year presentation.

Recently Issued or Adopted Accounting Pronouncements

No new accounting pronouncements issued or adopted during the three and nine months ended September 30, 2026 that had or are expected to have a material impact on the Company’s condensed consolidated financial statements or disclosures.

3. Balance Sheet Details

Prepaid expenses and other current assets consist of the following (in thousands):

Deferred equity issuance costs consist of the legal, accounting and other direct and incremental costs incurred by the Company related to its equity offerings, if not yet finalized as of the balance sheet date, or shelf registration statement. These costs will be netted against additional paid-in capital as a cost of the future equity issuances to which they relate. During the nine months ended September 30, 2025, the Company expensed approximately $75,000 of previously deferred equity issuance costs associated with its shelf registration statement that expired in April of 2025 in general and administrative expenses in the condensed consolidated statements of operations. As of September 30, 2026, the entire balance of deferred equity issuance costs consists of legal, accounting and other direct and incremental costs directly attributable to the Company's shelf registration statement on Form S-3, which was declared effective by the SEC on May 21, 2026.

Other noncurrent assets as of September 30, 2026 consisted of the noncurrent portion of prepaid research and development expenses. Other noncurrent assets as of December 31, 2025 consisted of prepaid insurance, less the current portion.

Accrued liabilities consist of the following (in thousands):

4. Fair Value Measurements

The following tables reflect the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2026 and December 31, 2025 (in thousands):

Cash and Cash Equivalents

The Company invests its excess cash in money market funds that are classified as level 1 in the fair value hierarchy, due to their short-term maturity of three months or less, and measures fair value based on quoted prices in active markets for identical assets.

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions and in money market accounts, and at times balances may exceed federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held and historically the Company has not experienced any losses in such accounts.

Share Liability and Derivative Liability

On December 17, 2025 (the “Execution Date”), the Company entered into a Research Program Funding Agreement with the Crohn’s and Colitis Foundation (the “CCF”), in which the CCF agreed to provide up to a $0.5 million investment to support the Company’s Phase 1b research program related to PALI-2108 in return for shares of the Company's common stock.

The funding is payable in three tranches (“CCF Milestone Amount”) subject to the achievement of specified milestones. The first milestone (“CCF Milestone 1”) in the amount of $250,000 was due to the Company within approximately 45 days of the Execution Date. Accordingly, as of December 31, 2025, the Company recognized a $250,000 other current receivable for the amount due from CCF in Prepaid and other current assets in the condensed consolidated balance sheets. Pursuant to Accounting Standards Codification ("ASC") 480, Distinguishing Liabilities from Equity("ASC 480"), the Company also recognized CCF Milestone 1 as a financial instrument that requires liability classification initially recognized at fair value, with subsequent changes in fair value measured at each reporting period thereafter based on the market value of the Company's common stock, which is a level 1 input. Accordingly, as of December 31, 2025, the Company recognized the fair value of CCF Milestone 1 of $312,500 in Share liability in the condensed consolidated balance sheets. In the first quarter of 2026, CCF Milestone 1 was settled in cash, which reduced both the other current receivable and the Share liability tozero as of September 30, 2026. There wasno change in the fair value of the Share liability prior to its cash settlement.

The second milestone (“CCF Milestone 2”) is in the amount of $200,000 and was due based on achievement of certain research deliverables. The third milestone (“CCF Milestone 3”) is in the amount of $50,000 and is due upon the final Phase 1b study report. Pursuant to ASC 815-40, Derivatives and Hedging—Contracts in Entity's Own Equity ("ASC 815-40"), CCF Milestone 2 and CCF Milestone 3 were determined to be derivative liabilities initially recognized at fair value, with subsequent changes in fair value measured at each reporting period thereafter based on the market value of the Company's common stock, which is a level 1 input. The fair value of each of CCF Milestone 2 and CCF Milestone 3, was recognized as a derivative liability and included in noncurrent liabilities in the condensed consolidated balance sheets.

During the three months ended September 30, 2026, it was determined that CCF Milestone 2 was met and the Company received the cash payment of $200,000 and issued to CCF shares of its common stock with a fair value of $250,000. Accordingly, the CCF Milestone 2 derivative liability was reduced to zero as of September 30, 2026. As of December 31, 2025, the fair value of the CCF Milestone 2 derivative liability was $50,000 and there wasno change in the fair value prior to settlement.

As of September 30, 2026, CCF Milestone 3 has not been met. As of September 30, 2026 and December 31, 2025, the fair value of the CCF Milestone 3 derivative liability was determined to be $12,500. There wasno change in the fair value of the derivative liability in thethree and nine months ended September 30, 2026.

Contingent Consideration Obligation

On September 1, 2023, the Company and Giiant Pharma, Inc. ("Giiant") entered into a research collaboration and license agreement, as amended (“Giiant License Agreement”)(See Note 7, Collaborations and License Agreements). Pursuant to the Giiant License Agreement, the Company incurred a contingent consideration obligation related to future milestone payments. The Company has an obligation to make contingent consideration payments to Giiant, in either cash or shares of the Company’s common stock solely at the Company’s election, upon the achievement of development milestones (as set forth in the Giiant License Agreement). Because the contingent consideration associated with the milestone payments may be settled in shares of the Company's common stock solely at the election of the Company, the Company has determined it should be accounted for under ASC 480, and accordingly has recognized it as a liability measured at its estimated fair value.

At the end of each reporting period, the Company re-measures the contingent consideration obligation to its estimated fair value and any resulting change is recognized in research and development expenses in the condensed consolidated statements of operations. The fair value of the contingent consideration obligation is determined using a probability-based model that estimates the likelihood of success in achieving each of the defined milestones that is then discounted to present value using the Company's incremental borrowing rate. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in fair value measurement accounting hierarchy. The significant assumptions used in the calculation of the fair value as of September 30, 2026 includeda discount rate of 26.2% and management's updated projections of the likelihood of success in achieving each of the defined milestones based on empirical, published industry data.

The following table summarizes the activity of the Company's Level 3 contingent consideration obligation, which is measured at its fair value on a recurring basis (in thousands):

As of September 30, 2026 and December 31, 2025, the entire amount of the contingent consideration obligation of approximately $267,000 and $266,000, respectively, was included in noncurrent liabilities in the condensed consolidated balance sheets since it is not expected to be settled within one-year of the respective balance sheet date.

Financial Instruments Not Required to be Remeasured at Fair Value

The Company's other financial assets and liabilities, including restricted cash, accounts receivable, other current receivables, accounts payable, and accrued liabilities are not remeasured to fair value, as the carrying amount of each approximates its fair value due to the short-term nature of these instruments. The carrying value of the Company’s insurance financing debt also approximated its fair value as of December 31, 2025 due to the short-term nature of the instrument and the market rate of interest, which is based on level 2 inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

None of the Company’s non-financial assets or liabilities are recognized at fair value on a nonrecurring basis.

5. Stockholders’ Equity

Classes of Stock

Common Stock

On June 10, 2026, the Company held its annual meeting of stockholders at which time the Company's stockholders approved an amendment to the Company's Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of the Company's $0.01 par value common stock from 300,000,000 shares to 450,000,000 shares. The Company subsequently amended its Amended and Restated Certificate of Incorporation to reflect the increase. As of September 30, 2026, the Company was authorized to issue 450,000,000 shares of $0.01 par value common stock. Each share of common stock entitles the holder thereof to one vote on each matter submitted to a vote at a meeting of stockholders.

Preferred Stock

As of September 30, 2026, the Company was authorized to issue 7,000,000 shares of $0.01 par value preferred stock of which 1,000,000 shares have been designated as Series A 4.5% Convertible Preferred Stock ("Series A Convertible Preferred Stock"), of which 200,000 are issued and outstanding and are convertible into an aggregate of 8 shares of the Company's common stock.

Recent Equity Transactions

Common Stock Purchase Agreement

On March 27, 2026, the Company issued and sold 1,536,885 shares of its common stock, par value $0.01 per share, to an investor for a total purchase price of $3.0 million, or $1.952 per share, pursuant to a common stock purchase agreement, dated March 27, 2026, by and between the Company and the investor. The Company recognized net equity issuance costs of approximately $28,000 against the additional paid-in capital recognized in this transaction.

Crohn's and Colitis Foundation Research Program Funding Agreement

The CCF has agreed to provide up to a $0.5 million investment to support the Company’s Phase 1b research program related to PALI-2108. In the first quarter of 2026, the CCF settled CCF Milestone 1 in the amount of $250,000, and in the third quarter of 2026, the CCF settled CCF Milestone 2 in the amount of $200,000. Pursuant to the CCF Agreement, for each CCF Milestone payment received, within 30 days the Company must issue shares of its common stock equal to the CCF Milestone Amount divided by 80% of the closing price of the Company’s common stock on the date of the respective milestone's cash receipt date. Accordingly, in the first quarter of 2026 and the third quarter of 2026, the Company issued 191,717 shares and 172,413 shares, respectively, of its common stock, par value $0.01 per share, to the CCF. As of September 30, 2026, CCF Milestone 3 has not yet been met.

October 2025 Offering

On October 2, 2025, the Company completed an underwritten offering of common stock and pre-funded warrants to purchase common stock for net proceeds of $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.

Common Stock Warrants Outstanding and Warrant Activity

July 2025 Warrant Inducement

On July 23, 2025, the Company entered into a warrant inducement agreement (the “July 2025 Warrant Inducement Agreement”) with an accredited and institutional holder (the “July 2025 Warrant Holder”) of certain of the Company’s outstanding common stock warrants (the "July 2025 Existing Warrants"), to exercise the July 2025 Existing Warrants to purchase up to an aggregate of 4,318,905 shares of the Company's common stock. Pursuant to the July 2025 Warrant Inducement Agreement, the exercise price of each July 2025 Existing Warrant exercised was reduced from $1.40 per share to $0.9047 per share. In consideration for the immediate exercise of the July 2025 Existing Warrants, the July 2025 Warrant Holder received new unregistered warrants (the “July 2025 Replacement Warrants”) to purchase shares of common stock in a private placement. Pursuant to the July 2025 Warrant Inducement Agreement, the July 2025 Warrant Holder received two July 2025 Replacement Warrants for each July 2025 Existing Warrant exercised. The July 2025 Replacement Warrants are exercisable into an aggregate of up to 8,637,810 shares of common stock (the transaction in its entirety, the "July 2025 Warrant Inducement Transaction").

The July 2025 Warrant Holder exercised an aggregate of 4,318,905 July 2025 Existing Warrants and the Company issued an aggregate of 4,318,905 shares of its common stock and 8,637,810 July 2025 Replacement Warrants. The July 2025 Warrant Inducement closed on July 25, 2025 with the Company receiving net cash proceeds of approximately $3.4 million consisting of gross cash proceeds of $3.9 million, less cash equity issuance costs of approximately $0.5 million.

The July 2025 Warrant Inducement Transaction, which resulted in the lowering of the exercise price of the July 2025 Existing Warrants and the issuance of the July 2025 Replacement Warrants, is considered a modification of the July 2025 Existing Warrants under the guidance of ASC 815-40. The modification is consistent with the Equity Issuance classification under that guidance as the reason for the modification was to induce the holders of the July 2025 Existing Warrants to cash exercise their July 2025 Existing Warrants, resulting in the imminent exercise of the July 2025 Existing Warrants, which raised equity capital and generated gross cash proceeds for the Company of approximately $3.9 million. As pursuant to the guidance of ASC 480 and ASC 815-40 the July 2025 Existing Warrants and were classified as equity instruments before and after the modification, and as the modification is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $8.6 million as an equity issuance cost netted against the additional paid-in capital recognized from the associated warrant exercises. The amount of the equity issuance cost recognized for the warrant modification was determined using the Black-Scholes option pricing model as the incremental fair value of the modified July 2025 Existing Warrants and additional July 2025 Replacement Warrants issued as compared to the fair value of the original July 2025 Existing Warrants immediately prior to their modification.

Total equity issuance costs recognized in the July 2025 Warrant Inducement of $9.3 million include cash equity issuance costs of $0.5 million, non-cash warrant modification costs of approximately $8.6 million, and non-cash issuance costs of $0.2 million associated with 259,134 common stock warrants, with an exercise price of $1.49 per share, and a term of five years from issuance, that were issued to the solicitation agent in the transaction.

Common Stock Warrants Outstanding and Warrant Activity

The following table summarizes the Company's outstanding and exercisable common stock warrants as of September 30, 2026:

(1) The pre-funded common stock warrants outstanding as of September 30, 2026 have a perpetual term and are therefore excluded from the calculation of the weighted-average remaining contractual life.

Of the outstanding common stock warrants, only the Series 2 Common Stock Warrants include a down round feature whereby they are subject to price reset provisions in the event future sales of the Company's securities are sold at a price per share less than the exercise price of such warrants.

The following table summarizes all common stock warrant acti vity during the nine months ended September 30, 2026:

(1) The pre-funded common stock warrants outstanding as of September 30, 2026 have a perpetual term and are therefore excluded from the calculation of the weighted-average remaining contractual life.

6. Equity Incentive Plans

Equity Incentive Plans

The Company’s stock-based compensation generally includes service-based restricted stock units (“RSUs”), stock options, and market-based performance RSUs (“PSUs”).

During the nine months ended September 30, 2026, the Company granted 7,440,708 RSUs at a weighted-average grant date fair value of $1.72 per RSU, and the Company granted 254,200 PSUsat a weighted-average grant date fair valueof $1.38 per PSU. The Company grantedno stock options during thenine months ended September 30, 2026. During the nine months ended September 30, 2025, the Company granted 116,600 stock options at a weighted-average grant date fair value of $1.00 per stock option, and the Company granted 89,400 RSUs at a weighted-average grant date fair value of $1.13 per RSU. The Company grantedno PSUs during thenine months ended September 30, 2025.

Employee Stock Purchase Plan

The Company offers its employees an opportunity to participate in its stockholder-approved Palisade Bio, Inc. 2021 Amended and Restated Employee Stock Purchase Plan (the "ESPP"). All employees are eligible to participate in the ESPP while employed by the Company. The ESPP permits eligible employees to purchase common stock through payroll deductions, which may not exceed $25,000 in a calendar year, or 5,000 shares of the Company's common stock each offering period, as defined in the ESPP, at a price equal to 85% of the fair value of the Company's common stock at the beginning or end of the offering period, whichever is lower. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code.

Compensation expense associated with the ESPP was approximately $14,000 and $30,000 in thethree and nine months ended September 30, 2026, respectively, andapproximately $5,000 and $26,000 in the three and nine months ended September 30, 2025, respectively.

Share-Based Compensation Expense

The allocation of stock-based compensation for the Company's equity-based awards is as follows (in thousands):

As of September 30, 2026, the unrecognized compensation cost related to outstanding stock options was approximately $0.1 million, which is expected to be recognized over a weighted-average period of approximately 1.30 years, and the unrecognized compensation cost related to outstanding RSUs and PSUs was approximately $42.4 million, which is expected to be recognized over a weighted-average period of approximately 2.16 years.

7. Collaborationsand License Agreements

Research Collaboration and License Agreement with Giiant

On September 1, 2023, the Company entered into the Giiant License Agreement whereby the Company received an exclusive, worldwide license (with the right to sublicense in multiple tiers) to develop, manufacture, and commercialize substantially all of the assets of Giiant, including: (i) the PALI-2108 compound, and (ii) the PALI-1908 compound and the associated intellectual property around each of the foregoing (the “Giiant Licensed Assets”). The Giiant License Agreement has a perpetual term.

Prior to receiving regulatory approval to commence a Phase 1 clinical trial (as such term is defined in the Giiant License Agreement) (the “Proof of Concept”), each of the Company and Giiant was solely responsible for all costs and expenses incurred by such party for the joint development of the Giiant Licensed Assets, except as set forth in the development plan and development budget for the Giiant Licensed Assets (the “Giiant Development Plan”). Upon reaching the Proof of Concept, which occurred in October of 2024, the Company became solely responsible for all costs and expenses incurred for the development, manufacturing, regulatory and commercialization of the Giiant Licensed Assets.

For the three and nine months ended September 30, 2026, the Company recognizedno expenses related to the joint developmentof the Giiant Licensed Assets pursuant to the Giiant Development Plan. For the three and nine months ended September 30, 2025, the Company recognized a net credit related to the joint development of the Giiant Licensed Assets of approximately $0.2 million and $0.8 million, respectively, which consisted primarily of funds received by the Company from Giiant. Both the expenses related to the joint development plan and any credits for funds received by the Company from Giiant are included in research and development expenses in the condensed consolidated statements of operations.

Pursuant to the Giiant License Agreement, the Company is (i) required to make certain payments upon the achievement of the development milestones (as set forth in the Giiant License Agreement), in either cash or shares of the Company’s common stock, at the Company’s election (“Giiant Milestone Payments”), and (ii) pay ongoing royalty payments of a mid-single-digit percentage of the adjusted gross proceeds, as defined in the Giiant License Agreement, upon the sales or sublicenses of any products developed from the Giiant Licensed Assets to third parties (“Giiant Royalty Payments”) (collectively, the Giiant Milestone Payments and the Giiant Royalty Payments are referred to as the “Giiant License Payments”). The Giiant License Payments are subject to a maximum payment cap in the very low-eight-digit range, which will be increased or decreased on a dollar-for-dollar basis based on a formula related to the aggregate of development costs incurred by the parties. On October 16, 2025, the Company determined that the first of the development milestones pursuant to the Giiant License Agreement was achieved with the dosing of the first patient in the Company's exploratory Phase 1b clinical trial of PALI-2108 in a fibrostenotic Crohn's disease cohort. The Company settled this Giiant Milestone Payment in cash in the amount of $235,000 in the fourth quarter of 2025. As of September 30, 2026, one of the Giiant Milestone Payments remains, which could require the Company to make a payment in the low-seven-digit range upon the achievement of the one remaining development milestone. There have been no other Giiant Milestone Payments made pursuant to the Giiant License Agreement.

Co-Development and Distribution Agreement with Newsoara

Prior to the completion of the Seneca Merger, LBS entered into a co-development and distribution agreement with Newsoara, a joint venture established by Biolead Medical Technology Limited, as amended, (the “Newsoara Co-Development Agreement”). Pursuant to the Newsoara Co-Development Agreement (and subsequent assignment agreement), LBS granted or licensed to Newsoara an exclusive right under certain patents to develop, use, sell, offer to sell, import, and otherwise commercialize licensed products (the “Newsoara Licensed Products”) for any and all indications in the People’s Republic of China, including the regions of Hong Kong and Macao, but excluding Taiwan. The Newsoara Licensed Products only include the drug asset referred to as LB1148.

In consideration of the rights granted to Newsoara under the Newsoara Co-Development Agreement, Newsoara paid LBS a one-time upfront fee of $1.0 million. In addition, Newsoara is obligated to make (i) payments of up to $6.75 million in the aggregate upon achievement of certain regulatory and commercial milestones, (ii) payments in the low- six-digit range per licensed product upon achievement of a regulatory milestone, and (iii) tiered royalty payments ranging from the mid-single-digit to low-double-digit percentage range on annual net sales of Newsoara Licensed Products, subject to adjustment to the royalty percentage in certain events, including a change of control, the expiration of certain patent rights, and royalties paid by Newsoara to third parties. To date, Newsoara has met all of its payment obligations under the Newsoara Co-Development Agreement.

During the nine months ended September 30, 2026, the Company recognized license revenue of $0.5 million earned upon Newsoara's achievement in the second quarter of 2026 of a development milestone pursuant to the Newsoara Co-Development Agreement. During thethree months ended September 30, 2026, and the three and nine months ended September 30, 2025, the Company recognizedno license revenue from Newsoara under the Newsoara Co-Development Agreement.

License Agreements with the Regents of the University of California

Prior to the Seneca Merger, the Company entered into three license agreements, as amended, with the Regents of the University of California (“Regents”) for exclusive commercial rights to certain patents, technology and know-how related to LB1148. Concurrent with the Company's decision to terminate the development of LB1148 on October 20, 2023, the Company terminatedtwo of its license agreements with Regents. As of September 30, 2026, the only license agreement remaining with Regents is that entered into with LBS in August of 2015, as amended in December of 2019 and September of 2022 (the “2015 UC License”). The 2015 UC License was retained for the sole purpose of maintaining the Newsoara Co-Development Agreement under which the Company may receive future milestone or royalty payments through the term of the license. Accordingly, pursuant to the 2015 UC License, the Company was obligated to pay a percentage of non-royalty licensing revenue it receives from Newsoara under the Newsoara Co-Development Agreement to Regents ranging from 30 percent to 35 percent of one-third of the upfront payment on certain milestone payments, of which none of the milestone payments that may result on this obligation remain. Additionally, pursuant to the 2015 UC License, the Company is obligated to pay a low-single-digit percentage of the tiered royalty payments on annual net sales of Newsoara Licensed Products that it receives from Newsoara, if any. During the three months ended September 30, 2026, the Company recognizedno sublicense fees or license maintenance fees. During thenine months ended September 30, 2026, the Company recognized no sublicense fees and license maintenance fees of approximately $12,000 in research and development expenses in the condensed consolidated statements of operations. During thethree and nine months ended September 30, 2025, the Company recognizedno sublicense fees or license maintenance fees due to Regents.

Licensed Legacy Assets

NSI-189 – Exclusive License and Subsequent Exercise of Purchase Option

Prior to the Seneca Merger, Seneca exclusively licensed certain patents and technologies, including a sublicense covering a synthetic intermediate, of the Company's NSI-189 assets (“189 License”), along with a purchase option through December 16, 2023 (“Purchase Option”). On October 22, 2021, Alto Neuroscience ("Alto") agreed to terms of an early exercise of the Purchase Option under the 189 License and entered into an asset transfer agreement ("ATA"). Alto is a U.S.-based public, clinical-stage biopharmaceutical company with a mission to redefine psychiatry by leveraging neurobiology to develop personalized and highly effective treatment options.

Pursuant to the ATA, Alto will be required to pay the Company up to an aggregate of $4.5 million upon the achievement of certain development and regulatory approval milestones for NSI-189 (or a product containing or otherwise derived from NSI-189), which is now known as ALTO-100. If Alto sells or grants to a third party a license to the patents and other rights specific to ALTO-100 prior to the achievement of a specified clinical development milestone, Alto will be required to pay to the Company a low-double-digit percentage of any consideration received by Alto from such license or sale, provided that the maximum aggregate consideration Alto will be required to pay to the Company under the ATA, including the upfront payment and all potential milestones and transaction-related payments, will not exceed $5.0 million.

On October 22, 2024, Alto announced that its Phase 2b study of ALTO-100 in patients with major depressive disorder did not meet its primary endpoint. Notwithstanding, ALTO-100 is being evaluated as an adjunctive treatment in a Phase 2b study in bipolar depression with topline data expected in mid-2027. Upon the enrollment of a patient in a Phase 3 clinical trial of ALTO-100, if it occurs, a milestone payment of $1.5 million will be due to the Company from Alto under the ATA.

NSI-532.IGF-1

On October 27, 2022, the Company entered an agreement to license NSI-532.IGF-1 to the Regents of the University of Michigan ("University of Michigan") for maintaining NSI-532.IGF-1 cell lines, continued development, maintaining patent protection, and seeking licensees. The Company receivedno upfront fees for the license. NSI-532.IGF-1 is a preclinical cell therapy being investigated as a potential therapy for prevention and treatment of Alzheimer’s disease. The University of Michigan shall bear 100% of the costs for patent filing, prosecution, maintenance, and enforcement of the patent rights. The Company will receive 50% of net revenues received by the University of Michigan from the licensing of patent rights through the last-to-expire patent in patent rights, unless otherwise earlier terminated, less all reasonable and actual out-of-pocket costs incurred in the litigation of patent rights. To date, the Company has recognized no net revenues from the licensing of NSI-532.IGF-1.

8. Net Loss Per Share

Basic and Diluted Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated by dividing the net loss available to common stockholders by the weighted-average number of shares of common stock outstanding during the period, plus any potentially dilutive common shares, consisting of stock-based awards and equivalents, and common stock warrants. For purposes of this calculation, stock-based awards and equivalents and common stock warrants are considered to be potential common shares and are only included in the calculation of diluted net loss per common share when their effect is dilutive.

The Company's Series A Convertible Preferred Stock and certain of the Company's outstanding common stock warrants contain non-forfeitable rights to dividends with the common stockholders and therefore are considered to be participating securities. The Series A Convertible Preferred Stock and the common stock warrants do not have a contractual obligation to fund the losses of the Company; therefore, the application of the two-class method is not required when the Company is in a net loss position but is required if the Company is in a net income position. When in a net income position, diluted net earnings per common share is computed using the more dilutive of the two-class method or the if-converted and treasury stock methods.

Pursuant to the October 2025 Offering, on October 2, 2025, the Company issued pre-funded warrants to purchase one share of the Company's common stock, par value $0.01 pershare (the "October 2025 Offering Pre-Funded Common Stock Warrants"). The October 2025 Offering Pre-funded Common Stock Warrants were determined to be equity-classifiedin accordance with ASC 480 and ASC 815-40. As of September 30, 2026,37,814,754 of the October 2025 Offering Pre-funded Common Stock Warrants remained unexercised. Pursuant to the guidance of ASC 260-10, the Company concluded that because the equity-classified pre-funded warrants were immediately exercisable for little orno cash consideration due to the non-substantive stated exercise price, all the necessary conditions for issuance of the underlying common shares had been met when the pre-funded warrants were issued. Therefore, the underlying common shares for the unexercised portion of the October 2025 Offering Pre-funded Common Stock Warrants have been included in the denominator for the calculation of basic and dilutive net loss per common share for thethree and nine months ended September 30, 2026. There were no pre-funded warrants outstanding at September 30, 2025.

As the Company was in a net loss position for all periods presented, basic and diluted net loss per common share for the three and nine months ended September 30, 2026 and September 30, 2025 were calculated using the if-converted and treasury stock methods. For both the three and nine months ended September 30, 2026 and September 30, 2025, basic and diluted net loss per common share were the same as all common stock equivalents other than the pre-funded warrants that were outstanding at September 30, 2026, as discussed above, were anti-dilutive for all the periods presented.

The following table presents the calculation of basic and diluted net loss per common share (in thousands, except share and per share amounts):

The following potentially dilutive securities were excluded from the calculation of diluted net loss per share because their effects would be anti-dilutive:

9. Commitments and Contingencies

Legal Proceedings

From time to time, the Company may be involved in various lawsuits, legal proceedings, or claims that arise in the ordinary course of business. Management believes there are no claims or actions currently pending against the Company, which will have, individually or in aggregate, a material adverse effect on its business, liquidity, financial position, or results of operations. Litigation, legal proceedings or claims, however, are subject to inherent uncertainties, and an adverse result in such matters may arise from time to time that may harm the Company’s business.

Nexys Agreements

On September 22, 2026 (the "Execution Date"), the Company entered into a development funding agreement (the "DFA") and call option agreement (the "Call Option" and together with the DFA, the "Nexys Agreements") with Nexys Therapeutics, LLC. ("Nexys"). Under the DFA, the Company may fund up to $3.5 million in expenses related to the development of Nexys' assets, evidenced by a promissory note (the "Note") bearing simple interest at an annual rate of 4.01% and maturing on January 1, 2030.

During the call option period, as defined in the Call Option, the Company can exercise the Call Option to acquire all outstanding equity interests of Nexys, which would applythe aggregate principal and accrued interest outstanding under the Note toward the purchase consideration. If the Company elects not to exercise the Call Option, the Company mayelect for any outstanding principal and accrued interest under the Note to convert into equity interests of Nexys, subject to a 19.99% ownership limitation (the "conversion feature"). Unless certain events of default occur, the Note, including any principal and accrued interest due, will not be settled in cash and will be settled through the Call Option, the conversion feature, or forgiven if the Company does not elect the Call Option during the option period or the conversion feature prior to the maturity of the Note.

As both the Note and the Call Option are not readily convertible into cash, and are physically settled into the equity of Nexys, the Company has determined that both instruments fail the net-settlement provisions of ASC 815, Derivatives and Hedging, ("ASC 815"), and therefore do not meet the definition of a derivative.

Under the terms of the DFA, the Company is not obligated to fund any amounts under the Note until the related funding package is approved. As of both the Execution Date and September 30, 2026, the Company had not approved nor had any funding been advanced through the Note. Therefore, as of both the Execution Date and September 30, 2026, the Company has not recognized any financial impact resulting from the Nexys Agreements.

Other Commitments

On March 30, 2026, the Company entered into an agreement with a third party to support with site selection, activation, and enrollment for the Company’s Phase 2 clinical trial of PALI-2108 for the treatment of UC. Per the terms of the agreement, the Company will pay a set amount per patient that is enrolled and randomized in the trial. The Company may also owe additional amounts based upon achievement of certain defined enrollment rate targets. The agreement includes a contract termination clause, requiring a payment of $2.0 million if the Company terminates the agreement after activation of the first site and prior to the earlier of the aggregate per-patient fees reaching $8.0 million or completion of the study. The first site subject to the agreement was activated in the third quarter of 2026. No patients were randomized as of September 30, 2026 and no amounts for this agreement were recognized as of September 30, 2026.

10. Segment Information

The Company operates asone operating and reportable segment, focused on the research and development of novel therapeutics for patients, including the advancement of PALI-2108 through clinical trials. The Company did not aggregate multiple operating segments into its one operating segment. The Company’schief operating decision maker (“CODM”) is its chief executive officer.

The Company's CODM uses Net loss that is reported on the condensed consolidated statements of operations for the purposes of assessing performance, allocating resources and planning, monitoring budget versus actual results, and forecasting future periods. The Company’s CODM views specific program spend within research and development expenses, research and development spend that is not allocated to specific programs, as well as general and administrative expenses as significant segment expenses. As a pre-product revenue company, the CODM considers budget versus actual results for expenses that are deemed significant and cash forecast models for assessing performance and to decide the level of investment in the Company’s operating and capital allocation activities.

In addition to significant expense categories included in Net loss, the Company regularly provides disaggregated significant expense amounts that comprise operating expenses to the CODM to assist when managing the Company's single reporting segment. A reconciliation to consolidated operating expenses for thethree and nine months ended September 30, 2026 and 2025 is included in the table below (in thousands):

PALI-2108 program expenses are those expenses directly related to the development of the Company's only asset currently under development, PALI-2108. Legacy program expenses are those expenses directly related to its legacy assets, primarily LB1148, which the Company ceased developing in August of 2023. Other research and development expenses include primarily employee-related expenses, which are not allocated to specific programs, and non-cash losses associated with changes in the fair value of the Company's contingent consideration obligation. Other general and administrative expenses consist primarily of salary and employee-related costs and benefits, legal fees, investor and public relations, accounting and audit services, taxes and insurance costs, director and committee fees, and general corporate expenses. Excluded from other general and administrative expenses are intellectual property expenses and business development expenses that are allocated to program expenses.

For the three and nine months ended September 30, 2026 and 2025, the other segment items that the Company used to aggregate with Total operating expenses to arrive at Net Loss as shown on the condensed consolidated statement of operations may include License revenue, Interest expense and Other income, net.

The Company does not provide separate segment asset information to the CODM because the CODM does not review segment assets at a different asset level or category than those shown on the condensed consolidated balance sheets. All of the Company’s assets are located in the U.S.

ITEM 2. MANAGEM