Financial Analysis

Note 11. Defined Contribution Plan The Company has a defined contribution 401(k) plan covering substantially all employees. Under the terms of the 401(k) plan, the Company makes matching contributions on up to the first 6 % of compensation contributed by its employees. Amounts expensed under the Companys 401(k) plan for the years ended March 31, 2026 and 2025 were approximately $ 71,000 and $ 66,000 , respectively. …

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"Note 9. Income Taxes The following table summarizes the (loss) income before income tax expense by jurisdiction for the period indicated (in thousands): March 31, 2026 March 31, 2025 Pre-tax book income (loss) Domestic $ ( 13,841 ) $ ( 2,486 ) Foreign Total $ ( 13,841 ) $ ( 2,486 ) A reconciliation of the statutory federal rate and the effective rate, for operations, is as follows for the years ended March 31, 2026 and 2025 (in thousands, except percentages): March 31, 2026 March 31, 2025 Income taxes (benefit) at statutory federal rate $ ( 2,907 ) 21.0 % $ ( 522 ) 21.0 % State and local taxes, net of federal benefit (1) ( 21 ) 0.2 % ( 31 ) 1.2 % Tax credits ( 179 ) 1.3 % ( 321 ) 12.9 % Changes in valuation allowance 152 ( 1.1 )% ( 141 ) 5.7 % Nontaxable or nondeductible items Change in fair value of derivative liability 568 ( 4.1 )% 0.0 % Stock-based compensation 55 ( 0.4 )% 75 ( 3.0 )% Financing fees 156 ( 1.1 )% 0.0 % Other Removal of federal net operating losses and research development credits 2,126 ( 15.4 )% 867 ( 34.9 )% Other true-ups ( 7 ) 0.0 % ( 21 ) 1.0 % Changes in unrecognized tax benefits 59 ( 0.4 )% 96 ( 3.9 )% Provision for income taxes $ 2 ( 0.0 )% $ 2 0.0 % (1) State taxes in California comprise the majority (greater than 50%) of the tax effect in this category. For the years ended March 31, 2026 and 2025, federal and state income tax payments were insignificant and therefore are not presented in disaggregated detail. Deferred income taxes reflect the net …

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Note 7. Leases After the initial adoption of ASC Topic 842, on an on-going basis, the Company evaluates all contracts upon inception and determines whether the contract 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 a lease is identified, the Company will apply the guidance from ASC Topic 842 to properly account for the lease. Operating Leases On November 23, 2020, the Company entered into a lease agreement, pursuant to which the Company permanently leased approximately 8,051 square feet of office space (the Permanent Lease) in San Diego once certain tenant improvements were completed by the landlord and the premises were ready for occupancy. Additionally, on November 17, 2021, the Permanent Lease was amended to add an additional 2,892 square feet of office space in the same building. The Permanent Lease commenced on December 17, 2021 and is intended to serve as the Companys permanent premises for approximately sixty-two months . Monthly rental payments are approximately $ 40,800 with 3 % annual escalators. The Company determined that the Permanent Lease is considered an operating lease under ASC Topic 842, and therefore upon the lease commencement date of December 17, 2021, recognized lease liabilities and corresponding right-of-use assets of $ 2.3 million. The Company records operating lease expense on a straight-l …

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Recently Adopted Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5 % of total income tax payments, net of refunds received. Adoption of the ASU allows for either the prospective or retrospective application of the amendment and is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The new disclosure requirements are included in the Company's Form 10-K for fiscal year ending March 31, 2026, and were applied on a retrospective basis. Recently Issued Accounting Pronouncements On July 4, 2025, the U.S. government enacted comprehensive legislation commonly referred to as the One Big Beautiful Bill Act, or the 2025 Act. The 2025 Act makes changes to U.S. corporate income taxes including reinstating the option to claim 100 % accelerated depreciation deductions on qualified property, with prospective application beginning January 20, 2025 and imme …

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Note 10. Related Parties From time to time, the Company enters into agreements with one or more related parties in the ordinary course of its business. These agreements are ratified by the Board or a committee thereof pursuant to its related party transaction policy. Viscient Biosciences (Viscient) is an entity for which Keith Murphy, the Companys Executive Chairman, serves as the Chief Executive Officer and President. Viscient Biosciences On December 28, 2020, the Company entered into an intercompany agreement (the Intercompany Agreement) with Viscient and Organovo, Inc., the Companys wholly-owned subsidiary, which included an asset purchase agreement for certain lab equipment. Pursuant to the Intercompany Agreement, the Company agreed to provide Viscient certain services related to 3D bioprinting technology, which includes, but is not limited to, histology services, cell isolation, and proliferation of cells and Viscient agreed to provide the Company certain services related to 3D bioprinting technology, including bioprinter training, bioprinting services, and qPCR assays, in each case on payment terms specified in the Intercompany Agreement and as may be further determined by the parties. In addition, the Company and Viscient each agreed to share certain facilities and equipment and, subject to further agreement, to each make certain employees available for specified projects for the other party at prices to be determined in good faith by the parties. During fiscal 2025 an …

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Note 13. Business Segment Information Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the CODM in deciding how to allocate resources to an individual segment and in assessing performance. The Company identified one operating segment in fiscal 2026, named the R&D segment, which did not impact prior periods. During fiscal 2026, the Company's operating segment was as follows: Research & Development The R&D segment focuses on providing testing of drugs and drug candidates in 3D human tissue models of liver and intestine, offering partners liver and intestinal toxicology insights using its NAM models. The Company plans to work with pharmaceutical and biotech companies at all stages of drug development to reduce the significant risk and cost of bringing therapeutics to market through the regulatory process and offer bespoke services in the areas of investigational toxicology, mechanism of drug action elucidation, and other applications of these complex human tissue models. For purposes of evaluating performance and allocating resources, the Companys CODM, its Executive Chairman , regularly reviews Consolidated Net Loss as reported in the Companys Consolidated Statements of Operations and Comprehensive Loss as compared to budget. The measure of segment assets is reported in the Consolidated Balance Sheets as Total Consolidated Assets. In addition to the significa …

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Note 14. Subsequent Events In July 2026, the Company received a milestone payment of $ 5.0 million in connection with the FXR Asset Sale upon the achievement of a certain development milestone.

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