Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Apimeds Pharmaceuticals US, Inc. (“APUS,” the “Company,” “we,” “us,” or “our”) is a development-stage biopharmaceutical company incorporated in the State of Delaware. Our primary focus is the clinical development of Apitox, a purified honeybee venom-based drug candidate being evaluated for the treatment of acute pain and inflammation associated with knee osteoarthritis. We operate our biopharmaceutical business through our wholly owned subsidiary, Lokahi Therapeutics Inc. (“Lokahi”).
Fiscal year 2025 was a transformative year for the Company. In addition to advancing our biopharmaceutical pipeline and completing our initial public offering on the New York Stock Exchange on May 12, 2025, we completed a merger with MindWave Innovations Inc. (“MindWave”) on December 1, 2025. As a result of the Merger, the Company became a dual-segment operating company, adding a digital asset operations segment alongside our core biopharmaceutical business. MindWave, now a wholly owned subsidiary, operates the MindWaveDAO blockchain ecosystem and holds digital assets consisting of Bitcoin (“BTC”), Tether (“USDT”), and the MindWaveDAO native utility token (“NILA Tokens”). The Merger fundamentally changed the scale and composition of our balance sheet, adding approximately $145.3 million in identifiable net assets, primarily digital assets, and was effected through the issuance of 7,477,017 shares of Series A Convertible Preferred Stock.
We have not yet generated revenue from our biopharmaceutical operations and MindWave operations and do not expect to do so until we have successfully advanced Apitox through clinical development and commercialization. Our ability to continue as a going concern depends on our ability to raise additional capital and execute our operational plans, as discussed further under “Liquidity and Capital Resources” below.
Key Developments in Fiscal Year 2025
Initial Public Offering
On May 12, 2025, we completed our IPO on the New York Stock Exchange, issuing 3,375,000 shares of common stock and generating net proceeds of approximately $11.6 million after deducting underwriting discounts, commissions, and offering costs.
Business Combination with MindWave Innovations Inc.
On December 1, 2025, we completed the Merger with MindWave, which became a wholly owned subsidiary of the Company. The transaction was effected as a non-cash business combination, with consideration consisting solely of 7,477,017 shares of Series A Convertible Preferred Stock with an aggregate fair value of approximately $145.4 million, equivalent to the fair value of the net identifiable assets acquired. No goodwill was recorded. Through the Merger, we acquired digital assets with an aggregate fair value of approximately $146.3 million at the acquisition date, consisting of BTC ($90.8 million), USDT ($4.7 million), and NILA Tokens ($50.8 million), as well as the operations of the MindWaveDAO blockchain.
PIPE Convertible Note Financing
In connection with the Merger, on December 1, 2025, we entered into a Securities Purchase Agreement providing for the issuance of senior secured convertible notes in an aggregate maximum principal amount of $129 million, to be drawn in tranches at our election. On December 8, 2025, we executed the first tranche, issuing a senior secured convertible note with a principal amount of $10.9 million and gross proceeds of $10 million. Of the proceeds, $8 million is currently held in a Deposit Account Control Agreement (“DACA”) account, and $1.1 million was disbursed to MindWave to fund its operations.
Biopharmaceutical Development Activity
During 2025, we significantly increased development activity related to Apitox, incurring research and development expenses of $1.6 million. We also entered into an agreement with Prevail InfoWorks Inc., our Clinical Research Organization (“CRO”), establishing a prepaid balance of approximately $2 million to be applied against future clinical trial execution.
Results of Operations
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
(a) Revenue
We generated no revenue from biopharmaceutical operations during the years ended December 31, 2025 or 2024. Proceeds from the sale of NILA Tokens are recognized as realized gains on digital assets and are not classified as revenue under ASC 606.
(b) Research and Development Expenses
Research and development expenses were $1.6 million for the year ended December 31, 2025, compared to zero for the year ended December 31, 2024. The increase reflects the commencement of meaningful development activity related to Apitox during 2025, including consulting fees, manufacturing costs, and CRO expenses incurred in connection with our clinical development program.
(c) General and Administrative Expenses
General and administrative expenses increased to $10.2 million for the year ended December 31, 2025, from $1.3 million for the year ended December 31, 2024, an increase of approximately $8.9 million. The increase was driven by a significant expansion of corporate activity and headcount in connection with becoming a public company and completing the Merger. Key drivers included increased consulting and professional fees, payroll and benefits, stock-based compensation of approximately $2.0 million (consisting of option grants, common stock grants, and advisory warrants), merger and acquisition related fees, office rent and supplies, and travel expenses.
(d) Total Operating Expenses
Total operating expenses were $11.9 million for the year ended December 31, 2025, compared to $1.3 million for the year ended December 31, 2024, reflecting the significant increase in both R&D and G&A activity described above.
(e) Other Income (Expense)
Total other income was $5.9 million for the year ended December 31, 2025, compared to other expense of approximately $0.1 million for the year ended December 31, 2024. The improvement was driven mostly by the digital asset activities acquired through the MindWave Merger, which closed on December 1, 2025, and was reflected in our consolidated results for the period December 1 through December 31, 2025 only. Key components of other income (expense) are as follows:
Unrealized gain on digital assets of $1.8 million, reflecting fair value increases in BTC and NILA Token holdings between the acquisition date and December 31, 2025, partially offset by a decline in BTC value during the period.
Realized gain on sale of digital assets of $4.2 million, reflecting gains recognized on the sale of approximately 4.3 million NILA Tokens for aggregate proceeds of approximately $1.8 million in USDT during the period December 1 through December 31, 2025. These proceeds are noncash, delivered in the form of USDT, described above. These proceeds are used to maintain liquidity as well as satisfy operational expenses directly pertaining to blockchain and token management.
Trading gains, net of approximately $97, representing the net of market-making income and expenses associated with the maintenance and trading activity of the MindWaveDAO NILA token. These gains are non-cash in nature.
Change in fair value of derivative liability of $55,146, reflecting the remeasurement of the derivative liability bifurcated from the PIPE convertible note at issuance on December 8, 2025 through December 31, 2025. The derivative arises from the variable conversion terms of the note, which allow conversion at a 20% discount to the minimum volume-weighted average price over a five-day lookback period.
Change in fair value of warrant liability of $22,377, reflecting the remeasurement of the advisory warrant liability between issuance and reclassification to equity on August 5, 2025.
Interest income of $0.1 million, earned primarily on IPO proceeds held in a money market account at PNC Bank.
Interest expense of $0.3 million, consisting primarily of accretion of the discount attributable to the PIPE convertible note issued December 8, 2025, as well as accrued interest on the related party notes payable aggregating $500,100 in principal as of December 31, 2025.
(f) Net Loss
Net loss was $6.0 million for the year ended December 31, 2025, compared to a net loss of $1.4 million for the year ended December 31, 2024. The increase reflects the scale-up of operations in connection with the IPO, Merger, and advancement of the Apitox development program, partially offset by digital asset gains recognized following the MindWave acquisition.
Net loss per common share, basic and diluted, was $(0.55) for the year ended December 31, 2025, based on weighted-average shares outstanding of 10,881,907. All potentially dilutive securities, including 149.5 million common share equivalents underlying the Series A Convertible Preferred Stock, 8.3 million shares underlying the PIPE convertible note, 1.1 million warrant shares, and 0.5 million stock option shares, were excluded from the diluted calculation as their inclusion would have been anti-dilutive.
Liquidity and Capital Resources
Overview
As of December 31, 2025, we had cash and cash equivalents of $1.6 million and restricted cash of $8.0 million, for total cash, cash equivalents, and restricted cash of $9.6 million. We also held short-term investments of $2.0 million, representing a certificate of deposit established by Lokahi to earn interest on funds not deployed in operations. Working capital, excluding the fair value of digital assets (which are subject to price volatility and liquidity risk and therefore excluded from management’s assessment of near-term operational liquidity), was approximately $3.2 million as of December 31, 2025.
The $8.0 million of restricted cash represents PIPE convertible note proceeds currently held in a DACA account, pending release upon conversion of the Series A Convertible Preferred Stock in accordance with the terms of the note agreement. These funds are not available for general operating purposes until released from the DACA.
Cash Flows
(a) Operating Activities
Net cash used in operating activities was $8.9 million for the year ended December 31, 2025, compared to $0.7 million for the year ended December 31, 2024. The increase reflects the significant expansion of operating activity in connection with the IPO, Merger, and clinical development programs. Non-cash charges included in operating activities consisted primarily of stock-based compensation of $3.2 million (inclusive of option grants, common stock grants, and advisory warrants), accretion of debt discount of $0.3 million, and non-cash digital asset operating expenses of $2.4 million, partially offset by unrealized and realized gains on digital assets.
(b) Investing Activities
Net cash used in investing activities was $10.0 million for the year ended December 31, 2025, consisting primarily of the $8.0 million deposit into the DACA restricted cash account, $2.0 million invested in short-term instruments, and $57,333 in purchases of property and equipment (consisting of computer equipment and furniture), partially offset by $15,345 of cash acquired in the Merger.
(c) Financing Activities
Net cash provided by financing activities was $20.6 million for the year ended December 31, 2025, consisting primarily of $11.6 million in net proceeds from the IPO, $10.0 million in gross proceeds from the PIPE convertible note, and $250,100 in proceeds from related party promissory notes, partially offset by $946,000 in cash issuance costs and $1.1 million disbursed to MindWave from PIPE proceeds.
Future Capital Requirements and Going Concern
Since inception, we have incurred recurring operating losses and negative cash flows from operations, and we have not generated revenue from our biopharmaceutical operations. For the year ended December 31, 2025, we reported a net loss of $6.0 million and used $8.9 million in cash in operating activities. As of December 31, 2025, our accumulated deficit was $10.3 million. We expect to continue to incur significant operating losses as we advance the clinical development of Apitox and build our operational infrastructure. Significant manufacturing costs related to Apitox development are expected to be incurred beginning in the first quarter of 2026 and throughout the year. These conditions raise substantial doubt about our ability to continue as a going concern.
Management’s primary plan to address near-term liquidity needs is the continued execution of additional tranches under the Securities Purchase Agreement, which provides for the issuance of up to $129.0 million in aggregate principal of senior secured convertible notes. As of December 31, 2025, only the first tranche of $10.9 million in principal ($10.0 million gross proceeds) has been drawn, leaving substantial capacity available under the facility. Management believes that the remaining available tranches under the Securities Purchase Agreement, combined with continued NILA Token sales for USDT proceeds and potential additional equity or debt financing, represent the primary sources of capital to fund operations over the next twelve months. However, there can be no assurance that future tranches will be drawn, that NILA Token sales will generate sufficient proceeds, or that additional financing will be available on acceptable terms or at all. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Contractual Obligations and Commitments
Our material contractual obligations as of December 31, 2025 include: (i) future minimum lease payments under our San Diego, California office lease of $184,167 in aggregate through December 31, 2028, with $47,527 due in 2026; (ii) principal and accrued interest on related party notes payable aggregating $500,100 in principal, maturing May 19, 2026; and (iii) the PIPE convertible note with a principal amount of $10.9 million maturing December 8, 2026. We have also entered into a prepaid services agreement with our CRO, Prevail InfoWorks Inc., with a prepaid balance of approximately $2.0 million as of December 31, 2025, to be applied against future clinical trial costs.
Segment Information
Following the completion of the MindWave Merger on December 1, 2025, the Company operates in two segments: (i) the biopharmaceutical segment, which is focused on the clinical development of Apitox through Lokahi, and (ii) the digital asset operations segment, which encompasses the holding, sale, and advancement of the MindWaveDAO blockchain and related digital assets through MindWave.
Critical Accounting Estimates
The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect reported amounts. We consider the following estimates to be the most critical to understanding our financial results and condition:
Fair Value of Digital Assets. We account for digital assets, including BTC, USDT, and NILA Tokens, at fair value in accordance with ASU 2023-08. BTC and USDT are classified within Level 1 of the fair value hierarchy based on quoted prices in active markets. NILA Tokens are classified within Level 2, as they trade on a limited number of centralized exchanges with modest daily trading volume. Changes in the fair value of digital assets are recognized in earnings each reporting period. Given the significant concentration of digital assets on our balance sheet of approximately $149.9 million as of December 31, 2025, changes in the fair value of these assets, particularly BTC and NILA Tokens, could have a material impact on our reported results.
Fair Value of Stock-Based Compensation. We measure the fair value of stock options using the Black-Scholes option-pricing model, which requires significant estimates including expected volatility, expected term, and risk-free interest rate. Changes in these assumptions could materially affect the amount of stock-based compensation expense recognized.
Fair Value of Derivative Liability. The derivative liability bifurcated from the PIPE convertible note is measured at fair value each reporting period. The variable conversion feature, which allows the noteholder to convert at a 20% discount to the minimum VWAP over a five-day lookback period, is sensitive to changes in our stock price and volatility. Changes in the fair value of the derivative are recognized in earnings and could be material in future periods.
Going Concern Assessment. Management’s assessment of the Company’s ability to continue as a going concern requires significant judgment regarding future capital raises, the availability of remaining PIPE tranches, and the expected pace of operating expenditures. Changes in these assumptions could affect the going concern conclusion and related disclosures.
Purchase Price Allocation. The allocation of consideration in the MindWave Merger required management to estimate the fair values of acquired digital assets and assumed liabilities at the acquisition date. The fair values of NILA Tokens, in particular, involved the use of Level 2 observable inputs and management judgment regarding market activity and trading volumes.
Recently Issued Accounting Pronouncements
We adopted ASU 2023-08, Accounting for and Disclosure of Crypto Assets , effective upon the acquisition of digital assets in connection with the MindWave Merger on December 1, 2025. Under ASU 2023-08, in-scope crypto assets that meet the definition of an intangible asset and are fungible are measured at fair value with changes recognized in earnings each period. The adoption of ASU 2023-08 did not have a cumulative effect on periods prior to adoption, as the Company had no digital asset holdings prior to the Merger.
Recent Developments
On April 24, 2026, the Company, MindWave, and Lokahi Therapeutics, Inc., a Nevada corporation (“ Lokahi ” and, together with the Company and MindWave, the “ Company Parties ”), together with Erik Emerson, individually and in his capacity as Bio Business Representative under the Merger Agreement, entered into a Confidential Settlement and Mutual Release Agreement (the “ Settlement Agreement ”) with Inscobee Inc., a South Korean corporation (“ Inscobee ”), and Apimeds Inc., a South Korean corporation and wholly owned subsidiary of Inscobee (“ Apimeds Korea ” and, together with Inscobee, the “ Inscobee Parties ”). Concurrently with the Settlement Agreement, the Company Parties and the Inscobee Parties also entered into a Side Letter Agreement (Merger Unwind Conditions) (the “ Side Letter ”), which is incorporated into and forms part of the Settlement Agreement.
The Settlement Agreement resolves all outstanding disputes among the parties arising from the Merger Agreement and related transactions.
Also on April 30, 2026, the Company entered into a Forbearance Agreement (the “ Forbearance Agreement ”) with Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (the “ Investor ”), which holds a senior convertible note in the aggregate original principal amount of $11,000,000 (the “ Existing Note ”), issued pursuant to a Securities Purchase Agreement, dated December 1, 2025 (the “ Securities Purchase Agreement ”).
Pursuant to the Forbearance Agreement, the Investor has agreed to forbear from exercising any of its rights or remedies under the Existing Note with respect to certain existing events of default (collectively, the “ Existing Defaults ”) during the period commencing on the date of the Forbearance Agreement through and including June 30, 2026 (or such later date as the Investor may elect in its sole discretion) (the “ Forbearance Period ”).
The Settlement Agreement, the Side Letter, and the Forbearance Agreement are described in the Company’s Current Report on Form 8-K filed with the SEC on May 3, 2026, and are incorporated herein by reference.
