Turn Therapeutics Inc. (TTRX) — 10-K

Filed 2026-03-31 · Period ending 2025-12-31 · 74,286 words · SEC EDGAR

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# Turn Therapeutics Inc. (TTRX) — 10-K

**Filed:** 2026-03-31
**Period ending:** 2025-12-31
**Accession:** 0001213900-26-037505
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/2023016/000121390026037505/)
**Origin leaf:** 29633549c0e3d02c578d662911e06ddd8261135046f80a31f8bbb729f077d866
**Words:** 74,286



---

UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K 
(Mark
One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For
the fiscal year ended December
31, 2025
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For
the transition period from ________ to ________
Commission
file number 001-42875 
Turn
Therapeutics Inc. 
(Exact
name of registrant as specified in its charter)
| 
Delaware | 
| 
32-0456090 | 
|
| 
(State or other jurisdiction of incorporation or organization) | 
| 
(I.R.S. Employer Identification No.) | |
| 
| 
| 
| |
| 
250
N. Westlake Blvd, STE
210
Westlake
Village, CA | 
| 
91362 | 
|
| 
(Address of Principal Executive Offices) | 
| 
(Zip Code) | |
(818)
564-4011 
(Registrants telephone number, including
area code)
Securities registered pursuant to Section 12(b) of the Act:
| 
Title
of each class | 
| 
Trading
Symbol(s) | 
| 
Name
of each exchange on which registered | |
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Common
Stock, par value $0.0001 per share | 
| 
TTRX | 
| 
The Nasdaq
Stock Market LLC | |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 
No 
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes 
No 
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes 
No 
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No 
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of large accelerated filer, accelerated filer, smaller reporting company
and emerging growth company in Rule 12b-2 of the Exchange Act.
| 
Large accelerated filer | 
| 
Accelerated filer | 
| |
| 
Non-accelerated
filer | 
| 
Smaller reporting company | 
| 
|
| 
| 
| 
Emerging growth company | 
| 
|
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant
has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. 
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. 
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants
executive officers during the relevant recovery period pursuant to 240.10D-1(b). 
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes 
No 
The registrant was not
a public company as of June 30, 2024, the last business day of its most recently completed second fiscal quarter, and therefore cannot
calculate the aggregate market value of the voting and non-voting common equity held by non-affiliates as of such date. The registrants
common stock began trading on The Nasdaq Stock Market on October 8, 2025. 
As of March 30, 2026, there were 29,788,040
shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding. 
DOCUMENTS
INCORPORATED BY REFERENCE
None.
Table
of Contents
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Page | |
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PART
I | |
| 
Item 1. | 
Business | 
1 | |
| 
Item 1A. | 
Risk Factors | 
18 | |
| 
Item 1B. | 
Unresolved Staff Comments | 
52 | |
| 
Item 1C. | 
Cybersecurity | 
52 | |
| 
Item 2. | 
Properties | 
52 | |
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Item 3. | 
Legal Proceedings | 
52 | |
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Item 4. | 
Mine Safety Disclosures | 
52 | |
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PART II | |
| 
Item 5. | 
Market for Registrants Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 
53 | |
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Item 6. | 
[Reserved] | 
53 | |
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Item 7. | 
Managements Discussion and
Analysis of Financial Condition and Results of Operations | 
54 | |
| 
Item 7A. | 
Quantitative and Qualitative Disclosures
About Market Risk | 
61 | |
| 
Item 8. | 
Financial Statements and Supplementary
Data | 
61 | |
| 
Item 9. | 
Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure | 
61 | |
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Item 9A. | 
Controls and Procedures | 
61 | |
| 
Item 9B. | 
Other Information | 
62 | |
| 
Item 9C. | 
Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections | 
62 | |
| 
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| |
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PART III | |
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Item 10. | 
Directors, Executive Officers and
Corporate Governance | 
63 | |
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Item 11. | 
Executive Compensation | 
65 | |
| 
Item 12. | 
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters | 
69 | |
| 
Item 13. | 
Certain Relationships and Related
Transactions, and Director Independence | 
73 | |
| 
Item 14. | 
Principal Accountant Fees and Services | 
75 | |
| 
| 
| |
| 
PART IV | |
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Item 15. | 
Exhibits and Financial Statement Schedules | 
76 | |
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Item 16. | 
Form 10-K Summary | 
77 | |
| 
Signatures | 
78 | |
i
Cautionary Note
Regarding Forward-Looking Statements
This Annual Report on Form
10-K (the Annual Report) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions
or projections regarding future events or future results and therefore are, or may be deemed to be, forward-looking statements.
All statements other than statements of historical facts contained in this Annual Report may be forward-looking statements. These forward-looking
statements can generally be identified by the use of forward-looking terminology, including the terms believes, estimates,
continues, anticipates, expects, seeks, projects, intends,
plans, may, will, would or should or, in each case, their negative
or other variations or comparable terminology. They appear in a number of places throughout this Annual Report, and include statements
regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition,
liquidity, prospects, growth, strategies, future acquisitions and the industry in which we operate.
By their nature, forward-looking
statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the
future. We believe that these risks and uncertainties include, but are not limited to, those described in the Risk Factors
section of this Annual Report on Form 10-K, which include, but are not limited to, risks related to the following:
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the progress, timing, costs and results of our pre-clinical and clinical trials; | |
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the timing of meetings with and feedback from regulatory authorities as well
as any submission of filings for regulatory approval of any of our product candidates; | |
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the potential advantages and differentiated profile of our product candidates
compared to existing therapies for the applicable indications; | |
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our expectations regarding financial performance, including but not limited
to our expectations regarding revenue, cost of revenue, operating expenses including R&D, stock-based compensation, and our ability
to achieve and maintain future profitability; | |
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the implementation of our business model and our strategic plans for our business,
products and growth strategy; | |
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our ability to develop and commercialize any of our drug candidates, if approved; | |
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our ability to establish or maintain collaborations or strategic relationships; | |
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our competitive position, including our ability to compete with existing and
new competitors; | |
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developments and projections relating to our competitors and our industry; | |
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the scope of protection that we are able to establish and maintain for intellectual
property rights covering our products and product candidates; | |
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our estimates regarding expenses, future revenue, capital requirements and needs
for additional financing; | |
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the period over which we estimate our existing cash and cash equivalents will
be sufficient to fund our future operating expenses; | |
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capital expenditure requirements; | |
ii
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the impact of new or existing laws and regulations on our business and strategy; | |
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the increased expenses associated with being a public company; and | |
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other factors disclosed in the Risk Factors section of this Annual
Report. | |
These factors should not
be construed as exhaustive and should be read with the other cautionary statements in this Annual Report.
Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities
and Exchange Commission (SEC). We cannot guarantee the accuracy of any such forward-looking statements contained in this
Annual Report, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information,
future events, or otherwise. For further information regarding risks and uncertainties associated with our business, and important factors
that could cause our actual results to vary materially from those expressed or implied in such forward-looking statements, please refer
to the factors listed and described in this Annual Report and in our other filings with the SEC.
Risk Factor Summary
**
*The following is a summary
of the principal risks that may materially adversely affect our business, financial condition, results of operations and cash flows. The
following should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth in the section
entitled Item 1A. Risk Factors in this Annual Report.*
The following is a summary
of the principal risks we face:
| 
| 
| 
We design, develop, and conduct pre-clinical and clinical testing on drug candidates
and medical devices. Given the inherent expense associated with these activities, it is common for companies at our stage to incur significant
losses associated with such product development. We expect to incur additional losses for the foreseeable future, and it is possible we
may never achieve or maintain profitability. Our consolidated financial statements therefore express substantial doubt about our ability
to continue as a going concern. | |
| 
| 
| 
We have a limited operating history and there are inherent uncertainties and
risks in pharmaceutical and medical device product development and commercialization. | |
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If we fail to obtain or generate the capital necessary to fund our operations,
we will be unable to continue or complete our product development and you will likely lose your entire investment. | |
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Even if we can raise additional funding, we have in the past and may in the
future enter into financing agreements that lead to increased dilution, and which will result in sales of our common stock in the open
market, which could adversely impact the trading price of our common stock. | |
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We are an early-stage company that competes against large, well-established
companies with long-standing relationships, extensive clinical data, and recognized brands, as well as against new companies with innovative
products. | |
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We identified a material weakness in our internal control over the accuracy
of our financial reporting, and our management concluded that our internal controls over financial reporting were not effective as of
December 31, 2024. While we have implemented remedial actions and concluded that the material weakness has been remediated as of September
30, 2025, if we fail to maintain effective internal controls over financial reporting, it could result in material misstatements of our
consolidated financial statements. | |
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We expect to increase the size of our organization in the future, and we may
experience difficulties in managing this growth. If we are unable to manage the anticipated growth of our business, our future revenue
and operating results may be harmed. | |
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We rely upon and intend to continue to rely upon third parties to manufacture
our medical devices and drug candidates including for pre-clinical testing, clinical testing, and commercialization. Commercialization
of any of our drug candidates and/or medical devices could be stopped, delayed, or made less profitable if those third parties fail to
maintain compliance with government regulators, fail to provide us with sufficient quantities of drug product, devices, or device components,
or fail to do so at acceptable quality levels or prices. | |
iii
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Our business is dependent on the successful development, regulatory approval,
and commercialization of our products, product candidates and/or future products and product candidates. | |
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Clinical trials and preclinical studies are expensive, time consuming, difficult
to design and implement, and involve uncertain outcomes. | |
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Failure to comply with government regulations could adversely affect our business. | |
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If we fail to comply with healthcare regulations, we could face substantial
enforcement actions, including civil and criminal penalties and our business, operations and financial condition could be adversely affected. | |
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Obtaining approval of a new device or drug is lengthy, expensive, and inherently
uncertain. | |
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Issued patents covering our current or future products or product candidates
could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad. | |
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If we are unable to protect the confidentiality of our trade secrets, our business
and competitive position would be harmed. | |
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Laws, rules and regulations that protect the privacy and security of personal
information may increase our costs, limit our ability to collect and use that information, and subject us to liability if we are unable
to fully comply with such laws, rules and regulations. | |
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If we are unable to obtain, maintain and enforce patent protection for our current
products and product candidates, and any future products or product candidates we may develop, or if the scope of the patent protection
obtained is not sufficiently broad, our competitors or other third parties could develop and commercialize products and product candidates
similar or identical to ours and our ability to successfully develop and commercialize our products and product candidates may be adversely
affected. | |
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We may become subject to claims or legal proceedings alleging that we are infringing,
misappropriating or otherwise violating the intellectual property rights of others. | |
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Obtaining and maintaining our patent protection depends on compliance with various
procedural, document submission, fee payment and other requirements imposed by government patent agencies, and our patent protection could
be reduced or eliminated as a result of noncompliance with these requirements. | |
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| 
Cybersecurity breaches, attacks and other similar incidents, as well as other
disruptions to our information technology systems, could compromise our confidential and proprietary information, including personal information,
and expose us to liability and regulatory fines, increase our expenses, or result in legal or regulatory proceedings, which could cause
our business and reputation to suffer. | |
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We are subject
to various affirmative and negative covenants with respect to our debt financing with Avenue. The covenants may impede our ability to
execute our business plan and, if breached, may adversely affect our business, results of operations and financial condition. | |
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An active trading market may not develop or continue to be liquid and the market
price of shares of our common stock may be volatile. | |
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Sales of substantial amounts of our common stock in the public markets by our
founder, affiliates, or non-affiliates, or the perception that such sales might occur, could reduce the price that our common stock might
otherwise attain. | |
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We are a controlled company within the meaning of the corporate
governance rules of Nasdaq and, as a result, we qualify for exemptions from certain corporate governance requirements. Although we do
not currently intend to rely on any such exemptions, we may do so in the future and if we utilize any of the exemptions, you will not
have the same protections as those afforded to stockholders of companies that are subject to such governance requirements. | |
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Because of his significant ownership of our common stock, our founder has substantial
control over our business, and his interests may differ from our interests or those of our other shareholders. | |
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We may not be able to maintain a listing of our common stock on Nasdaq. | |
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We cannot predict the number of shares we may sell to GEM under the GEM Purchase
Agreement, the prices at which such shares may be sold, or the actual proceeds we will receive, and any sales could cause substantial
dilution to our stockholders. | |
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| 
If you purchase our common stock in future offerings, you may incur immediate
and substantial dilution in the book value of your shares of common stock. | |
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Resales of our shares of common stock in the public market by our stockholders
as a result of any offering may cause the market price of our common stock to fall. | |
iv
PART
I
Item
1. Business
**
*Unless the context otherwise
requires, for purposes of this section, the terms we, us, or the Company or Turn Therapeutics
refer to Turn Therapeutics Inc.*
Overview
Turn Therapeutics is developing
non-systemic, non-biologic topical immunomodulators for inflammatory skin disease. Our lead program, GX-03, is being studied for moderate-to-severe
eczema based on preclinical evidence of cytokine inhibition and reduced eczema severity, as well as a favorable real-world tolerability
record from prior cleared medical device indications for the same formula.
GX-03 is currently being
evaluated in an ongoing, randomized, double-blind, vehicle-controlled clinical study designed to assess its potential as a topical treatment
for moderate-to-severe eczema. We intend to conduct an interim assessment at approximately 50% trial completion. Topline results are expected
mid-2026.
In addition to eczema, GX-03
is being advanced for onychomycosis, supported by in-vivo data demonstrating nail penetration and antifungal activity. Our historical
medical device portfolio, which includes K183681, K160872, and K171191, also provides background tolerability and feasibility experience
with the formula. K183681 has recently been licensed to Medline under a license and supply agreement. See the section of this Annual Report
titled Marketing Medline Agreement for a more detailed description of this agreement.
We also continue exploratory
work on a thermostable intranasal vaccine platform based upon preclinical success in work with an international non-profit organization,
but this program is not part of the companys primary dermatology development path.
**
*Our Solutions*
We are seeking new drug approvals
for the GX-03 formula as a treatment for both eczema and onychomycosis, two skin conditions which require FDA drug approval for marketing.
The drug candidate is based on GX-03s inclusion of polyhexanide (PHMB), a well-characterized polymer that, despite
its long history of being well-tolerated in wound care, has never been formally submitted or approved as an API for a drug product within
the United States. This API has demonstrated strong antimicrobial, anti-inflammatory, and newly discovered upstream and downstream immunomodulating
properties, and has an established safety profile with no known adverse effects. We are pursuing its use as a drug active in indications
such as inflammatory skin diseases and fungal nail infections. PHMB has no demonstrated or documented systemic uptake in humans.
Our proposed drug formulation
for GX-03 is identical to the formula employed in previously cleared medical devices. It has the same active ingredient concentration,
petrolatum base, and employs the same proprietary mixing process. Our decision to pursue indications in eczema and onychomycosis is supported
by physician feedback and case studies, as discussed below, as well as sponsor initiated in-vivo and in-vitro data. We believe such signals,
along with PHMBs well-documented antimicrobial and anti-inflammatory properties, which have been validated by scientific literature
and in-vivo studies, form a sound scientific basis for cross-indication effectiveness across these two dermatologic conditions.
Our founder obtained 510(k)
FDA clearance for the GX-03 formula under product category FRO in November 2016 (K160872). To achieve this clearance, extensive animal,
laboratory and manufacturing testing was conducted to demonstrate that the formula was as well-tolerated and effective as predicate
products with comparable form and function. Additional 510(k) clearance was granted in August 2017 (K171191) to manage the skin
and symptoms of various skin conditions, including atopic, irritant, and radiation dermatitis. In October 2019, a third clearance was
obtained for a porous antimicrobial gauze saturated with the GX03 formula (K183681), following further testing, including packaging and
sterilization validations.
In 2020, our founder developed
the FleX Product, designed for use in wound and burn care. The rights to this medical device formulation were licensed to MiMedx prior
to FDA clearance. MiMedx subsequently elected to pursue a De Novo classification pathway for truly novel innovations rather than a traditional
510(k) route and assumed responsibility for all remaining product testing and regulatory interactions for the FleX Product. For more information
with respect to the license agreement with MiMedx, see - Marketing-MiMedx Agreement.
1
Our current business model
is to license and/or sell medical device products through commercial partners, without significant capital commitments from us, which
allows us to focus our internal efforts on drug development. From 2017 to 2019, GX-03 was commercially distributed by McKesson for wound
care. Following physician reports and case studies suggesting positive outcomes in patients with eczema and onychomycosis, we voluntarily
ceased internal wound care sales in 2019 to pursue new drug approvals related to these results. We continue to explore additional licensing
opportunities for device applications. We have recently completed a license and supply agreement with Medline with respect to K183681
and other wound care opportunities, as well as antimicrobial personal care/OTC products to be jointly developed. We maintain a business
model that strategically leverages contractors and vendors while employing a comparatively small internal team in order to minimize cash
burn. We believe this reduces the amount of cash needed for internal operations, reduces waste and results in a larger proportion of available
capital that can be spent toward furthering clinical development.
Core Products and Programs
**
*GX-03 for Moderate-to-Severe Eczema
(Lead Program)*
GX-03 is a non-systemic topical
immunomodulator being clinically developed for moderate-to-severe eczema. Preclinical studies demonstrated inhibition of cytokines associated
with inflammatory skin disease, including IL-31, IL-36/, and IL-4. GX-03 is currently being evaluated in a randomized, double-blind,
vehicle-controlled clinical trial in adults with moderate-to-severe eczema.
An interim assessment will
be performed at approximately 50% trial completion. An independent interim assessment committee (IAC) will review emerging
signals of tolerability and efficacy. The IAC is empowered to deliver pre-written statements regarding conditional probability of a statistically
significant favorable trial outcome, as well as increase the sample size up to 200% if the committee sees a strong likelihood of achieving
statistical significance based upon positive trending. This adaptive trial design, due to the independence of the committee, pre-established
rights, and pre-written statements the committee is permitted to deliver after deliberating, does not increase the likelihood of primary
error and/or expend alpha.
**
*GX-03 for Onychomycosis*
GX-03 is also being advanced
as a topical treatment for onychomycosis. In-vivo studies in a validated animal model demonstrated nail-plate penetration and reduction
of fungal burden within the nail. Additional clinical program steps are expected to follow completion of the eczema clinical program and
related IND activities.
**
*Medical Device Products (Wound
and Dermatitis Management)*
The company has previously
developed and obtained FDA clearance for several medical device formulations containing the same base formulation used in GX-03:
| 
| 
| 
K183681: a porous
antimicrobial gauze impregnated with the GX-03 formulation. The product has recently been licensed to Medline under a license and supply
agreement. | |
| 
| 
| 
K160872: a device cleared for acute
and chronic wound management. | |
| 
| 
| 
K171191: a device cleared to manage
the skin and symptoms of atopic, irritant, and radiation dermatitis. | |
These medical devices provide
historical real-world usage experience but are not the focus of current clinical development efforts.
**
**
2
**
*Thermostable Intranasal Vaccine
Platform (Exploratory Program)*
The company continues to
conduct exploratory research into the use of its formulation process for live vaccine stabilization and nasal application. This program
remains early-stage and operates independently of the dermatology development programs.
**
*PIND Meetings Summary and Drug
Programs:*
The FDA has provided a potential
regulatory pathway for GX-03s drug development programs. Following two early PIND meetings to discuss clinical development programs
for conditions of the nails and skin (PIND 137155 and PIND 138686 on January 17, 2018 and May 9, 2018, respectively), the FDA communicated
an openness to the Company leveraging existing 510(k) clinical data to bypass Phase 2 studies.
Electively, the Company chose
to sponsor an approximately 114-patient double-blind, randomized, vehicle-controlled trial within the United States in moderate-to-severe
eczema to provide insight into Phase 3 design and clinical signal. Patient dosing commenced in mid-July 2025. While we have obtained and
are actively completing CMC work required for IND submission, we are able to conduct this trial with significant cost savings by utilizing
the existing 510(k) clearance (K171191) for the candidate formula (GX-03), which permits its use on human subjects with atopic dermatitis.
Although we are running this trial as a Phase 2-equivalent, we are simultaneously leveraging the cleared status of the formulation. As
such, this trial was deemed low-risk and required institutional review board approval rather than an active IND. This trial is designed
to (i) generate high-quality tolerability and efficacy data that, if successful, we expect to include in an IND package to support a Phase
3 study and (ii) provide insight to stakeholders regarding the clinical efficacy of our product candidate.
At the conclusion of this
study and subsequent regulatory interaction(s), our present plan is to advance to Phase 3 trials for moderate-to-severe eczema following
a meeting with the FDA to discuss the data and development plan(s). We intend to conduct additional nonclinical and clinical studies,
such as PK max-use and additional healthy volunteer exposure trials, and anticipate requesting permission to conduct such studies in parallel
with Phase 3 trials.
The Company also intends
to initiate additional clinical development of GX-03 for onychomycosis. The clinical development of topical therapies for onychomycosis
benefits from a well-established body of regulatory precedent, including defined endpoints, validated trial designs, and historical comparators.
While the Agency previously communicated potential openness to advancing the onychomycosis program directly into Phase 3 trials, in light
of evolving regulatory openness to a single adequate and well-controlled registrational study, the Company may elect to structure such
a single registrational trial as an adaptive Phase 2b/3 study within a single development framework. The Company may also initiate certain
foundational clinical activities for onychomycosis in select ex-U.S. jurisdictions with clinically respected regulatory environments,
while IND preparation and U.S. site activation for this indication continue. This approach is intended to support alignment of global
development timelines for the onychomycosis program while preserving optionality as the Company engages with the FDA on its overall development
strategy.
*Clinical Highlights for GX-03:*
GX-03 has demonstrated broad
upstream cytokine inhibition in preclinical models of inflammatory skin disease, including IL-31, IL-36/, and IL-4. These
findings correspond to pathways implicated in eczema pathophysiology. In animal studies, treatment with GX-03 resulted in significant
reductions in Investigators Global Assessment (IGA) scores and suppression of inflammatory signaling.
Additional in-vivo work demonstrated
nail penetration and antifungal activity relevant to onychomycosis. Across these programs, GX-03 demonstrated a favorable tolerability
profile with no observed systemic exposure.
**
*Vaccine Delivery Platform*
In addition to our dermatology
programs, we are actively advancing vaccine delivery technologies through our PermaFusion suspension platform aimed at extending the ambient
and refrigerated stability of live vaccines. If successful, this technology will enable critical vaccines to be delivered intranasally
without injection which, alongside increased stability, may enable the delivery of immunizations to patients in clinic, hospital, and
home-health settings.
3
In May 2025, we achieved
a key technical milestone: the successful 100% recovery of a live VSV vaccine vector from our oil-based delivery system. Viral vectors
are base viruses used to make vaccines via strategic modifications. We established that we could recover 100% of this VSV vector suspended
in our carrier at 72 hours at room temperature, with all of the VSV being recovered, a measurement term for surviving. These
findings suggest that lipid-enveloped live viruses may remain viable in our viscous suspension system without degradation, thereby offering
preliminary evidence that challenges prior assumptions about incompatibility between lipid carriers and live, lipid-enveloped viruses.
On June 6, 2025, we began
a parallel stability analysis of a live, VSV-based vaccine candidate (suspended in our carrier) and the same vaccine in traditional, solution
form. Both forms, along with an unmodified VSV control, were stored at ambient temperature and refrigerated (4C) for 28 days. Evaluations
of viability took place at 3, 7, 14, and 28 days. That trial has been completed and produced results demonstrating that the live vaccine
in our delivery system was 100% recoverable at up to 14 days in ambient storage and 100% recoverable at up to 28 days in refrigerated
storage.
Competitive Strengths
**
*Non-Systemic Cytokine Modulation
for Inflammatory Skin Disease*
GX-03 has demonstrated inhibition
of cytokines associated with inflammatory skin disease without evidence of systemic uptake. This approach is intended to enable topical
immunomodulation without systemic immunosuppression or injectable administration.
**
*Proprietary Platform Technology
Enabling Broad Formulation Capabilities Across Multiple Therapeutic Categories*
The companys formulation
process enables suspension of water-soluble actives in oil-based carriers without emulsifiers, supporting uniform delivery and stability.
**
*Improved Therapeutic Profile for
Onychomycosis and Other Dermatologic Indications*
Current topical therapies
for onychomycosis, such as Jublia (efinaconazole), are associated with long treatment durations, low complete cure rates (often
below 20% in real-world use), and limited penetration into the nail bed. Oral antifungals offer better efficacy but carry systemic risks,
including hepatotoxicity, drug interactions, and the need for liver monitoring. Our topical antifungal product candidate, developed using
the PermaFusion platform, is designed to overcome these limitations by enhancing delivery through the nail plate while avoiding systemic
exposure. We believe our candidate represents a potentially attractive topical therapy with a differentiated tolerability and efficacy
profile.
**
*Needle-Free, Non-Systemic Approach
Aligned with Patient and Caregiver Preferences*
There is increasing demand-particularly
among pediatric, geriatric, and chronic care populations - for therapies that avoid injections, steroids, and systemic immunosuppression.
Our pipeline is focused on non-steroidal, non-injectable, and non-biologic product candidates with localized activity. This approach is
intended to maximize safety and convenience without compromising therapeutic effect, addressing a growing preference for treatments that
are easier to administer and better tolerated over long-term use.
**
*Immunomodulatory Activity Without
the Cost and Risks of Biologics*
Many immunomodulatory therapies
rely on injectable and topical biologics that target pathways such as IL-4, IL-13, IL-31, and IL-36. While these agents tend to show effectiveness
in clinical trials, they come with tradeoffs: high cost, systemic immunosuppression, higher incidence of side effects, and, for injectables,
low patient adherence due to injection burden. Our non-biologic, non-systemic candidates have demonstrated cytokine modulation without
the need for injections or systemic absorption. Cytokine modulation refers to the alteration-either reduction, increase,
or normalization-of the levels of signaling proteins (cytokines) that regulate immune and inflammatory responses. In inflammatory
skin diseases such as eczema, certain cytokines (e.g., IL-36, IL-36, IL-31, and IL-4) are overproduced, driving redness, swelling,
and itch. Modulating these cytokines can reduce the inflammatory response and improve disease symptoms.
4
GX-03 has demonstrated cytokine
modulation in pre-clinical (animal) studies. In a murine model of Staphylococcus aureus-induced eczema, topical pretreatment with GX-03
significantly reduced protein expression of IL-36 (50%, p=3.0810), IL-36 (49%, p=4.3510),
IL-31 (68%, p=1.1210), and IL-4 (17%, p=2.8710) compared to untreated controls,
as measured by quantitative Western blot analysis. These findings were associated with a statistically significant improvement in Investigators
Global Assessment (IGA) scores (mean 0.8 vs. 2.4; p=7.9310), indicating reduced clinical signs of skin inflammation.
This may provide a potential new therapeutic class to compete in biologic-driven markets while avoiding the limitations inherent to biologic
therapy.
**
*Tolerability Experience From Cleared
Medical Devices*
Historical use of related
formulations in cleared medical device products provides background tolerability experience relevant to future development.
**
*Intellectual Property Protecting
Core Technology and Product Candidates*
We hold numerous issued patents
and multiple pending applications across major jurisdictions, covering composition, manufacturing methods, and delivery mechanisms. These
patents are expected to provide coverage for our lead product candidates into the late 2040s. Our intellectual property strategy includes
both product-specific and platform-level claims, supporting both internal development and potential licensing opportunities. For more
information, see - Intellectual Property.
Notwithstanding our numerous
issued patents and pending applications, we have been party to, and may in the future become involved in, proceedings in the United States
or in foreign jurisdictions challenging the validity, priority or other features of patentability of our patent rights or those of third
parties that conflict with our own. For example, we filed a derivation proceeding in 2017 before the U.S. Patent and Trademark Office
(USPTO) against Marc Selner, alleging that Selner improperly and without authorization filed a patent application for an
invention conceived by Bradley Burnam. The USPTO did not name Mr. Burnam sole inventor of Selners application or cancel Selners
patent application, as we requested, and the U.S. Court of Appeals for the Federal Circuit affirmed the USPTOs decision. The derivation
proceeding was to determine the party that was first inventor of the claims of Selners application. As a result, Selners
application may contain claims similar in scope to certain issued patents and patent applications. However, we own multiple issued patents
for which Mr. Burnam is an inventor that cover the inventions at issue in the derivation proceeding (and related subject matter). Furthermore,
prior to its issuance, we intend to file for reexamination of the Selner patent application based upon its lack of enabling data, disclosures,
and expert testimony. Should the application ultimately issue as a patent, he may attempt to seek royalties or try to prevent our development
and commercialization of products he may allege overlap with his application claims or otherwise seek damages from us. For more information,
see Risk Factors - Risk Related to Our Intellectual Property, Data Privacy and Cybersecurity.
*Capital-Efficient Operating Model
Designed for Scalable Growth*
We operate with a lean infrastructure,
leveraging expert consultants and outsourced manufacturing to minimize fixed overhead and preserve capital for high-value activities.
Our pipeline strategy is informed by independent clinical observations, peer-reviewed publications, and identified gaps in the standard
of care. This model allows us to advance multiple assets in parallel while maintaining operational discipline.
**
*Positioned to Capitalize on Market
Disruption and Patent Expirations*
Several incumbent therapies
across dermatology and antifungal markets are nearing the end of their patent protection periods. We believe this shift creates an opportunity
to introduce differentiated, formulation-driven therapies into markets with stagnant innovation and increasing generic pressure. Our products
are designed to compete not just on efficacy, but also on tolerability, usability, and alignment with evolving patient and provider expectations.
5
Our Growth Strategy
Our growth strategy is built around the following
key priorities:
| 
| 
1. | 
Advance GX-03 as
the primary development program for moderate-to-severe eczema. The eczema program is the central focus of ongoing clinical development,
regulatory planning, and potential partnering discussions. | |
| 
| 
2. | 
Develop GX-03 for onychomycosis as a
secondary dermatology indication. | |
| 
| 
3. | 
Maintain and expand
medical device partnerships. The recent license and supply agreement with Medline for K183681 reflects the companys approach to
leveraging device assets through commercial partners. | |
| 
| 
4. | 
Continue exploratory work in thermostable
intranasal vaccines as a separate development lane. | |
Clinical Results
Previous in-vivo and in-vitro
work for GX-03, as well as GX-03 derived technology indicate a favorable tolerability profile, including a lack of cytotoxicity, irritation,
and/or sensitization, as well as a lack of systemic uptake.
These results culminated
in our previous FDA clearances for the GX-03 formula and its derivative products in 2016, 2017, and 2019 (K160872, K171191, and K183681,
respectively). These 510k FDA clearances were filed and cleared as FRO classification combination products and subject to performance
testing including ISO-10993 cytotoxicity, irritation, and sensitization studies. All studies were conducted in GLP and received passing
scores per ISO-10993 guidelines.
In support of our onychomycosis
development program, we conducted an in-vivo study titled Efficacy In Vivo Onychomycosis (Trichophyton mentagrophytes) Study
at Altogen Labs (Austin, Texas), under IACUC protocol LC03456, initiated in May 2019 and completed in June 2019. The study employed a
well-characterized rabbit onychomycosis model, using Trichophyton mentagrophytes to mimic clinically relevant fungal infections of the
nail, as described in a peer-reviewed protocol published in Antimicrobial Agents and Chemotherapy (2011). In the study, infected rabbits
were treated topically with our GX-03 formulation (0.5% PHMB in petrolatum) once daily for 30 days. Fungal burden was quantified using
qPCR on nail clippings, targeting T. mentagrophytes DNA. The treatment group showed a statistically significant reduction in fungal DNA
expression relative to untreated controls (p = 0.0005), with no adverse events or animal deaths observed. These findings demonstrate that
the GX-03 topical formulation was able to penetrate the nail plate and exert antifungal activity against organisms located in the deeper
layers of the nail-a capability not typically achieved by conventional topical therapies-and support further
development of the product for onychomycosis and related fungal skin conditions.
In June 2024, we completed
an in vivo efficacy study titled In Vivo Staphylococcus aureus Dermal Toxicity Study (Study R#XTN025486; protocol LC-04761)
at Altogen Labs in Austin, Texas, designed to evaluate the therapeutic potential of GX-03 in a mouse model of Staphylococcus aureus-induced
skin inflammation. The study utilized a published eczema induction protocol established by Liu et al. (Cell Host & Microbe, 2017)
and enrolled 30 mice randomized across three treatment arms. Following a 7-day course of GX-03 topical application, the treatment group
demonstrated a mean ISGA score of 1.44, compared to 3.00 in untreated controls, representing a 57% reduction in disease severity. No adverse
events or clinical signs of toxicity were observed. We believe these data support rapid skin-calming and anti-inflammatory effects of
GX-03 and may provide early validation for its use in inflammatory skin conditions such as eczema.
6
In July 2024, we completed
a second in vivo study titled In Vivo Pretreatment Staphylococcus aureus Dermal Toxicity Study (Study R#XTN025491; protocol
LC-04785), also conducted at Altogen Labs, to assess the immunological impact of GX-03 in a cytokine-driven model of eczema. In this study,
40 C57BL/6 mice received a 4-day topical pretreatment with GX-03 prior to disease induction. Skin inflammation was evaluated by blinded
ISGA scoring and protein-level analysis of key inflammatory markers. Mice treated with GX-03 showed a mean ISGA score of 0.83, compared
to 2.44 in controls, with a highly significant p-value (p = 7.93 10). Western blot analysis of skin tissue
samples revealed suppression of eczema-related cytokines, including:
| 
| 
| 
IL-31: 67.7% reduction (p = 1.12 
10-6) | |
| 
| 
| 
IL-36: 50% reduction (p = 3.08
10-13) | |
| 
| 
| 
IL-36: 49% reduction (p = 4.35
10-8) | |
| 
| 
| 
IL-4: 17% reduction (p = 2.87 
10-5) | |
No adverse reactions or health
concerns were noted throughout the study. Together, these findings demonstrate that GX-03 is capable of downregulating multiple upstream
inflammatory cytokines associated with atopic dermatitis in animal model.
We are currently conducting
a randomized, double-blind, vehicle-controlled clinical trial to evaluate the tolerability and effectiveness of topical investigational
product, GX-03, in adult subjects with moderate-to-severe eczema. The study is titled: A Double-Blind, Vehicle-Controlled Study
to Assess the Efficacy of GX-03 When Used in a Population of Adult Individuals with Moderate to Severe Eczema, and is classified
as a Phase 2 trial.
The study is being conducted
at a Center of Excellence in Franklin, Texas, operated by Australia Laboratory Sciences (ALS), a multinational contract research organization.
The study investigators are Barry Reece, MS, Dr. Max Adler, and Dr. Gene Ream.
The study is designed to
enroll 114to120 adult subjects aged 18 to 70, with a target of at least 100 subjects completing the full protocol. Participants
are randomized to receive either GX-03 or a matched vehicle control, applied topically in blinded form. The primary objective is to evaluate
clinical improvement in eczema relative to baseline and vehicle control.
An interim assessment will
be performed at approximately 50% trial completion. An independent interim assessment committee (IAC) will review emerging
signals of tolerability and efficacy. The IAC is empowered to deliver pre-written statements regarding conditional probability of a statistically
significant favorable trial outcome, as well as increase the sample size up to 200% if the committee sees a strong likelihood of achieving
statistical significance based upon positive trending. This adaptive trial design, due to the independence of the committee, pre-established
rights, and pre-written statements the committee is permitted to deliver after deliberating, does not increase the likelihood of primary
error and/or expend alpha.
The primary endpoint is the
change in Eczema Area and Severity Index (EASI) scores from baseline to weeks 4 and 8. Secondary endpoints include changes in Validated
Investigator Global Assessment for Atopic Dermatitis (vIGA-AD) and Peak Pruritus Numeric Rating Scale (PP-NRS) scores over the
same period. Tolerability and effectiveness are assessed throughout the study by monitoring treatment-emergent adverse events and evaluating
potential causal associations with the study drug.
This trial is designed to
generate controlled data on the potential clinical utility of GX-03 in treating inflammatory skin disease, particularly in non-steroidal
management of moderate-to-severe atopic dermatitis. We intend to include these findings in our investigational new drug application package.
Additionally, we expect findings from this study to inform the broader development strategy and potential regulatory submissions for GX-03.
**
*Onychomycosis (Fungal Nail Infection)*
Turn is pursuing indications
for GX-03 as a topical PHMB-based formulation for onychomycosis. The company has identified the mechanism of action via in-vivo data demonstrating
nail plate penetration and antifungal activity within the nail. This ability to effectively penetrate the keratin clinically differentiates
this candidate from other topicals on the market, which studies have shown lack effective nail penetration capabilities.
Clinical Products
**
*K183681*
K183681 represents the first
antimicrobial version of Adaptic-style non-adherent wound dressings, incorporating liquid antimicrobials to provide both moisture
retention and antimicrobial protection in wound dressing changes and post-surgical management. K183681 is FDA cleared to include these
antimicrobial claims in both name and indications, and we have licensed this product to Medline.
**
**
7
**
*K171191*
Turn has received FDA clearance
for the GX-03 formula as a medical device indicated to manage the symptoms of atopic, radiation, and irritant dermatitis. Sampling for
human use under this labeling confirmed patient and clinician satisfaction. Mechanism of action studies later confirmed meaningful reductions
in inflammatory cytokines without the use of systemic biologics, including IL-4, IL-31, and IL-36 variants, which are implicated in eczema
pathogenesis. These findings are complemented by reductions in Investigators Global Assessment (IGA) scores in animal models of
atopic dermatitis. GX-03/K171191 operates through multiple mechanisms of action: direct antimicrobial activity of excess inflammatory
staph aureus common in eczema patients skin, buildup of the fractured skin mantle facilitated said excess staph aureus colonization,
as well as modulation of inflammatory pathways that lead to the symptoms of eczema. The product is currently being studied under this
labeling in a double-blind RCT for its safety and effectiveness in moderate-severe eczema patients. Leveraging this data, its previous
FDA clearance in atopic dermatitis management, and other clinical and preclinical data, the company intends to move from this RCT to IND
submission under which Phase 3s and any additional human testing would be conducted prior to a potential new drug approval submission.
We have not currently out-licensed this product but are actively identifying potential partners for distribution outside the United States.
*K160872*
K160872 is an FDA cleared
medical device indicated for acute and chronic wound management that has been used on thousands of patients to accelerate healing of advanced
wounds, including traumatic and diabetic wounds. It has been proven to cause no damage to healthy cells while offering broad antibacterial,
antifungal, and anti-yeast activity. K160872s petrolatum base does not macerate wounds and can be left in place for days between
dressing changes. The formula has been the subject of many publications, including peer-reviewed publications such as A Novel Approach
to the Treatment of Necrotizing Fasciitis in Acta Scientific Orthopaedics in 2023. We have not out-licensed this product.
Marketing
We strategically license
and commercialize our medical device technologies through commercial partners while we concentrate on the research, development and regulatory
advancement of new drug indications, a model intended to provide financing flexibility to the company via passive revenue streams.
**
*MiMedx Agreement*
In November 2022, we entered
into the MiMedx Agreement wherein we granted MiMedx an exclusive, sublicensable license under certain of our intellectual property, technology
and biomaterials, including as related to the FleX Product, to develop, manufacture and commercialize (i) the FleX Product in the Territory
and (ii) certain other biological products worldwide, in each case, in the wound care, burn care and surgical care fields only. We also
granted MiMedx certain exclusive and non-exclusive licenses under specified trademarks. We retain exclusive development and commercialization
rights for the FleX Product outside the Territory with MiMedx having the right of first refusal to acquire, subject to certain procedures,
exclusive development, manufacturing and commercialization rights. We are responsible for overseeing, monitoring and coordinating all
regulatory actions, communications and filings with, and submissions to the FDA with respect to initial marketing approval.
We received a $1.0 million
milestone payment upon the execution of the MiMedx Agreement and payments totaling $450.0 thousand as part of the letter of intent entered
into with MiMedx in February 2022, as amended.
In the event development
and commercialization of the FleX Product in the Territory is successful, we are eligible to receive milestone payments of up to $69.55
million specifically related to the development and commercialization of the FleX Product. However, if the FleX Product is not launched
within four months after receiving FDA marketing approval or the execution of the supply agreement for the FleX Product, then, provided
the delay is not caused by us, MiMedx must also pay us monthly payments in the low hundreds of thousands of dollars, to be deducted from
a specified milestone. In addition, we are entitled to receive milestone payments of $1.0 million for each additional product developed
and commercialized under the agreement.
8
Subject to the terms and
conditions of the MiMedx Agreement, MiMedx is required to pay a mid-single digit royalty of net sales on a quarterly basis. The MiMedx
Agreement includes certain adjustments for third party royalties. If MiMedx reasonably believes it must obtain or maintain a third-party
license to manufacture or commercialize the FleX Product or another licensed product in a territory, it may generally credit up to 50%
of the total royalty payments it must pay the third-party licensee against royalties payable to us. We are eligible to receive royalty
payments on a country by country basis for each product commercialized under the agreement, for a period beginning upon the first commercial
sale of the product and expiring ten years after launch of the product. We have determined that we have one combined performance obligation
remaining under the MiMedx Agreement related to the development and commercialization of the FleX Product in the Territory, which primarily
includes knowledge and bio-materials transfer to MiMedx, assisting and coordinating the regulatory approvals with the FDA and ongoing
access and upkeep of intellectual property during the term of the MiMedx Agreement and related development and regulatory services. Development
and commercialization milestones were not considered probable at inception and therefore were excluded from the initial transaction price.
The royalties were excluded from the initial transaction price because they relate to a license of intellectual property and are subject
to the royalty constraint.
The term of the MiMedx Agreement
runs until the last date on which any licensed product is covered by a valid claim of any of the licensed patents, the earliest of which
is currently expected to expire in 2044. Following the expiration of the term of the MiMedx Agreement, the licenses granted become fully
paid-up and perpetual, but to the extent MiMedx continues to commercialize the FleX Product after the expiration of the term of the MiMedx
Agreement, and such commercialization requires use of our trade secrets, MiMedx must continue to pay us a reduced royalty for a period
expiring 10 years after the launch of the FleX Product.
The agreement allows for
termination under specific circumstances. Either party may terminate the agreement if the other party materially breaches the agreement
and fails to cure the breach within 90 days of receiving written notice, or if the other party becomes bankrupt or insolvent. MiMedx also
has the right to terminate (i) the agreement in its sole discretion with three months prior written notice and (ii) the license
to the FleX Product at any time. We retain the right to terminate the agreement if MiMedx fails to launch the FleX Product in the United
States within 10 months of receiving FDA marketing approval or executing the supply agreement for the FleX Product, whichever is later,
provided the delay is not caused by us.
**
*Medline Agreement*
On October 27, 2025, we entered
into the Medline Agreement with Medline, the worlds largest manufacturer and distributor of medical-surgical products. Pursuant
to the Medline Agreement, we will collaborate with Medline to develop, manufacture, and commercialize professional and consumer health
products that leverage our proprietary PermaFusion delivery platform. Medline will lead global commercialization and distribution
across its professional and retail networks in more than one hundred countries and territories, while we will contribute formulation expertise,
intellectual property, and clinical development capabilities. The Medline Agreement establishes a multi-year framework for supply and
co-development activities, including manufacturing scale-up for our PermaFusion-based formulations and the co-branding of future products
in the professional and retail space(s).
**
*Sales Process*
For medical device products
and indications, we intend to partner with existing organizations with established sales forces and commercial channels. We intend to
serve as an educational and sales resource as well as a contract manufacturer given our established production chain. We intend to seek
partners for drug programs during the approval process timeline, but we will prepare to commercialize if management deems it a superior
choice for the company.
9
Our Market
**
*Eczema / Atopic Dermatitis: Market
Overview and Unmet Needs*
Atopic dermatitis, commonly
referred to as eczema, is a chronic inflammatory skin condition characterized by pruritus (itching), erythema (redness), and skin barrier
dysfunction. According to the National Eczema Association, it is one of the most prevalent skin disorders globally, affecting an estimated
10-20% of children and up to 10% of adults in developed countries. In the United States, approximately 16.5 million adults are impacted
by eczema, with moderate-to-severe eczema accounting for 40% of these patients.
According to Fact MR, the
global market for the treatment of atopic dermatitis, commonly known as eczema, is estimated at approximately $12.0 to $18.0 billion.
The market is expected to expand, largely driven by rising awareness of eczema, quick detection and rising use of harsh sanitary products.
Moderate-to-severe cases represent an estimated 40% of the total market. According to the National Eczema Association, it is estimated
that 6.6 million adults and 3.2 million children in the United States have moderate-to-severe eczema. Dupixent (dupilumab), an injectable
biologic, currently leads the market in sales and revenue. Despite its success, Dupixents injectable format remains a barrier for
certain patient populations, particularly pediatric patients, underscoring demand for noninvasive, effective alternatives.
Current treatment paradigms
for atopic dermatitis include topical corticosteroids, calcineurin inhibitors, systemic immunosuppressants, and more recently, biologic
therapies targeting specific cytokines involved in disease pathogenesis. While biologics such as Dupixent (dupilumab) have demonstrated
efficacy in moderate-to-severe cases, they are associated with high costs, require systemic administration, and may present risks of immune
modulation. Additionally, topical corticosteroids are limited by concerns over long-term skin thinning, irritation, and sensitization.
While newer biological topicals, such as JAK inhibitors like Vtama, have demonstrated some efficacy in moderate-severe eczema, they
are hindered by high cost and poor safety profiles that often lead to so-called black-box warnings.
There remains unmet need
for effective, non-steroidal, non-systemic topical therapies that can address both microbial burden and inflammatory pathways without
the adverse effects commonly associated with existing treatments. Turn Therapeutics has initiated human trials for GX-03 as a topical,
non-steroidal, non-biologic immunotherapy for moderate-severe eczema, leveraging its dual mechanism of action: direct antimicrobial activity
and inhibition of pro-inflammatory cytokines implicated in atopic dermatitis. Data and FDA clearances indicate the formula is non-cytotoxic,
non-irritating, and non-sensitizing, which we believe will help address key tolerability concerns as compared to current therapies.
**
*Nail Fungus / Onychomycosis: Market
Overview and Unmet Needs*
Onychomycosis is a common
fungal infection of the nails, primarily caused by dermatophytes, yeasts, and non-dermatophyte molds. The condition results in nail discoloration,
thickening, and separation from the nail bed, leading to pain, discomfort, and cosmetic concerns. According to CDC, onychomycosis is estimated
to effect approximately 14% of the U.S. and global population, with prevalence increasing in older adults and individuals with comorbidities
such as diabetes or peripheral vascular disease. Most patients with onychomycosis do not seek professional treatment due to the limitations
of current therapeutic options, detailed below.
According to Grand View Research,
the global market for the treatment of onychomycosis (fungal nail infections) was valued at approximately $3.81 billion in 2024, with
North America representing 40.3% of the global market in 2024. Despite the high prevalence of onychomycosis, a majority of affected individuals
do not seek treatment. This is largely due to factors such as lack of awareness, the need for confirmed diagnosis through nail samples,
and expensive treatments often not covered by insurance. Topical antifungals have demonstrated limited efficacy, with success rates ranging
from 6.5% to 17.9%; CDC only suggests oral therapies for onychomycosis based on limited efficacy of topicals, yet oral terbinafine (LAMISIL),
the oral/primary systemic alternative, is associated with hepatotoxicity risks and typically requires ongoing liver function monitoring.
The market presents substantial opportunity for novel, safe, and efficacious topical therapies. Current treatment options include oral
antifungal medications (e.g., terbinafine, itraconazole) and topical therapies (e.g., ciclopirox, efinaconazole). Oral therapies demonstrate
higher efficacy but are associated with systemic side effects, including hepatotoxicity and drug-drug interactions, limiting their use
in certain patient populations. Treatment durations are long, often requiring 12 weeks or more, and recurrence rates remain high.
10
Topical therapies offer a
safer route of administration but are limited by poor nail penetration and suboptimal efficacy. Clinical cure rates for topicals are typically
below 20%, with efinaconazole (Jublia), one of the leading products, demonstrating complete cure rates of approximately 15-18% in
pivotal trials. These limitations underscore the need for novel topical treatments capable of effectively penetrating the nail plate and
delivering therapeutic concentrations to the site of infection without systemic exposure.
Turn Therapeutics is advancing
GX-03 as a topical formulation for onychomycosis, designed to overcome nail penetration challenges while leveraging its established antimicrobial
properties. In-vivo data support the formulations ability to reach the nail bed and exhibit fungicidal activity against dermatophytes,
addressing key shortcomings of current topical therapies. Additionally, data from a 100 plus patient, independent investigation entitled
A Novel Approach to Polymicrobial Nail Infection conducted by R. Daniel Davis, DPM in 2018-2019, suggests that Turns
formulation may achieve clinical clearance (based on visible evidence of the development of a Beaus line with progression of a
clear nail plate to the distal end of the nail) as high as 70-85% in diverse patient populations (including diabetic patients) when applied
topically once or twice daily. This data suggests favorable outcomes among patients beyond Turns in-vivo models as conducted by
Altogen Laboratories. Data generated by any independent investigators may not predict the results of later clinical trials of any of our
current or future product candidates. A Novel Approach to Polymicrobial Nail Infection involved no placebo or comparator
group, and was an investigator-initiated trial, meaning that Turn has less control over the protocols, administration or conduct of the
trial as compared to its own trials, including follow-up with patients and ongoing collection of data after treatment.
**
*Advanced Wound Care and Vaccines*
According to Market Research
Future, the global advanced wound care market was estimated at approximately $18.72 billion in 2024 and is projected to grow to $30.76
billion by 2034, reflecting a compound annual growth rate (CAGR) of 5.09% over the forecast period. Advanced wound care
products are essential for treating chronic wounds such as diabetic foot ulcers, pressure ulcers, and burns. However, current offerings
are frequently limited by short duration of action, wound cytotoxicity, and vulnerability to microbial colonization. The advanced wound
care market encompasses a diverse range of solutions, including negative pressure wound therapy, advanced dressings, tissue engineered
skin substitutes, wound cleansers and irrigants, and wound closure devices. Significant revenue growth is occurring across various regions,
with North America demonstrating the highest expected growth rate, with revenue valued at $7.2 billion in 2023 and projected to reach
approximately $11.0 billion by 2032. Effective products that minimize risk and maximize healing rate while reducing the rate of microbial
infiltration to the wound/ dressing(s) would meet significant unmet needs in this space.
Vaccines represent a crucial
market segment. However, challenges such as cold-chain logistics and limited thermostability have historically hindered vaccine access
for patients, who must seek out caregivers to deliver highly unstable vaccines via injection. Innovations in thermostable, intranasal
vaccines can address these issues, opening significant opportunities to improve global immunization coverage and penetrate untapped markets.
A study conducted by University of Liverpool shows that the introduction of a mobile vaccination unit has the potential of increasing
the number of first-time vaccinations among patients by 25%, which we believe suggests that the more convenient nature of a thermostable,
intranasal vaccine could result in significant growth in vaccine uptake. Furthermore, leading players have engaged in mergers and acquisitions
for strategic reasons such as expanding their product line and market potential.
We anticipate the primary
market for an initial influenza vaccine candidate will consist of governmental and military agencies seeking to stockpile vaccines, as
well as public health organizations aiming to distribute the vaccine without need for cold chain logistics. We also anticipate increased
uptake of needle-free vaccines that can be administered in clinics or homes. Subject to successful clinical development and regulatory
approval, we believe our initial vaccine candidate could be eligible for multi-year procurement contracts from government agencies including
BARDA and the Department of Defense, as well as international public health stakeholders such as the WHO and CEPI. The current global
market for influenza vaccines was assessed at $8.49 billion in 2024 and is projected to reach $16.73 billion by 2034, growing at a CAGR
of 7.02% for the forecasted period.
11
Our Competition
The biopharmaceutical industry
utilizes rapidly advancing technologies and is characterized by intense competition. There is also a strong emphasis on intellectual property
and proprietary products. In our segment of the biopharmaceutical industry, competition from different sources including major biopharmaceutical
companies, academic institutions, government agencies and public and private research institutions will continue. Many of our competitors
have significantly greater financial resources and expertise in product candidate development and may have progressed further toward approval
and marketing. In addition, smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies.
Regulatory Environment
We are subject to extensive
federal, state and local government regulation, including those relating to public health and safety, labeling and disclosure requirements
and drug and device safety regulations. Failure to obtain or retain necessary licenses, registrations, clearances, approvals or exemptions
could adversely affect the operation of our business. We are also subject to federal and state labor and employment laws, including the
Fair Labor Standards Act, the Immigration Reform and Control Act of 1986, and the Americans with Disabilities Act, among others, which
regulate matters such as minimum wage, overtime, employment tax rates, workers compensation, citizenship requirements and workplace
accommodations.
In the United States, the
FDA regulates the safety of food, drugs, medical devices, and cosmetics under the Federal Food, Drug, and Cosmetic Act (the FDCA)
and the Public Health Services Act and implements related regulations. Failure to comply with applicable FDA requirements can result in
a range of penalties, from warnings and product recalls to significant fines and even criminal prosecution. The products in our portfolio
and pipeline require either FDA clearance as a medical device or FDA approval as a drug or biologic. The FDA regulatory process varies
depending on whether a product is classified as a medical device or pharmaceutical (drug) and biologic, as discussed below.
**
*Drugs and Biologics*
The FDA extensively regulates
pharmaceutical products in the United States. Pharmaceutical drugs and biologics undergo a rigorous NDA or BLA process, which includes
multiple stages:
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Preclinical Testing-Completion
of laboratory and animal studies assess the safety and efficacy of the product before human trials in accordance with applicable regulations
such as the FDAs Good Laboratory Practice Regulations. | |
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IND Application-The
company must submit an IND to the FDA, detailing results of pre-IND data and proposed additional studies intended to be used for new drug
approval, such as phase 3 studies. The IND must become effective before beginning human clinical trials as an investigational drug candidate. | |
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Clinical Trials-Conducting
adequate and well-controlled human clinical trials according to IND and good clinical practice regulations. Trials are conducted in three
phases unless specified by the agency in meetings/interactions; these phases may overlap or be combined: | |
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Phase 1: The product
is initially introduced into a small number of healthy human subjects or patients and tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion and, if possible, to gain early evidence on effectiveness. In the case of some products for severe
or life-threatening diseases, especially when the product is suspected or known to be unavoidably toxic, the initial human testing may
be conducted in patients. | |
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Phase 2: Involves
clinical trials in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy
of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage and schedule. | |
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Phase 3: Clinical
trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed
clinical trial sites. These clinical trials are intended to establish the overall risk/benefit relationship of the product and provide
an adequate basis for product labeling. | |
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NDA or BLA-Following successful
clinical trials, a formal application is submitted for FDA approval. | |
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Pre-Approval Inspection-Successful
completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the product is, or will be, produced. This
inspection verifies that the facilities, methods, and controls used in the production of the drug are in compliance with the FDAs
cGMP regulations. | |
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Clinical Trial
Site Audit-Potential audits of the clinical trial sites that generated the data supporting the NDA or BLA, which help ensure
the accuracy and reliability of the data used to evaluate the safety and effectiveness of the drug. | |
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NDLA/BLA Review
and Approval-Prior to commercial marketing and sale, the FDA will review the NDA or BLA submitted by the drug manufacturer.
If the application meets all the necessary requirements and the FDA deems the drug safe and effective, it will approve the application. | |
There is no assurance that
the FDA will ultimately approve a product for marketing in the United States, and we may encounter significant difficulties or costs during
the review process. If a product receives marketing approval, the approval may be significantly limited to specific diseases and dosages
or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require
that certain contraindications, warnings or precautions be included in the product labeling or may condition the approval of the NDA or
BLA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-market
testing or clinical trials and surveillance to monitor the effects of approved products.
**
*Our Drug Programs*
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Eczema and Onychomycosis
Program: Assuming success of the clinical programs, these submissions will be NDAs incorporating a new chemical entity (NCE) as its active
ingredient (polyhexanide). | |
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Thermostable Vaccine
Program: We expect to submit this vaccine candidate following successful IND filing, Phase 1 and Phase 2 clinical trials as a drug product
under an NDA or a BLA. The regulatory pathway will be determined based on classification as a drug or biologic. | |
**
*Medical Devices*
Medical devices are tools,
machines, implants, or instruments used to diagnose or manage medical conditions without altering the bodys chemical structure.
The FDA regulates medical devices under the FDCA and classifies them into three categories based on their risk profile:
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Class I and II
devices typically require pre-market notification through the 510(k) process, demonstrating that the device is substantially equivalent
to an already legally marketed device. Our existing medical device clearances were obtained via the 510(k) process. | |
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Class III devices
and novel devices that lack a predicate device may require De Novo classification or a pre-market Approval (PMA), which
involves more extensive clinical testing and a comprehensive review of safety and efficacy. Our partner has elected to pursue De Novo
classification for the FleX Product, which requires more testing. | |
As discussed above, authorization
to commercially distribute a new medical device in the United States can be obtained via either (i) pre-market notification (also known
as the 510(k) process), (ii) De Novo classification and (iii) PMA, depending on the specific classification determined by the FDA.
13
**
**
Wound dressings, such as the
ones for which we previously received FDA clearance, including those under device classification FRO, have historically been designated
as unclassified devices. These legacy devices were first marketed prior to the Medical Device Amendments of 1976 and, while cleared for
use, have not been formally classified into Class I, II or III. The licensor elected to pursue clearance of the FleX Product through the
De Novo classification process, as it may represent a novel device without a direct predicate. Because the FleX Product is derived from
biologically sourced collagen and may incorporate features such as enhanced healing support or bioresorbability, we anticipate the FDA
will classify it as a Class II medical device, subject to special controls. This expectation aligns with prior FDA treatment of collagen-based
wound dressings submitted through De Novo or 510(k) pathways, particularly under product code KGN, which is now commonly associated with
Class II classification.
During a pre-submission meeting
with FDA attended by MiMedx and us, we indicated our desire to submit the FleX Product as a 510(k) under the FRO product code in order
to obtain antimicrobial claims available to products in said device category. We presented proposed predicate products to suit the FRO
category in a 510(k) submission. At the meeting, FDA suggested that the novelty of the product may lend itself better to a De Novo submission.
While the product is physically similar to KGN collagen powders in primary produced form, KGN is not an antimicrobial category. Therefore,
while the product could likely achieve KGN indications under 510(k) via removal of specific antimicrobial claims, those claims were stated
as desired by our partner. Therefore, the agency recommended the De Novo category, as well as suggested additional antimicrobial tests
that included three validated production lots aged in real time (one to two years) tested before and after aging for antimicrobial activity.
The agency also suggested a human factor test to include potential users mixing the product as would be intended in the directions for
use (premixing with saline) which would verify the capability to consistently mix across the users. MiMedx elected to assume control of
the data production and submission. De Novo clearances vary in review time. After any De Novo request is accepted, the FDA will conduct
a substantive review to determine if the device meets the criteria for De Novo classification. There can be no assurance as to the FDAs
final determination.
**
*Post-Marketing Requirements*
Following FDA approval or
clearance, we are subject to a comprehensive set of post-marketing surveillance and regulatory compliance obligations intended to ensure
continued safety, efficacy, and regulatory adherence throughout the commercial life of the product, which includes:
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Adverse event reporting
and post-market safety monitoring. We will be required to monitor and report adverse events and product complaints to the FDA in accordance
with applicable regulations. This includes submission of Medical Device Reports (MDRs) for devices and Adverse Event Reports or Field
Alert Reports (FARs) for drugs and biologics. | |
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Post-market studies
(if required by the FDA for additional safety or efficacy data). Post-approval trials (also referred to as Phase 4 clinical trials) may
be conducted after a drug or device has received regulatory approval and is commercially available. These trials focus on monitoring the
long-term safety, effectiveness, and potential risks of the drug in a broader, real-world patient population. | |
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Compliance with
cGMP for drugs and Quality System Regulations (QSR) for medical devices. We will be expected to maintain full compliance
with cGMP for drugs and biologics and QSR for medical devices. These frameworks govern all aspects of manufacturing, testing, labeling,
packaging, storage and distribution to ensure consistent product quality and prevent contamination, mislabeling or product failure. The
FDA regularly inspects manufacturing and quality control facilities to verify compliance, and significant violations may result in warning
letters, fines, import alerts or shutdowns. | |
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Marketing and advertising
regulations to ensure promotional materials do not mislead consumers or misrepresent safety and effectiveness. Our promotional activities,
including advertising, product labeling, websites, and educational materials, will be subject to FDA regulation and oversight to ensure
they are not false, misleading, or unsubstantiated. All claims regarding a products safety, effectiveness, or performance must
be consistent with the products approved labeling. | |
14
Failure to fully comply with
post-marketing requirements can result in a range of enforcement actions by the FDA or other regulatory agencies. These actions may include
the issuance of Form 483 inspectional observations, warning or untitled letters, civil monetary penalties, seizure of products, injunctions,
product recalls or withdrawal of product approval or clearance.
Intellectual Property
Our success depends in part
upon our ability to protect our intellectual property. To protect our intellectual property rights, we primarily rely on patents and trade
secret laws, confidentiality procedures, and invention assignment language binding on our employees. Our intellectual property is critical
to our business and we strive to protect it through a variety of approaches, including by obtaining and maintaining patent protection
in various countries for our products, product candidates and other inventions that are important to our business.
**
*Patents*
Our patents cover, among
other things, our methods of mixing, chemical compositions, and uses of such compositions. The patent positions of companies like ours
are generally uncertain and involve complex legal and factual questions. Changes in the patent laws and rules, either by legislation,
judicial decisions, or regulatory interpretation in other countries may diminish our ability to protect our inventions and enforce our
intellectual property rights, and more generally could affect the value of our intellectual property. In particular, our ability to stop
third parties from making, using, selling, offering to sell, importing or otherwise commercializing any of our patented inventions, either
directly or indirectly, will depend in part on our success in obtaining, defending and enforcing patent claims that cover our technology,
inventions and improvements. We cannot be sure that any patents will be granted with respect to any of our pending patent applications
or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents
that may be granted to us in the future will be commercially useful in protecting our products and product candidates and the methods
used to manufacture them. Moreover, our issued patents and those that may issue in the future may not guarantee us the right to practice
our technology in relation to the commercialization of our products. The area of patent and other intellectual property rights in the
biotechnology and pharmaceutical industries is an evolving one with many risks and uncertainties which may prevent us from commercializing
our products or product candidates.
Our issued and future potential
patents may be challenged, narrowed, circumvented or invalidated, which could limit our ability to stop competitors from marketing related
platforms or product candidates or limit the length of the term of patent protection that we may have for our products of product candidates.
In addition, the rights granted under any issued patents may not provide us with complete protection or competitive advantages against
competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that achieve similar
outcomes but with different approaches. For these reasons, we may have competition for our products and product candidates. Moreover,
the time required for development, testing and regulatory review of our products and product candidates may shorten the length of effective
patent protection following commercialization.
The term of individual patents
depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent
term is 20 years from the earliest date of filing of a non-provisional patent application. In the United States, the patent term of a
patent that covers an FDA-approved drug or biologic may also be eligible for patent term extension, which permits patent term restoration
as compensation for the patent term lost during FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of
up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug
or biologic is under regulatory review. Patent term extension cannot extend the remaining term of a patent beyond a total of 14 years
from the date of product approval, only one patent applicable to an approved drug or biologic may be extended and only those claims covering
the approved drug or biologic, a method for using it, or a method for manufacturing it may be extended. Similar provisions are available
in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug or biologic. In the future, if our
products or product candidates receive FDA approval, we expect to apply for patent term extensions where applicable on patents covering
those products. We plan to seek patent term extensions to any of our issued patents in any jurisdiction where these are available, however
there is no guarantee that the applicable authorities, including the USPTO in the United States, will agree with our assessment of whether
these extensions should be granted, and if granted, the length of these extensions.
**
**
15
**
*Our Patent Portfolio*
As of December 31, 2025,
we own 14 issued U.S. patents, five pending U.S. non-provisional patent applications, two issued foreign patents, in the E.U. and Japan,
five pending foreign patent applications, in the E.U. and Canada, and two pending Patent Cooperation Treaty applications.These patents
and patent applications cover, among other things, oil-based compositions that incorporate the PermaFusion process (including Hexagen),
as well as compositions and methods for the treatment of inflammatory skin disease, eczema, and onychomycosis. These patents and patent
applications (including any patent applications that we timely file based on our pending provisional patent applications), if issued,
are expected to expire between 2036 and 2045, in each case assuming payment of all appropriate maintenance, renewal, annuity or other
governmental fees.
**
*Trademarks, Trade Secrets and Other Proprietary Information*
We also have several registered
trademarks for ATOPX, CurX, PermaFusion and Turn Therapeutics. In addition, we have various proprietary mixing processes and compositions
maintained as trade secrets. We take steps to protect our proprietary information and trade secrets, including through contractual means
with our employees, advisors and consultants. We also take other appropriate precautions, such as physical and technological security
measures, to guard against misappropriation of our proprietary technology by third parties. In addition, the agreements we enter into
with our employees provide that all inventions conceived of by the individual during the course of employment, and which relate to or
are reasonably capable or being used in our current or planned business or research and development are our exclusive property.
There can be no assurance,
however, that these agreements will not be breached, or that these agreements, measures, and policies will provide meaningful protection
of our trade secrets or adequate remedies, including for our trade secrets, in the event of unauthorized use or disclosure of such information.
In addition, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain
access to our trade secrets or disclose our technology. As a result, we may not be able to meaningfully protect our trade secrets.
For more information regarding
the risks related to our intellectual property, see Risk Factors-Risks Related to Our Intellectual Property, Data
Privacy and Cybersecurity.
Manufacturing and Supply
We currently utilize a U.S.-based,
FDA-compliant CMO for the final manufacture and packaging of our GX-03 formulation, including our proprietary PermaFusion mixing process
and final drug product fill/finish. The selected CMO has extensive experience producing FDA-regulated drug products and has successfully
implemented our validated formulation protocols, including release testing, batch-to-batch consistency verification, and stability assessments.
All analytical methods used
in the manufacturing process, including assays to quantify the active biocide and other release criteria, have been validated and applied
across multiple lots. Stability studies, both real-time and accelerated, have been conducted. As of the date of this filing, we have completed
up to five years of real-time stability testing and two years of accelerated stability studies.
The manufacturing site has
previously produced drug and device products and is fully compliant with current cGMP. In addition, Turn has identified and conduct test
batches with a secondary manufacturing site in the United States to support risk mitigation and ensure uninterrupted product supply. In
the event of a disruption at the primary site, raw material procurement and validation at the secondary site is estimated to take approximately
six weeks, with an additional four weeks required to complete three validation batches.
16
We operate under ISO 13485-compliant
quality systems, ensuring alignment with international standards for both medical device and combination product manufacturing. All raw
materials are sourced and validated by our CMOs, and in-process testing is performed in accordance with validated protocols to ensure
product consistency and safety.
Turn retains full ownership
of the proprietary PermaFusion mixing process at all manufacturing sites. This proprietary know-how is protected via confidentiality and
quality agreements executed with each site, ensuring that our intellectual property and trade secrets remain secure.
For medical device applications
of GX-03, including GX-03 impregnated gauze, we utilize in-house sterilization services provided by SCAPA via gamma irradiation (GAMMA).
This sterilization process has been validated and reviewed by the FDA.
All manufacturing, packaging,
and sterilization for Turns GX-03 based products is currently performed in the United States.
Employees
We currently have two full
time employees, with various contractors serving in manufacturing, regulatory, IT, accounting, quality and laboratory/clinical testing
functions.
Property
We lease 1,788 square feet
of office space in Westlake, California, the term of which extends through August 2027. We pay approximately $4.1 thousand per month.
Legal Proceedings
We are involved in legal
proceedings from time to time in the ordinary course of our business. Based on information currently available and established reserves,
we have no reason to believe that the ultimate resolution of any known legal proceeding will have a material adverse effect on our financial
position, liquidity or results of operations. However, there can be no assurance that the outcome of any such legal proceeding will be
favorable, and adverse results in certain of these legal proceedings could have a material adverse effect on our financial position or
results of operations. See Risk Factors-Risks Related to Our Intellectual Property, Data Privacy and Cybersecurity-If
we are unable to obtain, maintain and enforce patent protection for our current products and product candidates, and any future products
or product candidates we may develop, or if the scope of the patent protection obtained is not sufficiently broad, our competitors or
other third parties could develop and commercialize products and product candidates similar or identical to ours and our ability to successfully
develop and commercialize our products and product candidates may be adversely affected.
17
Item
1A. Risk Factors
**
*An investment in our common
stock involves a high degree of risk. You should carefully consider the following risks and all of the other information contained in
this Annual Report before deciding whether to invest in our common stock. If any of the following risks are realized, our business, financial
condition and results of operations could be materially and adversely affected. In that event, the trading price of our common stock could
decline, and you could lose all or part of your investment in our common stock. Additional risks of which we are not presently aware or
that we currently believe are immaterial may also harm our business and results of operations. Some statements in this Annual Report,
including such statements in the following risk factors, constitute forward-looking statements. See the section entitled Cautionary
Note Regarding Forward-Looking Statements.*
Risks Related to Our Business and
Industry
**
*We design,
develop, and conduct pre-clinical and clinical testing on drug candidates and medical devices. Given the inherent expense associated with
these activities, it is common for companies at our stage to incur significant losses associated with such product development. We expect
to incur additional losses for the foreseeable future, and it is possible we may never achieve or maintain profitability. Our consolidated
financial statements therefore express substantial doubt about our ability to continue as a going concern.*
We had net losses of $3.19
million and $1.77 million for the years ended December 31, 2025 and 2024, respectively, and an accumulated deficit of $22.39 million as
of December 31, 2025. We expect to incur additional losses via the research, development, and subsequent commercialization of our medical
device products and drug candidates.
Our consolidated financial
statements express substantial doubt as to our ability to continue as an ongoing business due to insufficient capital on hand to fund
our drug development plans as outlined in this Annual Report. Refer to Note 2 in our consolidated financial statements included elsewhere
in this Annual Report for more information on our liquidity and ability to continue as a going concern. Our consolidated financial statements
do not include any adjustments that may result from the outcome of this uncertainty. Our ability to continue as a going concern is dependent
upon, among other things, our ability to obtain additional capital through public or private equity offerings, licensing arrangements,
strategic collaborations, and/or other sources. If we are unable to obtain sufficient capital to fund our intended drug development programs,
we may be forced to delay, reduce, or terminate these programs or other operations. Our ability to generate product revenue and achieve
profitability is dependent upon our ability to successfully commercialize our developed medical devices, as well as obtain approval for
and commercialize our drug product candidates. We have incurred operating losses and negative operating cash flows since inception due
to the expenses associated with the design and development of these assets and have primarily relied on equity financings and a medical
device collaboration agreement to fund our operations. We will need to obtain additional capital from financings and/or collaboration
agreements to continue our development plans and operations.
We are subject to risks associated
with being an early-stage pharmaceutical and medical device development company, including the need to develop, demonstrate and refine
our products and services, produce successful results from pre-clinical and clinical trials, expand our management and technical team,
successfully commercialize our products and product candidate(s), obtain customers upon placing any products or product candidates for
sale and ultimately achieve and sustain profitability. While we believe that, with our plans to carry out pre-clinical and clinical trials
and obtain additional financing, we will be able to maintain operations and continue research and development for a year from the date
of the consolidated financial statements included elsewhere in this Annual Report, there can be no assurance that such plans will be successful
and failure to obtain and/or generate sufficient capital could have a material adverse effect on our financial condition. Investment in
pharmaceutical and medical device product development and commercialization is highly speculative because it entails substantial upfront
capital expenditures and significant risk that a product or product candidate will fail to gain regulatory approval or fail to become
commercially viable after approval. We have generated minimal revenues from operations, and we cannot estimate with precision the extent
of our future losses. We do not have any products that are currently available for commercial sale, and we may never generate product
revenue or achieve profitability.
18
We cannot assure you that
we will be profitable even if we successfully commercialize any of our drug candidates or medical devices, as our revenue will be dependent
upon, among other things, the size of the markets in the territories for which we have or gain regulatory approval, the number of competitors
in such markets, the accepted price for any medical device or drug candidate, and whether we own the commercial rights for those territories.
If an intended indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition,
physician choice, or treatment guidelines, we may not generate significant revenue from sales of any of our products or product candidates.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Failure to
become and remain profitable may adversely impact the market price of our common stock and our ability to raise capital and continue operations.
**
*We have a
limited operating history and there are inherent uncertainties and risks in pharmaceutical and medical device product development and
commercialization.*
We are a pharmaceutical and
medical device development company with a relatively limited operating history upon which you can evaluate our business and prospects.
We were formed in January 2015 by our founder as a research and development incubator for drug candidates and medical devices, and our
operations to date have primarily been limited to research, development, and out-licensing/partnering while pursuing additional indications
for our technologies to similarly partner in both medical device and drug markets. The ability to execute our business model and generate
revenues depends on a number of factors, including our ability to:
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successfully obtain requisite regulatory approval to begin
drug trials and obtain approvals for said drug candidates; | |
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identify new out-licensing and partnership opportunities; | |
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realize the benefits of our strategic partnerships and other collaborations; | |
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launch commercial sales of our drug candidates and medical
devices following regulatory approvals, whether alone or in collaboration with others, including establishing sales, marketing and distribution
systems; | |
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attract and retain experienced management teams and operational
personnel to support our ongoing clinical development efforts, and successfully prepare for the commercialization of our product candidates
and medical devices following regulatory approvals, if any; | |
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initiate and maintain relationships with third party suppliers
and manufacturers and have commercial quantities of product candidates and medical devices, following regulatory approvals, manufactured
at acceptable cost and quality levels and in compliance with the FDA and other regulatory requirements; | |
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achieve market acceptance of product candidates and medical
devices following regulatory approvals in the medical community and with third party payors and consumers; | |
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raise additional funds when needed and on terms acceptable
to us; | |
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successfully identify new product candidates and medical devices
through our discovery efforts and advance those product candidates and medical devices into preclinical studies and clinical trials; and | |
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maintain, expand and protect our intellectual property portfolio. | |
Our current operational plans
focus energy and resources on the development of our drug candidates. Because of the numerous risks and uncertainties associated with
drug development, we are unable to predict the timing or amount of increased expenses, or when or if, we will be able to achieve or maintain
profitability. Our expenses could increase beyond expectations if we are required by the FDA to perform studies or clinical trials in
addition to those that we have completed and anticipate completing for our drug candidates. We also anticipate incurring costs associated
with the commercial launch of our products or product candidates. If we cannot successfully execute any one of the foregoing, our business
may not succeed, and your investment will be negatively impacted.
**
19
**
*If we fail
to obtain or generate the capital necessary to fund our operations, we will be unable to continue or complete our product development,
and you will likely lose your entire investment.*
We will need to continue
to seek capital from time to time to continue development of our drug candidates and/or commercialization of both our drug candidates
and medical devices. We cannot provide any assurance that any revenues that we may generate in the future will be sufficient to fund our
ongoing operations. We believe that we will need to raise substantial additional capital to fund our operations and the development and
commercialization of our products and product candidates.
Our business or operations
may change in a manner that may consume available funds more rapidly than anticipated and substantial additional funding may be required
to maintain operations, fund expansion, commercialize our products and product candidates, develop new or enhanced products, acquire complementary
products, business or technologies or otherwise respond to competitive pressures and opportunities, such as a change in the regulatory
environment or a change in preferred treatment modalities. In addition, we may need to change our commercialization strategy, which could
require additional capital. However, we may not be able to secure funding on favorable terms, if at all.
If we cannot raise or obtain
adequate funds to satisfy our capital requirements, we may have to delay, scale back or eliminate our research and development activities,
clinical studies or operations. We may also be required to obtain funds through arrangements with collaborators, which arrangements may
require us to relinquish rights to certain intellectual property, technologies or products that we otherwise would not consider relinquishing,
including rights to future product candidates and medical devices or certain major geographic markets. This could result in sharing revenues
which we might otherwise retain for ourselves. Any of these actions may harm our business, financial condition and results of operations.
The amount of capital we
may need depends on many factors, including the progress, timing and scope of our product development programs; the progress, timing and
scope of our pre-clinical studies and clinical trials; the time and cost necessary to obtain regulatory approvals; the time and cost necessary
to further develop manufacturing processes and arrange for contract manufacturing; our ability to enter into and maintain collaborative,
licensing and other commercial relationships; and our partners commitment of time and resources to the development and/or commercialization
of our products.
**
*Even if we
can raise additional funding, we have in the past and may in the future enter into financing agreements that lead to increased dilution,
and which will result in sales of our common stock in the open market, which could adversely impact the trading price of our common stock.*
On August 29, 2025, we entered
into an amended and restated Share Purchase Agreement, which was further amended by a side letter dated as of September 24, 2025, and
an amended and restated Registration Rights Agreement with GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (collectively, GEM)
(as amended, the GEM Purchase Agreement and the GEM Rights Agreement, respectively, and together, the GEM
Agreements), pursuant to which GEM agreed to purchase up to $85.0 million (the aggregate limit) in shares of our
common stock subject to certain conditions and limitations.
We may deliver drawdown notices
to GEM of up to the aggregate limit and the applicable drawdown pricing period will be 15 consecutive trading days beginning on the notice
date, provided that any requested drawdown may not exceed 300% of the average daily trading volume of our common stock during the 15 trading
days immediately preceding the notice.
In connection with the GEM
Agreements, we were also required to pay a commitment fee of 1% of the aggregate limit in cash or freely tradeable common stock, the latter
of which is dilutive to our existing shareholders. We settled this fee through issuance of 161,905 shares of our common stock to GEM at
an effective price of $5.25 per share. Additionally, on October 8, 2025, the date our common stock commenced trading on Nasdaq, we issued
to GEM a warrant to purchase a number of shares of common stock equal to 4% of our fully diluted outstanding shares as of the same date
at an exercise price equal to $5.03, subject to certain adjustments as set forth in the GEM Purchase Agreement (the GEM Warrant).
If the market price of our common stock exceeds the exercise price of the GEM Warrant, GEM is likely to exercise warrant shares, which
would result in the issuance of a substantial number of additional shares of our common stock.
20
While we expect to receive
proceeds from sales of our common stock under the GEM Agreements, these proceeds may not be sufficient to fund our ongoing operations
or meet our future capital needs.
We also may issue our share
capital or securities convertible into our share capital from time to time in connection with a financing, acquisition, investments, or
otherwise. Any such issuance could result in substantial dilution to our existing shareholders and cause the public price of our common
stock to decline.
The capital markets have
been unpredictable in the recent past for companies such as ours. The amount of capital that companies such as ours can raise, as well
as the terms upon which such capital may be available, often depends on variables that are beyond their control. As a result, we may not
be able to secure financing on terms attractive to us, or at all. If we are able to consummate a financing arrangement, the amount raised
may not be sufficient to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, including
our results of operations, financial condition and our continued viability will be materially adversely affected.
**
*We identified
a material weakness in our internal control over the accuracy of our financial reporting, and our management concluded that our internal
controls over financial reporting were not effective as of December 31, 2024. While we have implemented remedial actions and concluded
that the material weakness has been remediated as of September 30, 2025, if we fail to maintain effective internal controls over financial
reporting, it could result in material misstatements of our consolidated financial statements.*
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
in accordance with generally accepted accounting principles in the United States (GAAP). A material weakness is a deficiency,
or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
In connection with the audit
of our consolidated financial statements as of and for the year ended December 31, 2024, we determined that there were certain errors
pertaining to our accounting for stock-based compensation, which resulted in our identification of a material weakness in our internal
controls over financial reporting related to lack of properly designed, implemented and effective operating controls.
Management, with oversight
from board of directors and the audit committee of the board, implemented a remediation plan for this material weakness that included,
among other things, hiring of personnel or engaging experts with adequate expertise in GAAP, designing and maintaining a formal control
environment, accounting policies and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures.
We have concluded that as a result of the remediation measures, the material weakness has been effectively remediated as of September
30, 2025.
Although we have implemented
remedial actions to improve our internal controls, there can be no assurance that we will be successful in maintaining our internal controls
over financial reporting, or that we will not identify additional control deficiencies or material weaknesses in the future. If we are
not successful in maintaining our internal controls over financial reporting, or if we have additional control deficiencies, we may not
be able to accurately report our financial results, prevent fraud or file our periodic reports with the SEC in a timely manner, which
may expose us to legal and regulatory liabilities and our common stock to be delisted from Nasdaq, and may cause investors to lose confidence
in our reported financial information and may lead to a decline in the market price of our common stock.
**
21
**
*We are an
early-stage company that competes against large, well-established companies with long-standing relationships, extensive clinical data,
and recognized brands, as well as against new companies with innovative products.*
We were founded in January
2015 as a research and development organization and have generated minimal revenues from operations. We cannot assure you that a sustainable
market for our drug candidates or medical devices exists, or that we will be able to develop effective business and market strategies
to seize market opportunities. An unsustainable market or ineffective market strategy would have a negative impact on our financial condition
and share price.
Our competitors include large
pharmaceutical and medical device companies. These companies possess substantially greater financial, research and development, sales,
marketing, distribution, and regulatory resources, and have been in business longer with greater brand recognition. Their greater capabilities
in these areas may enable them to outperform our prices, product development and market recognition while being able to bear increasing
costs. We cannot assure you that our products will compete effectively and experience growing sales.
Rapid technological innovation
or consolidation among larger competitors may exacerbate these trends and result in the obsolescence of our products or technologies,
potentially requiring further investment in R&D or licensing to remain competitive. These pressures could further impair our financial
results and strategic flexibility.
Additionally, innovative
new companies which promise significant medical benefits are established every year and provide further market competition. If these companies
gain market acceptance, our ability to grow our business could be materially and adversely affected. Accordingly, our future success depends
upon a number of factors including: (i) identifying emerging trends in our target end-markets, (ii) developing, acquiring and maintaining
competitive products, (iii) enhancing our products via innovative, differentiating features; and (iv) bringing products to market quickly
and cost-effectively via development or acquisition.
**
*We depend on certain key personnel
and must attract and retain additional talent.*
Our future success depends
on the efforts of key personnel and consultants. Mr. Burnam is, through BEB Holdings, LLC, our controlling shareholder, and therefore
has significant influence on, and is a driver of, our business planning, strategy, and culture. Our success depends to a significant degree
on his leadership, long-term vision, relationships, knowledge of the industry, and ability to execute our overall business strategy. If
Mr. Burnam were to discontinue his service with us for any reason, it could have a material adverse effect on our business, contracts,
financial condition, operating results, cash flow, financing requirements, liquidity, prospects and the price of our common stock.
As we grow, we will need
to attract and hire additional employees in manufacturing, operations, clinical development, finance, legal, human resources, and other
areas. Depending on the economic environment and our performance, we may not be able to locate or attract qualified individuals for such
positions when we need them. We may also make hiring mistakes, which can be costly in terms of resources spent in recruiting, hiring,
and investing in the incorrect individual and in the time delay in locating the right employee fit. If we are unable to attract, hire,
and retain the right talent or make too many hiring mistakes, it is possible that our business will suffer from not having the right employees
in the right positions at the right times. This could adversely impact the value of your investment.
**
*We expect
to increase the size of our organization in the future, and we may experience difficulties in managing this growth. If we are unable to
manage the anticipated growth of our business, our future revenue and operating results may be harmed.*
As of December 31, 2025,
we have two full-time employees and various contractors serving in manufacturing, regulatory, quality, clinical advisory, accounting and
finance and laboratory/clinical testing functions. We expect to hire additional employees and contractors. As our sales and marketing
strategies develop and as we transition into operating as a public company, we expect to need additional managerial, operational, sales,
marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management such
as: identifying, recruiting, integrating, maintaining and motivating additional employees; managing our internal development efforts effectively,
while complying with our contractual obligations to contractors and other third parties; and improving our operational, financial and
management controls, reporting systems and procedures.
22
Our future success will depend
on our ability to efficiently manage this growth while continuing to execute on clinical, commercial, and regulatory goals. Our management
may also have to divert a disproportionate amount of attention away from day-to-day activities to manage these growth activities.
Other pharmaceutical and
medical device companies we compete against for qualified personnel and consultants may have greater financial and other resources, different
risk profiles and a longer operating history in the industry than we do. If we are unable to continue to attract and retain high-quality
personnel, the rate and success at which we can develop product candidates and medical devices will be impacted and may harm our business.
**
*The success
of our business will depend upon our ability to create and expand our brand awareness.*
The pharmaceutical and medical
device markets within which we intend to compete are highly competitive, with many well-known brands leading the industry. Our ability
to compete effectively and generate revenue will be based upon our ability, or the ability of our commercial partners, to create and expand
awareness of our drug candidates and/or medical devices distinct from those of our competitors. If there is a failure in our commercialization
strategy and widespread brand awareness is not developed cost-effectively, our growth will be impeded, and our business may suffer.
It is imperative that we
are able to convey to consumers the benefits of our drug candidates and medical devices. However, advertising, packaging and labeling
of such products is and will be limited by various regulations. Our success will be dependent upon our ability to convey to consumers
that our products are superior to those of our competitors while complying with all applicable regulations.
**
*Changes in methods of product manufacturing
may result in additional costs or delay.*
As our product candidates
and medical devices proceed through the development process, it is common that various aspects of the development program, such as manufacturing
methods, are altered in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended
objectives. Any of these changes could cause product candidates and medical devices to perform differently and affect the results of planned
clinical trials or other future clinical trials conducted with the altered materials. Such changes may also require additional testing,
FDA notification or FDA approval, or another regulatory authoritys notification or approval, as applicable, since similar requirements
apply in other jurisdictions. This could delay the completion, or result in the abandonment of, clinical trials, require the conduct of
bridging clinical trials, the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product
candidates and medical devices and jeopardize our ability to commence sales and generate revenues.
We may also experience shortages
due to manufacturing difficulties. Our manufacturing operations could be disrupted by fire, earthquake or other natural disasters, a labor-related
disruption, failure in supply or other logistical channels, electrical outages or other reasons. If there were a disruption to our manufacturing
chain, we would be unable to manufacture until we have secured adequate raw material supply and re-validated additional manufacturing
facilities.
For some of our products,
we obtain raw materials from one supplier. If we are unable to obtain raw materials supplied by any such existing supplier, our ability
to manufacture and deliver our products to the market would be impeded or delayed, which could have a material adverse effect on our business,
financial condition, cash flows and results of operations and could cause the market value of our common stock to decline.
**
*Our research
and development efforts benefit from strategic partnerships and research collaborations, and we cannot guarantee that any previous or
future strategic partnerships or research collaborations will be successful.*
Our research and development
efforts benefit from strategic partnerships and research collaborations, and we cannot guarantee that any previous or future strategic
partnerships or research collaborations will be successful. The rapid pace of technological development in the pharmaceutical and medical
device industry and the specialized expertise required in different areas of pharmacy and medicine make it difficult for one company alone
to develop a broad portfolio of pharmaceutical and medical solutions. Our research and development strategy may include entering into
collaborations or strategic partnerships with third parties that have complementary technologies or capabilities. These collaborations
involve risk and uncertainty and may not yield viable commercial opportunities. If we fail to establish strategic partnerships and research
collaborations, we may be required to make significant capital investments to develop those capabilities internally.
23
In addition to internally
generated growth through our research and development efforts, we have also used, and expect to continue to use, strategic partnerships
or research collaborations to provide us access to new technologies both in areas served by our existing businesses as well as in new
areas. We expect to make future strategic partnerships or research collaborations where we believe that we can stimulate the development
or acquisition of new technologies and products to further our strategic objectives and strengthen our existing businesses. Strategic
partnerships or research collaborations in and with medical technology companies are inherently risky, and we cannot guarantee that any
of our previous or future strategic partnerships or research collaborations will be successful or will not materially adversely affect
our business, results of operations, financial condition, and cash flows.
**
*Our business
is dependent on the successful development, regulatory approval, and commercialization of our products, product candidates, and/or future
products and product candidates.*
Our business is dependent
on successful clinical trials of our products as well as FDA clearances/approvals of our products. We have three FDA clearances for medical
devices, two of which were obtained by the fourth quarter of 2017. In 2022, the Company entered into a licensing agreement for a biologic
product it developed that is pending FDA clearance. On October 27, 2025, we entered into an out-licensing agreement with a global medical
manufacturing and supply company for one of our currently FDA-cleared products K183681. The Company expects to continue increasing
its drug development pipeline through expanded clinical trials for multiple disease indications and the buildout of staffing required
to conduct such drug development. Failure to obtain meaningful clinical data, get further clearances/approvals from the FDA, or an inability
to successfully develop license or market products could have a material adverse effect on our business, prospects, or operations.
In July 2025, we commenced
a human trial on patients with moderate to severe eczema using our medical device formula cleared by FDA for the management of atopic
dermatitis (eczema). This is the identical formula the company would propose for drug approval assuming positive trial outcomes. We expect
to submit for IND approval to commence Phase 3 trials of this formula for moderate-severe eczema and onychomycosis following completion
of this trial, and expect to include the relevant data in the IND approval submission package.
We currently have three medical
device clearances on completed products from the FDA. We have one fully-developed medical device, the FleX Product, which is undergoing
testing for De Novo clearance. After any De Novo request is accepted, the FDA will conduct a substantive review to determine if the device
meets the criteria for De Novo classification, and there can be no assurance as to the FDAs final determination. We have a completed
drug candidate pending IND submission for moderate-severe eczema and onychomycosis. We have one pharmaceutical/drug candidate, specifically
a thermostable, intranasal in pre-clinical development. The success of our business, including our ability to generate any substantial
revenues in the future, will depend to a significant extent on both the successful regulatory approval and commercialization of our current
and future products.
The clinical and commercial
success of these current and future products will depend upon a number of factors, including the following:
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our ability to successfully establish manufacturing and distribution
partnerships or license our products to third party companies which successfully implement and execute a marketing and sales strategy
for our current and/or future products in the U.S. and internationally, whether alone or in collaboration with others; | |
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timely completion of our clinical trials, which may be significantly
slower or cost more than we currently anticipate and will depend substantially upon the performance of third party contractors; | |
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whether we are required by the FDA or foreign regulatory authorities
to conduct additional clinical trials or other studies beyond those planned to support the approval and commercialization of our current
or future products or product candidates; | |
24
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acceptance of our proposed indications and primary and secondary
endpoint assessments relating to the proposed indications of our current product candidates by the FDA and foreign regulatory authorities; | |
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the prevalence, duration and severity of potential side effects
or other safety issues experienced with our current or future products or product candidates; | |
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the timely receipt of necessary marketing approvals from the
FDA and foreign regulatory authorities for our current or future products or product candidates; | |
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achieving, maintaining and, where applicable, ensuring that
our third party contractors achieve and maintain compliance with our contractual obligations and with all regulatory requirements applicable
to GX-03 or any of our current or future products or product candidates; | |
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the ability of third parties upon which we rely to manufacture
clinical trial and commercial supplies of GX-03 or any of our current or future products, product candidates and medical devices to remain
in good standing with relevant regulatory authorities and to develop, validate and maintain commercially viable manufacturing processes
that are compliant with Current Good Manufacturing Practice (cGMP); | |
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physician and patient demand for any of our current or future products or product
candidates; | |
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our ability to establish, maintain, defend and enforce intellectual
property rights in and to our current and future technologies, products and product candidates; | |
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our ability to avoid third party patent interference, intellectual
property challenges or intellectual property infringement, misappropriation, dilution or other claims; and | |
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the ability to raise any additional required capital on acceptable terms, or at
all. | |
Further, competitors who
are developing competing products that have a similar mechanism of action may experience problems with their products that could indicate
or result in class-wide problems or additional requirements that could potentially harm our business. Due to these risks and uncertainties,
we cannot provide assurances that we will be able to generate sufficient revenue through the sale of our current or future products or
product candidates to achieve or maintain profitability.
**
*Clinical trials
and preclinical studies are expensive, time consuming, difficult to design and implement, and involve uncertain outcomes.*
Our pharmaceutical and medical
device candidates that are or will be in clinical development or preclinical studies require, as applicable, extensive clinical testing
before achieving regulatory approval in the form of a medical device clearance or new drug approval (NDA), or other similar
application for regulatory approval, as an application for marketing authorization may be submitted to any foreign jurisdictions in which
we may market and sell our products. We cannot provide any assurance that we will submit applications for regulatory approval for unapproved/future
products or whether any such application will be accepted for review or ultimately approved by the relevant regulatory authorities.
Clinical trials and preclinical
studies are expensive, time consuming and difficult to design and implement, in part because they are subject to rigorous regulatory requirements.
In addition, failures can occur at any stage of development, including clinical trials or preclinical studies, and we could encounter
problems that cause us to abandon or repeat clinical trials or preclinical studies. In addition, results from clinical trials or preclinical
studies may require further evaluation, delaying the next stage of development. Further, product candidates and medical devices in later
stages of clinical trials may fail to show the desired safety and efficacy results despite having successfully progressed through preclinical
and earlier stage clinical trials. Such product candidates and medical devices may exhibit safety signals in later stage clinical trials
that they did not exhibit in earlier studies or trials. A number of companies in the pharmaceutical and medical device industry have suffered
significant setbacks in, or the discontinuation of, advanced clinical trials with a product or product candidate due to lack of efficacy
or adverse tolerability findings, despite having promising results in earlier trials or studies. Likewise, the results of early clinical
trials or preclinical studies of our product candidates and medical devices may not be predictive of the results of current or future
programs. There can also be no assurance that the results of studies conducted by collaborators or other third parties with similar product
candidates and medical devices in similar indications will be viewed favorably or indicative of our own future trial results.
25
If we experience delays in
the commencement or completion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects
of our product candidates could be harmed, and our ability to generate product revenue from any of our future products, if approved, may
be delayed. In addition, any delays in our clinical trials could increase our costs, cause a decline in our share price, slow down the
approval process, and jeopardize our ability to commence product commercialization and generate revenue from said future products. Any
of these occurrences may harm our business, financial condition and results of operations. In addition, many of the factors that cause
or lead to a termination or suspension of, or delay in the commencement or completion of clinical trials may also ultimately lead to the
denial of regulatory approval of our product candidates and medical devices. We may make formulation or manufacturing changes to our product
candidates and medical devices, in which case we may need to conduct additional preclinical or clinical studies to bridge our modified
product candidates and medical devices to earlier versions. Each modification to the protocol during a clinical trial must be submitted
to the FDA. This could result in the delay or halt of a clinical trial while the modification is evaluated. Any delays to our clinical
trials that occur as a result could shorten any period during which we may have the exclusive right to commercialize our product candidates
and medical devices, and our competitors may be able to bring product candidates and medical devices to market before we do, which could
significantly reduce the commercial viability of our product candidates and medical devices.
In addition, we may encounter
delays or difficulties in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials for
our product candidates/future products. Furthermore, even once enrolled, we may be unable to retain a sufficient number of patients to
complete any of our clinical trials for these product candidates. Enrollment in our clinical trials may also be slower than we anticipate,
or be stopped, leading to delays in the development timelines for our product candidates and medical devices.
**
*We rely upon
and intend to continue to rely upon third parties to manufacture our medical devices and drug candidates including for pre-clinical testing,
clinical testing, and commercialization. Commercialization of any of our drug candidates and/or medical devices could be stopped, delayed,
or made less profitable if those third parties fail to maintain compliance with government regulators, fail to provide us with sufficient
quantities of drug product, devices, or device components, or fail to do so at acceptable quality levels or prices.*
We do not currently have,
nor do we currently plan to develop, the infrastructure or capability internally to manufacture our clinical supplies for use in the conduct
of our clinical trials, and we lack the resources and the capability to manufacture any of our product candidates, medical devices, or
medical device components on a clinical or commercial scale. We currently rely on outside vendors to manufacture our clinical supplies
of our product candidates and medical devices and plan to continue relying on third parties to manufacture our product candidates, medical
devices, or medical device components on a commercial scale, if approved. Our reliance on third party manufacturers exposes us to additional
risks. For example, any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing
clinical trial due to the need to replace a third party manufacturer could considerably delay completion of our clinical trials, product
testing and potential regulatory approval of our product candidates. Manufacturers are also subject to ongoing periodic unannounced inspection
by the FDA and some state agencies to ensure strict compliance with cGMPs and other government regulations. We do not have control over
third party manufacturers compliance with these regulations and standards.
We do not have the internal
capabilities to independently conduct pre-clinical and clinical trials and therefore we must rely on third parties, such as contract research
organizations (CROs), medical institutions, clinical investigators and contract laboratories to conduct such trials. If
these third parties do not successfully carry out their contractual duties or regulatory obligations, meet expected deadlines or need
to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols
or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed,
suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our products on a timely
basis, if at all. Furthermore, our third party clinical trial investigators may be delayed in conducting our clinical trials for reasons
outside of their control. The occurrence of any of the foregoing may adversely affect our business, operating results and prospects.
26
Additionally, there are significant
costs associated with clinical trials that can be difficult to accurately estimate, and they may not be successful or may return results
that do not support approval or, in the case of post-market studies, continued commercialization. Moreover, the results of early clinical
trials are not necessarily predictive of future results, and any product we advance into clinical trials may not have favorable results
in later clinical trials. Our interpretation of data and results from our clinical trials does not ensure that we will achieve similar
results in future clinical trials. In addition, clinical data are often susceptible to various interpretations and analyses, and many
companies that have believed their products performed satisfactorily in earlier clinical trials or retrospective studies have nonetheless
failed to replicate results in later clinical trials.
**
*The future
results of our current or future clinical trials may not support our product candidate and medical device claims or may result in the
discovery of unexpected adverse side effects.*
Even if clinical trials of
our proposed drug candidates are completed as planned, we cannot be certain that their results will support our intended claims, or that
the FDA or foreign regulatory agencies will agree with our conclusions regarding them. Success in pre-clinical studies and early clinical
trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results
of prior trials and pre-clinical studies. The clinical trial process may fail to demonstrate that our drug candidates are safe and effective
for the proposed indicated uses. If the FDA or other regulatory agencies conclude that the clinical trials for any of our product candidates
have failed to demonstrate safety and effectiveness, we would not receive approval from the FDA or other regulatory agencies to market
said product candidate(s) in the United States or internationally for the indications sought.
In addition, such an outcome
could cause us to abandon a drug candidate and might delay development of other candidates. Any delay or termination of our clinical trials
will delay the filing of any product submissions with the FDA and, ultimately, our ability to commercialize our product candidates and
generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently
part of the candidates tolerability profile. In addition, our clinical trials may involve an insufficiently powered/small patient
population, which may lead to results that are not necessarily indicative of future results.
**
*Our employees,
independent contractors, service providers and other vendors or potential collaborators may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements, which could harm our results of operations.*
We are exposed to the risk
that our employees and contractors, including principal investigators, CROs, consultants, commercial collaborators, service providers
and other vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless
or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA or other similar regulatory bodies,
including those laws that require the reporting of true, complete and accurate information to such regulatory bodies; manufacturing and
the FDAs Good Clinical Practice, or GCP, or current Good Manufacturing Practice, or cGMP, standards; federal, state and foreign
healthcare fraud and abuse laws and data privacy; or laws that require the true, complete and accurate reporting of financial information
or data.
In particular, sales, marketing
and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing,
bribery, corruption, antitrust violations and other abusive practices. These laws may restrict or prohibit a wide range of business activities,
including research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs
and other business arrangements. Activities subject to these laws also involve the improper use or misrepresentation of information obtained
in the course of clinical trials, creating fraudulent data in our nonclinical studies or clinical trials or illegal misappropriation of
drug product, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and
deter employee or third party misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a
failure to comply with such laws or regulations.
27
Additionally, we are subject
to the risk that a person, including any person who may have engaged in any fraud or misconduct, or government agency could allege such
fraud or other misconduct, even if none occurred. If our employees, independent contractors, service providers or other vendors are alleged
or found to be in violation of any such regulatory standards or requirements, or become subject to a corporate integrity agreement or
similar agreement and curtailment of our operations, it could have a significant impact on our business and financial results, including
the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, suspension or delay in our clinical
trials, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, FDA debarment, contractual
damages, reputational harm, diminished profits and future earnings, and additional reporting requirements and oversight, any of which
could harm our ability to operate our business and our results of operations.
**
*If we are
unable to establish relationships with licensees or collaborators to carry out sales, marketing, and distribution functions or to create
effective marketing, sales, and distribution capabilities, we may be unable to market our products successfully.*
Our business strategy may
include out-licensing intellectual property or product candidates and medical devices to or collaborating with larger firms with experience
in marketing and selling medical device and/or pharmaceutical products. There can be no assurance that we will successfully be able to
establish marketing, sales, or distribution relationships with any third party, that such relationships, if established, will be successful,
or that we will be successful in gaining market acceptance for any products we have developed or might develop. To the extent that we
enter into any marketing, sales, or distribution arrangements with third parties, our product revenues per unit sold would be expected
to be lower than if we marketed, sold, and distributed our products directly, and any revenues we receive will depend upon the efforts
of such third parties. Such agreements may condition payment on the receipt of FDA marketing approval and the achievement of certain commercialization
milestones, and there is no assurance that we will meet these milestones or receive the associated payments.
If we are unable to establish
such third party marketing and sales relationships, or choose not to do so, we would have to establish sufficient in-house marketing and
sales capabilities. To market any products directly, we would have to establish a marketing, sales, and distribution force that has technical
expertise and could support a sales and distribution capability. Competition in the biopharmaceutical industry for technically proficient
marketing, sales, and distribution personnel is intense and attracting and retaining such personnel may significantly increase our costs.
There can be no assurance that we will be able to establish internal marketing, sales, or distribution capabilities or that these capabilities
will be sufficient to meet our needs.
**
*In the future,
we may seek to identify and acquire or in-license intellectual property, product candidates, medical devices or technologies that are
complementary to our existing product portfolio. However, we may not be successful in identifying suitable opportunities, or in negotiating
and executing acquisitions or in-licensing agreements on acceptable terms.*
We may seek to identify and
acquire or in-license intellectual property, novel product candidates and medical devices in the pharmaceutical and medical device field.
The process by which we identify such intellectual property or product candidates and medical devices may fail to yield product candidates
and medical devices for clinical development for a number of reasons, including those discussed in these risk factors and also:
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the process by which we identify and decide to acquire product candidates may not
be successful; | |
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potential product candidates may, upon further study, be shown
to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing
approval and achieve market acceptance; | |
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potential product candidates may not be effective in treating
their targeted ailments; or | |
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the acquisition or in-licensing transactions can entail numerous
operational and functional risks, including exposure to unknown liabilities, disruption of our business, or incurrence of substantial
debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected acquisition or integration
costs. | |
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We may choose to focus our
efforts and resources on a potential product candidate that ultimately proves to be unsuccessful. We also cannot be certain that, following
an acquisition or in-licensing transaction, we will achieve the revenue or specific net income that justifies such transaction. Further,
time and resources spent identifying, acquiring and developing potential product candidates and medical devices may distract managements
attention from our primary business or other development programs. If we are unable to identify and acquire suitable product candidates
for clinical development, this would adversely impact our business strategy, our financial position and share price.
In the future, we may also
decide to collaborate with other pharmaceutical and medical device companies for the development and potential commercialization of product
candidates in the United States or other countries or territories of the world. We will face significant competition in seeking appropriate
collaborators. We may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our
product candidates and medical devices because they may be deemed to be at too early of a stage of development for collaborative effort
and third parties may not view our product candidates and medical devices as having the requisite potential to demonstrate safety and
efficacy. If and when we collaborate with a third party for development and commercialization of a product candidate or medical device,
we can expect to relinquish some or all of the control over the future success of that product candidate or medical device to the third
party. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborators
resources and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborators evaluation of a
number of factors.
**
*Natural disasters and other events
beyond our control could materially adversely affect us.*
Natural disasters or other
catastrophic events may cause damage or disruption to our operations and those of our business partners, and thus could have a strong
negative effect on us. Our business operations and those of our business partners are subject to interruption by natural disasters, fire,
power shortages, pandemics, terrorist attacks, and other events beyond our control. Such events could make it difficult or impossible
for us to conduct our pre-clinical trials and commercialize and deliver our products to our customers and could decrease demand for our
products. We have had and will have operations and facilities that sell and distribute our products in various geographic locations. Loss
of access to our facilities and those of our business partners may result in increased costs, delays in the development of our product
candidates or interruption of our business operations. Any such disruption could have a material adverse effect on our business, financial
condition and results of operations and could cause the market value of our common stock to decline.
**
*Changes in
tax laws or in their implementation or interpretation could adversely affect our business and financial condition.*
Income, sales, use or other
tax laws, statutes, rules, or regulations could be enacted or amended at any time, which could affect our business or financial condition,
including causing potentially adverse impacts to our effective tax rate, tax liabilities, and cash tax obligations. For example, the Inflation
Reduction Act (IRA) was signed into law in August 2022, and the One Big Beautiful Bill Act (OBBBA) was signed into law in July 2025. The
IRA introduced new tax provisions, including a one percent excise tax imposed on certain stock repurchases by publicly traded companies.
The one percent excise tax generally applies to any acquisition of stock by the publicly traded company (or certain of its affiliates)
from a stockholder of the company in exchange for money or other property (other than stock of the company itself), subject to a de minimis
exception. Thus, the excise tax could apply to certain transactions that are not traditional stock repurchases. The OBBBA contains numerous
tax provisions that we are currently in the process of evaluating, and which may significantly affect our business or financial condition.
The recent changes under the OBBBA include tax rate extensions and changes to the business interest deduction limitation, the expensing
of domestic research and development expenditures (in contrast to the continued capitalization and amortization of foreign research and
development expenditures), the bonus depreciation deduction rules, and the international tax framework. Regulatory guidance under the
IRA, the OBBBA, and other tax-related legislation is and continues to be forthcoming, and such guidance could ultimately increase or lessen
the impact of these laws on our business and financial condition. In addition, it is uncertain if and to what extent various states will
conform to changes to federal tax legislation.
29
Risks Related to Laws and Regulations
**
*Failure to comply with government
regulations could adversely affect our business.*
We use an extensive network
of contract manufacturers, including chemical manufacturers and contract production manufacturers. Many of these facilities are subject
to ongoing regulation, including periodic inspections by the FDA and other regulatory authorities. Possible regulatory actions for noncompliance
on the part of these manufacturers could include warning letters, fines, damages, injunctions, civil penalties, recalls, seizures of our
products, and criminal prosecution. These actions could result in, among other things, substantial modifications to our business practices
and operations, refunds, recalls, or seizures of our products, and a total or partial shutdown of production in one or more of our facilities
while we or our suppliers remedy the alleged violation, and/or withdrawals or suspensions of current products from the market. Any of
these events could disrupt our business and have a material adverse effect on our business.
After our products receive
regulatory approval or clearance, we, and our suppliers, distributors, licensee and other partners remain subject to the periodic inspection
of our plants and facilities, review of production processes, and testing of our products to confirm that we are in compliance with all
applicable regulations and claims. For example, the FDA conducts ongoing inspections to determine whether our record keeping, production
processes and controls, personnel and quality control are in compliance with the Good Manufacturing Practice regulations, the Quality
System Regulation, and other FDA regulations. Adverse findings during regulatory inspections may result in the implementation of risk
evaluation and mitigation strategies programs, completion of government-mandated post marketing clinical studies, and government enforcement
action relating to labeling, advertising, marketing and promotion, as well as regulations governing manufacturing controls noted above,
which could adversely affect our business prospects.
**
*If we fail
to comply with healthcare regulations, we could face substantial enforcement actions, including civil and criminal penalties and our business,
operations and financial condition could be adversely affected.*
Sales of our drug candidates
and medical devices, if approved, or any other future product candidate or medical device will be subject to healthcare regulation and
enforcement by the federal government and the states and foreign governments in which we might conduct our business. The healthcare laws
and regulations that may affect our ability to operate include the following:
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the federal Anti-Kickback Statute makes it illegal for any
person or entity to knowingly and willfully, directly or indirectly, solicit, receive, offer, or pay any remuneration that is in exchange
for or to induce the referral of business, including the purchase, order, lease of any good, facility, item or service for which payment
may be made under a federal healthcare program, such as Medicare or Medicaid. The term remuneration has been broadly interpreted
to include anything of value; | |
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federal false claims and false statement laws, including the
federal civil False Claims Act and the Civil Monetary Penalties Law, prohibits, among other things, any person or entity from knowingly
presenting, or causing to be presented, for payment to, or approval by, federal programs, including Medicare and Medicaid, claims for
items or services, including drugs, that are false or fraudulent; | |
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HIPAA, created additional federal criminal statutes that prohibit
among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program,
including private third party payors or making any false, fictitious or fraudulent statement in connection with the delivery of or payment
for healthcare benefits, items or services; | |
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HIPAA, as amended by the Health Information Technology for
Economic and Clinical Health Act of 2009 and their implementing regulations, impose obligations on certain types of individuals and entities
regarding the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security
of individually identifiable health information; and | |
30
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the FDCA which among other things, strictly regulates drug
and biologics manufacturing, sales, distribution, prohibits the adulteration or misbranding of drugs and biologics prohibits manufacturers
from marketing drug products for off-label use and regulates the distribution of drug samples. | |
Many states have similar
laws and regulations, such as anti-kickback and false claims laws, that may be broader in scope.
The laws and regulations
applicable to our business are complex, changing and often subject to varying interpretations. As a result, we may not be able to adhere
to all applicable laws and regulations. Any violation or alleged violation of any of these laws or regulations by us could have a material
adverse effect on our business, financial condition, cash flows and results of operations. We may be a party to various lawsuits, demands,
claims, qui tam suits, government investigations and audits, of which any could result in, among other things, substantial financial penalties
or awards against us, reputational harm, termination of relationships or contracts related to our business, mandated refunds, substantial
payments made by us, required changes to our business practices, exclusion from future participation in Medicare and other healthcare
programs, seizure of product and possible criminal penalties.
In addition, regulatory authorities
and legislators in the United States have recently intensified their scrutiny of the healthcare industry, and ongoing efforts to control
and reduce healthcare costs may continue or escalate in the future. For example, the U.S. Congress recently considered legislative reforms
to fee structures for third-party administrators of prescription drug programs. The Trump Administration has signaled its intent to pursue
drug pricing reform which may impact our business. If enacted, these regulatory changes could significantly impact the pricing, reimbursement,
and distribution of pharmaceutical products, which may in turn adversely affect our business model, revenue, and ability to achieve and
sustain profitability.
**
*We may be
subject to legal claims against us or claims by us which could have a significant impact on our resulting financial performance.*
At any given time, we may
be subject to various actions, including litigation, regulatory proceedings and investigations, the disposition of which may have an adverse
effect upon our business, financial condition, or results of operation. These proceedings are typically complex and extended and may occupy
the resources of our management and employees. These proceedings are also typically costly to prosecute and defend and may involve substantial
awards or damages payable by us if not found in our favor. We may also be required to pay substantial amounts or grant certain rights
on unfavorable terms in order to settle such proceedings. Defending against or settling such claims and any unfavorable legal decisions,
settlements or orders could have a material adverse effect on our business, financial condition, cash flows and results of operations
and could cause the market value of our common shares to decline. Such claims include but are not limited to and may arise from product
liability and related claims in the event that any of the products that we sell is faulty or contain defects in materials or design. We
may be subject to patent infringement or other intellectual property-related claims as a result of our products or technologies. See -Risks
Related to Our Intellectual Property, Data Privacy and Cybersecurity-We may become subject to claims or legal proceedings
alleging that we are infringing, misappropriating or otherwise violating the intellectual property rights of others. In addition,
we may be subject to claims for rent and claims from our suppliers on our accounts payable.
**
*Obtaining
approval of a new device or drug is lengthy, expensive, and inherently uncertain.*
We cannot commercialize,
in partnership or on our own, a future product until the appropriate regulatory authorities have reviewed and approved it. Approval by
the FDA and comparable non-U.S. regulatory authorities is lengthy and unpredictable, and depends upon numerous factors, including substantial
discretion of the regulatory authorities. Approval policies, regulations, or the type and amount of nonclinical or clinical data necessary
to gain approval may change during the course of a product candidates or medical devices development and may vary among
jurisdictions, which may cause delays in the approval or the decision not to approve an application.
31
The process of obtaining
formal FDA clearance or approval for a 510(k) clearance or equivalent, clinical trial development and execution and manufacturing processes
requires the expenditure of substantial time, effort and financial resources and may take years to complete, including costs incurred
on top of those fees incurred as part of conducting various clinical studies. The FDA may not grant approval on a timely basis, or at
all, or we may decide not to pursue this pathway for certain products or indications, or need to conduct additional trials for a given
indication. Additionally, the FDA may limit the indications for use or place other conditions on any approvals that could restrict the
commercial application of the products. If we do receive approval, some types of changes to the approved product, such as adding new indications
or doses, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Our revenues could be adversely affected if we fail to obtain approvals and clearances on a timely basis or at all, or if the FDA limited
the indications for use or required other conditions that restrict the commercial application of our products. Obtaining marketing approval
of a new drug or device is an extensive, lengthy, expensive, and inherently uncertain process, and the FDA or other non-U.S. regulatory
authorities may delay, limit or deny approval of a product candidate or medical devices for many reasons, including:
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we may not be able to demonstrate that a drug candidate or
medical device is safe and effective as a treatment for the targeted indications to the satisfaction of the FDA or other relevant regulatory
authorities; | |
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the FDA or other relevant regulatory authorities may require
additional pre-approval studies or clinical trials, which would increase costs and prolong development timelines; | |
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the results of clinical trials may not meet the level of statistical
or clinical significance required by the FDA or other relevant regulatory authorities for marketing approval; | |
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FDA or other relevant regulatory authorities may disagree with
the number, design, size, conduct or implementation of clinical trials, including the design of proposed preclinical and early clinical
trials of any future product candidates; | |
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the third parties that we retain to conduct clinical trials
may take actions outside of our control, or otherwise commit errors or breaches of protocols, that adversely impact the clinical trials
and ability to obtain marketing approvals; | |
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the FDA or other relevant regulatory authorities may not find
the data from nonclinical, preclinical studies or clinical trials sufficient to demonstrate that the clinical and other benefits of a
product candidate outweigh its safety risks; | |
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the FDA or other relevant regulatory authorities may require
additional post-marketing studies and/or patient registries for product candidates; | |
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the FDA or other relevant regulatory authorities may find the
chemistry, manufacturing and controls data insufficient to support the quality of our product candidates; | |
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the FDA or other relevant regulatory authorities may identify
deficiencies in the manufacturing processes or facilities of third party manufacturers; | |
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the FDA or other relevant regulatory authorities may change
their approval policies or adopt new regulations; | |
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the FDA could revoke its approval or impose other restrictions
if post-market data demonstrates safety issues or lack of effectiveness; or | |
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the FDA may grant approval contingent on the performance of
post-approval clinical trials or other post-marketing requirements. | |
32
Our growth and future success
depends significantly on our ability to successfully complete clinical trials for our product candidates, obtain regulatory approval for
said candidates, and then successfully commercialize these products and devices. Any inability to successfully initiate, conduct or complete
clinical trials could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing
or formulation changes to our product candidates or medical devices, we may be required to or we may elect to conduct additional nonclinical
studies or clinical trials to bridge data obtained from our modified product candidates to data obtained from nonclinical and clinical
research conducted using earlier versions of these product candidates and medical devices. Clinical trial delays could also shorten any
periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which
could impair our ability to successfully commercialize product candidates and/or medical devices and may harm our business and results
of operations.
Delays in the initiation,
conduct, or completion of any clinical trial of our product candidates will increase our costs, slow down the product candidate or medical
device development and approval process, and delay or potentially jeopardize our ability to receive regulatory approvals, commence product
sales, and generate revenue. In addition, many of the factors that cause or lead to a delay in the commencement or completion of clinical
trials may also ultimately lead to the denial of regulatory approval of our product candidates. Any of these events could have a material
adverse effect on our business, prospects, financial condition, and results of operations and have a negative impact on the price of our
common shares.
**
*The terms
of approvals or clearances and ongoing regulations for our products may limit how we market our products, which could materially impair
our ability to generate revenue.*
Our marketing, promotional
and business practices, as well as the manner in which sales forces interact with purchasers and patients, are subject to extensive regulation
and any material failure to comply by us or our business partners could result in significant sanctions and reputational harm. The marketing,
promotional and business practices of pharmaceutical development companies, as well as the manner in which companies in-house or
third-party sales forces interact with purchasers and patients, are subject to extensive regulation, enforcement of which may result in
the imposition of civil and/or criminal penalties, injunctions and/or limitations on marketing practice for some of our products. Many
companies have been the subject of claims related to these practices asserted by government authorities. Such future claims could result
in fines and other consequences, such as entering into corporate integrity agreements with the U.S. government. In addition, investigations
related to alleged misconduct could divert managements attention from our business operations and damage our reputation.
Once marketing approval or
clearance has been granted, an approved or cleared product and its manufacturer and marketer are subject to ongoing review and extensive
regulation. The FDA and other regulatory agencies closely regulate the post-approval or clearance marketing and promotion of devices to
ensure devices are marketed only for the approved indications and in accordance with the provisions of the approved labeling and regulatory
requirements. Many of these regulators, including the FDA, impose stringent restrictions on manufacturers communications regarding
off-label use. In particular, if we do not restrict the promotion of our products only to their approved indications, we may be subject
to enforcement action for off-label promotion. We, and any potential partners we may have in the future, must therefore comply with requirements
concerning advertising and promotion for any of our products for which we or our partners obtain marketing approval or clearance.
**
*Product liability
suits could be brought against us due to a defective design, material or workmanship or misuse of our products and could result in expensive
and time-consuming litigation and payment of substantial damages.*
If our products are defectively
designed, manufactured or labeled, or are misused, we may become subject to substantial and costly litigation by our customers or their
patients. We may in the future be involved in litigation related to the use of our products. Product liability claims could divert managements
attention from our core business, be expensive to defend and result in sizable damage awards against us. We have commercial insurance
for product liability risks, which may not be sufficient in amount or scope to provide us with adequate coverage against all potential
liabilities. Any product liability claims brought against us, with or without merit, could increase our insurance expense or increase
the cost of securing future coverage, could harm our reputation in the industry and could reduce product sales, and, as a result, could
have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value
of our common shares to decline.
**
33
**
*If our products
are subject to product recalls, it could harm our reputation and have a material adverse effect on our business, financial condition,
cash flows and results of operations and could cause the market value of our common shares to decline.*
Incidents associated with
undesirable side effects or misuse relating to our products could result in additional regulatory controls or restrictions, or even lead
to the regulatory authority requiring us to recall or withdraw the product from the market. The occurrence of manufacturing errors, design
defects or labeling inadequacies affecting any of our products could lead to a government-mandated or voluntary recall, in particular
when such deficiencies may endanger health. The FDA requires that certain classifications of recalls be reported to the FDA within 10
business days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable
to the FDA or other regulatory authorities. Further, if faced with incidents of undesirable side effects or misuse relating to our products,
we may elect to voluntarily implement a recall or market withdrawal of our products. A recall or market withdrawal, whether voluntary
or required by a regulatory authority, may involve significant costs to us, potential disruptions in the supply of our products to our
customers and reputational harm to our products and business, all of which could harm our ability to market our products and could have
a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value
of our common shares to decline. Moreover, recalls involving similar or competing products in our market may also harm our reputation
and business, even if our products are not directly affected.
Risks Related to Our Intellectual
Property, Data Privacy and Cybersecurity
**
*If we are
unable to obtain, maintain and enforce patent protection for our current products and product candidates, and any future products or product
candidates we may develop, or if the scope of the patent protection obtained is not sufficiently broad, our competitors or other third
parties could develop and commercialize products and product candidates similar or identical to ours and our ability to successfully develop
and commercialize our products and product candidates may be adversely affected.*
Our success depends, in large
part, on our ability to seek, obtain and maintain patent protection in the United States and other countries with respect to our products
and product candidates. We seek to protect our proprietary position by filing patent applications in the United States, the European Union
and elsewhere, related to certain products and product candidates that are important to our business.
The patent prosecution process
is expensive, time consuming and complex, and while we own issued patents and patent applications covering key products, we may in the
future not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications at a reasonable cost
or in a timely manner. We may not be able to obtain or maintain patent applications and patents due to the subject matter claimed in such
patent applications and patents being in disclosures in the public domain. In some cases, the work of certain academic researchers in
the biotechnology and pharmaceutical fields has entered the public domain, which may preclude our ability to obtain patent protection
for certain inventions relating to such work in the future. While we believe that the claims in our patent applications directed to our
key products and product candidates are patentable, there can be no guarantee that any such claims, including our composition of matter
claims, will issue at all or in a form that provides meaningful protection. In addition, it is possible that we will fail to identify
patentable aspects of our research and development output before it is too late to obtain patent protection. Although we seek to include
confidentiality clauses in our contracts with third parties who have access to confidential or patentable aspects of our R&D output,
such as our employees, third-party contractors and consultants and other third parties, any of these parties may breach these agreements
and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. Consequently,
we may not be able to prevent any third party from using any of our technology that is in the public domain to compete with our products
and product candidates.
Other parties have developed
technologies that may be related or competitive to our own, and such parties have in the past filed, or may in the future file, patent
applications, or may have obtained or may obtain patents, claiming inventions that may overlap or conflict with those claimed in our own
patent applications or issued patents. We may not be aware of all third-party intellectual property rights potentially relating to our
current and future products and product candidates. Publications of discoveries in the scientific literature often lag behind the actual
discoveries, and patent applications in the United States and in other jurisdictions are typically not published until 18 months after
filing, or, in some cases, not at all. Therefore, we cannot know with certainty whether the inventors of our patents and applications
were the first to make the inventions claimed in those patents or pending patent applications, or that they were the first to file for
patent protection of such inventions. If a third party can establish that we were not the first to make or the first to file for patent
protection of such inventions, our patent applications may not issue as patents and even if issued, may be challenged, invalidated, the
subject of damages due or rendered unenforceable.
34
The patent position of biotechnology
and pharmaceutical companies involves complex legal and factual questions and has, in recent years, been the subject of much litigation.
As a result, the issuance, scope, validity, enforceability and commercial value of any patent rights are highly uncertain. Our pending
and future patent applications may not result in patents being issued which protect our current or future products or product candidates,
effectively prevent others from commercializing competitive products or otherwise provide any competitive advantage. In fact, patent applications
may not issue as patents at all. In addition, the coverage claimed in a patent application can be significantly reduced before the patent
is issued, and its scope can be reinterpreted after issuance.
Furthermore, patents have
a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various patent term
extensions and adjustments may be available, but the life of a patent, and the protection it affords, is limited. Given the amount of
time required for the development, testing and regulatory review of pharmaceutical products, patents protecting such products might expire
before or shortly after such products are commercialized. As a result, our patent portfolio may not provide us with adequate and continuing
patent protection sufficient to exclude others from commercializing products similar to our products and product candidates.
The issuance of a patent
is not conclusive as to its inventorship, scope, validity or enforceability and our patents may be challenged in courts or patent offices
in the United States and abroad. For example, we may be subject to a third-party submission of prior art to the USPTO challenging the
validity of one or more claims of our patents. Such submissions may also be made prior to a patents issuance, precluding the granting
of a patent based on one of our pending patent applications. A third party may also claim that our patent rights are invalid or unenforceable
in a litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. An adverse result in any
legal proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly and could allow third parties
to commercialize similar or identical products and compete directly with us, without payment to us, or result in our inability to manufacture
or commercialize products without infringing third-party patent rights. In addition, we have been party to, and may in the future become
involved in, derivation, reexamination, *inter partes* review, post-grant review or interference proceedings and other similar proceedings
in the United States or in foreign jurisdictions (e.g., opposition proceedings) challenging the validity, priority or other features of
patentability of our patent rights or those of third parties that conflict with our own. For example, we filed a derivation proceeding
in 2017 before the U.S. Patent and Trademark Office (USPTO) against Marc Selner, alleging that Selner improperly and without
authorization filed a patent application for an invention conceived by Bradley Burnam. The USPTO did not name Mr. Burnam as sole inventor
of Selners application or cancel Selners patent application, as we requested, and the U.S. Court of Appeals for the Federal
Circuit affirmed the USPTOs decision. The derivation proceeding was to determine the party that was first inventor of the claims
of Selners application. As a result, Selners application may contain claims similar in scope to certain of our issued patents
and patent applications. However, we own multiple issued patents for which Mr. Burnam is an inventor that cover the inventions at issue
in the derivation proceeding (and related subject matter). Furthermore, prior to its issuance, we intend to file for reexamination of
the Selner patent application based upon its lack of enabling data, disclosures, and expert testimony. Should the application ultimately
issue as a patent, he may attempt to seek royalties or try to prevent our development and commercialization of products he may allege
overlap with his application claims or otherwise seek damages from us. We would vigorously defend our rights against any such action by
Selner, however there can be no assurance that our defense will be successful. In addition, any of the foregoing actions may be expensive
and time consuming, distract the attention of our management, and could have a material adverse effect on our business.
Challenges to our patent
rights may result in loss of patent rights, exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, in whole
or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or
limit the scope and duration of the patent protection of our products and product candidates. Any such challenges also may result in substantial
cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us. Any of the foregoing,
could have a material adverse effect on our business, financial condition, results of operations and prospects.
35
Even if they are unchallenged,
our patents and pending patent applications, if issued, may not provide us with any meaningful protection or prevent competitors from
designing around our patent claims to circumvent our patents by developing similar or alternative technologies or therapeutics in a non-infringing
manner. If the patent protection provided by our patents is not sufficiently broad to impede such competition, our ability to successfully
commercialize our products and product candidates could be negatively affected, which could have a material adverse effect on our business,
financial condition, results of operations and prospects.
**
*We may become
subject to claims or legal proceedings alleging that we are infringing, misappropriating or otherwise violating the intellectual property
rights of others.*
Our commercial success depends
upon our ability and the ability of our future collaborators to develop, manufacture, market and sell our products and product candidates
without infringing, misappropriating or otherwise violating the intellectual property of third parties. The biotechnology and pharmaceutical
industries are characterized by extensive and complex litigation regarding patents and other intellectual property rights. We may become
party to, or be threatened with, adversarial proceedings or litigation where our competitors or other third parties may assert claims
against us, alleging that our manufacturing methods, formulations, products or product candidates infringe, misappropriate or otherwise
violate their intellectual property rights, including patents and trade secrets.
Third parties may assert
infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. Even
if we believe we would have defenses against any such assertion, there can be no assurance that any such defenses will be successful.
If our defenses to such assertion were unsuccessful, we could be liable for damages, which could be significant and include treble damages
and attorneys fees if we are found to willfully infringe such patent, and, unless we obtain a license to such patent, we could
be precluded from commercializing products or product candidates that are ultimately held to infringe such patents, any of which could
have a material adverse effect on our business, financial condition, results of operations and prospects.
Patent and other types of
intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. Even if we believe such
claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed,
which could adversely affect our ability to commercialize our products and product candidates. In order to successfully challenge the
validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring
us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of
competent jurisdiction would invalidate the claims of any such U.S. patent or find that our products or product candidates did not infringe
any such claims. Further, even if we were successful in defending against any such claims, such claims could require us to divert substantial
financial and management resources that we would otherwise be able to devote to our business.
If we are found, or believe
there is a risk that we may be found, to infringe, misappropriate or otherwise violate a third partys valid and enforceable intellectual
property rights, we could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing product
or product candidate, and we could be found liable for monetary damages, including treble damages and attorneys fees if we are
found to have willfully infringed a patent or other intellectual property right. Further, we may be required to redesign the product or
product candidate in a non-infringing manner which may not be commercially feasible. We could also be required or may choose to obtain
a license from such third party to continue developing, manufacturing and marketing our product or product candidate. However, we may
not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could
be nonexclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require
us to make substantial licensing and royalty payments.
Claims that we have misappropriated
the confidential information or trade secrets of third parties could have a similar negative impact on us.
36
Given the vast number of
patents in our field, we cannot be certain or guarantee that we do not infringe existing patents or that we will not infringe patents
that may be granted in the future. Many companies and institutions have filed, and continue to file, patent applications in our field.
Some of these patent applications have already been allowed or issued and others may issue in the future. Moreover, we may face patent
infringement claims from nonpracticing entities that have no relevant product revenue and against whom our patent portfolio may therefore
have no deterrent effect.
It is also possible that
we have failed to identify relevant third-party patents or applications. Because patent applications can take many years to issue, may
be confidential for 18 months or more after filing and can be revised before issuance, there may be applications now pending which may
later result in issued patents that may be infringed by the manufacture, use, sale or importation of our products or product candidates
and we may not be aware of such patents. It is difficult for industry participants, including us, to identify all third-party patent rights
that may be relevant to our products and product candidates because patent searching is imperfect due to differences in terminology among
patents and jurisdictions, incomplete databases, and the difficulty in assessing the meaning of patent claims. We may fail to identify
relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the
likelihood that such patent applications may issue with claims of relevance to our technologies. Additionally, pending patent applications
that have been published can, subject to certain limitations, be later amended in a manner that could cover our products or product candidates
or the use of our products and product candidates. Any of the foregoing could have a material adverse effect on our business, financial
condition, results of operations and prospects.
**
*Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements
imposed by government patent agencies, and our patent protection could be reduced or eliminated as a result of noncompliance with these
requirements.*
Periodic maintenance fees,
renewal fees, annuity fees and various other government fees on patents and/or applications will be due to be paid to the USPTO and various
government patent agencies outside the United States over the lifetime of our patents and patent applications. We rely on our outside
counsel to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government patent agencies require
compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. In many
cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are
situations, however, in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial
or complete loss of patent rights in the relevant jurisdiction. Moreover, there is a possibility that inadvertent errors during patent
prosecution, including errors in priority claims or filing formalities, could affect the validity of any patents that grant from the applicable
applications. In such an event, potential competitors might be able to enter the market or the scope, validity, enforceability or ownership
of our patents could be affected, any of which could have a material adverse effect on our business, financial condition, results of operations
and prospects.
**
*We may not be able to obtain and
protect our intellectual property rights throughout the world.*
Filing, prosecuting and defending
patents in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries
outside the United States are less extensive than those in the United States. In some cases, we may not be able to obtain patent protection
for certain of our technologies outside the United States. In addition, the laws of some foreign countries do not protect intellectual
property rights to the same extent as federal and state laws in the United States, even in jurisdictions where we do pursue patent protection.
Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, even
in jurisdictions where we do pursue patent protection or from selling or importing products made using our inventions in and into the
United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not pursued and obtained patent
protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection,
but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual
property rights may not be effective or sufficient to prevent them from competing.
37
Many companies have encountered
significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection,
particularly those relating to biotechnology and pharmaceutical products, which could make it difficult for us to stop the infringement
of our patents, if pursued and obtained, or marketing of competing products in violation of our proprietary rights generally. Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other
aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk
of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the
damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.
Many countries have compulsory
licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability
of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which
could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with respect
to any patents relevant to our business, our business, financial condition, results of operations and prospects could be materially and
adversely affected.
**
*Issued patents
covering our current or future products or product candidates could be found invalid or unenforceable if challenged in court or before
administrative bodies in the United States or abroad.*
Our patents and patent applications
may be subject to priority, validity, inventorship and enforceability disputes. If we are unsuccessful in any of these proceedings, such
patents and patent applications may be narrowed, invalidated or held unenforceable, we may be required to obtain licenses from third parties,
which may not be available on commercially reasonable terms or at all, or we may be required to cease the development, manufacture and
commercialization of one or more of the products or product candidates we have or may in the future develop. Any of the foregoing could
have a material adverse effect on our business, financial condition, results of operations and prospects.
In patent litigation in the
United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could
include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description,
non-enablement or failure to claim patent-eligible subject matter. Grounds for an unenforceability assertion could include an allegation
that someone connected with prosecution of the patent withheld information material to patentability from the USPTO, or made a misleading
statement, during prosecution. Third parties also may raise similar claims before administrative bodies in the United States or abroad,
even outside the context of litigation. Such mechanisms include reexamination, post-grant review, *inter partes* review, interference
proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions. Any future patent-related proceedings could result
in the revocation or cancellation of or amendment to our patents in such a way that they no longer cover our products and product candidates
or prevent third parties from competing with our products and product candidates. The outcome following legal assertions of invalidity
and unenforceability is unpredictable. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we could
lose at least part, and perhaps all, of the patent protection on our current or future products and product candidates. Such a loss of
patent protection could have a material adverse effect on our business, financial condition, results of operations and prospects.
**
*If we are
unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.*
In addition to the protection
afforded by patents, we rely on trade secret protection and contractual confidentiality obligations to protect proprietary know-how that
is not patentable or that we elect not to patent (and are not required to disclose in a patent), processes for which patents are difficult
to enforce, and any other elements of our products, product candidates and development processes that involve proprietary know-how, information
or technology that is not covered by patents. However, trade secrets can be difficult to protect and some courts inside and outside the
United States are less willing or unwilling to protect trade secrets. We seek to protect our technology and proprietary processes, in
part, by including confidentiality clauses in our agreements with our employees, third-party contractors and consultants and other parties
who have access to them. However, we may not be able to prevent the unauthorized disclosure or use of our technical know-how or other
trade secrets by the parties to these agreements. Monitoring unauthorized uses and disclosures is difficult and we do not know whether
the steps we have taken or may take to protect our proprietary technologies will be effective. If any of the employees, third-party contractors
or consultants or other people that are party to these agreements breach or violate the terms of any of these agreements, we may not have
adequate remedies for any such breach or violation. As a result, we could lose our trade secrets and third parties could use our trade
secrets to compete with our products and product candidates.
38
We cannot guarantee that
we have included such confidentiality obligations in our agreements with each party that may have or has had access to our trade secrets
or proprietary technology and processes. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining
physical security of our premises and implementing certain security measures in our information technology systems. However, such systems
and security measures may be breached, and we may not have adequate remedies for any breach.
In addition, our trade secrets
may otherwise become known or be independently discovered by competitors or other third parties. Competitors or third parties could examine
our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe
our intellectual property rights, design around our protected technologies or develop their own competitive technologies that fall outside
the scope of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by
a competitor or other third party, we would have no right to prevent them, or those to whom they communicate such trade secrets, from
using that technology or information to compete with us. If our trade secrets are not adequately protected so as to protect our market
against competitors products, our business, financial condition, results of operations and prospects could be materially and adversely
affected.
**
*Intellectual
property litigation and proceedings could cause us to spend substantial resources and distract our personnel from their normal responsibilities.*
Litigation or other legal
proceedings relating to intellectual property claims, with or without merit, are unpredictable and generally expensive and time consuming.
Competitors and other third parties have in the past, and may in the future, unfairly trade on the goodwill of our name or trademarks,
infringe, misappropriate or otherwise violate our intellectual property, or we may be required to defend against claims of unfair competition,
infringement, misappropriation or other violation ourselves. In addition, our patents also may become involved in inventorship, priority,
or validity disputes. To counter infringements, misappropriations or other violations of our intellectual property rights by third parties,
to defend against claims of infringement, misappropriation or other violations of intellectual property, and to defend against claims
that our intellectual property are invalid or unenforceable can be expensive and time consuming. Even if resolved in our favor, litigation
or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our
scientific and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required
in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by
disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other
interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial
adverse effect on the price of our shares. Such litigation or proceedings could substantially increase our operating losses and reduce
the resources available for development activities or any future sales, marketing or distribution activities.
We may not have sufficient
financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors or other third parties may
be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources
and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our business, financial condition, results of operations and prospects.
See -We may become subject to claims or legal proceedings alleging that we are infringing, misappropriating or otherwise
violating the intellectual property rights of others.
**
39
**
*We may be
subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their
current or former employers or claims asserting ownership of what we regard as our own intellectual property.*
Certain of our employees,
consultants or advisors are currently, or were previously, employed at universities or other biotechnology or pharmaceutical companies,
including our competitors or potential competitors, as well as our academic partners. Although we try to ensure that our employees, consultants
and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these
individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such
individuals current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any
such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. An inability to incorporate such
technologies or features would harm our business and may prevent us from successfully commercializing our products and product candidates.
In addition, we may lose personnel as a result of such claims and any such litigation or the threat thereof may adversely affect our ability
to hire employees or contract with independent contractors. A loss of key personnel or their work product could hamper or prevent our
ability to commercialize our products, which would have a material adverse effect on our business, results of operations, financial condition
and prospects. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction
to management.
In addition, while it is
our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute
agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact,
conceives or develops intellectual property that we regard as our own. Moreover, even when we obtain agreements assigning intellectual
property to us, the assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached,
and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership
of what we regard as our intellectual property. Furthermore, individuals executing agreements with us may have preexisting or competing
obligations to a third party, such as an academic institution, and thus an agreement with us may be ineffective in perfecting ownership
of inventions developed by that individual. Disputes about the ownership of intellectual property that we may own may have a material
adverse effect on our business, financial condition, results of operations and prospects.
In addition, we may in the
future become subject to claims by former employees, consultants or other third parties asserting an ownership right in our patents or
patent applications. An adverse determination in any such submission or proceeding may result in loss of exclusivity or freedom to operate
or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others
from using or commercializing similar technology and therapeutics, without payment to us, or could limit the duration of the patent protection
covering our products and product candidates. Such challenges may also result in our inability to develop, manufacture or commercialize
our products and product candidates without infringing third-party patent rights. In addition, if the breadth or strength of protection
provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop
or commercialize current or future products or product candidates. Any of the foregoing could have a material adverse effect on our business,
financial condition, results of operations and prospects.
**
*Changes in
U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products and product candidates.*
Changes in either the patent
laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution
of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior
to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States,
the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the
America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that
other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention
regardless of whether a third party was the first to invent the claimed invention. The America Invents Act also resulted in a number of
significant changes that affect the way patent applications are prosecuted and patent litigation. Such changes include allowing third-party
submission of prior art to the USPTO during patent prosecution and additional procedures to challenge the validity of a patent by USPTO
administered post-grant proceedings, including post-grant review, *inter partes* review and derivation proceedings. The America Invents
Act and its implementation has increased the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations
and prospects.
40
The patent positions of companies
engaged in the development and commercialization of pharmaceuticals are particularly uncertain. Court rulings may narrow the scope of
patent protection available in certain circumstances and weaken the rights of patent owners in certain situations, including for patents
relating to genetic molecules. We cannot predict how decisions by the courts, the U.S. Congress or the USPTO may impact the value of our
patents. Any similar adverse changes in the patent laws of other jurisdictions could also have a material adverse effect on our business,
financial condition, results of operations and prospects. Depending on future actions by the U.S. Congress, the federal courts and the
USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our
existing patent portfolio and our ability to protect and enforce our intellectual property in the future. Any of the foregoing could have
a material adverse effect on our business, financial condition, results of operations and prospects.
**
*We may need
to obtain patent term extension and equivalent extensions outside the United States for our products and product candidates.*
Depending upon the timing,
duration and specifics of any FDA marketing clearance of our product candidates, one or more of the U.S. patents that we own or may own
in the future may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984,
or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent
term lost during the FDA regulatory review process based on the first regulatory approval for a particular drug or biologic. A patent
term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent
may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended.
Similar provisions are available in E.U. and other foreign jurisdictions to extend the term of a patent that covers an approved drug or
biologic.
We may not be granted any
extensions for which we apply in the United States or any other jurisdiction because of, for example, failing to exercise due diligence
during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration
of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent
protection afforded could be less than we request. If we are unable to obtain patent term extension, or the foreign equivalent, or if
the term of any such extension is less than we request, our competitors may be able to enter the market sooner, and our revenue could
be reduced. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and
prospects.
**
*If our trademarks
and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest.*
Our trademark applications
in the United States and in foreign jurisdictions may not be allowed or may subsequently be opposed. Once filed and registered, our trademarks
or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. As a means
to enforce our trademark rights and prevent infringement, we have in the past, and may in the future, be required to file trademark claims
against third parties or initiate trademark opposition proceedings. This can be expensive and time consuming, particularly for a company
of our size. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among
potential partners or customers in our markets of interest. In addition, we have chosen not to register trademarks for the names of all
of our products and may be unable to register such trademarks in the future. At times, competitors may adopt trade names or trademarks
similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could
be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate
variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition
based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our
efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual
property may be ineffective and could result in substantial costs and diversion of resources. Any of the foregoing could have a material
adverse effect on our business, financial condition, results of operations and prospects.
*Laws, rules
and regulations that protect the privacy and security of personal information may increase our costs, limit our ability to collect and
use that information and subject us to liability if we are unable to fully comply with such laws, rules and regulations.*
In the ordinary course of
our business, we may collect, use, transfer, store, maintain and otherwise process certain sensitive and other personal information, including
of our employees, that is subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data
privacy and cybersecurity. Ensuring that our collection, use, transfer, storage, maintenance and other processing of personal information
complies with applicable laws, regulations, rules, standards and contractual obligations regarding data privacy and cybersecurity in relevant
jurisdictions can increase operating costs, impact the development of new systems, and reduce operational efficiency. Global legislation,
enforcement, and policy activity in this area is rapidly expanding and creating a complex regulatory compliance environment. Any actual
or perceived mishandling or misuse of the personal information by us or a third party with which we are affiliated could result in litigation,
regulatory fines, penalties or other sanctions, damage to our reputation, disruption of our business activities, and significantly increased
business and cybersecurity costs or costs related to defending legal claims.
**
41
**
Numerous federal and state
laws, rules and regulations in the United States govern the collection, use, transfer, storage, maintenance and other processing, security
and confidentiality of protected health information and individually identifiable health information. These laws include:
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provisions of HIPAA that limit how covered entities and business
associates may use and disclose protected health information, provide certain rights to individuals with respect to that information and
impose certain security requirements; | |
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HITECH, which strengthened and expanded the HIPAA Privacy Rule
and Security Rules, imposed data breach notification obligations, created new tiers of civil monetary penalties, amended HIPAA to make
civil and criminal penalties directly applicable to business associates and gave state attorneys general new authority to file civil actions
for damages or injunctions in U.S. federal courts to enforce the federal HIPAA laws and seek attorneys fees and costs associated
with pursuing federal civil actions; and | |
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federal and state laws regulating the conduct of research with
human subjects. | |
As part of our business operations,
including our research and development activities, we may collect and maintain protected health information in paper and electronic format.
Standards related to collecting and maintaining health information, whether implemented pursuant to HIPAA, HITECH, state laws, federal
or state action or otherwise, could have a significant effect on the manner in which we handle personal information, including healthcare-related
data, and communicate with payers, providers, patients, donors and others.
In addition, in the United
States, numerous federal, state, and local governments have enacted laws, rules, and regulations, including state data breach notification
laws that govern the processing of personal data generally. At the federal level, we are subject to, among other laws, rules, and regulations,
the rules and regulations promulgated under the authority of the Federal Trade Commission, which has the authority to regulate and enforce
against unfair or deceptive acts or practices in or affecting commerce, including acts and practices with respect to privacy, data protection,
and cybersecurity. Moreover, Congress has considered, and continues to consider, many proposals for comprehensive national data privacy
and cybersecurity legislation. As another example, at the state level, we are subject to laws, rules, and regulations, such as the California
Consumer Privacy Act (as amended by the California Privacy Rights Act (collectively, CCPA)), which, amongst other things,
requires businesses to provide specific disclosures in privacy notices, implement new operational practices, honor requests from California
residents to exercise certain privacy rights (such as the right to access and request deletion of their personal information and to opt
out of certain sharing and sales of personal information) and provides for civil penalties of up to $7,500 per violation, as well as a
private right of action for certain data breaches that may increase the likelihood of and risks associated with data breach litigation.
Many other states have also enacted, or are in the process of enacting, comprehensive privacy, data protection, and cybersecurity laws,
rules, and regulations that share similarities with the CCPA, which creates the potential for a patchwork of overlapping but different
state laws. In addition, all 50 states have laws that require the provision of notification for security breaches of personal information
to affected individuals, state officers, or others.
Outside of the United States,
an increasing number of laws, rules, regulations and industry standards apply to privacy, data protection and cybersecurity. For example,
the European Union (EU) has passed the EU General Data Protection Regulation (GDPR), and, following the withdrawal
of the United Kingdom (UK) from the EU, the UKs Data Protection Act 2018 as supplemented by the GDPR was implemented
into UK law (collectively, UK GDPR), both of which impose similar, stringent data protection requirements. The GDPR and
UK GDPR are wide-ranging in scope and impose numerous additional requirements on companies that process personal information, including
imposing special requirements in respect of the processing of personal information, requiring that consent of individuals to whom the
personal information relates is obtained in certain circumstances, requiring additional disclosures to individuals regarding data processing
activities, requiring that safeguards are implemented to protect the security and confidentiality of personal information, creating mandatory
data breach notification requirements in certain circumstances, and requiring that certain measures (including contractual requirements)
are put in place when engaging third-party processors. The GDPR and UK GDPR also provide individuals with various rights in respect of
their personal information, including rights of access, erasure, portability, rectification, restriction, and objection. Failure to comply
with the GDPR and the UK GDPR can result in significant fines and other liability, including fines of up to EUR 20 million (or GBP 17.5
million under the UK GDPR) or four percent (4%) of global revenue, whichever is greater. Moreover, the UK government has publicly announced
plans to reform the UK GDPR in ways that, if formalized, are likely to deviate from the GDPR, all of which creates a risk of divergent
parallel regimes and related uncertainty, along with the potential for increased compliance costs and risks for affected businesses. Other
jurisdictions outside the EU and the UK are similarly introducing or enhancing privacy, data protection and cybersecurity laws, rules,
and regulations, which could increase our compliance costs and the risks associated with noncompliance. We cannot yet fully determine
the impact these or future laws, rules, and regulations may have on our business or operations. These laws, rules and regulations may
be inconsistent from one jurisdiction to another, subject to differing interpretations and may be interpreted to conflict with our practices.
42
Any failure or perceived
or inadvertent failure by us to comply with our privacy policies, or existing or new laws, regulations, rules, standards or contractual
obligations, or any compromise of security that results in unauthorized access to, or unauthorized loss, destruction, use, modification,
acquisition, disclosure, release or transfer of personal information, may result in substantial costs, time and other resources, orders
to stop or modify the alleged noncompliant activity, proceedings or actions against us by governmental entities or others, legal liability,
audits, regulatory inquiries, governmental investigations, enforcement actions, claims, fines, judgments, awards, penalties, sanctions
and costly litigation (including class actions). Any of the foregoing could harm our reputation, distract our management and technical
personnel, increase our costs of doing business, adversely affect the demand for our systems, and ultimately result in the imposition
of liability, any of which could have a material adverse effect on our business, financial condition and results of operations.
*Cybersecurity
breaches, attacks and other similar incidents, as well as other disruptions to our information technology systems, could compromise our
confidential and proprietary information, including personal information, and expose us to liability and regulatory fines, increase our
expenses, or result in legal or regulatory proceedings, which could cause our business and reputation to suffer.*
We rely on trade secrets,
technical know-how and other confidential and proprietary information relating to our product development to provide us with competitive
advantages. We also collect, maintain and otherwise process certain sensitive and other personal information.
We, and our collaborators
and service providers which may have access to any such information, face various internal and external cybersecurity threats and risks.
For example, current, departing or former employees or other individuals or third parties with which we do business could attempt to improperly
use or access our computer systems and networks, or those of our collaborators or service providers, to copy, obtain or misappropriate
our confidential or proprietary information, including personal information. Additionally, like others, we and our collaborators and service
providers are subject to significant system or network or computer system disruptions from numerous causes, including cybersecurity breaches,
attacks or other similar incidents, facility access issues, new system implementations, human error, fraud, energy blackouts, theft, fire,
power loss, telecommunications failure or a similar catastrophic event. Moreover, computer viruses, worms, malware, ransomware, phishing,
spoofing, malicious or destructive code, social engineering, denial-of-service attacks, and other cyberattacks have become more prevalent
and sophisticated in recent years. Attacks of this nature may see their effectiveness enhanced by the use of artificial intelligence and
may be conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise, including organized
criminal groups, hacktivists, terrorists, nation states, nation state-supported actors, and others.
We have been subject to attempted
cyberattacks in the past, including attempted phishing attacks, and may continue to be subject to such attacks in the future. While we
defend against these threats and risks on a daily basis, we do not believe that any such incidents to date have caused us any material
damage. Because the techniques used by computer hackers and others to access or sabotage networks and computer systems constantly evolve,
including through the use of artificial intelligence, and generally are not recognized until launched against a target, we and our collaborators
and service providers may be unable to anticipate, detect, react to, counter or ameliorate all of these techniques or remediate any incident
as a result therefrom. As a result, our confidential and proprietary information, including personal information, may be subject to unauthorized
release, accessing, gathering, monitoring, loss, destruction, modification, acquisition, transfer, use or other processing, and the impact
of any future incident cannot be predicted. We do not perform cybersecurity diligence on our collaborators and service providers, and
we do not control our collaborators and service providers, so our ability to monitor their cybersecurity is limited and we cannot ensure
the cybersecurity measures they take will be sufficient to protect any information we share with them. Any failure or perceived failure
by us or our collaborators or service providers to prevent information security breaches or other security incidents or system disruptions,
or to comply with privacy policies or any actual or asserted contractual or legal obligations relating to privacy or information security,
or any compromise of security that results in or is perceived or reported to result in unauthorized access to, or loss, theft, misappropriation,
alteration, release, transfer, unavailability, or other processing of our information (including confidential, sensitive or proprietary
information), could cause the public to lose trust in us, harm our reputation and competitive position and expose us to legal claims,
demands, attorneys fees, and litigation, regulatory investigations and proceedings, and fines, penalties, and other liability.
In addition, if any such third party that processes proprietary, confidential or sensitive information on our behalf is subject to a security
breach, incident or disruption, we may not initially be aware of it and we may not be able to control the investigation into such breach,
incident or disruption. Due to applicable laws, rules and regulations or contractual obligations, we may be held responsible for cybersecurity
breaches, attacks or other similar incidents attributed to our collaborators and service providers as they relate to the information we
share with them. We may be required to notify our employees, regulators and other third parties and individuals whose personal information
was acquired, stored, transmitted, used, disclosed or otherwise processed without authorization, and doing so may harm our reputation
and brand, disrupt our operations and impede our ability to conduct our business.
Although we have implemented
network security safeguards and are exploring implementing additional information technology system improvements related to security,
we cannot assure that such safeguards or system improvements will be sufficient to prevent or limit a cybersecurity breach, attack or
other similar incident or network or computer system disruption, or the damage resulting therefrom. We may be required to expend significant
additional resources to continue to modify or enhance our protective measures or to investigate or remediate any cybersecurity vulnerabilities,
breaches, attacks or other similar incidents. Any cybersecurity incident, attack or other similar incident, or our failure to make adequate
or timely disclosures to the public, regulators, or law enforcement agencies following any such event, could harm our competitive position,
result in violations of applicable data privacy or cybersecurity laws or regulations, result in a loss of customer confidence in the adequacy
of our threat mitigation and detection processes and procedures, cause us to incur significant costs to remedy the damages caused by the
incident or defend legal claims, subject us to additional regulatory scrutiny, expose us to civil litigation, fines, damages or injunctions,
cause disruption to our business activities, divert management attention and other resources or otherwise adversely affect our internal
operations and reputation or degrade our financial results.
The costs related to cybersecurity
breaches, attacks or other similar incidents or network or computer system disruptions typically would not be fully insured or indemnified
by others. We cannot ensure that any limitations of liability provisions in our agreements with collaborators and service providers and
other third parties with which we do business would be enforceable or adequate or would otherwise protect us from any liabilities or damages
with respect to any particular claim in connection with a cybersecurity breach, attack or other similar incident. In addition, our insurance
policies may not cover all of the potential losses arising from any disruption, failure, data security breach or security incident impacting
our systems or third-party systems where information important to our business operations is maintained. If the impact of a security incident
or breach, or the successful assertion of one or more large claims against us, exceeds our available insurance coverage, or results in
changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), it
could have an adverse effect on our business and financial condition.
43
Risks Related to Our Indebtedness
*We are subject
to various affirmative and negative covenants with respect to our debt financing with Avenue. The covenants may impede our ability to
execute our business plan and, if breached, may adversely affect our business, results of operations and financial condition.*
On March 24, 2026 we and
our subsidiary (collectively, the Borrowers), entered into a Loan and Security Agreement and a Supplement to the Loan and
Security Agreement (the Supplement and, together with the Loan and Security Agreement, the Loan Agreement)
with Avenue Venture Opportunities II, L.P. (Avenue), as administrative agent, collateral agent (in such capacities, the
Agent) and as a lender (in such capacity, together with each other lender from time to time party thereto, the Lender).
The Loan Agreement makes
available to us term loans in an aggregate principal amount of up to $25.0 million with (i) $7.0 million funded on March 24, 2026 (Tranche
1), (ii) up to $8.0 million to be made available to us between September 1, 2026 and March 31, 2027, subject to, (x) dosing of
first patients in a phase 3 trial of Onychomycosis, (y) raising $10.0 million via equity financing and (z) positive data in our ongoing
phase 2 clinical study of GX-03 for moderate-severe atopic dermatitis (Tranche 2). The Lender may make additional term loans
of up to an additional $10.0 million (the Discretionary Tranche 3 and collectively with Tranche 1, and Tranche 2, the Loans),
to be funded between January 1, 2027 and June 30, 2028, subject to, among other things, (x) that we have drawn the full amount of Tranche
2, (y) our achievement of a certain clinical milestone and (z) the mutual written agreement between us and the Lender (upon the Lenders
investment committee approval).
The Avenue Capital Loan
is secured by a security interest granted by the Borrowers to the Lenders in collateral consisting of all of each Borrowers right,
title and interest in all receivables, equipment, fixtures, general intangibles, inventory, investment property, deposit accounts, shares,
goods, records, and other personal property of the Borrowers, and any proceeds of each of the foregoing, subject to certain specified
limitations.
The Loan Agreement and
other documentation entered into by the Borrowers in connection with the Avenue Capital Loan contain numerous affirmative and negative
covenants on the part of the Borrowers in favor of the Agent and the Lenders. If we breach these covenants, the Agent may declare all
amounts immediately due and payable and exercise its rights with respect to the security for those loans.
Customary affirmative covenants
under the Avenue Capital Loan include requirements for notice to lender of certain things including any litigation(s); substantial dispute(s);
occurrence of any default or event of defaults; delivery of financial statements and other reports at stipulated intervals; maintenance
of adequate insurance and accounting records, among other things.
Among the negative covenants
are covenants requiring the Borrowers to obtain the Agents and/or the Lenders consent, subject to certain specified exceptions
or prepayment of outstanding balances under the Loan Agreement, prior to undertaking certain actions, including to: enter into a new business
line; liquidate or dissolve, enter into any change of control transaction, or acquire another entity; sell, transfer, lease or license
any assets other than in the ordinary course of business; make any loans, guarantees, advances or investments; prepay any indebtedness;
repay any subordinated indebtedness; pay or declare dividends; take on any new indebtedness; create or incur any new liens; enter into
any new personal property lease; make material changes to our insurance policies; or give material discounts, credits or rebates on an
existing right to receive payment. These covenants may impede the Company in its ability to execute its business plan in the most efficient
and effective manner.
If the Avenue Capital Loan
covenants are breached, we may attempt to secure a waiver of those covenants or an amendment that modifies the covenants, but there are
no assurances that we will be able to comply with our future covenants without such a waiver or amendment, or that we will be successful
in obtaining a waiver or an amendment.
*Our stockholders
may experience dilution as a result of the Loan with Avenue.*
The Lender has the right
to convert initially up to $2.0 million of the outstanding principal of the Loans (the Conversion Option) into shares of
common stock at a price per share equal to 80% of the trading price on the date of conversion, subject to certain terms and conditions,
including beneficial ownership limitations. Upon draw-down of Tranche 2, the Conversion Option will be increased by $1.0 million. The
exercise of the Conversion Option by the Lender could result in dilution for our existing stockholders.
44
Risks Related to Ownership of Our
Common Stock
**
*An active
trading market may not develop or continue to be liquid and the market price of shares of our common stock may be volatile.*
Prior to the direct listing,
there was no public market for any of our securities. Our common stock has been listed on Nasdaq only for a limited period of time, and
an active market for our common stock may not develop or be sustained after the listing, which could depress the market price of shares
of our common stock and could affect the ability of our stockholders to sell our common stock. In the absence of an active public trading
market, investors may not be able to liquidate their investments in our common stock. An inactive market may also impair our ability to
raise capital by selling shares of our common stock, our ability to motivate our employees through equity incentive awards and our ability
to acquire other companies, products or technologies by using shares of our common stock as consideration.
Since our listing on Nasdaq,
the market price and trading volume of our common stock have been, and may continue to be, highly volatile, including within a single
trading day. Such volatility could result in substantial losses for purchasers of our common stock. For example, on October 8, 2025, the
first day of trading on Nasdaq, the price of our common stock fluctuated between an intraday high of $10.00 and an intraday low of $6.23,
on trading volume of approximately 219,124 shares. We cannot predict if or when similar volatility will occur or how long such conditions
may persist.
The public price of our common
stock following the listing may continue to be subject to wide fluctuations in response to the risk factors described in this Annual Report
and others beyond our control, including:
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changes in the industries in which we operate; | |
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variations in our operating performance and the performance of our competitors in
general; | |
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actual or anticipated fluctuations in our quarterly or annual operating results; | |
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publication of research reports by securities analysts about us or our competitors
or our industry; | |
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the publics reaction to our press releases, our other public announcements
and our filings with the SEC; | |
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our failure or the failure of our competitors to meet analysts
projections or guidance that we or our competitors may give to the market; | |
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additions and departures of key team members and personnel; | |
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changes in laws and regulations affecting our business; | |
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commencement of, or involvement in, litigation involving us; | |
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changes in our capital structure, such as future issuances
of securities or the incurrence of additional debt; | |
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the volume of shares of our common stock available for public sale; and | |
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general economic and political conditions such as recessions,
interest rates, fuel prices, foreign currency fluctuations, international tariffs, social, political and economic risks and acts of war
or terrorism. | |
In addition, securities exchanges
have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many
companies. Stock prices of many companies have fluctuated in a manner often unrelated to the operating performance of those companies.
These fluctuations may be even more pronounced in the trading market for our common stock shortly following the listing of our common
stock on Nasdaq as a result of the supply and demand forces described above. In the past, stockholders have instituted securities class
action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us
to substantial costs, divert resources and the attention of management from our business and harm our business, results of operations
and financial condition.
**
45
**
*Sales of substantial
amounts of our common stock in the public markets by our founder, affiliates, or non-affiliates, or the perception that such sales might
occur, could reduce the price that our common stock might otherwise attain.*
Sales of substantial amounts
of our common stock in the public market by our founder, affiliates, or non-affiliates, or the perception that such sales could occur,
could adversely affect the public price of our common stock and may make it more difficult for you to sell your common stock at a time
and price that you deem appropriate. Moreover, (i) a non-affiliate who has beneficially owned common stock for at least six months may
rely on Rule 144 to sell their common stock, and (ii) an affiliate who has beneficially owned common stock for at least six months, would
be entitled to sell within any three-month period a number of shares of common stock that does not exceed the greater of either of the
following: (a) 1% of the number of shares of common stock then outstanding, and (b) the average weekly reported volume of trading of our
common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
**
*We are an
emerging growth company and a smaller reporting company and the reduced disclosure requirements applicable
to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.*
We are an emerging
growth company and have the option to utilize certain exemptions from various reporting requirements that are applicable to other
public companies that are not emerging growth companies including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements, election to defer the adoption of recently issued accounting standards, and exemptions from the requirements of
holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will
remain an emerging growth company until the earlier of (i) the last day of the fiscal year (A) following the fifth anniversary
of the listing of our common stock on Nasdaq, (B) in which we have total annual revenue of at least $1.235 billion, or (C) in which we
are deemed to be a large accelerated filer, with at least $700 million of equity securities held by non-affiliates as of the prior June
30th, and (ii) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
Under the JOBS Act, emerging
growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private
companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that
have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging
growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result,
our consolidated financial statements may or may not be comparable to companies that comply with new or revised accounting pronouncements
as of public companies effective dates. Further, we may take advantage of some of the other reduced regulatory and reporting requirements
that will be available to us so long as we qualify as an emerging growth company.
Among other things, this
means that our independent registered public accounting firm is not required to provide an attestation report on the effectiveness of
our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the
risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as
an emerging growth company, we may elect not to provide you with certain information, including certain financial information
and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings
we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. As a result, investor
confidence in our company and the trading price of our common stock may be adversely affected. Further, we cannot predict if investors
will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our trading price may be more volatile.
46
We are also a smaller
reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer
an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until
the fiscal year following the determination that our common stock held by non-affiliates is $250 million or more measured on the last
business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal
year and common stock held by non-affiliates is $700 million or more measured on the last business day of our second fiscal quarter. It
is possible that some investors will find our common stock less attractive as a result of the foregoing, which may result in a less active
trading market for our common stock and higher volatility in our stock price.
**
*We are a controlled
company within the meaning of the corporate governance rules of Nasdaq and, as a result, we qualify for exemptions from certain
corporate governance requirements. Although we do not currently intend to rely on any such exemptions, we may do so in the future and
if we utilize any of the exemptions, you will not have the same protections as those afforded to stockholders of companies that are subject
to such governance requirements.*
Our founder and Chief Executive
Officer, Mr. Burnam, controls more than 50% of our outstanding shares of common stock on a fully diluted basis. As a result, we are a
controlled company. Under Nasdaq Listing Rules, a company of which more than 50% of the voting power for the election of
directors is held by an individual, group, or another company is a controlled company and may elect not to comply with certain
corporate governance requirements, including the requirements that, within one year of the date of the listing of our common stock, we
have a:
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| 
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board that is composed of a majority of independent
directors, as defined under the rules of such exchange; | |
| 
| 
| 
compensation committee that is composed entirely of independent
directors; and | |
| 
| 
| 
nominating and corporate governance committee that is composed
entirely of independent directors. | |
These exemptions do not modify
the requirement for a fully independent audit committee, which is permitted to be phased-in as follows: (1) one independent committee
member at the time of our initial public offering; (2) a majority of independent committee members within 90 days of our initial public
offering; and (3) all independent committee members within one year of our initial public offering. Similarly, once we are no longer a
controlled company, we must comply with the independent board committee requirements as they relate to the compensation
committee and the nominating and corporate governance committee, on the same phase-in schedule as set forth above, with the trigger date
being the date we are no longer a controlled company as opposed to our initial public offering date. Additionally, we will
have 12 months from the date we cease to be a controlled company to have a majority of independent directors on our board
of directors.
Although we do not currently
rely on any such exemptions, we may do so in the future and if we utilize any of the controlled company exemptions, you
will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements
of Nasdaq. See Management-Controlled Company Status.
**
*Because of
his significant ownership of our common stock, our founder has substantial control over our business, and his interests may differ from
our interests or those of our other shareholders.*
As of December 31, 2025,
our founder, Bradley Burnam, beneficially owned or controlled, directly or indirectly, common stock representing approximately 52% of
the combined voting power of our outstanding voting securities on a fully diluted basis after giving effect to the issuance of the Commitment
Fee Shares, the full exercise of the GEM Warrant and purchase of all draw-down shares issued to GEM as of December 31, 2025. As
a result of this ownership or control of our voting securities, our founder has control over the outcome of substantially all matters
submitted to our shareholders for approval, including the election of directors. This may delay or prevent an acquisition or cause the
public price of our common stock to decline. Our founder may have interests different from yours. Therefore, the concentration of voting
power with our founder may have an adverse effect on the price of our common stock.
47
In addition, in connection
with the direct listing, we entered into a stockholders agreement with our controlling shareholder pursuant to which our controlling shareholder
has certain consent rights over our corporate affairs. The stockholders agreement provides that the approval of our controlling shareholder
must be obtained, in addition to any other required approval by our board of directors or shareholders, prior to us engaging in certain
actions. See Certain Relationships and Related Party Transactions-Stockholders Agreement with Bradley Burnam.
As a result, our controlling shareholder has significant influence over our management and affairs and, so long as he beneficially owns
at least 10% of our outstanding common stock, will have approval rights over certain corporate actions, including, among others, any merger,
consolidation or sale of all or substantially all of our assets; any dissolution, liquidation or reorganization or any acquisition of
any asset for consideration in excess of 20% of our total assets; the issuance of equity securities, or any other ownership interests,
for consideration exceeding $50 million; any amendments to our certificate of incorporation or bylaws; any incurrence, guarantee, assumption
or refinancing of indebtedness, or grant of a security interest, in each case in excess of 20% of our total assets; the declaration or
payment of dividends on our common stock; and hiring or compensation decision with respect to any senior management or key employee.
**
*Our amended
and restated certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities
which may adversely affect our performance.*
Under our amended and restated
certificate of incorporation, we expressly renounce any interest or expectancy in, or right to be offered participation with respect to,
certain business opportunities that may from time to time be presented to any of our directors, officers, agents, stockholders, members,
partners or affiliates, other than those opportunities expressly offered to such persons in their capacities as directors or officers
of our Company. As a result, our directors or officers may pursue, directly or indirectly, business ventures or investments that may compete
with our business, overlap with our strategic objectives, or otherwise be complementary to our operations. For example, an officer or
director could identify an investment, acquisition, or partnership that could enhance our growth prospects, but instead allocate that
opportunity to another company or to their own personal interests. These potential conflicts of interest could have a material adverse
effect on our business, financial condition, results of operations, and prospects. Relevant provisions under our Amended and Restated
Certificate of Incorporation are more fully described in Description of Capital Stock.
**
*If securities
or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading
volume could decline.*
The trading market for our
common stock is influenced by the research and reports that securities or industry analysts publish about our Company or us. Securities
and industry analysts do not currently, and may never, publish research focused on our Company. If no securities or industry analysts
commence coverage of our Company, the price and trading volume of our common stock likely would be negatively impacted. If securities
or industry analysts initiate coverage and one or more of the analysts who cover us downgrade our common stock or publish inaccurate or
unfavorable research about our Company, our ordinary share price would likely decline. Additionally, although we are providing the historical
sales prices of our common stock in private transactions, such information may have little or no relationship to the price determined
using traditional valuation methods, but we believe that securities and industry analysts will rely upon these methods to establish target
prices for our common stock. If these analysts publish target prices for our common stock that are below our historical sales prices for
our common stock or the then-current public price of our common stock, it could cause our stock price to decline significantly. Further,
if one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, demand for our common stock
could decrease, which might cause our ordinary share price and trading volume to decline.
**
*The requirements
of being a public company may strain our resources, divert managements attention, and affect our ability to attract and retain
qualified board of director members.*
As a public company, we are
subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the listing requirements of Nasdaq, on which we will
trade, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and
financial compliance costs, make some activities more difficult, time consuming, or costly, and increase demand on our systems and resources.
The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control
over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over
financial reporting to meet this standard, significant resources and management oversight may be required. As a result, managements
attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already
hired additional employees to comply with these requirements, we may need to hire more employees in the future, which will increase our
costs and expenses.
48
In addition, changing laws,
regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing
legal and financial compliance costs and making some activities more time consuming. These laws, regulations, and standards are subject
to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve
over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance
matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply
with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a
diversion of managements time and attention from revenue-generating activities to compliance activities. If our efforts to comply
with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related
to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
**
*If we fail
to maintain proper and effective internal controls over financial reporting, our ability to produce accurate and timely financial statements
could be impaired.*
Pursuant to Section 404 of
the Sarbanes-Oxley Act, our management is required to report upon the effectiveness of our internal control over financial reporting beginning
with the annual report for our fiscal year ending December 31, 2025. When we lose our status as an EGC or SRC
and become an accelerated filer or a large accelerated filer, our independent registered public accounting
firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards
that must be met for management to assess our internal control over financial reporting are complex and require significant documentation,
testing, and possible remediation. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process
to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will
need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document
the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through
testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control
over financial reporting. This process will be time consuming, costly and complicated.
There may be material weaknesses
or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over
financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations, or cash flows.
If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public
accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, investors
may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and
we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. Failure to remedy any material
weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public
companies, could also restrict our future access to the capital markets.
**
49
**
*Our amended
and restated bylaws require exclusive forum in certain courts in the State of Delaware or the federal district courts of the United States
for certain types of lawsuits that may have the effect of discouraging lawsuits against our directors and officers.*
Our amended and restated
bylaws require, to the fullest extent permitted by law, that (i) any derivative action or proceeding brought on our behalf, (ii) any action
asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or stockholders to us or our stockholders, (iii)
any action asserting a claim against us arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation
or our bylaws or (iv) any action asserting a claim against us governed by the internal affairs doctrine will have to be brought in a state
court located within the State of Delaware (or if no state court of the State of Delaware has jurisdiction, the federal district court
for the District of Delaware), in all cases subject to the courts having personal jurisdiction over the indispensable parties named
as defendants. The foregoing provision does not apply to claims arising under the Securities Act, the Exchange Act or other federal securities
laws for which there is exclusive federal or concurrent federal and state jurisdiction.
In addition, our amended
and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of
the United States of America shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint
asserting a cause of action arising under the Securities Act or the rules and regulations promulgated thereunder. We note, however, that
there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities
laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal
courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Although we believe these
exclusive forum provisions benefit us by providing increased consistency in the application of Delaware law and federal securities laws
in the types of lawsuits to which each applies, the exclusive forum provisions may limit a stockholders ability to bring a claim
in a judicial forum that it finds favorable for disputes with us or any of our directors, officers or stockholders, which may discourage
lawsuits with respect to such claims.
These forum selection provisions
may impose additional costs on shareholders if they elect to pursue certain litigation against us, particularly if the shareholders do
not reside in or near the State of Delaware, and limit a stockholders ability to bring a claim in a judicial forum that it finds
favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors,
officers, and other employees (although our shareholders will not be deemed to have waived our compliance with federal securities laws
and the rules and regulations thereunder). Further, in the event a court finds either exclusive forum provision contained in our amended
and restated bylaws to be unenforceable or inapplicable in an action, we may incur additional costs associated with resolving such action
in other jurisdictions, which could harm our business, operating results and financial condition.
**
*We may not
be able to maintain a listing of our common stock on Nasdaq.*
We must meet certain financial
and liquidity criteria to maintain our common stock being listed on Nasdaq. If we fail to meet any of Nasdaqs continued listing
standards or we violate Nasdaq listing requirements, our common stock may be delisted. In addition, our board of directors may determine
that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our
common stock from Nasdaq may materially impair our stockholders ability to buy and sell our common stock and could have an adverse
effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock may result
in a determination that the common stock is a penny stock which will require brokers trading in the common stock to adhere
to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities.
The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment. In addition,
our ability to draw down capital under the GEM Purchase Agreement is contingent upon our common stock being listed on a national securities
exchange. If we are unable to maintain our listing on Nasdaq or another national securities exchange, we may lose access to capital available
under the GEM Purchase Agreement, which could materially adversely affect our liquidity and financial condition.
**
50
**
*We cannot
predict the number of shares we may sell to GEM under the GEM Purchase Agreement, the prices at which such shares may be sold, or the
actual proceeds we will receive, and any sales could cause substantial dilution to our stockholders.*
On August 29, 2025, we entered
into the GEM Purchase Agreement with GEM, which was further amended by a side letter dated as of September 24, 2025, pursuant to which
GEM has committed to purchase up to $85.0 million of our common stock at our sole discretion, subject to certain limitations and conditions
set forth in the GEM Purchase Agreement. We may sell shares to GEM from time to time by delivering drawdown notices, and GEM will purchase
shares at a price equal to 90% of the average daily closing price of our stock over the 15 consecutive trading days beginning on the date
of such drawdown, provided that such purchase price shall not be less than $1.00 per share and provided further that any requested drawdown
may not exceed 300% of the average daily trading volume of our common stock during the 15 trading days immediately preceding the notice.
As of December 31, 2025, we have sold 750,000 shares of common stock to GEM under the GEM Purchase Agreement. In addition, in connection
with the GEM Purchase Agreement, on the listing date, we issued GEM a warrant to purchase 1,192,207 shares of our common stock, equal
to 4.0% of our fully diluted equity interests outstanding as of that date, at an exercise price of $5.03 per share, subject to adjustments
provided under the GEM Warrant.
Because the purchase price
per share to be paid by GEM for the common stock will fluctuate based on the market prices of our common stock at the time we elect to
sell shares pursuant to the GEM Purchase Agreement, it is not possible for us to predict, as of the date of this Annual Report and prior
to any such sales, the number of shares, the purchase price per share, or the aggregate gross proceeds that we will receive under the
GEM Purchase Agreement.
Although the GEM Purchase
Agreement provides that we shall, in our discretion and during the term of the GEM Purchase Agreement, direct GEM to purchase shares from
us in one or more purchases under the GEM Purchase Agreement, for a maximum aggregate purchase price of up to $85.0 million, only 7,000,000
shares of common stock have been registered for resale. However, the market prices of shares of our common stock may fluctuate from time
to time and, as a result, the actual purchase prices to be paid by GEM for our shares of common stock that we direct GEM to purchase under
the GEM Purchase Agreement also may fluctuate significantly based on the market price of our common stock.
Accordingly, if we decide
to issue and sell to GEM under the GEM Purchase Agreement more than the 7,000,000 shares registered for resale to receive additional proceeds
(which we may elect to do, at our sole discretion, up to aggregate gross proceeds of $85.0 million), we must first file with the SEC one
or more additional registration statements or post-effective amendments to the existing registration statement to register the resale
under the Securities Act by GEM of any such additional common stock sold under GEM Purchase Agreement, and any such registration statement
or amendment must be declared effective by the SEC before we may elect to sell any such additional shares. Any issuance and sale by us
under the GEM Purchase Agreement of a substantial amount of common stock in excess of the 7,000,000 shares registered for resale by GEM
could result in substantial additional dilution to our shareholders. The number of shares of common stock ultimately offered for sale
by GEM is dependent upon the number of shares, if any, we ultimately elect to sell to GEM under the GEM Purchase Agreement.
51
Item
1B. Unresolved Staff Comments
None.
**
Item
1C. Cybersecurity
**
In the normal course of
business, we may collect and store certain sensitive company information, including proprietary and confidential business information.
We maintain various protections designed to safeguard against cyberattacks. We consider these cybersecurity risk management efforts as
part of our broader risk management framework. This
integration
helps ensure that cybersecurity considerations are a fundamental part of our decision-making processes. Our management team works with
our audit committee and board of directors (the Board) to evaluate and address cybersecurity risks in alignment with our
business objectives and operational needs. 
**
To date, we havenot
engagedindependent
third parties to assess the risks associated with our information technology resources and information assets. In the future, we may engage
third parties to analyze data on the interactions of users of our information technology resources, including our employees, and evaluate
the performance of our cybersecurity systems and processes. 
**
We utilize various third-party
software applications in the functioning of our core business. We consider the cybersecurity practices of ourthird-partyservice
providers, as appropriate, before engaging them in order to help protect us from any related vulnerabilities. Our assessment of risks
associated with the use of third-party providers is part of our overall risk management framework. 
We face risk from cybersecurity
threats that could have a material adverse effect on our business, financial condition, results of operations, cash flows or reputation.
To
date, we have not
experienced any previous cybersecurity incidents that have materially affected or are reasonably likely tomaterially affectour
business strategy, results of operations, or financial condition. 
**
Our Board is aware of the
critical nature of managing risks associated with cybersecurity threats, and recognizes the significance of these threats to our operational
integrity and stockholder confidence.
**
The
audit committee is central to the Boardsoversightof cybersecurity risks and bears the primary responsibility for this
domain as part of its broader responsibility for risk assessment and management. The audit committee is responsible for
escalating significant cybersecurity matters and strategic risk management decisions to the Board, granting the Board comprehensive oversight
and the ability to provide guidance on critical cybersecurity issues. We intend for the audit committee to review the Companys
cybersecurity posture and the effectiveness of its risk management strategies annually and brief the full Board with respect to the Companys
cybersecurity posture and potential risks on a regular basis, with a minimum frequency of once per year.
**
We do not currently have
an employee who has significant and demonstrated professional IT management experience and possesses the requisite education, skills and
experience needed to develop and execute our cybersecurity strategies. Presently, our senior management is responsible for monitoring
our cybersecurity risks and maintaining an ongoing dialogue with the audit committee regarding emerging or potential cybersecurity risks
as needed. The relationship between senior management and the audit committee regarding current and emerging cybersecurity concerns helps
to integrate cybersecurity consideration into the Companys broader strategic objectives.
Item
2. Properties
The following table describes
our principal properties leased as of the date of this Annual Report.
| 
Purpose | 
| 
Location | 
| 
Square
Footage | |
| 
Office Space(1) | 
| 
Westlake, California | 
| 
1,788 | |
| 
(1) | 
Monthly rental payments are approximately $4.4 thousand per month and the lease
is set to expire in August 2027. | |
Item
3. Legal Proceedings
We are not currently subject
to any legal proceedings. However, we may from time to time become a party to various legal proceedings arising in the ordinary course
of our business.
Item
4. Mine Safety Disclosures
Not applicable.
52
PART
II
Item
5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
**
*Market Information*
Our common stock is listed
on the Nasdaq Global Market under the symbol TTRX.
**
*Holders*
As of March 30, 2026, there were
677 holders of record of our common stock. A substantially greater number of holders are street name or beneficial holders,
whose shares of record are held by banks, brokers, and other financial institutions.
**
*Dividends*
Since our inception, we have
not paid any dividends on our common stock, and we currently expect that, for the foreseeable future, all earnings, if any, will be retained
for use in the development and operation of our business. In the future, our Board may decide, at its discretion, whether dividends may
be declared and paid to holders of our common stock.
**
*Securities Authorized
for Issuance under Equity Compensation Plans*
The information required
by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.
**
*Unregistered Sales
of Equity Securities*
*October Subscription Agreements*
**
On October 23, 2025, the
Company entered into Subscription Agreements (each a Subscription Agreements), with an officer and director of the Company,
relating to the issuance and sale of an aggregate of 25,252 shares of common stock at a price of $4.95 per share. These issuances were
made in reliance upon an exemption from the registration requirements of the Securities Act, including Section 4(a)(2) thereof and Regulation
D promulgated thereunder. The shares were issued in a transaction by the Company not involving a public offering to accredited
investors, as defined in Rule 501 of Regulation D.
*GEM Agreement*
During the year ended December
31, 2025, GEM purchased 1,235,200 shares of common stock for approximately $3.29 per share, pursuant to the terms of the GEM Agreement.
Proceeds of these equity sales under the terms of the GEM Agreement were approximately $4.07 million. Such issuances were in reliance
upon the exemption provided in Section 4(a)(2) of the Securities Act. The proceeds from such sales were used for working capital and general
corporate purposes.
Item
6. [Reserved]
53
Item
7. Managements Discussion and Analysis of Financial Condition and Results of Operations
**
*You should read the following
discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related
notes and other financial information appearing elsewhere in this Annual Report. Some of the information contained in this discussion
and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business,
includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth
in the Risk Factors section of this Annual Report, our actual results could differ materially from the results described
in or implied by the forward-looking statements contained in the following discussion and analysis.*
**
Overview
Turn Therapeutics Inc. is
developing non-systemic, non-biologic topical immunomodulators for inflammatory skin disease. Our lead program, GX-03, is being studied
for moderate-to-severe eczema based on preclinical evidence of cytokine inhibition and reduced eczema severity, as well as a favorable
real-world tolerability record from prior cleared medical devices.
GX-03 is currently being evaluated
in an ongoing, randomized, double-blind, vehicle-controlled clinical study designed to assess its potential as a topical treatment for
moderate-to-severe eczema. We intend to conduct an interim assessment at approximately 50% trial completion. Topline results are expected
in the first half of 2026.
In addition to eczema, GX-03
is being advanced for onychomycosis, supported by in-vivo data demonstrating nail penetration and antifungal activity. Our historical
medical device portfolio, which includes K183681, K160872, and K171191, also provides background tolerability and feasibility experience
with the formula. K183681 has recently been licensed to Medline Industries, LP (Medline) under a license and supply agreement.
See the section of this Annual Report titled Business Marketing Medline Agreement for a more detailed description
of this agreement.
We also continue exploratory
work on a thermostable intranasal vaccine platform, but this program is not part of the Companys primary dermatology development
path.
We have incurred operating
losses since inception, and we expect to continue to incur losses for the foreseeable future. Our net losses were approximately $3.19
million and $1.77 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated
deficit of approximately $22.39 million. We anticipate that our expenses and operating losses will increase substantially for the foreseeable
future due to the increase in research and development costs for later-stage clinical trials.
Other than any potential
revenue from medical device or intellectual property out-licensing arrangements, we will not generate revenue in the future from product
sales unless and until we successfully initiate and complete additional clinical development programs and obtain regulatory approval for
one or more additional drug candidates. As a result, we will need substantial additional funding to support our continuing drug development
and operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we
expect to finance our operations through equity and debt financing and from other sources of capital, which may include collaborations
with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or
arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed,
we may have to significantly delay, reduce or eliminate the development and commercialization of our products. As of December 31, 2025
and 2024, we had cash and cash equivalents of approximately $5.08 million and $0.87 million, respectively. We believe that our existing
cash, cash equivalents and other short term investments will be sufficient to fund our operating expenses and capital expenditure requirements
into the third quarter of 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available
capital resources sooner than we expect. See the section entitled Risk Factors Risks Related to Our Business and Industry
We design, develop, and conduct pre-clinical and clinical testing on drug candidates and medical devices. Given the inherent expense
associated with these activities, it is common for companies at our stage to incur significant losses associated with such product development.
We expect to incur additional losses for the foreseeable future, and it is possible we may never achieve or maintain profitability. Our
consolidated financial statements therefore express substantial doubt about our ability to continue as a going concern. in the
Annual Report for more information.
54
Core Products and Programs
**
*GX-03 for Moderate-to-Severe Eczema
(Lead Program)*
GX-03 is a non-systemic topical
immunomodulator being developed for moderate-to-severe eczema. Preclinical studies demonstrated inhibition of cytokines associated with
inflammatory skin disease, including IL-31, IL-36/, and IL-4. GX-03 is currently being evaluated in a randomized, double-blind,
vehicle-controlled clinical trial in adults with moderate-to-severe eczema.
An interim assessment will
be performed at approximately 50% trial completion. An independent interim assessment committee (IAC) will review emerging
signals of tolerability and efficacy. The IAC is empowered to deliver pre-written statements regarding conditional probability of a statistically
significant favorable trial outcome, as well as increase the sample size up to 200% if the committee sees a strong likelihood of achieving
statistical significance based upon positive trending. This adaptive trial design, due to the independence of the committee, pre-established
rights, and pre-written statements the committee is permitted to deliver after deliberating, does not increase the likelihood of primary
error and/or expend alpha.
**
*GX-03 for Onychomycosis*
GX-03 is also being advanced
as a topical treatment for onychomycosis. In-vivo studies in a validated animal model demonstrated nail-plate penetration and significant
reduction of fungal burden. Additional clinical program steps are expected to follow completion of the eczema clinical program and related
Investigational New Drug (IND) activities.
**
*Medical Device Products (Wound
and Dermatitis Management)*
We have previously developed
and obtained Food and Drug Administration (FDA) clearance for several medical device formulations containing the same base
formulation used in GX-03:
| 
| 
| 
K183681: a porous
antimicrobial gauze impregnated with the GX-03 formulation. The product has recently been licensed to Medline under a license and supply
agreement. | |
| 
| 
| 
K160872: a device
cleared for acute and chronic wound management. | |
| 
| 
| 
K171191: a device
cleared to manage the skin and symptoms of atopic, irritant, and radiation dermatitis. | |
These medical devices provide historical real-world
usage experience but are not the focus of current clinical development efforts.
Components of
Results of Operations
*General and Administrative Expenses*
**
General and administrative
expenses consist primarily of employee-related costs related to the corporate functions such as equity-based compensation, executive and
internal administrative operations, third-party professional fees, travel expenses, insurance expenses and rental costs.
Following our direct listing
on The Nasdaq Global Market (Nasdaq), we expect our general and administrative expenses to increase as a result of operating
as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities
exchange, costs related to compliance and reporting obligations and increased expenses for insurance, investor relations and professional
services. We also expect to incur higher equity-based compensation as we operate as a public company.
**
55
**
*Research and Development Expenses*
**
Research and development
expenses reflect our ongoing investments into expanding the applications of our flagship GX-03 formula and other drug candidates such
as enhanced stability vaccine candidates, as well as in the development of medical devices utilizing our antimicrobial technologies. Our
research and development costs also include expenses such as consulting costs, advisory costs, regulatory costs, information technology
costs and overhead expenses.
We expect our research and
development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities
related to clinical programs associated with our product candidates, including but not limited to clinical trials. The process of conducting
the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our candidates
is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects,
the costs of related clinical development costs or when and to what extent we will generate revenue from the commercialization of our
products and drug candidates.
We expense research and development
costs as incurred. Fluctuations in research and development expenses can be impacted by the timing and cadence of our clinical trials
and preclinical studies.
*Other Income*
**
Other income includes interest
income earned from cash held in savings accounts and our highly liquid investments in money markets and vendor credits.
Results of Operations
The following table summarizes
our results of operations for the years ended December 31, 2025 and 2024:
| 
| 
| 
Years Ended December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| 
| 
Change | 
| |
| 
Operating expenses: | 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
General and administrative | 
| 
$ | 
5,593,078 | 
| 
| 
$ | 
1,551,168 | 
| 
| 
$ | 
4,041,910 | 
| |
| 
Research and development | 
| 
| 
265,570 | 
| 
| 
| 
245,956 | 
| 
| 
| 
19,614 | 
| |
| 
Total operating expenses | 
| 
| 
5,858,648 | 
| 
| 
| 
1,797,124 | 
| 
| 
| 
4,061,524 | 
| |
| 
Loss from operations | 
| 
| 
(5,858,648 | 
) | 
| 
| 
(1,797,124 | 
) | 
| 
| 
(4,061,524 | 
) | |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Other income: | 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Net gain from change in fair value of derivative liability instrument | 
| 
| 
2,574,971 | 
| 
| 
| 
- | 
| 
| 
| 
2,574,971 | 
| |
| 
Gain from change in fair value of forward contract liability | 
| 
| 
380,442 | 
| 
| 
| 
- | 
| 
| 
| 
380,442 | 
| |
| 
Amortization of deferred offering cost | 
| 
| 
(496,948 | 
) | 
| 
| 
- | 
| 
| 
| 
(496,948 | 
) | |
| 
Interest income | 
| 
| 
29,583 | 
| 
| 
| 
28,709 | 
| 
| 
| 
874 | 
| |
| 
Other income | 
| 
| 
176,520 | 
| 
| 
| 
- | 
| 
| 
| 
176,520 | 
| |
| 
Total other income | 
| 
| 
2,664,568 | 
| 
| 
| 
28,709 | 
| 
| 
| 
2,635,859 | 
| |
| 
NET LOSS | 
| 
$ | 
(3,194,080 | 
) | 
| 
$ | 
(1,768,415 | 
) | 
| 
$ | 
(1,425,665 | 
) | |
We did not generate any revenue
or incur any cost of goods sold during the years ended December 31, 2025 and 2024, as we continued to focus on the research and development
of our drug candidates and medical devices.
56
General and administrative
expenses increased by $4.04million from $1.55million for the year ended December 31, 2024 to $5.59million for the year
ended December 31, 2025. The increase in operating expenses during year ended December 31, 2025 primarily resulted from legal services,
advisory services and other fees in contemplation of our direct listing which amounted to approximately $3.06million, an approximate
increase of $0.45 million in our payroll costs including stock-based compensation expense and an approximately $0.33 million increase
in our audit fees when compared to the year ended December 31, 2024.
There was no material change
in our research and development expenses for the year ended December 31, 2025 when compared to the year ended December 31, 2024.
Change in fair value of derivative
liability instrument was a net gain during the years ended December 31, 2025 and 2024 of $2.57 million and $0, respectively. The liability
instrument comprised of contingent warrant liability under the GEM Purchase Agreement among us and GEM and the put option liability. Fair
value of warrant derivative liability upon initial recognition was $5.6 million on the Direct Listing date and remeasurement gain due
to change in fair value as of December 31, 2025 was $2.78 million. Fair value of put option liability upon direct listing was immaterial
and a remeasurement loss due to change in fair value as of December 31, 2025 was $0.20 million.
Change in fair value of forward
contract liability was a net gain of $0.4 million and $0.0 for the years ended December 31, 2025 and 2024, respectively. A forward contract
liability to sell shares to the investor at 90% of the average daily closing price per share over the Draw Down Pricing Period is recorded
each time we issue a Draw Down Notice to GEM under the Share Purchase Agreement. The forward contract liability is derecognized upon receipt
of the Closing Notice and funds from the investor.
Amortization of deferred
offering cost was approximately $0.50 million and $0 for the years ended December 31, 2025 and 2024, respectively. An $0.85 million deferred
offering cost was recorded as an asset for commitment fee under the GEM Purchase Agreement which became payable to GEM upon completion
of the Direct Listing in October 2025. A $5.60 million deferred offering cost was recorded as an asset for the initial recognition of
warrant issued on the Direct Listing to GEM under the GEM Purchase Agreement. The deferred offering cost related commitment fee is being
amortized pro rata to the amounts drawn under the GEM Purchase Agreement and the deferred offering cost related to warrant is being amortized
on straight-line basis over the term of the GEM Purchase Agreement.
Other income increased by $0.18
million from $0for the year ended December 31, 2024 to $0.18 million for the year ended December 31, 2025. The increase was primarily
due to a $0.12 million write-off of a historical balance owed to a vendor and $0.05 million discount received from another vendor against
an outstanding invoice.
Liquidity and Capital Resources
**
*Liquidity*
As of December 31, 2025,
we had $12.16 million in total assets, which included $5.08million in cash and cash equivalents, $120.30thousand in prepaid
expenses and other current assets, $78.62thousand in right-of-use assets, $0.92 million in intangible assets, $5.96 million as deferred
offering cost under the GEM Purchase Agreement and $8.6thousand in security deposit. Our intangible assets primarily include capitalized
legal costs related to the registration of patents and trademarks.
As of December 31, 2025,
we had total liabilities of $7.48million, including $2.93 million in current accounts payable and accrued expenses, $3.03 million
in derivative liability instrument pursuant to warrant issued under the GEM Purchase Agreement, $46.29thousand in current portion
of operating lease liability, $34.08thousand in long-term portion of lease liability and $1.44million in deferred revenue.
The deferred revenue as of December 31, 2025 is attributable to a license agreement for our FleX Product which has been deferred due to
unpredictable outcomes and timelines of the FDA approval process which cannot be reasonably estimated. We will continue to defer the recognition
of revenue until FDA approval is achieved or sufficient information is available to make a reasonable estimate on the outcome and timelines.
Based on our current operating
plan, we estimate that our cash and cash equivalents as of December 31, 2025 will be sufficient to fund our operating expenses and capital
expenditure requirements into the third quarter of 2026. We have based this estimate on assumptions that may prove to be wrong, and could
deplete our capital resources sooner than we currently expect. Our capital resources may not be sufficient to fund operations through
at least the next 12months from the date that the accompanying consolidated financial statements as of December 31, 2025 are issued
based on our expected cash needs, which raises substantial doubt about our ability to continue as a going concern. We currently anticipate
that we will require up to approximately $60.0 to $65.0million to complete our planned Phase3 trials for eczema and onychomycosis,
and approximately $1.5million to $2.5million for our vaccine program, which we expect to fund through accessing the capital
markets, including with additional issuances of equity and/or equity-linked securities. See the section entitled Risk FactorsRisks
Related to Our Business and IndustryWe design, develop, and conduct pre-clinical and clinical testing on drug candidates
and medical devices. Given the inherent expense associated with these activities, it is common for companies at our stage to incur significant
losses associated with such product development. We expect to incur additional losses for the foreseeable future, and it is possible we
may never achieve or maintain profitability. Our consolidated financial statements therefore express substantial doubt about our ability
to continue as a going concern. in our Annual Report for more information.
57
We intend to fund our operations
for the next 12months from, as of December 31, 2025, the cash and cash equivalents available of approximately $5.08million,
from new licensing deals for our FDA-cleared medical devices or any payments from our existing license for the FleX Product, and other
equity or debt financings, as available. We did not receive any proceeds from our direct listing. On August 29, 2025, we entered into
an amended and restated Share Purchase Agreement, which was further amended by a side letter dated as of September 24, 2025, and an amended
and restated Registration Rights Agreement with GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (collectively, GEM)
(as amended, the GEM Purchase Agreement and the GEM Rights Agreement, respectively, and together, the GEM
Agreements), pursuant to which we are eligible to put certain shares of common stock to GEM, subject to certain volume and price
restrictions. Under the GEM Agreements, GEM agreed to purchase up to $85.0million in shares of our common stock subject to certain
conditions and limitations, including the registration of our common stock on a national securities exchange. Accordingly, we expect to
put shares of our common stock to GEM under the GEM Agreements as needed. On October 31, 2025, we issued the initial draw-down notice
to GEM for 1,235,200 shares. On the closing date, GEM purchased 1,235,200 shares of common stock at approximately $3.29 per share resulting
in gross proceeds of $4.07 million to us.
We expect to incur significant
additional costs in operating our business, including, but not limited to, research and development, general and administrative expenses
and marketing and advertisement expenses, and intend to continue to fund our operations through additional equity and debt financing in
the future and entry into additional strategic collaboration and licensing arrangements. We may also engage in additional debt and/or
equity financing as determined to be necessary to fund our operations and planned research and development activities.
*Cash Flows*
**
*Operating Activities*
Net cash used in operating activities
during the year ended December 31, 2025 was $2.56 million and consisted primarily of our net loss of $3.19 million, which was partially
offset by a $2.37 million decrease from changes in operating assets and liabilities primarily attributable to the timing of expenses incurred
and payments issued as well as non-cash adjustments of $0.42 million of stock-based compensation, $0.25 million advisory services expense
that was settled through issuance of common stock, $2.57 million non-cash fair value gain in derivative liability instrument, $0.38 million
non-cash fair value gain in forward contract liability and $52.75 thousand and $496.95 thousand in amortization of intangible assets and
deferred offering cost, respectively.
Net cash used in operating
activities during the year ended December 31, 2024 was $1.36 million and consisted primarily of our net loss of $1.77 million, which was
partially offset by a $1.86 thousand decrease from changes in operating assets and liabilities primarily attributable to the timing of
expenses incurred and payments issued as well as non-cash adjustments of $0.35 million of stock-based compensation and $47.48 thousand
in amortization of intangible assets.
**
*Investing Activities*
Net cash used in investing
activities during the year ended December 31, 2025 was $152.99 thousand and consisted primarily of capitalization of patent related legal
costs.
Net cash used in investing
activities during the year ended December 31, 2024 was $99.48 thousand and consisted primarily of capitalization of patent related legal
costs.
**
*Financing Activities*
Net cash provided by financing
activities during the year ended December 31, 2025 was $6.92 million and primarily consisted of proceeds from the issuance of common stock.
Net cash provided by financing
activities during the year ended December 31, 2024 was $1.15 million and primarily consisted of proceeds from the issuance of common stock.
58
Critical Accounting Policies and Estimates
**
*Use of Estimates*
The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates
include, but are not limited to, those relating to stock-based compensation, revenue recognition, research and development expenses, income
taxes and determination of right-of-use assets under lease transactions and related lease obligations. Although these estimates are based
on our knowledge of current events and actions we may undertake in the future, actual results may materially differ from these estimates
and assumptions.
**
*Critical Accounting
Policies*
**
*Revenue Recognition*
Under Accounting Standards
Codification (ASC) 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount
that reflects the consideration that we expect to receive in exchange for those goods or services. To determine revenue recognition for
arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract with a
customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration,
if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we
satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration
to which we are entitled in exchange for the goods or services we transfer to a customer.
At contract inception, once
the contract is determined to be within the scope of ASC 606, we assess whether the goods or services promised within each contract are
distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not to be distinct are combined
with other promised goods and services until a distinct combined performance obligation is identified. We then allocate the transaction
price (that is, the amount of consideration we expect to be entitled to from a customer in exchange for the promised goods or services)
to each performance obligation and recognize the associated revenue when (or as) each performance obligation is satisfied. Our estimate
of the transaction price for each contract includes all variable consideration to which we expect to be entitled, subject to the constraint
on variable consideration. Variable consideration is not constrained if the potential reversal of cumulative revenue recognized at the
contract level is not significant.
**
*License Rights* 
If the license to our intellectual property is determined to be distinct from the other promises or performance obligations identified
in the arrangement, which generally include research and development services, we recognize revenue from nonrefundable, upfront fees allocated
to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing
whether a license is distinct from the other promises, we consider relevant facts and circumstances of each arrangement, including the
research and development capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace.
In addition, we consider whether the collaboration partner can benefit from the license for its intended purpose without the receipt of
the remaining promises, whether the value of the license is dependent on the unsatisfied promises, whether there are other vendors that
could provide the remaining promises and whether it is separately identifiable from the remaining promises.
For licenses that are combined
with other promises, we utilize judgment to assess the nature of the combined performance obligation and whether the license is the predominant
promise within the combined performance obligation to determine whether the combined performance obligation is satisfied over time or
at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. If the license
is the predominant promise, and it is determined that the license represents functional intellectual property, revenue is recognized at
the point in time when control of the license is transferred. If it is determined that the license does not represent functional intellectual
property, revenue is recognized over time using an appropriate method of measuring progress.
**
**
59
**
*Milestone Payments*
At the inception of an arrangement that includes development milestone payments, we evaluate whether the milestones are considered
likely to be achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable
that a significant reversal of cumulative revenue recognized would not occur, the associated milestone value is included in the transaction
price. Milestone payments that are not within our control, such as regulatory approvals, are not considered probable to be achieved until
those approvals are received. We evaluate factors such as the scientific, clinical, regulatory, commercial and other risks that must be
overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether
it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, we re-evaluate the
probability of achievement of all milestones subject to constraint and, if necessary, adjust its estimate of the overall transaction price.
Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
**
*Royalties* 
For arrangements that include sales-based royalties, including milestone payments based on a level of sales, where the license is deemed
to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur or (ii)
when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To
date, we have not recognized any royalty revenue resulting from licensing agreements.
Amounts due to us for satisfying
the revenue recognition criteria or that are contractually due based upon the terms of the collaboration agreements are recorded as accounts
receivable on the consolidated balance sheets. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred
revenue. Amounts expected to be recognized as revenue within the one year following the balance sheet date are classified as current deferred
revenue. Amounts not expected to be recognized as revenue within the one year following the balance sheet date are classified as deferred
revenue, net of current portion.
**
*Income Taxes*
Management assesses the available
positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.
On the basis of this evaluation, the Company has determined that it is more likely than not that the Company will not recognize the benefits
of the federal and state net deferred tax assets, and, as a result, a full valuation allowance has been set against its net deferred tax
assets as of the years ended December 31, 2025 and 2024. The amount of the deferred tax asset to be realized could be adjusted if estimates
of future taxable income during the carry-forward period are reduced or increased. For the fiscal year ended December 31, 2025, the Company
had federal cumulative net operating loss (NOL) carryforwards of approximately $14.5 million, and the Company had state
NOL carryforwards of approximately $7.3 million. Utilization of some of the federal and state NOL carryforwards to reduce future income
taxes will depend on the Companys ability to generate sufficient taxable income prior to the expiration of the carryforwards. The
federal net operating loss carryforward is subject to an 80% limitation on taxable income, does not expire, and will carry on indefinitely.
The Company is taxed as a
Corporation for both federal and state income tax purposes. We account for income taxes using the asset and liability approach
promulgated by ASC 740, *Income Taxes*, for financial reporting purposes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established, when necessary, to reduce the deferred tax assets to an amount expected to be
realized.
**
*Stock-Based Compensation*
We account for stock-based
compensation for both employees and non-employees in accordance with ASC 718, *Compensation Stock Compensation*. Under the
fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the
award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period.
**
*Recently Adopted Accounting Pronouncements*
A description of recently
issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed
in Note 2 to our consolidated financial statements contained in Part I, Item 1 of this Annual Report.
60
Item
7A. Quantitative and Qualitative Disclosure About Market Risk
As a smaller reporting company,
we have elected not to provide the disclosure required by this item.
Item
8. Financial Statements and Supplementary Data
Reference is made to pages
F-1 through F-27 comprising a portion of this Annual Report, which are incorporated by reference under this Item.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item
9A. Controls and Procedures
**
We maintain disclosure controls
and procedures (as defined in Exchange Act Rule 13a15(e) and 15d-15(e)) that are designed to ensure that information required to
be disclosed in our reports under the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required
to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
*Managements
Annual Report on Internal Control Over Financial Reporting*
Management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
and 15d-15(f). We have carried out an evaluation, under the supervision, and with the participation, of management, including our chief
executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange
Act) as of the end of the period covered by this Annual Report based on the framework set forth in the Internal Control-Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the foregoing evaluation, during the preparation
of our financial statements for the year ended December 31, 2025, our management concluded that, as of December 31, 2025, the design and
operation of our disclosure controls and procedures were effective at a reasonable assurance level.
61
This Annual Report does not
include an attestation report of our registered public accounting firm regarding internal control over financial reporting because the
attestation report requirement has been removed for smaller reporting companies under the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010.
*Changes
in Internal Control over Financial Reporting*
There has not been any change
in our internal control over financial reporting during the three months ended December 31, 2025 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting
*Limitations
on the Effectiveness of Controls*
A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures and our
internal control over financial reporting are designed to provide reasonable, not absolute, assurance that the objectives of the control
system are met. We continue to implement, improve, and refine our disclosure controls and procedures and our internal control over financial
reporting.
Item
9B. Other Information
(a)
None.
(b) None of our directors or officers, as defined in Rule 16a-1(f) under the Exchange Act adopted
or terminated
a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (in each case as defined in Item
408 of Regulation S-K) during the fiscal quarter ended December 31, 2025. 
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
62
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
**
*Information
Regarding Directors and Executive Officers*
The following table sets
forth information regarding our executive officers and non-employee directors.
| 
Name | 
| 
Age | 
| 
Position(s) | |
| 
Bradley Burnam | 
| 
47 | 
| 
Chief Executive Officer & Director | |
| 
Zuraiz Chaudhary | 
| 
31 | 
| 
Interim Chief Financial Officer, Vice President of Finance & Chief Accounting Officer | |
| 
Dr. Neil Ghodadra | 
| 
47 | 
| 
Chief Medical Officer & Director | |
| 
Andrew Gengos | 
| 
61 | 
| 
Director | |
| 
Arthur Golden | 
| 
79 | 
| 
Director | |
| 
Dr. Kent Kester | 
| 
65 | 
| 
Director | |
| 
Martin Dewhurst | 
| 
62 | 
| 
Director | |
*Bradley
Burnam* has served as our Chief Executive Officer and as a director since October 2018. Mr. Burnam is an innovator and entrepreneur
with a proven track record in developing groundbreaking healthcare solutions. Mr. Burnam has driven the development of transformative
medical products and achieving three FDA clearances. He holds over 10 issued patents, reflecting his expertise in formulation and innovation.
His deep regulatory knowledge has allowed him to navigate FDA approval processes independently and as a consultant. Mr. Burnam has served
as a director of Baropace, LLC since December 2020. Mr. Burnam holds a Bachelor of Arts from the University of California, Los Angeles
(UCLA) and a Master of Education from Stanford University. We believe Mr. Burnams experience in healthcare makes
him well qualified to serve as our Chief Executive Officer and as a director.
**
*Zuraiz
Chaudhary* has served as our Interim Chief Financial Officer since August 2025 and our VP of Finance and Chief Accounting Officer
since May 2025. Mr. Chaudhary has a decade of public accounting and advisory services background and is a licensed CPA. From March 2024
to March 2025, Mr. Chaudhary was an Audit Director at SetApart, a public accounting firm. From June 2023 to March 2024, Mr. Chaudhary
served as an Audit Manager of UHY LLP, a public accounting firm. Prior to joining UHY LLP, from September 2021 to March 2023, Mr. Chaudhary
was a Senior Consultant at CrossCountry Consulting, a business advisory firm. From June 2020 to August 2021, he served as Managing Director
at BlackStone Consultants, a business advisory firm. Mr. Chaudhary has a Bachelor of Business Administration (Accounting) from Asia-e
University, Malaysia and is a member of Institute of Chartered Accountants of Pakistan since 2021.
**
*Dr.
Neilesh Neil Shailesh Ghodadra* has served as our Chief Medical Officer and a Director since October 2018. Since
July 2011, Dr. Ghodadra has served as the President of Neil Ghodadra MD Inc. Dr. Ghodadra is a board-certified orthopedic surgeon specializing
in minimally invasive, arthroscopic surgeries of the knee, shoulder, elbow and hip. He possesses extensive expertise in cartilage restoration
and joint-preserving osteotomies, focusing on complex shoulder conditions such as instability and rotator cuff repairs. Dr. Ghodadra holds
a Bachelor of Science from Duke University and a Doctor of Medicine from Duke University, Dr. Ghodadra completed his residency at Rush
Medical Center in Chicago and a Sports Medicine Fellowship, during which he served as an associate team physician for the Chicago Bulls
and Chicago White Sox. Beyond his clinical practice, he consults with multiple medical companies to develop innovative products, drawing
on his lengthy experience in clinical trials. We believe Dr. Ghodadras experience in medicine makes him well qualified to serve
as our Chief Medical Officer and as a director.
**
*Andrew
Gengos* has served as a director since January 2020. Since February of 2025, Mr. Gengos serves as Chief Financial Officer for
Terns Pharmaceuticals where he manages finance, accounting, business development and investor relations. Prior to Terns, he served as
the Chief Financial Officer and Chief Business Officer at Athira Pharma between May 2023 and October 2024, where he managed finance, accounting,
business development, corporate strategy, investor and public relations. Between January 2020 and February 2023, Mr. Gengos served as
Chief Business Officer at Cytier Therapeutics, where he managed finance, accounting, business development, corporate strategy and IT.
Mr. Gengos is a seasoned executive with over 30 years of experience in the life sciences and biotechnology industries, specializing in
finance, corporate strategy, and business development. His earlier career includes serving as Vice President of Strategy and Corporate
Development at Amgen and Senior Engagement Manager at McKinsey & Company where he was a member of the healthcare practice. Mr. Gengos
holds a Bachelor of Science in Chemical Engineering from the Massachusetts Institute of Technology and a Master of Business Administration
from the UCLA Anderson School of Management. We believe Mr. Gengoss experience in finance, accounting and business development
makes him well qualified to serve as a director.
**
**
63
**
*Arthur
Golden* has served as a director since September 2025. Since January 2020, Mr. Golden has served as Senior Counsel at Davis
Polk & Wardwell LLP. Prior to that role, Mr. Golden was the global co-chairman of Davis Polks Mergers and Acquisitions practice
and had also served on its Management Committee and head of its Antitrust practice. He has extensive experience representing companies
with respect to acquisition-related transactions and advising clients on corporate governance, shareholder activism, and defensive matters.
From 2000 to 2024, Mr. Golden served on the board of directors of Emerson Electric where he was, at various times, Chairman of its Governance
and Finance Committees and a member of its Executive Committee. Mr. Golden currently serves as Chairman Emeritus of the Board of Trustees
of Rensselaer Polytechnic Institute (RPI). Mr. Golden holds a Bachelor of Science in Mathematics from RPI and a J.D. from
New York University School of Law. We believe Mr. Goldens legal expertise and extensive transactional experience makes him well
qualified to serve as a director.
**
*Dr.
Kent Kester* has served as a director since September 2025. Since 1997, Dr. Kester has served as an active clinician at the
University of Maryland Shock Trauma Center in Baltimore. He has also led vaccine research and development at CEPI, the Coalition for Epidemic
Preparedness Innovations, since August 2024. Dr. Kester holds a Bachelor of Science in Biology from Bucknell University and an M.D. from
Jefferson Medical College. We believe Mr. Kesters experiences in medicine and infectious diseases make him well qualified to serve
as a director.
*Martin
Dewhurst* has served as advisor to GHO Capital, a healthcare specialist private equity firm since July 2024. Mr. Dewhurst has
been a senior advisor since April 2023 to PJT Partners, a global investment and M&A advisory bank. Mr. Dewhurst has also served as
a senior advisor to LightRock, a growth capital fund, since April 2023. Mr. Dewhurst also holds various board positions including at Unilabs
Ltd. (since September 2025), KOS AI (since June 2025), Cytovation ASA (since February 2025), Distalmotion (since April 2023) and MedGenome
(April 2023 through January 2025). Prior to his various advisory and board roles, Mr. Dewhurst was a senior partner with McKinsey &
Co., a leading management consulting firm where he served from 1992 through 2023 and co-led the firms life sciences practice (2014
to 2021). Mr. Dewhurst earned his undergraduate degree from Magdalen College, University of Oxford, and holds an MBA from INSEAD, where
he graduated on the Deans List. We believe Mr. Dewhursts more than 30 years of global leadership experience in life sciences,
with a strong focus on mergers and acquisitions, complemented by senior advisory roles and board positions across leading healthcare and
investment firms, make him well qualified to serve as a director.
*Relationships*
There are no familial relationships between any
of our executive officers and directors.
**
*Compliance
with Section 16(a) of the Exchange Act*
Section 16(a) of the Securities
Exchange Act of 1934, requires our directors, executive officers and persons who own more than 10% of our common stock to file with the
SEC initial reports of ownership and reports of changes in ownership of common stock and other of our equity securities.
Based solely on our reviews
of the copies of such forms and amendments thereto furnished to us and on written representations from officers, directors, and any other
person whom we understand owns more than 10% or our Common Stock, we found that during the fiscal year ended December 31, 2025, all Section
16(a) filings were made with the SEC on a timely basis except one Form 4 for Abraham Chesed that was due on October 27, 2025, which was
filed on October 29, 2025.
64
*Code
of Business Ethics and Conduct*
In accordance with the information
required by this Item 10 relating to the code of ethics required by Item 406 of Regulation S-K, the Company has a code of ethics (the
Code), which applies to its directors, officers, and employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar functions (collectively, the Covered Persons
and each a Covered Person). The full text of the Code is available on the investor relations section of our website, which
is located at *https://turntherapeutics.com*. We will provide to any person without charge, upon request, a copy of the Code. Such
requests should be made in writing to the following address: c/o Turn Therapeutics, 250 N. Westlake Blvd., Westlake Village, California
91362. We intend to satisfy the SECs requirements regarding amendments to, or waivers from, the Code by posting such information
on our website or by filing a Current Report on Form 8-K to disclose such information.
**
*Procedures
for Stockholders to Recommend Director Nominees*
There have been no material
changes to the procedures by which security holders may recommend nominees to our Board.
**
*Audit
Committee Information*
Our Board has a standing
Audit Committee. Our Audit Committee is chaired by Andrew Gengos and its other members are Arthur Golden and Dr. Kent Kester. Our Board
has determined that each of these directors is independent as defined by the rules of the SEC and the Nasdaq Listing Rules.
The Board has determined that Mr. Gengos is an audit committee financial expert as that term is defined in Item 407(d)(5)(ii)
of Regulation S-K.
**
*Insider
Trading Policy*
The Company has an Insider
Trading Policy which prohibits Covered Persons from buying or selling the Companys securities while the Covered
Person is aware of material nonpublic information about the Company. The Company believes that its Insider Trading Policy is reasonably
designed to promote compliance with insider trading laws, rules and regulations, and any applicable listing standards. A copy of the Insider
Trading Policy is filed as Exhibit 19.1 to this Annual Report. 
Item
11. Executive Compensation
The following discussion
contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future
compensation programs. The actual amount and form of compensation and the compensation policies and practices that we adopt in the future
may differ materially from currently planned programs as summarized in this discussion.
We are currently considered
a smaller reporting company within the meaning of the Securities Act for purposes of the SECs executive compensation
disclosure rules. Accordingly, we are required to provide a Summary Compensation Table, as well as limited narrative disclosures regarding
executive compensation for our last two completed fiscal years and an Outstanding Equity Awards at Fiscal Year End Table for our last
completed fiscal year. These reporting obligations extend only to named executive officers. Our named executive officers
include (i) all individuals serving as our principal executive officer during the fiscal year ended December 31, 2025 and (ii) our two
most highly compensated executive officers, as defined in Exchange Act Rule 3b-7, other than our principal executive officer, who were
serving as executive officers at the end of the fiscal year ended December 31, 2025, whose salary and bonus for services rendered in all
capacities exceeded $100,000 during the fiscal year ended December 31, 2025.
This section discusses material
components of the executive compensation programs for our named executive officers who are named in the Summary Compensation
Table below. In 2025, our named executive officer was Bradley Burnam, our Chief Executive Officer and Zuraiz Chaudhary,
our Interim Chief Financial Officer. No other executive officer of the Company received total compensation during the fiscal year ended
December 31, 2025 in excess of $100,000, and thus disclosure is not required for any other person.
65
Summary Compensation
Table
The following table sets
forth total compensation paid to our named executive officer for the years ended December 31, 2025, and 2024.
| 
Name
and Principal Position (a) | 
| 
Year (b) | 
| 
| 
Salary ($) 
(c) | 
| 
| 
Bonus ($) 
(d) | 
| 
| 
Stock Awards 
($) (e) | 
| 
| 
Option Awards
($) (f) | 
| 
| 
Non-Equity Incentive
Plan Compensation ($) (g) | 
| 
| 
Change in Pension
Value and Non-qualified Deferred Compensation Earnings ($) (h) | 
| 
| 
All Other Compensation
($) (i) | 
| 
| 
Total ($) 
(j) | 
| |
| 
Bradley Burnam | 
| 
2025 | 
| 
| 
$ | 
465,740 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
465,740 | 
| |
| 
Chief Executive Officer | 
| 
2024 | 
| 
| 
$ | 
429,320 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
429,320 | 
| |
| 
Zuraiz Chaudhary | 
| 
2025 | 
| 
| 
$ | 
152,211 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
1,244,143 | 
(1) | 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
1,396,354 | 
| |
| 
Interim Chief Financial
Officer | 
| 
2024 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| |
| 
(1) | 
Amount reflects the full grant date fair value of option awards with performance conditions awarded to Mr.
Chaudhary. This amount does not represent the actual amount paid to or realized by Mr. Chaudhary. The value as of the grant date for these
option awards with performance conditions is calculated based on the number of shares granted and the grant date market price, in accordance
with ASC Topic 718. | |
*Narrative Disclosure to Summary
Compensation Table*
**
*Employment Agreements*
Bradley Burnam
The Company previously entered
into an employment agreement with Mr. Burnam, dated as of August 9, 2017 (the 2017 Employment Agreement). Pursuant to the
2017 Employment Agreement, Mr. Burnam is entitled to a base salary which automatically increases by 5% on January 1 of each year. In addition,
Mr. Burnam is entitled to participate in the Companys bonus programs as set forth by the Companys board of directors in
its sole discretion and to receive equity awards subject to the terms and conditions specified by the Board. Mr. Burnam did not receive
any bonus or equity awards during fiscal years 2023 and 2024. The 2017 Employment Agreement further provides that Mr. Burnam is entitled
to participate in the Companys employee benefit programs and a monthly car allowance. Mr. Burnam did not receive any car allowance
during fiscal years 2023 and 2024.
Under the 2017 Employment
Agreement, if Mr. Burnams employment is terminated by the Company without cause or due to Mr. Burnams death
or disability, or if Mr. Burnam terminates his employment with the Company for good reason, then subject to Mr. Burnams
(or his estates) execution and non-revocation of a general release of claims against the Company, Mr. Burnam (or his estate) will
be entitled to receive, in addition to any accrued pay and benefits: (i) continued payment of his then current base salary for 6 months
following the date of termination, payable in substantially equal installments in accordance with the Companys regular payroll
practices and (ii) continued payment of the Company portion of health insurance premiums for Mr. Burnam and his qualified dependents covered
by the Companys medical insurance for up to 6 months.
In connection with the direct
listing, the Company entered into a new employment agreement with Mr. Burnam, which superseded and replaced the 2017 Employment Agreement
(the 2025 Employment Agreement). Pursuant to the 2025 Employment Agreement, Mr. Burnam is entitled to a base salary of $575,000
and a target annual cash bonus opportunity equal to 50% of his base salary. In addition, commencing with the Companys 2026 fiscal
year, Mr. Burnam will be eligible to participate in the Companys annual equity incentive award program, with an annual targeted
grant date fair value equal to 50% of his base salary for each of the applicable fiscal years of the Company. The 2025 Employment Agreement
further provides that Mr. Burnam is entitled to participate in the Companys employee benefit programs, including health insurance
coverage, reimbursement of reasonable business expenses, paid time-off and liability insurance, and reimbursement of premiums for coverage
under a private health insurance plan for Mr. Burnam.
66
Under the 2025 Employment
Agreement, if Mr. Burnams employment is terminated by the Company without cause or if Mr. Burnam resigns for good
reason, he will be entitled to receive (i) continued payment of his base salary for 12 months following the termination date, (ii)
a prorated bonus for the year of termination based on actual performance and (iii) reimbursement of health insurance premiums for 12 months
following the termination date. In addition, if Mr. Burnams employment is terminated by the Company without cause
or if Mr. Burnam resigns for good reason, in each case, within three months prior to, or 12 months following, a change
of control of the Company, Mr. Burnam will instead be entitled to receive (i) a lump sum payment equal two times his then base
salary, (ii) his target bonus for the year of termination (not prorated), and (iii) an amount equal to 24 months of health insurance premiums.
The 2025 Employment Agreement also sets forth non-solicit and non-compete covenants that will continue to apply for one year following
the termination of Mr. Burnams employment.
Zuraiz Chaudhary
In connection with the direct
listing, the Company entered into an employment agreement with Mr. Chaudhary, (the 2025 Employment Agreement). Pursuant
to the 2025 Employment Agreement, Mr. Chaudhary is entitled to a base salary of $275,000 and a target annual cash bonus opportunity equal
to 25% of his base salary. In addition, commencing with the Companys 2026 fiscal year, Mr. Chaudhary will be eligible to participate
in the Companys annual equity incentive award program, with an annual targeted grant date fair value equal to 25% of his base salary
for each of the applicable fiscal years of the Company. The 2025 Employment Agreement further provides that Mr. Chaudhary is entitled
to participate in the Companys employee benefit programs, including health insurance coverage, reimbursement of reasonable business
expenses, paid time-off and liability insurance.
Under the 2025 Employment
Agreement, if Mr. Chaudharys employment is terminated by the Company without cause or if Mr. Chaudhary resigns for
good reason, he will be entitled to receive (i) continued payment of his base salary for 9 months following the termination
date, (ii) a prorated bonus for the year of termination based on actual performance and (iii) reimbursement of health insurance premiums
for 12 months following the termination date. In addition, if Mr. Chaudharys employment is terminated by the Company without cause
or if Mr. Chaudhary resigns for good reason, in each case, within three months prior to, or 12 months following, a change
of control of the Company, Mr. Burnam will instead be entitled to receive (i) a lump sum payment equal 1.5 times his then base
salary, (ii) his target bonus for the year of termination (not prorated), and (iii) an amount equal to 18 months of health insurance premiums.
The 2025 Employment Agreement also sets forth non-solicit and non-compete covenants that will continue to apply for one year following
the termination of Mr. Chaudharys employment.
**
*Benefit and Retirement Plans*
The Company sponsors a group health plan in which
Mr. Burnam and Mr. Chaudhary and their eligible dependents participate.
Outstanding Equity
Awards at Fiscal Year-End
The following table sets forth information concerning
outstanding equity awards for our named executive officers as of December 31, 2025.
| 
| 
| 
Option Awards | |
| 
Name | 
| 
Number of Securities Underlying Unexercised
Options (#) Exercisable | 
| 
Number of Securities Underlying
Unexercised Options (#) Unexercisable | 
| 
| 
Option Exercise Price ($) | 
| 
| 
Option Expiration Date | |
| 
Zuraiz Chaudhary | 
| 
- | 
| 
| 
240,000 | 
(1) | 
| 
$ | 
10.00 | 
| 
| 
10/7/2035 | |
| 
(1) | 
Award of stock options on October 8, 2025 to purchase shares of the Issuers common stock granted under
the Companys 2025 Omnibus Incentive Plan. One-fourth of the options shall vest on May 1, 2026, and 6.25% of the options shall vest
in equal quarterly installments thereafter, in each case, subject to the employees continued employment through the applicable
vesting date. | |
67
Director Compensation
In connection with the direct
listing, the Company adopted via board resolutions a non-employee director compensation program (the Non-Employee Director Compensation
Program), which became effective as of the date the direct listing became effective. Under the Non-Employee Director Compensation
Program, each non-employee director serving in such capacity on the date the direct listing became effective received an initial grant
of restricted stock units pursuant to the 2025 Plan with a grant date fair value of $100,000. Following the first anniversary of the effective
date of the direct listing, each non-employee director will be eligible to receive an annual grant of restricted stock units with a grant
date fair value of $70,000. The restricted stock units will vest on the earlier of (i) the first-year anniversary of the grant date or
(ii) a change of control of the Company (as defined in the 2025 Plan).
In addition, following the
first anniversary of the effective date of the direct listing, each non-employee director will be eligible to receive an annual cash retainer
of $30,000, payable in equal quarterly installments in arrears and prorated for partial quarter of service. The lead independent director
of the Board and the chair of the audit committee will each receive an additional annual cash retainer of $25,000 for their service in
such roles, in cash or restricted stock units. The non-employee directors will be eligible to elect to receive all or a portion of their
cash retainer in the form of restricted stock units.
The following table sets
forth information with respect to the compensation of our non-employee directors for the year ended December 31, 2025:
| 
Name | 
| 
Fees Earned or
Paid in Cash | 
| 
| 
Stock
Awards ($) (1)(2) | 
| 
| 
Options
Awards ($) | 
| 
| 
All Other Compensation
($) | 
| 
| 
Total | 
| |
| 
Andrew Gengos | 
| 
$ | 
- | 
| 
| 
$ | 
100,000 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
100,000 | 
| |
| 
Arthur Golden | 
| 
$ | 
- | 
| 
| 
$ | 
100,000 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
100,000 | 
| |
| 
Dr. Kent Kester | 
| 
$ | 
- | 
| 
| 
$ | 
100,000 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
100,000 | 
| |
| 
Dr. Neil Ghodadra | 
| 
$ | 
- | 
| 
| 
$ | 
100,000 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
100,000 | 
| |
| 
(1) | 
Amount reflects the full grant date fair value of restricted stock unit awards with performance conditions
awarded to all directors on public listing. This amount does not represent the actual amount paid to or realized by each director. The
value as of the grant date for these restricted stock unit awards with performance conditions is calculated based on the number of shares
granted and the grant date market price, in accordance with ASC Topic 718. | |
| 
(2) | 
The material terms of the restricted stock units granted in 2024 are as follows: | |
| 
Name | 
| 
Grant Date | 
| 
Number of RSUs | 
| 
| 
Vesting Dates | |
| 
Andrew Gengos | 
| 
10/08/2025 | 
| 
| 
10,000 | 
| 
| 
(a) | |
| 
Arthur Golden | 
| 
10/08/2025 | 
| 
| 
10,000 | 
| 
| 
(a) | |
| 
Dr. Kent Kester | 
| 
10/08/2025 | 
| 
| 
10,000 | 
| 
| 
(a) | |
| 
Dr. Neil Ghodadra | 
| 
10/08/2025 | 
| 
| 
10,000 | 
| 
| 
(a) | |
| 
(a) | 
The restricted stock unit award will vest in full on October 8, 2026, subject to the directors continued
service to the Company through the vesting date. | |
68
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
**
*Securities
Authorized for Issuance under Equity Compensation Plans*
**
Equity Compensation
Plan Information
The following table sets
forth, as of December 31, 2025, information regarding awards previously granted and outstanding, and securities authorized for future
issuance, under the Companys equity compensation plans.
| 
Plan Category | 
| 
Number of Securities to be 
Issued Upon Exercise of Outstanding Options, Warrants or Rights | 
| 
| 
Weighted-Average Exercise Price
of Outstanding Options, Warrants or Rights | 
| 
| 
Number of Securities Remaining
Available for Future Issuance Under Equity Compensation Plans (Excluding Outstanding
Options, Warrants, or Rights) | 
| |
| 
Equity compensation plans approved by shareholders | 
| 
| 
1,982,184 | 
| 
| 
$ | 
3.26 | 
| 
| 
| 
3,417,816 | 
| |
| 
Equity compensation plans not approved by shareholders | 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| |
Equity Incentive Plans
**
*2018 Stock Option Plan*
The Company maintains the
2018 Stock Plan (the 2018 Plan) that provides for awards of stock options to eligible participants. The 2018 Plan is administered
by the Board. As of December 31, 2025, no shares were available for future grant under the 2018 Plan, and 1,508,934 shares were subject
to outstanding options under the 2018 Plan, all of which were vested and exercisable as of December 31, 2025. This includes 1,000,000
and 508,934 shares subject to outstanding options held by Dr. Ghodadra and Mr. Gengos, respectively, as of December 31, 2025.
Upon the occurrence of a
change of control, the plan administrator may provide for, in its discretion, acceleration of the right to exercise an option,
assumption or substitution of or adjustment to each outstanding option by the successor corporation, termination of options if not exercised
within a specified period of notice, or termination of options on such other terms and conditions as the plan administrator deems appropriate
(including the cancellation of options for cash payments).
**
*2024 Equity Incentive Plan*
In July 2024, the Company
adopted the 2024 Equity Incentive Plan (the 2024 Plan). The 2024 Plan provides for awards of stock options, stock appreciation
rights, restricted stock, restricted stock units and other stock-based awards to eligible participants. Under the 2024 Plan, the plan
administrator (either the Board or a committee designated by the Board) has the authority to select plan participants, grant awards, prescribe
award agreements and rules and regulations for the administration of the 2024 Plan, construe and interpret the 2024 Plan and award agreements
and correct defects, supply omissions or reconcile inconsistencies therein, and make all other decisions and determinations necessary
for the administration of the 2024 Plan.
Under the 2024 Plan, upon
the occurrence of a change in control, the plan administrator has the discretion to determine the treatment of outstanding
awards, including to accelerate the vesting of any unvested options.
There are 891,066 shares
of common stock reserved for issuance under the 2024 Plan. As of December 31, 2025, 697,816 shares were available for future grant, and
193,250 shares were subject to outstanding, vested and unvested options under the 2024 Plan. Neither of our NEOs were granted any awards
under the 2024 Plan. Shares withheld to satisfy tax withholding obligations or to pay the exercise price of options, as well as shares
underlying awards that are forfeited, expire or are terminated without delivery of shares, will again become available for issuance under
the Plan. In addition, awards or shares issued by the Company in assumption of, or in substitution or exchange for, awards previously
granted under the Plan will not reduce the number of shares reserved for issuance under the Plan.
**
**
69
**
*2025 Omnibus Incentive Plan*
In connection with our direct
listing, the Company adopted the 2025 Omnibus Incentive Plan (the 2025 Plan). The following is a summary of the material
terms of the 2025 Plan, which is qualified in its entirety by the full text of the 2025 Plan, a copy of which is filed as an exhibit to
this Registration Statement. The Company does not intend to grant any future awards under the 2018 Plan or 2024 Plan.
**
*Purpose*. The purpose
of the 2025 Plan is to attract, motivate, retain and reward eligible participants by providing them with the opportunity to acquire a
proprietary interest in the Company as a performance incentive.
**
*Eligibility*. Awards
may be granted to eligible employees, directors, consultants and other service providers of the Company, as determined in the discretion
of the compensation committee. The basis for participation in the 2025 Plan is the compensation committees (or its authorized delegates)
decision, in its sole discretion, that an award to an eligible participant will further the 2025 Plans purposes as described above.
**
*Administration*. The
compensation committee of the Board will administer the 2025 Plan. However, the Board may exercise any power or authority granted to the
compensation committee under the 2025 Plan.
**
*Authority*. The compensation
committee has full and final authority to, among other actions, select participants, grant awards and determine the type of awards, number
of shares and terms and conditions of such awards. To the extent permitted by law, the compensation committee may delegate authority to
members of the Board or the Companys officers to take certain actions under the 2025 Plan. The compensation committee may interpret
and administer the 2025 Plan or any award thereunder and make any other determination and take any other action that the compensation
committee deems necessary or desirable for the administration of the 2025 Plan.
**
*Shares reserve*. The
maximum number of shares of common stock available for issuance under the 2025 Plan will be 3,000,000 Shares in the aggregate. Shares
underlying awards that are forfeited, cancelled, expired, terminated or are otherwise lapsed, in whole or in part without the issuance
of shares or awards that are settled in cash without the issuance of shares will again become available for issuance under the 2025 Plan.
In addition, shares withheld in respect of taxes relating to any award and shares tendered or withheld to pay the exercise price of options
and other awards will again become available for issuance under the 2025 Plan. On the first day of January of each year after the 2025
Plan becomes effective, the maximum number of shares of common stock available for issuance under the 2025 Plan will automatically increase
by the lesser of (i) 5% of the outstanding number of shares of common stock on the date immediately preceding December 31 or (ii) such
number of shares as determined by the compensation committee. This limit on the number of shares of common stock available for issuance
under the 2025 Plan does not apply to awards granted or shares issued in assumption of, or in substitution or exchange for, awards previously
granted, or the right or obligation to make future awards by a company acquired by the Company or with which the Company combines.
**
*Adjustments*. In the
event of certain changes in the corporate structure, including any extraordinary dividend or other distribution, recapitalization, stock
split, reorganization, merger, consolidation, spin-off, or other similar corporate transaction or event affecting the Companys
common stock, or changes in applicable laws, regulations or accounting principles, the compensation committee will make appropriate adjustments
to the number and type of shares of common stock subject to awards, to the grant, purchase, exercise or hurdle price for any award, and
any other aspect the award that the compensation committee deems appropriate to prevent undue enrichment or harm.
**
*Non-employee Director
Limit*. Under the 2025 Plan, any non-employee director may not receive equity and cash compensation for a single fiscal year in excess
of $750,000 in the aggregate.
**
*Stock options*. Under
the 2025 Plan, the compensation committee may grant incentive stock options to employees and nonstatutory stock options to all eligible
participants. The exercise price of stock options will be determined by the compensation committee but may not be less than the fair market
value of the Companys share of common stock on the grant date. The term of an option may not exceed ten years. The compensation
committee will determine the method of payment of the exercise price, the form of exercise notice to be used and the term of the options.
The compensation committee may provide in an applicable award agreement that any in-the-money options will be deemed automatically exercised
immediately before its expiration.
**
**
70
**
*Stock appreciation rights*.
Under the 2025 Plan, the compensation committee may grant stock appreciation rights, which entitle the holder to receive shares of common
stock or cash having an aggregate value equal to the appreciation in the fair market value of one share on the date of exercise over the
grant price of the stock appreciation right as determined by the compensation committee. A stock appreciation right may be granted in
tandem with or without regard to a stock option. The grant price of stock appreciation rights may not be less than the fair market value
of the Companys share of common stock on the date of grant. The compensation committee may provide in an applicable award agreement
that any in-the-money stock appreciation rights will be deemed automatically exercised immediately before its expiration.
**
*Restricted stock*.
Under the 2025 Plan, the compensation committee may grant restrict stock, which may be subject to restrictions on transferability, risk
of forfeiture and other restrictions as the compensation committee may impose. Except to the extent restricted under the terms of the
2025 Plan and any award agreement, the participant who was granted restricted stock will have all of the rights of a shareholder, including
the right to vote and receive dividends.
**
*Restricted stock units*.
Under the 2025 Plan, the compensation committee may grant restricted stock units, which may be settled in shares of common stock and/or
cash as the compensation committee may determine. Restricted stock units may be subject to service- or performance-based vesting conditions
and other restrictions as the compensation committee may impose. Prior to their settlement, restricted stock units carry no voting or
dividend rights. The compensation committee may, in its discretion, provide for the accrual of dividend equivalent with respect to restricted
stock units.
**
*Performance awards*.
Under the 2025 Plan, the compensation committee may grant performance awards, which are payable upon the achievement of performance goals
determined by the compensation committee. Upon the grant of each performance award, the compensation committee will determine the performance
criteria and length of the performance period. The compensation committee may, in its discretion, increase or reduce the amount of a settlement
otherwise to be made in connection with a performance award.
**
*Other cash-based awards
and other stock-based awards*. Under the 2025 Plan, the compensation committee may grant other cash-based and other stock-based awards,
the terms and conditions of which will be determined by the compensation committee and specified in the applicable award agreement. These
awards may be granted to participants as standalone or an addition to other awards granted under the 2025 Plan.
**
*Separation from service*.
In the event of a participants separation from service, as defined in the 2025 Plan, the compensation committee may determine the
extent to which an award may be exercised, settled, vested, paid or forfeited prior to the end of a performance period, or the effect
of such separation on the vesting, exercise or settlement of an award.
**
*Change of control*.
In the event of a change of control of the Company (as defined in the 2025 Plan), the compensation committee may take certain
actions with respect to outstanding awards, including the continuation or assumption of awards, substitution or replacement of awards
by a successor entity, acceleration of vesting and lapse of restrictions (either immediately upon the consummation of the change
of control or upon a qualifying termination of employment in connection therewith), determination of the attainment of performance
conditions for performance awards or cancellation of awards in consideration of a payment.
**
*Tax withholding*. Under
the 2025 Plan, the Company has the authority to withhold from any award granted or any payment in respect of any award amounts to satisfy
withholding or tax obligations relating to such award by withholding an amount in cash, shares otherwise deliverable pursuant to an award,
or through a broker-assisted or sell-to-cover procedure or any other process or procedure as determined by
the compensation committee in its discretion.
**
*Clawback*. Under the
2025 Plan, awards (including any amounts or benefits arising from such awards) will be subject to any clawback or recoupment arrangements
or policies the Company has in place from time to time, and the compensation committee may, to the extent permitted by applicable law
and stock exchange rules or by any applicable Company policy or arrangement, and will, to the extent required, cancel or require reimbursement
of any awards or any shares issued or cash received upon vesting, exercise or settlement of any such awards or sale of shares underlying
such awards, including any policies necessary to comply with Section 10D of the Exchange Act and any rules promulgated thereunder and
any other regulatory requirements.
**
**
71
**
*Plan amendment or suspension*.
The Board may amend, suspend, discontinue or terminate the 2025 Plan, provided that no such action may be taken without the approval of
the Companys shareholders if approval is necessary to comply with a tax or regulatory requirement or other applicable law. No amendment
may in general adversely and materially affect a participants rights under any award without such participants written consent.
**
*Term of the plan*.
No awards may be granted under the 2025 Plan after the earlier of the following events: (i) the board of directors terminates the plan,
(ii) the maximum number of shares available for issuance has been issued or (iii) ten years from the effective date of the 2025 Plan.
*Security
Ownership of Certain Beneficial Owners and Management*
The following table sets
forth information regarding beneficial ownership of our common stock as of March 30, 2026 (the Evaluation Date), by:
| 
| 
| 
each person whom we know to own beneficially more than 5% of our common stock; | |
| 
| 
| 
each of the directors and named executive officers individually; and | |
| 
| 
| 
all directors and executive officers as a group. | |
In accordance with the rules
of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes the shares issuable pursuant
to stock options that are exercisable within 60 days of the Evaluation Date. Shares issuable pursuant to stock options and warrants are
deemed outstanding for computing the percentage of the person holding such options and warrants but are not outstanding for computing
the percentage of any other person. The percentage of beneficial ownership for the following table is based on 29,788,040 shares of common
stock outstanding as of the Evaluation Date. Unless otherwise indicated, the business address for each listed stockholder is: c/o Turn
Therapeutics, 250 N. Westlake Blvd., Westlake Village, CA 91362. To our knowledge, except as indicated in the footnotes to this table
and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect
to all shares of common stock.
| 
| 
| 
Shares BeneficiallyOwned | 
| |
| 
Name of Beneficial Owner | 
| 
Number | 
| 
| 
Percent | 
| |
| 
Directors and Named Executive Officers | 
| 
| 
| 
| 
| 
| |
| 
Bradley Burnam(1) | 
| 
| 
16,016,260 | 
| 
| 
| 
53.77 | 
% | |
| 
Dr. Neil Ghodadra(2) | 
| 
| 
1,000,000 | 
| 
| 
| 
3.36 | 
% | |
| 
Andrew Gengos(3) | 
| 
| 
508,934 | 
| 
| 
| 
1.71 | 
% | |
| 
Arthur Golden(4) | 
| 
| 
60,602 | 
| 
| 
| 
* | 
| |
| 
Dr. Kent Kester(4) | 
| 
| 
10,000 | 
| 
| 
| 
* | 
| |
| 
Zuraiz Chaudhary(5) | 
| 
| 
252,500 | 
| 
| 
| 
* | 
| |
| 
Martin Dewhurst(6) | 
| 
| 
21,882 | 
| 
| 
| 
* | 
| |
| 
All directors and executive officers as a group (6 persons) | 
| 
| 
17,870,178 | 
| 
| 
| 
59.99 | 
% | |
| 
Greater than 5% Stockholders: | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
BEB Holdings, LLC(1) | 
| 
| 
16,016,260 | 
| 
| 
| 
53.77 | 
% | |
| 
* | 
Less than one percent. | |
| 
(1) | 
Bradley Burnam is the sole member of BEB Holdings, LLC, and therefore has sole
voting and dispositive power with regard to the shares held by BEB Holdings, LLC. | |
| 
(2) | 
Represents 1,000,000 shares underlying stock options to purchase common stock that are exercisable within
60 days of March 30, 2025. | |
| 
(3) | 
Represents 508,934 shares underlying stock options to purchase common stock that are exercisable within
60 days of March 30, 2025. | |
| 
(4) | 
Includes 10,000 shares of restricted stock units that are not yet vested as of March 30, 2025. | |
| 
(5) | 
Includes 240,000 shares of underlying stock options to purchase common stock none of which are vested as
of March 30, 2025. | |
| 
(6) | 
Includes 21,882 shares of restricted stock units that are not yet vested as of March 30, 2025. | |
72
*Changes in
Control*
Management of the Company
knows of no arrangements, including any pledge by any person or securities of the Company, the operation of which may at a subsequent
date result in a change in control of the registrant.
Item
13. Certain Relationships and Related Transactions, and Director Independence
*Certain Relationships
and Related Transactions*
We describe below transactions
and series of similar transactions, during our last two fiscal years or currently proposed, to which we were a party or will be a party,
in which:
| 
| 
| 
the amounts involved exceeded or will exceed $120.0 thousand; and | |
| 
| 
| 
any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital
stock had or will have a direct or indirect material interest. | |
Other than as described below,
there have not been, nor are there any currently proposed, transactions or series of similar transactions meeting these criteria to which
we have been or will be a party other than compensation arrangements, other than the compensation arrangements (including with respect
to equity compensation) described in Executive Compensation beginning on page 65 and Director Compensation
on page 68.
Voting Proxy
In connection with our offering
of common stock under Regulation Crowdfunding and Regulation A of the Securities Act, certain investors granted a voting proxy to our
Chief Executive Officer pursuant to the subscription agreement under which such investors purchased our common stock in such offering
that will limit such investors ability to vote their common stock until the occurrence of events specified in the proxy.
The voting rights granted
via the proxy are not limited and, include, among other things, the right to vote on the election of our directors, amendments to our
organizational documents, and major corporate transactions. So long as the holder is an individual, the proxy will survive the death,
incompetency and disability of the holder and, so long as the holder is an entity, the proxy will survive the merger or reorganization
of the holder or any other entity holding the common stock. The proxy will also survive transfers of the common stock and shall be binding
on any transferee. The proxy is granted to the person holding the title of Chief Executive Officer, in his capacity as an officer of the
company, and not in his personal capacity, and so would survive his death or removal. Our founder and Chief Executive Officer, in his
sole discretion, may assign the voting proxy to any of our future officers.
The voting proxy granted
under the subscription agreement terminated in connection with our direct listing.
Indemnification Agreements
We have entered into indemnification
agreements with each of our directors and executive officers. These agreements provide that we will hold harmless and indemnify each indemnitee
against all expenses and losses actually and reasonably incurred by him or her by reason of the fact that he or she is or was our director,
officer, employee, or agent, or is or was serving at our request as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, in each case, to the fullest extent permitted under applicable law.
73
Registration Rights Agreement with
Bradley Burnam
In connection with our direct
listing, we entered into a registration rights agreement with Bradley Burnam, our founder and Chief Executive Officer. Under the terms
of this agreement, Bradley Burnam is entitled to request that we register his shares on a long-form or short-form registration statement
on one or more occasions in the future, which registrations may be shelf registrations. Bradley Burnam is also entitled
to participate in certain of our registered offerings, subject to the restrictions in the registration rights agreement. In the event
that we propose to register any of our securities under the Securities Act, either for our account or for the account of Mr. Burnam, certain
of our existing equity holders will be entitled to certain piggyback registration rights allowing each to include its shares in the registration,
subject to certain marketing and other limitations. See the section titled Description of Capital Stock-Share Purchase
Agreement-Registration Rights.
We agreed to pay all registration
expenses (including certain expenses of counsel for selling stockholders) in connection with effecting any demand registration and piggyback
registration. These registration rights are also for the benefit of any permitted transferees of registrable securities; provided that
any particular securities will cease to be registrable securities if (i) they have been registered and sold pursuant to an effective registration
statement, (ii) they have been transferred in a transaction in which the registration rights are not assigned, (iii) they are sold pursuant
to Rule 144 under the Securities Act without limitation thereunder with respect to holding period requirements, volume or manner of sale
and the holder of such securities does not beneficially own more than 1% of our outstanding common stock, or (iv) they have ceased to
be outstanding.
Stockholders Agreement with Bradley
Burnam
In connection with our direct
listing, we entered into a stockholders agreement with our founder and Chief Executive Officer, Bradley Burnam, and his affiliated entity,
BEB Holdings LLC. The stockholders agreement provides that for so long as Mr. Burnam beneficially owns at least 10% of the issued and
outstanding shares of our common stock, certain actions by us will require the approval of Mr. Burnam in addition to any other required
vote by our board of directors or stockholders, including, among others:
| 
| 
| 
any transaction or series of related transactions resulting in the merger, consolidation
or sale of all, or substantially all, of our assets; any dissolution, liquidation or reorganization (including filing for bankruptcy)
or any acquisition of any asset for consideration in excess of 20% of our total assets; | |
| 
| 
| 
any transaction or series of related transactions resulting in the issuance
of equity securities, or any other ownership interests, for consideration exceeding $50 million, other than under any equity incentive
plan that has received the prior approval of our board of directors; | |
| 
| 
| 
any amendments to our certificate of incorporation or bylaws; | |
| 
| 
| 
the incurrence, guarantee, assumption or refinancing of indebtedness, or grant
of a security interest, in each case in excess of 20% of our total assets (or that would cause aggregate indebtedness or guarantees thereof
to exceed 20% of our total assets); | |
| 
| 
| 
any capital or other expenditure in excess of 20% of our total assets; | |
| 
| 
| 
the declaration or payment of dividends on our common stock; | |
| 
| 
| 
the adoption of any poison pill or similar shareholder rights
plan; and | |
| 
| 
| 
any hiring, termination, or replacement of, or establishing the compensation
or benefits payable to, or making any other significant decisions relating to the Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer or any other senior management or key employee. | |
74
Policy Concerning Related Party Transactions
In connection with our direct
listing, our board of directors adopted a written policy for the review of any transaction, arrangement or relationship (or any series
of similar transactions, arrangements or relationships) or any proposed transaction, arrangement, or relationship, in which we are or
will be a participant and in which a related party has or will have a direct or indirect material interest and the aggregate amount involved
exceeds $120.0 thousand. If a related party proposes to enter into such a transaction, arrangement or relationship, which we refer to
as a related-party transaction, such related party will be required to report the proposed related-party transaction to our audit committee.
The policy calls for the proposed related-party transaction to be reviewed and, if deemed appropriate, approved by the audit committee.
In approving or rejecting such proposed transactions, the audit committee is required to consider relevant facts and circumstances. The
audit committee will approve only those transactions that, in light of known circumstances, are deemed to be in our best interests. In
the event that any member of the audit committee is not a disinterested person with respect to the related-party transaction under review,
that member will be excluded from the review and approval or rejection of such related-party transaction. If we become aware of an existing
related-party transaction which has not been approved under the policy, the matter will be referred to the audit committee. The audit
committee will evaluate all options available, including ratification, revision, or termination of such transaction. In the event that
management determines that it is impractical or undesirable to wait until a meeting of the audit committee to consummate a related-party
transaction, the chair of the audit committee may approve such transaction in accordance with the related-party transaction policy. Any
such approval must be reported to the audit committee at its next regularly scheduled meeting.
*Director Independence*
**
Our board has determined
that each of Andrew Gengos, Arthur Golden, Dr. Kent Kester and Martin Dewhurst, is independent under applicable Nasdaq listing standards.
In making this determination, our board considered the relationships that each non-employee director has with the Company and all other
facts and circumstances that our board deemed relevant in determining their independence, including beneficial ownership of our common
stock.
Each of our audit committee,
compensation committee and nominating and corporate governance committee are composed entirely of independent directors.
Item
14. Principal Accountant Fees and Services
Effective March 31, 2025,
SetApart Accountancy Corp (SetApart) was dismissed as our independent accountant. Our board of directors recommended the
dismissal of the Former Auditor. Effective April 1, 2025, our board of directors appointed WithumSmith+Brown, PC (the Withum)
as our new independent registered public accounting firm.
Fees
Paid to Independent Registered Public Accounting Firm
The
following table provides information regarding the fees billed by Withum during the fiscal year ended December31, 2025.
| 
(in thousands) | 
| 
2025 | 
| |
| 
Audit Fees (1) (2) | 
| 
$ | 
351,000 | 
| |
| 
Audit Related Fees(3) | 
| 
| 
- | 
| |
| 
Tax Fees(4) | 
| 
| 
- | 
| |
| 
All Other Fees (5) | 
| 
| 
- | 
| |
| 
Total Fees | 
| 
$ | 
351,000 | 
| |
| 
(1) | 
Audit Fees. Audit fees consist offees billed for professional services rendered for the audit
of our year-endfinancial statements and services that are normally provided by our independent registered public accounting firm
in connection with statutory and regulatory filings. | |
| 
(2) | 
Represents fees
billed or expected to be billed by Withum to the Company for the year ended December 31, 2025. Includes fees paid by the Company for the
2023 and 2024 audits which were performed concurrently during the year ended December 31, 2025 and the 2025 quarterly review fees. | |
| 
(3) | 
Audit-Related
Fees. Audit-related fees consist of fees billed for assurance and related services that are reasonably related to performance
of the audit or review of our year-end financial statements and are not reported under Audit Fees. | |
| 
(4) | 
Tax Fees. Tax
fees consist of fees billed for professional services relating to tax compliance, tax planning and tax advice. | |
| 
(5) | 
All Other Fees. All other fees consist of fees billed for all other services. | |
Audit
Committees Pre-Approval Policy
Our
audit committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed
by our independent registered public accounting firm. This policy provides that we will not engage our independent registered public accounting
firm to render audit or non-audit services unless the service is specifically approved in advance by our audit committee or the engagement
is entered into pursuant to the pre-approval procedure described below.
From
time to time, our audit committee may pre-approve specified types of services that are expected to be provided to us by our independent
registered public accounting firm during the next 12 months. Any such pre-approval details the particular service or type of services
to be provided and is also generally subject to a maximum dollar amount.
During our 2025 fiscal year,
no services were provided to us by Withum other than in accordance with the pre-approval policies and procedures described above.
75
PART
IV
Item
15. Exhibits and Financial Statement Schedules
| 
(a) | 
Documents filed as part of this Annual Report | |
| 
(1) | 
All financial statements | |
| 
Report of Independent Registered Public Accounting Firm* | 
| 
F-2 | |
| 
Consolidated Balance Sheets as of December 31, 2025 and 2024 | 
| 
F-3 | |
| 
Consolidated Statements Operations for the Years Ended December 31, 2025 and 2024 | 
| 
F-4 | |
| 
Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended December
31, 2025 and 2024 | 
| 
F-5 | |
| 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 | 
| 
F-6 | |
| 
Notes to Consolidated Financial Statements | 
| 
F-7 | |
| 
* | 
WithumSmith+Brown,
PC, PCAOB Firm ID No. 100 | |
| 
(2) | 
Financial Statement Schedules | |
All financial statement schedules
are omitted because they are either inapplicable or not required, or because the required information is included in the Consolidated
Financial Statements or notes thereto contained in this Annual Report
| 
(3) | 
Exhibits required by Item 601 of Regulation S-K | |
The following documents are
filed as exhibits to this registration statement:
| 
Exhibit
No. | 
| 
Description | |
| 
3.1 | 
| 
Amended
and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC
on October 2, 2025 (File No. 001-42875)) | |
| 
3.2 | 
| 
Amended
and Restated By-Laws (incorporated by reference to Exhibit3.2 to our Current Report on Form 8-K filed with the SEC on October 2,
2025 (File No. 001-42875)) | |
| 
4.1 | 
| 
Form of
Warrant of the Company (incorporated by reference to Exhibit4.1 to our Current Report on Form S-1 filed with the SEC on October
9, 2025 (File No. 333-290800)) | |
| 
4.2* | 
| 
Description of Securities | |
| 
10.1 | 
| 
Amended
and Restated Share Purchase Agreement, dated as of August 29, 2025, by and among the Company, GEM Global Yield LLC SCS and GEM Yield Bahamas
Limited (incorporated by reference to Exhibit 10.1 to our registration statement on Form S-1 filed with the SEC on August 29, 2025 (File
No. 333-289972)) | |
| 
10.2 | 
| 
Amended
and Restated Registration Rights Agreement, dated as of August29, 2025, by and among the Company, GEM Global Yield LLC SCS and GEM
Yield Bahamas Limited (incorporated by reference to Exhibit10.2 to our registration statement on Form S-1 filed with the SEC August29,
2025 (File No. 333-289972)) | |
| 
10.3 | 
| 
Employment
Agreement with Bradley Burnam, dated as of September 15, 2025 (incorporated by reference to Exhibit 10.3 to our Current Report on Form
8-K filed with the SEC on October 2, 2025 (File No. 001-42875)) | |
| 
10.4 | 
| 
Employment
Agreement with Zuraiz Chaudhary, dated as of September 15, 2025 (incorporated by reference to Exhibit 10.4 to our Current Report on Form
8-K filed with the SEC on October 2, 2025 (File No. 001-42875)) | |
| 
10.5 | 
| 
2025 Omnibus
Incentive Plan, dated as of September 29, 2025 (incorporated by reference to Exhibit 10.5 to our registration statement on Form S-1 filed
with the SEC on September 16, 2025 (File No. 333-289972)) | |
| 
10.6 | 
| 
2024 Equity
Incentive Plan, dated as of July 8, 2024 (incorporated by reference to Exhibit 10.6 to our registration statement on Form S-1 filed with
the SEC on August 29, 2025 (File No. 333-289972)) | |
| 
10.7 | 
| 
2018 Stock
Option Plan, dated as of October 12, 2018 and amended as of July 8, 2024 (incorporated by reference to Exhibit 10.7 to our registration
statement on Form S-1 filed with the SEC on August 29, 2025 (File No. 333-289972)) | |
| 
10.8 | 
| 
Form Stock
Option Notice and Grant Agreement (2018 Stock Option Plan) (incorporated by reference to Exhibit 10.8 to our registration statement on
Form S-1 filed with the SEC on August 29, 2025 (File No. 333-289972)) | |
| 
10.9# | 
| 
Platform
Intellectual Property License Agreement, by and among the Company and MiMedx Group, Inc. (incorporated by reference to Exhibit 10.9 to
our registration statement on Form S-1 filed with the SEC on August 29, 2025 (File No. 333-289972)) | |
| 
10.10 | 
| 
Registration
Rights Agreement, dated as of September 11, 2025, by and between the Company and Bradley Burnam (incorporated by reference to Exhibit
10.2 to our Current Report on Form 8-K filed with the SEC on October 2, 2025 (File No. 001-42875)). | |
| 
10.11 | 
| 
Stockholders
Agreement, dated as of September 11, 2025, by and among the Company, Bradley Burnam and BEB Holdings LLC (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 2, 2025 (File No. 001-42875)) | |
76
| 
10.12 | 
| 
Side
Letter to Purchase Agreement, dated as of September 24, 2025, by and among the Company, GEM Global Yield LLC SCS and GEM Yield Bahamas
Limited (incorporated by reference to Exhibit 10.12 to our registration statement on Form S-1 filed with the SEC on September 24, 2025
(File No. 333-289972)) | |
| 
10.13# | 
| 
Material
Supply and Development Agreement, dated October 27, 2025, by and between Turn Therapeutics, Inc. and Medline Industries, LP (incorporated
by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 28, 2025 (File No. 001-42875)). | |
| 
14.1* | 
| 
Code of Business Ethics and Conduct | |
| 
16.1 | 
| 
Letter
from SetApart Accountancy Corp (incorporated by reference to Exhibit16.1 to our Current Report on Form S-1 filed with the SEC on
October 9, 2025 (File No. 333-290800)) | |
| 
19.1* | 
| 
Insider Trading Policy | |
| 
21.1 | 
| 
Subsidiaries
of the registrant (incorporated by reference to Exhibit 21.1 to our registration statement on Form S-1 filed with the SEC on August 29,
2025 (File No. 333-289972)) | |
| 
23.1* | 
| 
Consent of WithumSmith+Brown, PC | |
| 
31.1* | 
| 
Certification of Principal Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 | |
| 
31.2* | 
| 
Certification of Principal Financial Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 | |
| 
32.1* | 
| 
Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section
1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 
32.2* | 
| 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section
1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 
97.1* | 
| 
Clawback Policy | |
| 
101.INS | 
| 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document. | |
| 
101.SCH* | 
| 
Inline XBRL Taxonomy Extension Schema Document | |
| 
101.CAL* | 
| 
Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 
101.DEF* | 
| 
Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 
101.LAB* | 
| 
Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 
101.PRE* | 
| 
Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 
104* | 
| 
Cover page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |
| 
* | 
Filed or furnished herewith. | |
| 
# | 
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because they
are both (i) not material and (ii) customarily and actually treated by the registrant as private or confidential and will be provided
on a supplemental basis to the Securities and Exchange Commission upon request. | |
| 
| 
Exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be provided
on a supplemental basis to the Securities and Exchange Commission upon request. | |
| 
| 
Indicates a management contract or compensatory plan. | |
Item
16. Form 10-K Summary
None.
77
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Contents
| 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 
| 
F-2 | |
| 
| 
| 
| |
| 
Consolidated Financial Statements | 
| 
| |
| 
Consolidated Balance Sheets as of December 31, 2025 and 2024 | 
| 
F-3 | |
| 
Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 | 
| 
F-4 | |
| 
Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended December
31, 2025 and 2024 | 
| 
F-5 | |
| 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 | 
| 
F-6 | |
| 
Notes to Consolidated Financial Statements | 
| 
F-7 | |
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public
Accounting Firm
To the Board of Directors and Shareholders of
Turn Therapeutics, Inc.:
*Opinion on the consolidated financial
statements*
We have audited the accompanying consolidated balance
sheets of Turn Therapeutics, Inc. (formerly, Global Health Solutions Inc.) (the Company) as of December 31,
2025 and 2024, and the related consolidated statements of operations, changes in stockholders equity (deficit), and cash flows
for each of the two years ended December 31, 2025 and 2024, and the related notes (collectively referred to as the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years
ended December 31, 2025 and 2024, in conformity with principles generally accepted in the United States of America.
*Substantial Doubt
Regarding the Companys Ability to Continue as a Going Concern*
The accompanying consolidated financial statements
have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements,
the Company has incurred significant losses and negative cash flows from operations since inception, has an accumulated deficit, and needs
to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Companys
ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
*Basis for Opinion*
**
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to Turn Therapeutics, Inc. in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. Turn Therapeutics, Inc. is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain
an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of
the entitys internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide
a reasonable basis for our opinion.
/s/ WithumSmith+Brown,
PC 
We have served as Turn Therapeutics, Inc.'s auditor
since 2025.
Whippany,
New Jersey 
March 31, 2026
PCAOB ID Number 100
F-2
TURN
THERAPEUTICS INC.
Consolidated
Balance Sheets
| 
| 
| 
As at December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
| 
| 
| 
| 
| 
| 
| |
| 
ASSETS | 
| 
| 
| 
| 
| 
| |
| 
Current assets: | 
| 
| 
| 
| 
| 
| |
| 
Cash and cash equivalents | 
| 
$ | 
5,076,144 | 
| 
| 
$ | 
872,599 | 
| |
| 
Prepaid expenses and other current assets | 
| 
| 
120,300 | 
| 
| 
| 
225,325 | 
| |
| 
Total current assets | 
| 
| 
5,196,444 | 
| 
| 
| 
1,097,924 | 
| |
| 
Right-of-use asset | 
| 
| 
78,620 | 
| 
| 
| 
120,452 | 
| |
| 
Intangible assets, net | 
| 
| 
922,171 | 
| 
| 
| 
821,931 | 
| |
| 
Deferred offering cost, net | 
| 
| 
5,956,424 | 
| 
| 
| 
- | 
| |
| 
Security deposit | 
| 
| 
8,582 | 
| 
| 
| 
8,582 | 
| |
| 
TOTAL ASSETS | 
| 
$ | 
12,162,241 | 
| 
| 
$ | 
2,048,889 | 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Current liabilities: | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Accounts payable and accrued expenses | 
| 
$ | 
2,928,728 | 
| 
| 
$ | 
667,272 | 
| |
| 
Derivative liability instrument | 
| 
| 
3,028,401 | 
| 
| 
| 
- | 
| |
| 
Current portion of operating lease liability | 
| 
| 
46,295 | 
| 
| 
| 
40,660 | 
| |
| 
Total current liabilities | 
| 
| 
6,003,424 | 
| 
| 
| 
707,932 | 
| |
| 
Operating lease liability, net of current portion | 
| 
| 
34,081 | 
| 
| 
| 
80,376 | 
| |
| 
Deferred revenue | 
| 
| 
1,438,013 | 
| 
| 
| 
1,438,013 | 
| |
| 
TOTAL LIABILITIES | 
| 
| 
7,475,518 | 
| 
| 
| 
2,226,321 | 
| |
| 
Commitments and contingencies (Note 12) | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
STOCKHOLDERS EQUITY (DEFICIT) | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Common Stock, $0.0001
par value, 500
million and 40
million shares authorized at December 31, 2025 and 2024, respectively; 29,445,183
and 26,845,690
shares issued at December 31, 2025 and 2024*, respectively | 
| 
| 
2,943 | 
| 
| 
| 
2,684 | 
| |
| 
Additional paid-in capital | 
| 
| 
28,143,873 | 
| 
| 
| 
19,015,897 | 
| |
| 
Subscription receivable | 
| 
| 
(1,070,000 | 
) | 
| 
| 
- | 
| |
| 
Accumulated deficit | 
| 
| 
(22,390,093 | 
) | 
| 
| 
(19,196,013 | 
) | |
| 
Total stockholders
equity (deficit) | 
| 
| 
4,686,723 | 
| 
| 
| 
(177,432 | 
) | |
| 
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT) | 
| 
$ | 
12,162,241 | 
| 
| 
$ | 
2,048,889 | 
| |
| 
* | 
Retroactively adjusted for 2-for-1 forward stock split. | |
*See accompanying notes to consolidated financial
statements.*
**
F-3
TURN
THERAPEUTICS INC.
Consolidated
Statements of Operations
| 
| 
| 
Years Ended December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
Operating expenses: | 
| 
| 
| 
| 
| 
| |
| 
General and administrative | 
| 
$ | 
5,593,078 | 
| 
| 
$ | 
1,551,168 | 
| |
| 
Research and development | 
| 
| 
265,570 | 
| 
| 
| 
245,956 | 
| |
| 
Total operating expenses | 
| 
| 
5,858,648 | 
| 
| 
| 
1,797,124 | 
| |
| 
Loss from operations | 
| 
| 
(5,858,648 | 
) | 
| 
| 
(1,797,124 | 
) | |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Other income: | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Net gain from change in fair value of derivative liability instrument | 
| 
| 
2,574,971 | 
| 
| 
| 
- | 
| |
| 
Gain from change in fair value of forward contract liability | 
| 
| 
380,442 | 
| 
| 
| 
- | 
| |
| 
Amortization of deferred offering cost | 
| 
| 
(496,948 | 
) | 
| 
| 
- | 
| |
| 
Interest income | 
| 
| 
29,583 | 
| 
| 
| 
28,709 | 
| |
| 
Other income | 
| 
| 
176,520 | 
| 
| 
| 
- | 
| |
| 
Total other income | 
| 
| 
2,664,568 | 
| 
| 
| 
28,709 | 
| |
| 
NET LOSS | 
| 
$ | 
(3,194,080 | 
) | 
| 
$ | 
(1,768,415 | 
) | |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Basic and diluted net loss per common share | 
| 
$ | 
(0.12 | 
) | 
| 
$ | 
(0.07 | 
) | |
| 
Weighted-average common shares outstanding, basic and diluted | 
| 
| 
27,716,045 | 
| 
| 
| 
26,643,432 | 
| |
*See accompanying notes to consolidated financial
statements.*
F-4
TURN
THERAPEUTICS INC.
Consolidated
Statements of Changes in Stockholders Equity (Deficit)
| 
| 
| 
| 
| 
| 
| 
| 
| 
Additional | 
| 
| 
| 
| 
| 
| 
| 
| 
Total | 
| |
| 
| 
| 
Common Stock | 
| 
Paid-in | 
| 
| 
Subscription | 
| 
| 
Accumulated | 
| 
| 
Stockholders | 
| |
| 
| 
| 
Shares* | 
| 
| 
Amount* | 
| 
| 
Capital | 
| 
| 
Receivable | 
| 
| 
Deficit | 
| 
| 
Equity(Deficit) | 
| |
| 
As at December 31, 2023 | 
| 
| 
26,494,482 | 
| 
| 
$ | 
2,649 | 
| 
| 
$ | 
17,510,717 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
(17,427,598 | 
) | 
| 
$ | 
85,768 | 
| |
| 
Issuance of common stock under regulation Crowdfunding, net of issuance
costs | 
| 
| 
351,208 | 
| 
| 
| 
35 | 
| 
| 
| 
1,152,347 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
1,152,382 | 
| |
| 
Stock-based compensation expense | 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
352,833 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
352,833 | 
| |
| 
Net loss | 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
(1,768,415 | 
) | 
| 
| 
(1,768,415 | 
) | |
| 
As at December 31, 2024 | 
| 
| 
26,845,690 | 
| 
| 
| 
2,684 | 
| 
| 
| 
19,015,897 | 
| 
| 
| 
- | 
| 
| 
| 
(19,196,013 | 
) | 
| 
| 
(177,432 | 
) | |
| 
Issuance of common stock under Regulation Crowdfunding, net of issuance
costs | 
| 
| 
215,972 | 
| 
| 
| 
22 | 
| 
| 
| 
777,781 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
777,803 | 
| |
| 
Issuance of common stock under Regulation A+, net of issuance costs | 
| 
| 
83,610 | 
| 
| 
| 
8 | 
| 
| 
| 
280,484 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
280,492 | 
| |
| 
Issuance of common stock under Regulation D, net of issuance costs | 
| 
| 
800,720 | 
| 
| 
| 
80 | 
| 
| 
| 
2,860,819 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
2,860,899 | 
| |
| 
Issuance of stock in exchange for advisor services | 
| 
| 
54,466 | 
| 
| 
| 
5 | 
| 
| 
| 
249,995 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
250,000 | 
| |
| 
Issuance of common stock upon exercise of warrants | 
| 
| 
47,620 | 
| 
| 
| 
4 | 
| 
| 
| 
234 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
238 | 
| |
| 
Issuance of common stock for draw-down notice, net of issuance cost | 
| 
| 
1,235,200 | 
| 
| 
| 
124 | 
| 
| 
| 
3,689,434 | 
| 
| 
| 
(1,070,000 | 
) | 
| 
| 
- | 
| 
| 
| 
2,619,558 | 
| |
| 
Issuance of common stock for deferred offering cost | 
| 
| 
161,905 | 
| 
| 
| 
16 | 
| 
| 
| 
849,984 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
850,000 | 
| |
| 
Stock-based compensation expense | 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
419,245 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
419,245 | 
| |
| 
Net loss | 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
(3,194,080 | 
) | 
| 
| 
(3,194,080 | 
) | |
| 
As at December 31, 2025 | 
| 
| 
29,445,183 | 
| 
| 
$ | 
2,943 | 
| 
| 
$ | 
28,143,873 | 
| 
| 
$ | 
(1,070,000 | 
) | 
| 
$ | 
(22,390,093 | 
) | 
| 
$ | 
4,686,723 | 
| |
| 
* | 
Retroactively adjusted for 2-for-1 forward stock split. | |
*See accompanying notes to consolidated financial
statements.*
F-5
TURN
THERAPEUTICS INC.
Consolidated
Statements of Cash Flows
| 
| 
| 
Years Ended December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
| 
| 
| 
| 
| 
| 
| |
| 
Cash flows from operating activities: | 
| 
| 
| 
| 
| 
| |
| 
Net loss | 
| 
$ | 
(3,194,080 | 
) | 
| 
$ | 
(1,768,415 | 
) | |
| 
Adjustments to reconcile
net loss to net cash used in operating activities | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Depreciation and amortization | 
| 
| 
52,746 | 
| 
| 
| 
47,483 | 
| |
| 
Stock-based compensation expense | 
| 
| 
419,245 | 
| 
| 
| 
352,833 | 
| |
| 
Non-cash operating lease expense | 
| 
| 
1,172 | 
| 
| 
| 
8,650 | 
| |
| 
Common stock issued in exchange for services | 
| 
| 
250,000 | 
| 
| 
| 
- | 
| |
| 
Net gain from change in fair value of derivative liability instrument | 
| 
| 
(2,574,971 | 
) | 
| 
| 
- | 
| |
| 
Gain from change in fair value of forward contract liability | 
| 
| 
(380,442 | 
) | 
| 
| 
- | 
| |
| 
Amortization of deferred offering cost | 
| 
| 
496,948 | 
| 
| 
| 
- | 
| |
| 
Changes in operating
assets and liabilities: | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Prepaid expenses and other current assets | 
| 
| 
105,025 | 
| 
| 
| 
(204,505 | 
) | |
| 
Accounts payable and accrued expenses | 
| 
| 
2,261,456 | 
| 
| 
| 
202,649 | 
| |
| 
Net cash used in operating activities | 
| 
| 
(2,562,901 | 
) | 
| 
| 
(1,361,305 | 
) | |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Cash flows from investing activities: | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Purchases of intangible assets | 
| 
| 
(152,986 | 
) | 
| 
| 
(99,475 | 
) | |
| 
Net cash used in investing activities | 
| 
| 
(152,986 | 
) | 
| 
| 
(99,475 | 
) | |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Cash flows from financing activities: | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Proceeds from issuance of stock, net of issuance
costs | 
| 
| 
6,919,432 | 
| 
| 
| 
1,152,382 | 
| |
| 
Net cash provided by financing
activities | 
| 
| 
6,919,432 | 
| 
| 
| 
1,152,382 | 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Net increase (decrease) in cash and cash equivalents | 
| 
| 
4,203,545 | 
| 
| 
| 
(308,398 | 
) | |
| 
Cash and cash equivalents at beginning of year | 
| 
| 
872,599 | 
| 
| 
| 
1,180,997 | 
| |
| 
Cash and cash equivalents at end of year | 
| 
$ | 
5,076,144 | 
| 
| 
$ | 
872,599 | 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Supplemental disclosure of non-cash activities | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Right-of-use asset acquired against lease liability | 
| 
$ | 
- | 
| 
| 
$ | 
133,615 | 
| |
| 
Common stock issued for deferred offering cost | 
| 
$ | 
850,000 | 
| 
| 
$ | 
- | 
| |
| 
Settlement of forward contract liability for sale of shares to GEM pursuant to Initial
Draw Down Notice | 
| 
$ | 
380,442 | 
| 
| 
$ | 
- | 
| |
| 
Issuance of warrant under Share Purchase Agreement for deferred offering costs | 
| 
$ | 
5,603,372 | 
| 
| 
$ | 
- | 
| |
*See accompanying notes to consolidated financial
statements.*
F-6
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
| 
1. | 
ORGANIZATION AND DESCRIPTION OF BUSINESS | |
We were formed in Delaware in January 2015 as
Global Health Solutions, LLC. In October 2018, we converted into a Delaware corporation under the name Global Health Solutions, Inc.,
and in September 2025, we changed our corporate name to Turn Therapeutics Inc. (hereinafter referred to as the Company,
we, us or our). Our corporate headquarters are located in Westlake Village, California.
We are a clinical-stage biotechnology and medical
device development company built around our proprietary platform technology called PermaFusion designed to enhance drug
performance. Our primary drug development programs focus on dermatological diseases, including moderate to severe eczema and onychomycosis.
We also have a portfolio of Food and Drug Administration (FDA) cleared medical devices. We are also developing an intranasal
vaccine with sufficient thermostability for rapid deployment for pandemic response.
Direct
Listing
On October 8, 2025, we completed direct listing
of our common stock on Nasdaq (the Direct Listing) under the ticker symbol TTRX.
| 
2. | 
BASIS OF PRESENTATION, PRINCIPLES OF CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States (GAAP), and reflect
the operations of the Company and our wholly owned subsidiary. Any reference in these notes to applicable guidance is meant to refer to
GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) promulgated
by the Financial Accounting Standards Board (FASB). All material intercompany accounts and transactions have been eliminated
in consolidation.
2-for-1
Forward Stock Split
On September 11, 2025, our board of directors
(Board) approved a 2-for-1 forward
stock split (the Stock Split) of our common stock upon the effectiveness of our registration statement on
Form S-1 filed with the Securities and Exchange Commission (SEC) and our Amended and Restated Certificate of Incorporation
filed with the State of Delaware. 
On September 30, 2025, our registration statement
on Form S-1 was declared effective by the SEC and our Amended and Restated Certificate of Incorporation was filed with the State of Delaware
giving effect to a 2-for-1 forward split
of our common stock. 
Unless otherwise indicated, all authorized, issued,
and outstanding stock and per share amounts contained herein have been adjusted to reflect the effect of the Stock Split for all prior
periods presented. Proportionate adjustments were made to exercise prices and the number of shares issuable under our equity incentive
plans and outstanding warrants.
The impacts of the Stock Split were applied retroactively
for all periods presented in accordance with applicable guidance and therefore, amounts may differ from those previously reported.
F-7
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024 
The following table illustrates changes in equity,
as previously reported prior to, and as adjusted subsequent to, the impact of the Stock Split retroactively adjusted for the periods previously
presented:
| 
| 
| 
December 31, 2024 | 
| |
| 
| 
| 
As Previously Reported | 
| 
| 
Impact of Stock Split | 
| 
| 
As Revised | 
| |
| 
Common stock - shares | 
| 
| 
13,422,845 | 
| 
| 
| 
13,422,845 | 
| 
| 
| 
26,845,690 | 
| |
| 
Common stock - amount | 
| 
$ | 
1,342 | 
| 
| 
$ | 
1,342 | 
| 
| 
$ | 
2,684 | 
| |
| 
Additional paid-in capital | 
| 
$ | 
19,017,239 | 
| 
| 
$ | 
(1,342 | 
) | 
| 
$ | 
19,015,897 | 
| |
Liquidity
and Going Concern
As of December 31, 2025, we had approximately
$5.1
million of cash and cash equivalents and working capital of approximately $2.2
million (excluding the derivative liability). We have a relatively limited operating history, and the revenue and income potential of
our business and market are unproven. We have experienced net losses and negative cash flows from operations since inception and, as of
December 31, 2025, we had an accumulated deficit of $22.4
million. During the year ended December 31, 2025, we incurred a net loss of $3.2
million and had cash out flows from operations of $2.6
million. We will continue to incur costs and expenses related to our ongoing operations until we successfully commercialize, develop,
obtain regulatory approval for and gain market acceptance of products and product candidates and achieve revenues adequate to support
our operations. 
From inception through December31, 2025,
we have funded our operations primarily with proceeds from the sale of common stock, including through exempt offerings under Regulation
Crowdfunding, Regulation A+ and Regulation D, draw-down from our Share Purchase Agreement (Note 7) as well as through proceeds from license
and collaboration agreements. Based on our current operating plan, we estimate that our cash and cash equivalents as of December31,
2025 will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2026. We have based
this estimate on assumptions that may prove to be wrong, and could deplete our capital resources sooner than we currently expect. Our
capital resources may not be sufficient to fund operations through at least the next 12months from the date that these audited consolidated
financial statements as of December31, 2025 are issued based on our expected cash needs, which raises substantial doubt about our
ability to continue as a going concern.
As we continue to pursue our business plan, we
expect to finance our operations through potential public or private equity offerings, including future draw-downs under our Share Purchase
Agreement (Note 7), proceeds from executed debt financing (Note 15), and additional debt financings or other capital sources, including
current or potential future collaborations, licenses and other similar arrangements. However, there can be no assurance that any additional
financing or strategic arrangements will be available to us on acceptable terms, if at all. If events or circumstances occur such that
we are not able to obtain additional funding, it may be necessary to significantly reduce our scope of operations to reduce the current
rate of spending through actions such as reductions in staff and the need to delay, limit, reduce or terminate product development or
future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and
market ourselves, which could have a material adverse effect on our business, results of operations or financial condition.
The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary
course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
F-8
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024 
Summary
of Significant Accounting Policies
**
*Use of Estimates*
The preparation of consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include, but are not limited to, those relating to stock-based compensation,
revenue recognition, research and development expenses, fair value estimates of warrants and other derivative liabilities, and determination
of right-of-use assets under lease transactions and related lease obligations. Although these estimates are based on our knowledge of
current events and actions we may undertake in the future, actual results may materially differ from these estimates and assumptions.
*Concentration
of Credit Risk*
Financial instruments which potentially subject
us to significant concentration of credit risk consist of cash and cash equivalents. We maintain deposits in federally insured financial
institutions in excess of federally insured limits. We have not experienced any losses in such accounts, and management believes that
we are not exposed to significant credit risk due to the nature of the instruments held in the depository institutions. As of December
31, 2025 and 2024, cash and cash equivalents exceeded Federal Deposit Insurance Corporation insured limits by $4.5
million and $0.3
million, respectively. 
The majority of our accounts payable and accrued
expenses are concentrated with one vendor having balance of approximately $1.5
million which represents approximately 51%
of our accounts payable and accrued expenses as of December 31, 2025. The amount owed to two majorly concentrated vendors as of December
31, 2024 was approximately $0.3
million and $0.1
million which represent approximately 65%
of our accounts payable and accrued expenses. 
**
*Cash and Cash
Equivalents*
Cash and cash equivalents are considered to be
highly liquid investments with maturities of three months or less at the date of purchase. Cash equivalents primarily represent funds
invested in readily available money market accounts. As of December 31, 2025 and 2024, we had cash and cash equivalent balances deposited
at multiple major financial institutions.
**
*Intangible
Assets*
We capitalize costs associated with obtaining
patents and trademarks. Intangible assets are amortized over the estimated useful life of 20
years and trademark costs are indefinitely lived. 
**
*Impairment
of Long-Lived Assets*
We evaluate our long-lived assets, which consist
of property and equipment and identifiable intangibles, for impairment at least annually, or whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset or eventual
disposal. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. To date, we have not recorded any impairment losses on long-lived assets.
F-9
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024 
*Research and
Development Expenses*
Research and development expenses are composed
of both internal and external costs. Internal costs include salaries and employment-related expenses of scientific personnel and direct
project costs. External research and development expenses consist primarily of costs associated with clinical and non-clinical development
programs and are charged to expenses as incurred.
We also record accruals for estimated ongoing
clinical trial costs. Clinical trial costs primarily represent costs incurred by contract research organizations and clinical trial sites.
We analyze the progress of the clinical trial, including levels of subject enrollment, invoices received and contracted costs when evaluating
the adequacy of accrued liabilities. In accruing for these services, we estimate the time period over which services will be performed
and the level of effort to be expended in each period. These estimates are based on communications with the third-party service providers
and our estimates of accrued expenses based on information available at each balance sheet date. If the actual timing of the performance
of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.
**
*Revenue Recognition*
Under ASC 606, we recognize revenue when our customer
obtains control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for
those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform
the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations
in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts
when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services we transfer
to a customer.
At contract inception, once the contract is determined
to be within the scope of ASC 606, we assess whether the goods or services promised within each contract are distinct and, therefore,
represent a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised
goods and services until a distinct combined performance obligation is identified. We then allocate the transaction price (that is, the
amount of consideration we expect to be entitled to from a customer in exchange for the promised goods or services) to each performance
obligation and recognize the associated revenue when (or as) each performance obligation is satisfied. Our estimate of the transaction
price for each contract includes all variable consideration to which we expect to be entitled, subject to the constraint on variable consideration.
Variable consideration is not constrained if the potential reversal of cumulative revenue recognized at the contract level is not significant.
**
*License
Rights* If the license to our intellectual property (IP) is determined to be distinct from the other promises or performance
obligations identified in the arrangement, which generally include research and development services, we recognize revenue from non-refundable,
upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from
the license. In assessing whether a license is distinct from the other promises, we consider relevant facts and circumstances of each
arrangement, including the research and development capabilities of the collaboration partner and the availability of the associated expertise
in the general marketplace. In addition, we consider whether the collaboration partner can benefit from the license for its intended purpose
without the receipt of the remaining promises, whether the value of the license is dependent on the unsatisfied promises, whether there
are other vendors that could provide the remaining promises and whether it is separately identifiable from the remaining promises.
For licenses that are combined with other promises,
we utilize judgment to assess the nature of the combined performance obligation and whether the license is the predominant promise within
the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time
and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.
F-10
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024 
If the license is the predominant promise, and
it is determined that the license represents functional IP, revenue is recognized at the point in time when control of the license is
transferred. If it is determined that the license does not represent functional IP, revenue is recognized over time using an appropriate
method of measuring progress.
**
*Milestone
Payments* At the inception of an arrangement that includes development milestone payments, we evaluate whether the milestones
are considered likely to be achieved and estimate the amount to be included in the transaction price using the most likely amount method.
If it is probable that a significant reversal of cumulative revenue recognized would not occur, the associated milestone value is included
in the transaction price. Milestone payments that are not within our control, such as regulatory approvals, are not considered probable
to be achieved until those approvals are received. We evaluate factors such as the scientific, clinical, regulatory, commercial and other
risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in
determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period,
we re-evaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjust its estimate of the overall
transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period
of adjustment.
**
*Royalties*
For arrangements that include sales-based royalties, including milestone payments based on a level of sales, where the license
is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur
or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
To date, we have not recognized any royalty revenue resulting from licensing agreements.
Amounts due to us for satisfying the revenue recognition
criteria or that are contractually due based upon the terms of the collaboration agreements are recorded as accounts receivable on the
consolidated balance sheets. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue. Amounts
expected to be recognized as revenue within the one year following the balance sheet date are classified as current deferred revenue.
Amounts not expected to be recognized as revenue within the one year following the balance sheet date are classified as deferred revenue,
net of current portion.
**
*Income Taxes*
We are taxed as a Corporation for
both federal and state income tax purposes. We account for income taxes using the asset and liability approach promulgated by ASC 740*,**Income
Taxes*, for financial reporting purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances
are established, when necessary, to reduce the deferred tax assets to an amount expected to be realized.
We are required to evaluate the tax positions
taken in the course of preparing tax returns to determine whether tax positions will more likely than not be substantiated by the tax
authorities. Tax benefits of positions not deemed to meet the more-likely-than-not threshold are recorded as a tax expense. The amount
recognized is subject to estimate and judgement with respect to the likely outcome of each uncertain tax position. The amount that is
ultimately sustained for an individual or all uncertain tax position(s) could differ from the amount that is initially recognized. We
recognize interest and/or penalties related to tax matter as income tax expense.
F-11
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
*Leases*
At the inception of a contractual agreement, we
determine whether the contract is or contains a lease, by assessing whether there is an identified asset and whether the contract conveys
the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, we
record the associated lease liability and corresponding right-of-use asset upon commencement of the lease using the implicit rate or a
discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. When determining the lease term,
we include options to extend or terminate the lease when it is reasonably certain, at inception, that we will exercise that option. Additionally,
we evaluate leases at their inception to determine if they are to be accounted for as an operating lease or a finance lease.
Operating lease assets represent our right to
use an underlying asset for the lease term (Right-of-use assets) and operating lease liabilities represent our obligation to make lease
payments arising from the lease. The lease payments used to determine our operating lease assets may include lease incentives, stated
rent increases and escalation clauses, when determinable, and are recognized in determining our Right-of-use assets.
Operating lease liabilities with a term greater
than one year and their corresponding right-of-use assets are recognized on the balance sheets at the commencement date of the lease based
on the present value of lease payments over the expected lease term. We exclude short-term leases, if any, having initial terms of 12
months or less at lease commencement as an accounting policy election. Variable lease payments are amounts owed by us to a lessor that
are not fixed, such as reimbursement for common area maintenance costs for our office lease; and are expensed when incurred. Operating
right-of-use assets are reflected in right-of-use asset in the accompanying consolidated balance sheets. Operating lease liabilities are
reflected in operating lease liability, current and non-current in the accompanying consolidated balance sheets. 
Financing leases are treated similarly to operating
leases except that the asset subject to the lease is included in the appropriate fixed asset category, rather than recorded as a Right-of-use
asset, and depreciated over its estimated useful life, or lease term, if shorter.
**
*Stock-Based
Compensation*
**
We account for stock-based compensation for both
employees and non-employees in accordance with ASC 718, *Compensation Stock Compensation*. Under the fair value recognition
provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized
as expense ratably over the requisite service period, which is generally the option vesting period.
**
*Segment Reporting*
Operating segments are identified as components
of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker
(CODM) in making decisions regarding resource allocation and assessing performance. We manage our operations as a single
reportable segment for the purposes of assessing performance and making operating decisions.
**
*Warrants*
We evaluate the appropriate balance sheet classification
of warrants we issue as either equity or as a derivative liability. In accordance with ASC 815-40,*Derivatives and Hedging-Contracts
in the Entity**s Own Equity*, we classify a warrant as equity if it is indexed to the Companys equity
and meets several specific conditions for equity classification. As of December 31, 2025**and 2024, 0
and 87,744
outstanding warrants, respectively, were classified as equity. 
A warrant is not considered indexed to
the Companys equity, in general, when it contains certain types of exercise contingencies or potential adjustments to its
exercise price. If a warrant is not indexed to the Companys equity or it has net cash settlement provisions that result in the
warrants being accounted for under ASC 480,*Distinguishing Liabilities from Equity,*or ASC 815-40, it is classified as
a derivative liability which is carried on the consolidated balance sheets at fair value with any changes in its fair value recognized
immediately in the consolidated statements of operations. As of December 31, 2025**and 2024, 1,192,207
and no outstanding warrants, respectively, were classified as liabilities. 
F-12
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
*Derivatives*
Derivative financial instruments, including the
liability instrument, are recorded at fair value on the consolidated balance sheets. Liabilities classified as derivatives are remeasured
at their fair value at each reporting date, with decreases or increases in the fair value recognized as other gain or loss, respectively,
within the consolidated statements of operations. Equity classified derivatives are not remeasured at each reporting date. If a liability
classified derivative becomes eligible for reclassification to an equity classified derivative, any gains or losses recognized up to the
point of reclassification are not reversed.
**
*Fair Value
of Financial Instruments*
Financial assets and liabilities recorded at fair
value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure
their fair values. Fair value is defined as the price we would receive to sell an investment in a timely transaction or pay to transfer
a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market, the most
advantageous market for the investment or liability. A framework is used for measuring fair value utilizing a three-tier hierarchy or
levels that prioritizes the inputs to valuation techniques used to measure fair value.
These levels, in order of the highest to lowest
priority, are described below:
**
*Level1*
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
**
*Level2*
Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are
observable, either directly or indirectly, for substantially the full term of the asset or liability.
**
*Level3*
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable (i.e.,
supported by little or no market activity).
**
*Comprehensive
Loss*
We have no components of other comprehensive loss
other than net loss, and accordingly, our comprehensive loss is equivalent to our net loss for the periods presented.
**
*Net Loss Per
Share*
**
We calculate basic and diluted net loss per share
attributable to common stockholders in conformity with the two-class method required for participating securities. Warrants issued in
2017 and outstanding as of December 31, 2024 were considered outstanding shares in the basic earnings per share calculation for the year
ended December 31, 2024 given their nominal exercise price. The net loss attributable to common stockholders is not allocated to the warrant
holders as the holders of warrants do not have a contractual obligation to share in losses. Basic net loss per share is calculated by
dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed
by dividing the net loss by the weighted-average number of shares of common stock and common stock equivalents outstanding for the period.
Common stock equivalents are only included when their effect is dilutive.
Our potentially dilutive securities, including
outstanding stock options under our equity incentive plans and warrants with exercise prices that are not nominal, have been excluded
from the computation of diluted net loss per share as their inclusion would be anti-dilutive. For all periods presented, there is no difference
in the number of shares used to calculate basic and diluted shares outstanding due to our net loss position.
F-13
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
*Related Parties*
Transactions between related parties are considered
to be related party transactions even though they may not be given accounting recognition. ASC 850,*Related Party Disclosures*(ASC
850), requires that transactions with related parties that would make a difference in decision-making shall be disclosed so that users
of the financial statements can evaluate their significance.
**
*Emerging Growth
Company Status*
We qualify as an emerging growth company (EGC)
as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the JOBS Act), and may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not an EGC. We may take advantage
of these exemptions until we are no longer an EGC under Section 107 of the JOBS Act, and we have elected to use the extended transition
period for complying with new or revised accounting standards. As a result of this election, our consolidated financial statements may
not be comparable to companies that comply with public company FASB standards effective dates.
**
*Recently Adopted
Accounting Principles*
In December 2023, the FASB issued ASU No. 2023-09,*Income
Taxes (Topic 740): Improvements to Income Tax Disclosures.*ASU 2023-09 requires disaggregated information about a reporting entitys
effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual
periods beginning after December 15, 2024, and should be applied on a retrospective basis to all periods presented. We adopted the guidance
in the fiscal year beginning January 1, 2025, and the adoption had no material impact on our consolidated financial statements.
**
*Issued Accounting
Pronouncements Not Yet Adopted*
In November 2024, the FASB issued ASU No. 2024-03,
*Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures* (Subtopic 220-40). The ASU improves
the disclosures about a public business entitys expenses and provides more detailed information about the types of expenses in
commonly presented expense captions. The amendments require that at each interim and annual reporting period an entity will, among other
things, disclose amounts of purchases of inventory, employee compensation, depreciation and amortization included in each relevant expense
caption (such as cost of sales, SG&A and research and development). The ASU is effective for fiscal years beginning after December
15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating
this ASU to determine its impact on our disclosures.
Although there were several other new accounting
pronouncements issued or proposed by the FASB, we do not believe any of those accounting pronouncements have had or will have a material
impact on our financial position or operating results.
| 
3. | 
FAIR VALUE MEASUREMENTS | |
The carrying amounts reflected in the consolidated
balance sheets for prepaid expenses, accounts payable and accrued expenses and other liabilities are shown at their historical values
which approximate their fair values.
The
following tables presents the financial instruments carried at fair value on a recurring basis:
| 
| 
| 
As at December 31, 2025 | 
| |
| 
| 
| 
Level 1 | 
| 
| 
Level 2 | 
| 
| 
Level 3 | 
| 
| 
Total | 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Assets | 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Cash equivalents | 
| 
$ | 
4,027,862 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
4,027,862 | 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Liabilities | 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Derivative liability instrument | 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
3,028,401 | 
| 
| 
$ | 
3,028,401 | 
| |
F-14
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
| 
| 
| 
As at December 31, 2024 | 
| |
| 
| 
| 
Level 1 | 
| 
| 
Level 2 | 
| 
| 
Level 3 | 
| 
| 
Total | 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Assets | 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Cash equivalents | 
| 
$ | 
498,286 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
498,286 | 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Liabilities | 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Derivative liability instrument | 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| |
As of December 31, 2024, derivative liability
instrument includes contingent warrant liability and the contingent put option liability as a single unit of account under the Share Purchase
Agreement (Note 7). We measured derivative liability instrument to be immaterial as of December 31, 2024. The warrant liability and forward
contract liability were contingent upon a public listing of our common stock on a stock exchange event, and is classified within Level
3 of the value hierarchy because the liability was based upon a valuation model that used inputs and assumptions including potential outcomes,
interest rates, probabilities, and timing. We completed Direct Listing of our common stock on NASDAQ and bifurcated the liability instrument
into its separate warrant liability and put contract liability components. The fair value of the Warrant liability to be issued upon completion
of the public listing was $5.6
million, and this fair value decreased to $2.8
million at December 31, 2025. The fair value of the put contract liability was $0.2 million at December 31, 2025. 
The following table summarizes the activity related
to Level 3 financial liabilities for the year ended December 31, 2025:
| 
| 
| 
Derivative Liability Instrument | 
| |
| 
Fair value at December 31, 2024 | 
| 
$ | 
- | 
| |
| 
Addition to derivative liability for warrants under Share Purchase Agreement | 
| 
| 
5,603,372 | 
| |
| 
Increase in fair value of put contract derivative under Share Purchase Agreement | 
| 
| 
202,871 | 
| |
| 
Decrease in fair value of warrant derivative liability | 
| 
| 
(2,777,842 | 
) | |
| 
Fair value at December 31, 2025 | 
| 
$ | 
3,028,401 | 
| |
Upon public listing and as of December 31, 2025,
the warrant liability value for the warrant issued to investor under the Share Purchase Agreement (Note 7) was determined using a Monte
Carlo simulation. Inputs used in the Monte Carlo simulation are as below:
| 
| 
| 
As at October
8, 2025 | 
| 
| 
As at December
31, 2025 | 
| |
| 
Risk-free interest rate | 
| 
| 
3.63 | 
% | 
| 
| 
3.54 | 
% | |
| 
Dividend yield | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Term (years) | 
| 
| 
3.00 | 
| 
| 
| 
2.77 | 
| |
| 
Annual Volatility | 
| 
| 
87.1 | 
% | 
| 
| 
94.4 | 
% | |
| 
Closing stock price | 
| 
$ | 
7.00 | 
| 
| 
| 
3.94 | 
| |
Put contract derivative liability as of public
listing date was not material. As of December 31, 2025, the put contract derivative liability was remeasured using a Black-Scholes option
valuation model, followed by a series of contractual adjustments. Inputs used in Black-Scholes model for valuation as of December 31,
2025 were as follows:
| 
| 
| 
As at
December 31, 2025 | 
| |
| 
Risk-free interest rate | 
| 
| 
3.61 | 
% | |
| 
Dividend yield | 
| 
| 
- | 
| |
| 
Term (years) | 
| 
| 
2.77 | 
| |
| 
Annual Volatility | 
| 
| 
87.70 | 
% | |
| 
Closing stock price | 
| 
| 
3.94 | 
| |
F-15
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
| 
4. | 
INTANGIBLE ASSETS | |
The
following table summarizes our intangible assets, net:
| 
| 
| 
As at December 31, 2025 | 
| 
| 
As at December 31, 2024 | 
| |
| 
| 
| 
Gross | 
| 
| 
| 
| 
| 
| 
| 
| 
Gross | 
| 
| 
| 
| 
| 
| 
| |
| 
| 
| 
Carrying | 
| 
| 
Accumulated | 
| 
| 
Net Carrying | 
| 
| 
Carrying | 
| 
| 
Accumulated | 
| 
| 
Net Carrying | 
| |
| 
| 
| 
Amount | 
| 
| 
Amortization | 
| 
| 
Amount | 
| 
| 
Amount | 
| 
| 
Amortization | 
| 
| 
Amount | 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Finite-lived assets: | 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Intangible asset - Patents | 
| 
$ | 
1,146,743 | 
| 
| 
$ | 
(257,530 | 
) | 
| 
$ | 
889,213 | 
| 
| 
$ | 
993,758 | 
| 
| 
$ | 
(204,785 | 
) | 
| 
$ | 
788,973 | 
| |
| 
Total finite-lived assets | 
| 
| 
1,146,743 | 
| 
| 
| 
(257,530 | 
) | 
| 
| 
889,213 | 
| 
| 
| 
993,758 | 
| 
| 
| 
(204,785 | 
) | 
| 
| 
788,973 | 
| |
| 
Indefinite-lived assets - Trademarks | 
| 
| 
32,958 | 
| 
| 
| 
- | 
| 
| 
| 
32,958 | 
| 
| 
| 
32,958 | 
| 
| 
| 
- | 
| 
| 
| 
32,958 | 
| |
| 
Total intangible assets | 
| 
$ | 
1,179,701 | 
| 
| 
$ | 
(257,530 | 
) | 
| 
$ | 
922,171 | 
| 
| 
$ | 
1,026,716 | 
| 
| 
$ | 
(204,785 | 
) | 
| 
$ | 
821,931 | 
| |
*Amortization
Expense*
Aggregate amortization expense related to finite-lived
intangible assets was approximately $53
thousand and $47
thousand for the years ended December 31, 2025 and 2024, respectively, primarily included in general and administrative expenses on our
consolidated statements of operations. 
The following table summarizes the estimated future
amortization expense associated with our finite-lived intangible assets as of December 31, 2025:
| 
| 
| 
Amount | 
| |
| 
2026 | 
| 
$ | 
57,337 | 
| |
| 
2027 | 
| 
| 
57,337 | 
| |
| 
2028 | 
| 
| 
57,337 | 
| |
| 
2029 | 
| 
| 
57,337 | 
| |
| 
2030 | 
| 
| 
57,337 | 
| |
| 
Thereafter | 
| 
| 
602,528 | 
| |
| 
Total | 
| 
$ | 
889,213 | 
| |
| 
5. | 
LEASES | |
**
*Operating
Lease*
**
We have a single lease for our headquarters,
which includes office space in Westlake Village, California. The lease commenced in September 2021 and was set to expire in August 2024.
In August 2024, we signed an amendment to the lease agreement for the same office space with a new expiration set to be in August 2027.
Monthly payments under the amended lease range from $4.11
thousand to $4.40
thousand. 
The aggregate minimum annual lease payments under
the operating leases in effect as of December 31, 2025 were:
| 
| 
| 
Amount | 
| |
| 
2026 | 
| 
$ | 
51,669 | 
| |
| 
2027 | 
| 
| 
35,240 | 
| |
| 
Thereafter | 
| 
| 
- | 
| |
| 
Total minimum lease payments | 
| 
| 
86,909 | 
| |
| 
Less: Present value discount | 
| 
| 
(6,533 | 
) | |
| 
Present value of operating lease
liabilities | 
| 
| 
80,376 | 
| |
| 
Less: Current portion of operating
lease liability | 
| 
| 
(46,295 | 
) | |
| 
Operating lease liability, net
of current portion | 
| 
$ | 
34,081 | 
| |
The lease had a remaining term of 1.7
years and 2.7
years as of December 31, 2025 and 2024, respectively. The lease liability was calculated based on a weighted-average discount rate of
9%
as of December 31, 2025 and 2024. During the years ended December 31, 2025 and 2024, we made cash payments for amounts included in the
measurement of lease liabilities of $49.92
thousand and $42.19
thousand, respectively. 
| 
6. | 
CAPITALIZATION AND EQUITY TRANSACTIONS | |
Common Stock
Our amended and restated certificate of incorporation
authorizes the issuance of up to 500,000,000
shares of common stock with a par value of $0.0001
per share. As of December 31, 2025 and 2024, 29,445,183
and 26,845,690
shares of our common stock were issued and outstanding, respectively. 
F-16
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
Preferred Stock
Our amended and restated certificate of incorporation
authorizes the issuance of up to 100,000,000
shares of preferred stock with par value of $0.0001
per share. As of December 31, 2025 and 2024, no
shares of our preferred stock were issued and outstanding. 
*2024 Crowdfunding
Offering*
In May2024, we launched a crowdfunding
campaign pursuant to RegulationCrowdfunding with StartEngine as our registered platform. We were offering common stock to accredited
and non-accredited investors with an offering price of $4.59.
The offering closed on March15, 2025. During the years ended December 31, 2025 and 2024, we sold 215,972
and 351,208
shares of common stock, respectively. Net proceeds from the offering during the years ended December 31, 2025 and 2024 were approximately
$0.78
million and $1.15
million, respectively. 
**
*2025 Regulation
A+ Offering*
On March 31, 2025, the SEC qualified our Regulation
A+ offering with StartEngine as our registered platform. We were offering common stock to accredited and non-accredited investors with
an offering price of $5.63.
The offering closed on June 27, 2025, and we sold 83,610
shares of our common stock with par value of $0.0001
and received net proceeds of $0.3
million, net of offering costs and platform fees. 
*2025 Regulation
D Offering*
In March 2025, our Board authorized a private
offering pursuant to Regulation D. We were offering common stock to accredited investors with a minimum investment of $100,000,
an offering price of $4.59
per share and certain warrants with an exercise price of $0.005.
The offering closed on June 27, 2025, and we issued 596,478
shares of our common stock and received gross proceeds of approximately $2.7
million. All the investors in this offering simultaneously exercised the warrants, and we issued 178,990
shares of our common stock upon exercise of warrants for cash proceeds of approximately $900.
On October 23, 2025, we issued 25,252
shares of common stock, in aggregate, to a director and an officer at the closing market price of $4.95
per share on October 23, 2025. The gross proceeds from the issuance of shares were approximately $0.1
million. 
*Shares Issued
in Exchange for Advisory Services*
In March 2025, we engaged Clear Street LLC (Clear
Street) as an exclusive financial advisor for certain services, including advisory services, with respect to listing of our common
stock on a registered stock exchange. As part of the engagement, we issued 54,466
shares of our common stock to Clear Street for advisory services amounting to approximately $0.25
million. The related expense was recorded as period cost in general and administrative expenses. 
*Warrant Grants,
Exercises, Expirations and Modifications*
In 2017, we issued warrants to a certain investor
to purchase 47,620
our common stock at an exercise price of $0.005.
Upon conversion to a Corporation in 2018, the warrants were amended to purchase 47,620
shares of common stock with all other terms and conditions being unchanged. In 2025, the warrants were exercised and converted into 47,620
shares of our common stock. 
In 2022, we issued warrants to a certain party,
as success fee for issuance and conversion of convertible notes, to purchase 40,124
shares of our common stock at an exercise price of $3.25.
The fair value of the warrants issued in 2017
and 2022 was estimated on the grant date using the Black-Scholes option pricing model, and the related expense was recognized on the grant
date as the warrants did not have a vesting period.
F-17
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
We evaluated the terms of the warrants issued
in 2017 and 2022 and determined that they should be classified as equity instruments within additional paid-in capital.
Upon Direct Listing, we issued warrants to certain
investor under the Share Purchase Agreement (Note 7) to purchase 1,192,207
shares of our common stock at an exercise price of $5.03.
As of December 31, 2025, the following common
stock warrants were outstanding:
| 
Number of Common Shares | 
| 
Exercise price | 
| 
Expiration | 
| |
| 
underlying warrants | 
| 
per share | 
| 
date | 
| |
| 
| 
40,124 | 
| 
$ | 
3.25 | 
| 
July
29, 2029 | 
| |
| 
| 
1,192,207 | 
| 
$ | 
5.03 | 
| 
October
8, 2028 | 
| |
The weighted-average exercise price of all outstanding
warrants as of December 31, 2025 is $4.97.
All outstanding warrants are exercisable by the holder by payment in cash of the stated exercise price per share or through cashless exercise.
*Reserved Shares*
**
We had the following shares of common stock reserved
for future issuance:
| 
| 
| 
As at December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
Subject to outstanding options under the
Amended and Restated 2018 Stock Option Plan, 2024 Stock Option Plan and 2025 Omnibus Incentive Plan | 
| 
| 
1,942,184 | 
| 
| 
| 
1,679,054 | 
| |
| 
Subject to outstanding RSUs under the 2025 Omnibus Incentive
Plan | 
| 
| 
40,000 | 
| 
| 
| 
- | 
| |
| 
Subject to exercise of outstanding warrants | 
| 
| 
1,232,331 | 
| 
| 
| 
87,744 | 
| |
| 
Available for future grants under the Amended and Restated
2018 Stock Option Plan | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Available for future grants under the 2024 Stock Option
Plan | 
| 
| 
697,816 | 
| 
| 
| 
720,946 | 
| |
| 
Available for future grants under the 2025 Omnibus Incentive
Plan | 
| 
| 
2,720,000 | 
| 
| 
| 
- | 
| |
| 
| 
| 
| 
6,632,331 | 
| 
| 
| 
2,487,744 | 
| |
As of December 31, 2025, we have 463,922,486
authorized shares of our common stock not subject to reserves and available for future issuance. 
**
| 
7. | 
SHARE PURCHASE AGREEMENT | |
In December 2024, we entered into a share purchase
agreement with a certain investor for the sale of our common stock of up to $75.0
million (the Aggregate Limit) contingent upon us achieving a public listing of its common stock. The agreement allows us
to issue common stock to the investor, within three (3) years from public listing, at 90%
of the average daily closing price during the draw-down pricing period and the draw-down amount not exceeding 300%
of the average trading volume of 15
days immediately preceding the draw-down exercise date. The agreement allows us to put restrictions on stock sales volume by investor,
prohibitions on short selling by investor and us being able to set a threshold floor price during draw-down periods. 
In April 2025, the Share Purchase Agreement was
amended to increase the Aggregate Limit from $75.0
million to $85.0
million with the additional $10.0
million available only via a day-one draw-down (the Initial Draw-Down). Moreover, the draw-down pricing period for Initial
Draw-Down was reduced to 10
trading days with the investor having an option to shorten with six (6) hours notice to us. The Initial Draw-Down amount with reduced
draw-down pricing period was capped at $10.0
million. 
F-18
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
In August 2025, the Share Purchase Agreement was
further amended to make changes to the registration rights of the investor and the timing of such registrations. This amendment did not
materially change any key terms including the Aggregate Limit, the commitment fee, underlying warrants issuable under the agreement and
the draw-down pricing and timing including the initial draw-down.
On the public listing date, we issued a warrant
to the investor granting the right to purchase 1,192,207
shares of our common stock representing 4%
of the total equity interest at an exercise price of $5.03.
The warrant was recognized at fair value on the issuance date as a derivative liability using a Monte Carlo valuation method with offsetting
debit deferred offering cost asset recorded on the consolidated balance sheets. The fair-value of the warrant was remeasured as of December
31, 2025 using the same valuation methodology, and the resulting gain was recognized in consolidated statement of operations. The deferred
offering cost is being amortized on straight-line basis over the term of the agreement with related expense being recorded in consolidated
statement of operations. During the year ended December 31, 2025, approximately $0.5
million was recognized as amortization of deferred offering cost. Future amortization expense in 2026, 2027 and 2028 will be approximately
$1.87
million, $1.87
million and $1.40
million, respectively. 
The investor was also entitled to a 1%
commitment fee of the Aggregate Limit, either in cash or common stock, which was settled through issuance of 161,905
shares of our common stock. The commitment fee was initially recorded on the consolidated balance sheet as a deferred offering cost which
shall be amortized subsequently as we draw-down amounts under the share purchase agreement. During the year ended December 31, 2025, approximately
$0.03
million was recognized as amortization of deferred offering cost. We expect the future amortization expense in 2026, 2027 and 2028 to
be $100
thousand, $320
thousand and $400
thousand, respectively. 
On October 31, 2025, we issued the Initial Draw-Down
Notice for 1,235,200
shares of common stock to investor and the draw-down period for the initial draw-down was extended from 10
trading days to 30
trading days by mutual agreement between us and the investor. The investor advanced us $3.0
million. On closing date of the initial draw-down notice, i.e., December 15, 2025, the investor accepted 1,235,200
shares at a closing price of approximately $3.29
per share resulting in gross proceeds of $4.07
million, of which $1.1
million is recorded as subscription receivable as of December 31, 2025 and $3.0
million was received as advance on October 31, 2025. 
Upon issuance of Initial Draw-Down Notice on
October 31, 2025, we recorded $0.47
million fair value of forward contract liability. The fair value of the forward contract was remeasured to a $0.4
million asset at December 15, 2025, the closing date of Initial Draw-Down Notice and the forward contract liability was eliminated. 
| 
8. | 
STOCK-BASED COMPENSATION | |
**
*Stock Option
Plans*
**
*2018 Stock Option Plan*
In 2018, the Board authorized the Stock Option
Plan (which may be referred to as the 2018 Plan). 2,000,000
shares of our common stock were originally reserved to be issued under the Plan and in July 2024, the Board amended the 2018 Plan to decrease
the shares reserved to 1,508,934.
As of December 31, 2025, no options were available for grant under the 2018 Plan and 1,508,934
shares of our common stock were outstanding under the 2018 Plan subject to option exercise by the holders. 
*2024 Stock Option Plan*
In 2024, the Board authorized a new Stock Option
Plan (which may be referred to as the 2024 Plan). 891,066
shares of our common stock were reserved to be issued under the 2024 Plan, which provides for the grant of shares of stock options to
employees, non-employee directors, and non-employee consultants. As of December 31, 2025, 697,816
options to purchase shares of our common stock were available for grant and 193,250
shares of our common stock were outstanding under the 2024 Plan subject to option exercise by the holders and vesting restrictions. 
*2025 Omnibus Incentive Plan*
In September 2025, the Board authorized 2025
Omnibus Plan (which may be referred to as the 2025 Plan). 3,000,000
shares of our common stock were reserved to be issued under the 2025 Plan, which provides for the grant of shares of stock options, restricted
stock units and other equity-based instruments to employees, directors, non-employee directors and consultants among others. As of December
31, 2025, 2,720,000
shares of our common stock were available for grant and 240,000
shares of our common stock were outstanding under the 2025 Plan subject to option exercise by the holders and vesting restrictions. 
**
F-19
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
The following table summarizes option activity
for the years ended December 31, 2025 and 2024:
| 
| 
| 
Options | 
| 
| 
Weighted-Average Exercise Price per Share
(USD) | 
| 
| 
Weighted-Average Remaining Contractual Term
(Years) | 
| 
| 
Aggregate Intrinsic Value (USD) | 
| |
| 
Outstanding at January 1, 2024 | 
| 
| 
1,763,402 | 
| 
| 
$ | 
2.86 | 
| 
| 
| 
5.58 | 
| 
| 
$ | 
2,000,000 | 
| |
| 
Granted | 
| 
| 
220,150 | 
| 
| 
| 
4.59 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Exercised | 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Cancelled/expired | 
| 
| 
(304,498 | 
) | 
| 
| 
7.32 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Outstanding at December 31, 2024 | 
| 
| 
1,679,054 | 
| 
| 
$ | 
2.28 | 
| 
| 
| 
4.60 | 
| 
| 
$ | 
3,876,925 | 
| |
| 
Exercisable at December 31, 2024 | 
| 
| 
1,576,952 | 
| 
| 
$ | 
2.43 | 
| 
| 
| 
4.60 | 
| 
| 
$ | 
3,876,925 | 
| |
| 
Granted | 
| 
| 
303,160 | 
| 
| 
| 
8.87 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Exercised | 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Cancelled/expired | 
| 
| 
(40,030 | 
) | 
| 
| 
4.59 | 
| 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Outstanding at December 31, 2025 | 
| 
| 
1,942,184 | 
| 
| 
$ | 
3.26 | 
| 
| 
| 
4.42 | 
| 
| 
$ | 
8,075,661 | 
| |
| 
Exercisable at December 31, 2025 | 
| 
| 
1,619,969 | 
| 
| 
$ | 
3.91 | 
| 
| 
| 
4.42 | 
| 
| 
$ | 
8,075,661 | 
| |
**
*Stock-Based
Compensation Expense*
We use the Black-Scholes option pricing model
with the following assumptions to estimate the stock-based compensation expense:
| 
| 
| 
As at December 31 | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
Risk-free interest rate | 
| 
| 
3.82%
- 4.43% | 
| 
| 
| 
4.25 | 
% | |
| 
Dividend yield | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Expected holding period (years) | 
| 
| 
5.69 | 
| 
| 
| 
5.45 | 
| |
| 
Weighted-average volatility | 
| 
| 
90.52 | 
% | 
| 
| 
79.46 | 
% | |
| 
Estimated forfeiture rates for options granted | 
| 
| 
- | 
| 
| 
| 
- | 
| |
The risk-free interest rate assumption for options
granted is based upon observed interest rates on the United States government securities appropriate for the expected term of our employee
stock options.
The dividend yield assumption for options granted
is based on our history and expectation of dividend payouts. We have never declared or paid any cash dividends on our common stock, and
we do not anticipate paying any cash dividends in the foreseeable future.
Due to lack of historical exercise data, the expected
holding period for employee stock options is calculated using the simplified method which takes into consideration the contractual life
and vesting terms of the options.
We determined the expected volatility assumption for
options granted using the historical volatility of comparable public companies stock. We will continue to monitor peer companies
and other relevant factors used to measure expected volatility for future stock option grants, until such time that our common stock has
enough market history to use historical volatility. Forfeitures are recognized as incurred.
Stock option expense for the years ended December
31, 2025 and 2024, was approximately $0.32
million and $0.35
million, respectively. The stock-based compensation expense is recognized as period cost in general and administrative expenses. As of
December 31, 2025, the unrecognized stock-based compensation expense was $1.4
million, which is expected to be recognized over a period of approximately 3.42
years. 
F-20
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
*Restricted
Stock Units*
**
RSUs granted to directors under the plans generally
vest over one year. The number of shares issued on the date the RSUs vest is net of the minimum statutory tax withholdings, which are
paid in cash to the appropriate taxing authorities. We recognize the stock-based compensation expense over the requisite service period
of the individual grantees, which generally equals the vesting period.
The following table summarizes RSU activity during
the years ended December 31, 2025 and 2024:
| 
| 
| 
Number of Shares | 
| 
| 
Weighted-Average
Grant-Date Fair Value Per Share | 
| |
| 
Unvested restricted stock units as of January 1, 2024 | 
| 
| 
- | 
| 
| 
$ | 
- | 
| |
| 
Granted | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Vested | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Forfeited | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Unvested restricted stock units as of December 31, 2024 | 
| 
| 
- | 
| 
| 
$ | 
- | 
| |
| 
Granted | 
| 
| 
40,000 | 
| 
| 
| 
10.00 | 
| |
| 
Vested | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Forfeited | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Unvested restricted stock units as of December 31, 2025 | 
| 
| 
40,000 | 
| 
| 
$ | 
10.00 | 
| |
As of December 31, 2025 and 2024, unrecognized
stock-based compensation expense related to RSUs was $0.3
million and $0,
respectively. The unrecognized stock-based compensation expense is estimated to be recognized over a period of 0.75
years as of December 31, 2025. 
Stock-based compensation expense for the years
ended December 31, 2025 and 2024, was $0.1
million and $0,
respectively. The stock-based compensation expense is recognized as period costs in general and administrative expenses. 
No
RSUs vested during the years ended December 31, 2025 and 2024. 
| 
9. | 
INCOME TAXES | |
We had no current or deferred federal and state
income tax expense or benefit for the years ended December 31, 2025 and 2024, because we generated net operating losses, and currently
we do not believe it is more likely than not that the net operating losses will be realized.
The provision for income tax expense (benefit)
for the years ended December 31, 2025 and 2024 was comprised of the following:
| 
| 
| 
As at December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
Current provision for income
taxes: | 
| 
| 
| 
| 
| 
| |
| 
Federal | 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| |
| 
State | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
Total | 
| 
| 
- | 
| 
| 
| 
- | 
| |
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Deferred
provision for income taxes: | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Federal | 
| 
| 
(1,288,823 | 
) | 
| 
| 
(305,212 | 
) | |
| 
State | 
| 
| 
- | 
| 
| 
| 
709 | 
| |
| 
Total | 
| 
| 
(1,288,823 | 
) | 
| 
| 
(304,503 | 
) | |
| 
Increase in valuation allowance for income taxes (federal
only) | 
| 
| 
1,288,823 | 
| 
| 
| 
304,503 | 
| |
| 
Total provision for income taxes | 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| |
F-21
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
Deferred income taxes reflect the net tax effect
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant
components of our net deferred tax asset are as follows: 
| 
| 
| 
As at December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
Deferred tax assets: | 
| 
| 
| 
| 
| 
| |
| 
Net operating loss carryovers | 
| 
$ | 
3,544,688 | 
| 
| 
$ | 
2,311,077 | 
| |
| 
Research and development credit carryforwards | 
| 
| 
34,927 | 
| 
| 
| 
21,027 | 
| |
| 
Stock-based compensation | 
| 
| 
159,995 | 
| 
| 
| 
60,455 | 
| |
| 
Deferred revenue | 
| 
| 
301,983 | 
| 
| 
| 
301,983 | 
| |
| 
Operating lease liability | 
| 
| 
16,879 | 
| 
| 
| 
25,418 | 
| |
| 
Total deferred tax assets | 
| 
| 
4,058,472 | 
| 
| 
| 
2,719,960 | 
| |
| 
Valuation allowance | 
| 
| 
(3,938,483 | 
) | 
| 
| 
(2,651,663 | 
) | |
| 
Total deferred tax assets
net of valuation allowance | 
| 
| 
119,989 | 
| 
| 
| 
68,297 | 
| |
| 
Deferred tax liabilities: | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Basis differences in property and equipment
and intangibles | 
| 
| 
(103,478 | 
) | 
| 
| 
(43,002 | 
) | |
| 
Operating Right-of-use
asset | 
| 
| 
(16,511 | 
) | 
| 
| 
(25,295 | 
) | |
| 
Total deferred tax liabilities | 
| 
| 
(119,989 | 
) | 
| 
| 
(68,297 | 
) | |
| 
Net deferred tax asset | 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| |
Income tax expense differed from the amounts computed
by applying the statutory federal income tax rate of 21% to pretax income (loss) as a result of the following:
| 
| 
| 
Years Ended December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
Computed expected tax benefit | 
| 
| 
-21.00 | 
% | 
| 
| 
-21.00 | 
% | |
| 
Research and development credit | 
| 
| 
-0.23 | 
% | 
| 
| 
0.00 | 
% | |
| 
Domestic state and local income taxes, net of federal effect (A.) | 
| 
| 
-0.03 | 
% | 
| 
| 
0.00 | 
% | |
| 
Increase in state NOL carryovers (A.) | 
| 
| 
0.03 | 
% | 
| 
| 
0.00 | 
% | |
| 
Tax effect of other non-deductible items | 
| 
| 
0.00 | 
% | 
| 
| 
0.77 | 
% | |
| 
Change in valuation allowance (federal only) | 
| 
| 
21.34 | 
% | 
| 
| 
20.03 | 
% | |
| 
Provision to return adjustment | 
| 
| 
-0.23 | 
% | 
| 
| 
0.00 | 
% | |
| 
Other | 
| 
| 
0.12 | 
% | 
| 
| 
0.20 | 
% | |
| 
Income tax expense | 
| 
| 
0.00 | 
% | 
| 
| 
0.00 | 
% | |
*(A.)
State taxes in Georgia made up the majority (greater than 50 percent) of the tax effect in these categories.*
F-22
TURN THERAPEUTICS
INC.
Notes to Consolidated
Financial Statements
Years Ended December
31, 2025 And 2024
Realization of deferred tax assets is dependent upon future earnings,
if any, the timing and amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance.
The valuation allowance increased by approximately $1.3
million and $0.3
million during the fiscal years ended December 31, 2025 and 2024, respectively. 
As of December 31, 2025, we had U.S. federal net operating loss carryforwards
of approximately $14.5
million and state net operating loss carryforwards of approximately $7.3
million. Federal net operating loss carryforwards of approximately $14.5
million generated since fiscal years beginning after December 31, 2017 will carry forward indefinitely, but are subject to an 80%
taxable income limitation. We also have federal and state research and development tax credit carryforwards of approximately $0.03
million. The federal and state tax credits will expire at various dates beginning with our fiscal year ending December 31, 2042, unless
utilized. 
We recognize the financial statement effects of tax positions when
it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Tax positions that do
not meet the recognition threshold are recorded as unrecognized tax benefits. As of December 31, 2025 and 2024, we have not recorded any
unrecognized tax benefits.
We file income tax returns in the U.S. federal, and various U.S. state
jurisdictions. We are subject to U.S. federal and state income tax examinations by tax authorities for tax years 2018 through 2025 due
to net operating losses that are being carried forward for tax purposes, but we are not currently under examination by tax authorities
in any jurisdiction.
Our policy is to recognize interest and penalties related to income
taxes as components of interest expense and other expense, respectively. We incurred no material interest or penalties related to unrecognized
tax benefits in the years ended December 31, 2025 or 2024. We do not anticipate any significant changes in our uncertain tax positions
within 12 months of this reporting date.
As a result of the One Big Beautiful Bill Act, we are permitted to
immediately deduct domestic R&D expenditures incurred in 2025 and future years, rather than capitalizing and amortizing such costs.
This change reduces the amount of deductible temporary differences related to unamortized research and development expenditures and, accordingly,
reduces the related deferred tax assets. In accordance with ASC 740, we remeasured our deferred tax assets and liabilities as of December
31, 2025, to reflect the impact of the new law. The effect of the remeasurement was immaterial.
| 
10. | 
LICENSING AGREEMENTS | |
The following table presents changes in the balances
of contract liabilities related to strategic collaboration agreements during the year ended December 31, 2025:
| 
| 
| 
As at | 
| 
| 
| 
| 
| 
| 
| 
| 
As at | 
| |
| 
| 
| 
December 31, 2024 | 
| 
| 
Additions | 
| 
| 
Deductions | 
| 
| 
December 31, 2025 | 
| |
| 
Contract liabilities: | 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Deferred revenue | 
| 
$ | 
1,438,013 | 
| 
| 
$ | 
- | 
| 
| 
$ | 
- | 
| 
| 
$ | 
1,438,013 | 
| |
*MiMedx Agreement*
In 2022, we entered into a licensing and distribution
agreement with MiMedx Group Inc. (NASDAQ: MDXG, hereinafter referred to as MiMedx) wherein we granted MiMedx rights and
licenses to our IP, technologies and biomaterials related to FleX product and other additional products (additional products)
to be developed using the same IP, technologies and biomaterials in the field of wound care, burn care and surgical care.
Under the MiMedx Agreement, we granted MiMedx
an exclusive license to develop and commercialize FleX in United States, Australia, Canada, Japan, Kuwait, New Zealand, Saudi Arabia,
Singapore, South Korea, Taiwan and UAE (collectively called the Territory) and certain non-exclusive rights to trademarks
in the Territory. We retain exclusive development and commercialization rights for FleX outside the Territory with MiMedx having the right-of-first
refusal.
F-23
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
We have received $1.00
million milestone payment which was due upon signing of the license agreement and approximately $0.5
million as part of the Letter of Intent. The $0.5
million received is to be adjusted from the next milestone payment due upon latest of (i) marketing approval from the FDA, (ii) MiMedx
entering into a supply agreement, or (iii) our completion of the regulatory and quality activities. We have concluded that our primary
obligation under the contract has not been satisfied, and therefore, the amounts received have been recorded as deferred revenue in the
consolidated balance sheets presented. 
We are responsible for overseeing, monitoring
and coordinating all regulatory actions, communications and filings with, and submissions to the FDA with respect to initial marketing
approval. Additionally, upon successful development and commercialization of FleX in the Territory, we are eligible to receive milestone
payments of up to $69.6
million and $1.0
million for each additional product developed and commercialized. Furthermore, we are eligible to receive royalty payments on a country-by-country
basis based on net sales for the later of ten years or the expiration of patent or regulatory exclusivity in the jurisdiction. 
We have determined that we have one combined performance
obligation under the agreement which primarily includes knowledge and biomaterials transfer to MiMedx, assisting and coordinating the
regulatory approvals with the FDA and ongoing access and upkeep of intellectual property during the term of the agreement and related
development and regulatory services. Development and commercialization milestones were not considered probable at inception and, therefore,
were excluded from the initial transaction price. The royalties were excluded from the initial transaction price because they relate to
a license of intellectual property and are subject to the royalty constraint.
We recognize revenue as the combined performance
obligation is satisfied over time using an output method. Significant management judgment is required to determine the level of effort
attributable to the performance obligation included in the MiMedx Agreement and the period over which we expect to complete our performance
obligation under the arrangement. The performance period or measure of progress was estimated at the inception of the arrangement and
is re-evaluated in subsequent reporting periods. This re-evaluation may shorten or lengthen the period over which we recognize revenue.
Due to unpredictable outcomes and timelines of the FDA approval process which cannot be reasonably estimated, we have deferred all revenues
under the MiMedx Agreement and no revenue has been recognized during the periods presented and the aggregate amount of the transaction
price allocated to the remaining performance obligation (deferred revenue) is $1,438,013
which will be recognized as revenue as our performance obligation is satisfied. 
| 
11. | 
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS | |
Basic and diluted net loss per share was calculated
as follows:
| 
| 
| 
Years Ended December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
Numerator: | 
| 
| 
| 
| 
| 
| |
| 
Net loss attributable to common stockholders | 
| 
$ | 
(3,194,080 | 
) | 
| 
$ | 
(1,768,415 | 
) | |
| 
Denominator: | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Weighted-average common shares outstanding, basic and diluted | 
| 
| 
27,716,045 | 
| 
| 
| 
26,643,432 | 
| |
| 
Net loss per share attributable to common stockholders, basic and diluted | 
| 
$ | 
(0.12 | 
) | 
| 
$ | 
(0.07 | 
) | |
Our potentially dilutive securities, which include
or have included outstanding stock options and certain warrants, have been excluded from the computation of diluted net loss per share
as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate
both basic and diluted net loss per share attributable to common stockholders is the same.
F-24
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
We excluded the following from the computation
of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect:
| 
| 
| 
As at December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
Outstanding options under the Amended and Restated
2018 Stock Option Plan, 2024 Stock Option Plan and 2025 Omnibus Incentive Plan | 
| 
| 
1,942,184 | 
| 
| 
| 
1,679,054 | 
| |
| 
Outstanding RSUs under the 2025 Omnibus Incentive Plan | 
| 
| 
40,000 | 
| 
| 
| 
- | 
| |
| 
Outstanding warrants | 
| 
| 
1,232,331 | 
| 
| 
| 
40,124 | 
| |
| 
| 
| 
| 
3,214,515 | 
| 
| 
| 
1,719,178 | 
| |
| 
12. | 
COMMITMENTS, CONTINGENCIES, GUARANTEES AND INDEMNIFICATIONS | |
**
*Contractual
Commitments*
We enter into contracts in the normal course of
business with contract research organizations (CROs), contract manufacturing organizations (CMOs), academic
institutions and other third parties for preclinical and clinical research studies, testing and manufacturing services. These contracts
generally do not contain minimum purchase commitments and are cancellable by us upon prior written notice, although purchase orders for
preclinical materials are generally non-cancellable or have cancellation penalties. Payments due upon cancellation consist primarily of
payments for services provided or expenses incurred, including non-cancellable obligations from our service providers, up to the date
of cancellation or upon the completion of a manufacturing run.
**
*Litigation
and Claims*
From time to time, we may be party to litigation,
arbitration, claims or other legal proceedings in the course of our business. The outcome of any such legal proceedings, regardless of
the merits, is inherently uncertain. In addition, litigation and related matters are costly and may divert the attention of our management
and other resources that would otherwise be engaged in other activities. If we were unable to prevail in any such legal proceedings, our
business, results of operations, liquidity, and financial condition could be adversely affected.
**
*Indemnifications
Obligations*
We entered into indemnification agreements with our
officers and directors that require us to indemnify such individuals for certain events or occurrences while each such officer or director
is, or was, serving at our request in such capacity. The maximum potential future payments we could be required to make is, in many cases,
unlimited. We have directors and officers liability insurance coverage that limits its exposure and enables us to recover
a portion of any future amounts to be paid.
| 
13. | 
SEGMENT REPORTING | |
Our CODM is our Chief
Executive Officer. The
CODM uses net loss, as reported on our consolidated statements of operations, in evaluating performance and determining how to allocate
resources. The CODM does not review assets in evaluating the results and therefore, such information is not presented.
F-25
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
The following table provides the segment expenses
and income (loss):
| 
| 
| 
Years Ended December 31, | 
| |
| 
| 
| 
2025 | 
| 
| 
2024 | 
| |
| 
Operating Expenses | 
| 
| 
| 
| 
| 
| |
| 
Personnel-related expenses | 
| 
$ | 
(1,340,138 | 
) | 
| 
$ | 
(866,984 | 
) | |
| 
Research and development expenses | 
| 
| 
(265,570 | 
) | 
| 
| 
(245,956 | 
) | |
| 
Legal, professional and consulting expenses | 
| 
| 
(3,324,378 | 
) | 
| 
| 
(364,008 | 
) | |
| 
Corporate expenses | 
| 
| 
(928,562 | 
) | 
| 
| 
(320,176 | 
) | |
| 
Other Income | 
| 
| 
| 
| 
| 
| 
| 
| |
| 
Other segment income | 
| 
| 
2,664,568 | 
| 
| 
| 
28,709 | 
| |
| 
Segment net loss | 
| 
$ | 
(3,194,080 | 
) | 
| 
$ | 
(1,768,415 | 
) | |
Other segment income (expense) includes total
other income (expense), net on the consolidated statements of operations.
| 
14. | 
RELATED PARTY TRANSACTIONS | |
In March 2025, we engaged Davis Polk & Wardwell
LLP (Davis Polk) for legal advisory services for the public listing of our common stock on a registered stock exchange.
On September 30, 2025, Mr. Arthur Golden joined our Board. Mr. Golden is a senior counsel at Davis Polk. During the years ended December
31, 2025 and 2024, legal expenses charged by Davis Polk were $1.5
million and $0,
respectively. As of December 31, 2025 and 2024, we have outstanding legal costs of approximately $1.5
million and $0,
respectively, payable to Davis Polk. 
| 
15. | 
SUBSEQUENT EVENT | |
Loan Agreement
with Avenue Capital
On March 23, 2026 (the Closing Date),
we entered into a Loan and Security Agreement (the Loan and Security Agreement) and a Supplement to the Loan and Security
Agreement (together with the Loan and Security Agreement, the Loan Agreement), with Avenue Venture Opportunities Fund II,
L.P., as administrative agent and collateral agent (the Agent) and Avenue Venture Opportunities Fund II, L.P., as lender
(the Lender, together with Agent, Avenue Capital).
The Loan Agreement makes available to us term loans
in an aggregate principal amount of up to $25.0
million with (i) $7.0
million funded on March 24, 2026 (Tranche 1), (ii) up to $8.0
million to be made available to us between September 1, 2026 and March 31, 2027, subject to, (i) dosing of first patients in a phase 3
trial of Onychomycosis, (ii) raising $10.0
million via equity financing and (iii) positive data in our ongoing phase 2 clinical study of GX-03 for moderate-severe atopic dermatitis
(Tranche 2). The Lender may make additional term loans of up to an additional $10.0
million (the Discretionary Tranche 3 and collectively with Tranche 1, and Tranche 2, the Loans), to be funded
between January 1, 2027 and June 30, 2028, subject to, among other things, (i) our achievement of a certain clinical milestone and (ii)
the mutual written agreement between us and the Lender (upon the Lenders investment committee approval). 
The Loans bear interest at an annual rate equal
to the greater of (x) the sum of 5.50%
plus the prime rate as reported in The Wall Street Journal and (y) 12.25%.
The Loans are secured by a lien upon and security interest in all of our assets, including intellectual property, subject to agreed exceptions.
The loan matures on 42 month anniversary from the Closing Date (the Maturity Date). The Loan Agreement does not contain
any minimum cash requirement or other financial covenants. 
F-26
TURN
THERAPEUTICS INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2025 And 2024
We will make interest-only payments on the Loans
until the 15-month anniversary of the Closing Date, subject to (i) a 9-month extension, so long as Tranche 2 has been funded and (ii)
an additional 6-month extension if we achieve the Discretionary Tranche 3 milestone. The Loan principal is repayable in equal monthly
installments from the end of interest-only period to the Maturity Date.
We may, at our option at any time, prepay the Loans
in their entirety by paying the then-outstanding principal balance and all accrued and unpaid interest on the Loans, subject to a prepayment
fee equal to (i) 3.0%
of the principal amount outstanding if the prepayment occurs on or prior to the first anniversary following the Closing Date, (ii) 2.0%
of the principal amount outstanding if the prepayment occurs after the first anniversary following the Closing Date, but on or prior to
the second anniversary following the Closing Date, and (iii) 1.0%
of the principal amount outstanding if the prepayment occurs after the second anniversary following the Closing Date. We will pay a final
payment of 3.75%
of the amount funded and outstanding on the earlier of (x) the Maturity Date and (y) the date that we prepay all of the outstanding principal
amount of the Loans in full. 
On the Closing Date, we paid the Lender a commitment
fee of $0.15
million. On the Closing Date, we also issued 342,857
shares of our common stock at no cost to the lender which represent 8.00%
of the Tranche 1 and Tranche 2 amounts. The price per share was determined using the 5 days volume weighted-average price calculated on
the day prior to closing date. If we draw the Discretionary Tranche 3, we will issue further shares to the lender at no cost which shall
equal to 8.00%
of the $10.0
million (amount of the Discretionary Tranche 3) at 5 days volume weighted-average price calculated on the day prior to funding of Discretionary
Tranche 3. 
The Loan Agreement contains customary representations,
warranties and covenants, including covenants by us limiting, among other things, additional indebtedness, liens, guaranties, mergers
and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental
changes. The Loan Agreement provides for events of default customary for term loans of this type, including but not limited to non-payment,
breaches or defaults in the performance of covenants, insolvency, bankruptcy and the occurrence of a material adverse effect on the Company.
After the occurrence of an event of default, the Agent may (i) accelerate payment of all obligations, impose an increased rate of interest,
and terminate the Lenders commitments under the Loan Agreement and (ii) exercise any other right or remedy provided by contract
or applicable law including a foreclosure on our assets.
Pursuant to the Loan Agreement, the Lender will
have the right to convert initially up to $2.0
million of the outstanding principal of the Loans (the Conversion Option) at a price per share equal to 80%
of the trading price on the date of conversion, subject to certain terms and conditions, including beneficial ownership limitations. Upon
draw-down of Tranche 2, the Conversion Option will be increased by $1.0
million. 
In addition, subject to applicable law, the Lender
may participate in certain equity financing transactions in an aggregate amount of up to $1.0
million on the same terms, conditions and pricing offered by us to other investors participating in such financing transaction (such right,
the Participation Right). The Participation Right terminates upon the earlier of the Maturity Date and the repayment in
full of all of the obligations under the Loan Agreement. 
F-27
SIGNATURE
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
| 
| 
TURN THERAPEUTICS INC. | |
| 
| 
| 
| |
| 
Date: March 31, 2026 | 
By: | 
/s/ Bradley Burnam | |
| 
| 
Name: | 
Bradley Burnam | |
| 
| 
Title: | 
Chief Executive Officer and Chairman | |
| 
| 
| 
(Principal Executive Officer) | |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
| 
Signature | 
| 
Title | 
| 
Date | |
| 
| 
| 
| 
| 
| |
| 
/s/ Bradley Burnam | 
| 
Chief Executive Officer and Chairman | 
| 
March 31, 2026 | |
| 
Bradley Burnam | 
| 
(Principal Executive Officer) | 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/ Zuraiz Chaudhary | 
| 
Chief Financial Officer | 
| 
March 31, 2026 | |
| 
Zuraiz Chaudhary | 
| 
(Principal Financial and Accounting Officer) | 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/ Andrew Gengos | 
| 
Director | 
| 
March 31, 2026 | |
| 
Andrew Gengos | 
| 
| 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/ Dr. Neil Ghodadra | 
| 
Director | 
| 
March 31, 2026 | |
| 
Dr. Neil Ghodadra | 
| 
| 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/ Dr. Kent Kester | 
| 
Director | 
| 
March 31, 2026 | |
| 
Dr. Kent Kester | 
| 
| 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/ Arthur F. Golden | 
| 
Director | 
| 
March 31, 2026 | |
| 
Arthur F. Golden | 
| 
| 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/ Martin Dewhurst | 
| 
Director | 
| 
March 31, 2026 | |
| 
Martin Dewhurst | 
| 
| 
| 
| |
78