7. Stockholders’ Equity (Deficit)

October 2023 underwritten public offering

On October 26, 2023, the Company closed a public offering of common stock and certain warrants through Chardan and Ladenburg Thalmann & Co. Inc. as underwriters, for net proceeds of $3.9 million through the issuance and sale of 163,281 shares of its common stock and, to certain investors, pre-funded warrants to purchase 192,187 shares of common stock, and accompanying common warrants to purchase up to an aggregate of 710,931 shares of its common stock. Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase two shares of common stock. The public offering price of each share of common stock and accompanying common warrant was $12.80 and the public offering price of each pre-funded warrant and accompanying common warrant was $12.7992. The common warrants were immediately exercisable at a price of $12.80 per share of common stock, expire five years from the date of issuance and contain an alternative cashless exercise provision. In connection with the June 2024 inducement offer, the exercise price was decreased to $9.60 per share of common stock for common warrants that remained unexercised at the time of the offer. The pre-funded warrants were immediately exercisable at any time, until exercised in full, at a price of $0.0008 per share of common stock. All of the pre-funded warrants have been exercised as of September 30, 2025. In addition, warrants to purchase 10,664 shares of common stock were issued to the underwriters as compensation for their services related to the offering. These common stock warrants have an exercise price of $16.00 per share and expire five years from the date of issuance.

Committed equity facility

On May 2, 2024, the Company entered into the Purchase Agreement and a Registration Rights Agreement (the “Registration Rights Agreement”), each with Chardan, related to a “ChEF,” Chardan’s committed equity facility, or the Facility (see Note 1). Pursuant to the Purchase Agreement, the Company has the right from time to time at its option to sell to Chardan up to $25.0 million in aggregate gross purchase price of newly issued shares of the Company’s common stock, of which $24.7 million is available to be sold as of September 30, 2025. The Facility will allow the Company to raise primary equity on a periodic basis at its sole discretion depending on a variety of factors including, among other things, market conditions, the trading price of the common stock, and determinations by the Company regarding the use of proceeds of such common stock. The purchase price of the shares of common stock will be determined by reference to the Volume Weighted Average Price (“VWAP”) of the common stock during the applicable purchase period, less a fixed 4% discount to such VWAP, and the total shares to be purchased on any day may not exceed 20% of the trading volume of the Company’s common stock during the applicable purchase period. The Purchase Agreement will be effective for a 36-month period ending May 16, 2027. Due to certain pricing and settlement provisions, the Purchase Agreement qualifies as a standby equity purchase agreement and includes an embedded put option and an embedded forward contract. The Company accounts for the embedded features in the Purchase Agreement as derivatives measured at fair value, with changes in fair value recognized in the consolidated statement of operations. The derivatives associated with the Purchase Agreement have been deemed de minimis. The Company sold 153,020 and 4,706 shares of common stock, respectively, pursuant to the Purchase Agreement for net proceeds of approximately $0.2 million and $0.1 million, respectively, during the years ended September 30, 2025 and 2024. The Company incurred $0.5 million and $0.4 million, respectively, of costs in connection with the Purchase Agreement during the years ended September 30, 2025 and 2024, which are included in general and administrative expenses in the consolidated statement of operations.

November 2024 underwritten public offering

On November 7, 2024, the Company closed a public offering of common stock and certain warrants through Chardan, as underwriter, for net proceeds of $4.2 million through the issuance and sale of 155,000 shares of its common stock, pre-funded warrants to purchase up to 956,111 shares of common stock, and accompanying common warrants to purchase up to an aggregate of 2,222,222 shares of its common stock. Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase two shares of common stock. The public offering price of each share of common stock and accompanying common warrant was $4.50 and the public offering price of each pre-funded warrant and accompanying common warrant was $4.4999. The common warrants were immediately exercisable at a price of $4.50 per share of common stock, expire five years from the date of issuance and contain an alternative cashless exercise provision. The pre-funded warrants were immediately exercisable at any time, until exercised in full, at a price of $0.0001 per share of common stock. All of the pre-funded warrants and 1,611,112 of the common warrants have been exercised as of September 30, 2025.

Sonnet BioTherapeutics Holdings, Inc.

Notes to Consolidated Financial Statements

December 2024 registered direct and PIPE offering

On December 10, 2024, the Company closed a registered direct offering with institutional investors for the issuance and sale of 768,000 shares of its common stock, pre-funded warrants to purchase up to 317,325 shares of common stock, and accompanying warrants to purchase up to an aggregate of 1,085,325 shares of its common stock. Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock. The offering price of each share of common stock and accompanying common warrant was $2.23 and the offering price of each pre-funded warrant and accompanying common warrant was $2.2299, priced at-the-market under the rules of the Nasdaq Stock Market. The registered direct warrants were immediately exercisable at a price of $2.10 per share, expire five years from the date of issuance and contain an alternative cashless exercise provision. The pre-funded warrants were immediately exercisable at any time, until exercised in full, at a price of $0.0001 per share of common stock. All of the pre-funded and common warrants have been exercised as of September 30, 2025.

The Company closed a concurrent private placement with an existing investor for the issuance and sale of 127,500 shares of its common stock, pre-funded warrants to purchase up to 545,500 shares of common stock, and accompanying warrants to purchase up to an aggregate 673,000 shares of its common stock. Each share of common stock and pre-funded warrant to purchase one share of common stock was sold in the private placement (“PIPE”) together with a common warrant to purchase one share of common stock. The PIPE offering price of each share of common stock and accompanying common warrant was $2.23 and the PIPE offering price of each pre-funded warrant and accompanying common warrant was $2.2299, priced at-the-market under the rules of the Nasdaq Stock Market. The PIPE warrants were immediately exercisable at a price of $2.10 per share, expire five years from the date of issuance and contain an alternative cashless exercise provision. The pre-funded warrants were immediately exercisable at any time, until exercised in full, at a price of $0.0001 per share of common stock. All of the pre-funded warrants and 323,000 of the common warrants have been exercised as of September 30, 2025.

The Company raised net proceeds of $3.4 million from the registered direct and PIPE offerings.

Convertible note and warrant private placements

In July 2025, the Company completed a private placement of zero-interest convertible notes, raising an aggregate of $2.0 million in principal. The notes were scheduled to mature on June 30, 2026, and were convertible at any time into an aggregate of up to 1,730,104 shares of common stock at a fixed price of $1.156 per share. If, at any time while the convertible notes remained outstanding, the Company issued shares of common stock or common stock equivalents in an offering for gross proceeds of at least $5.0 million (a “Subsequent Issuance”), the entire unpaid principal amount of the convertible notes would convert automatically into the same securities issued pursuant to the Subsequent Issuance. In connection with the notes, investors also received five-year warrants to purchase an aggregate of 865,052 shares of common stock at the same $1.156 exercise price, providing $0.1 million in additional cash proceeds.

The Company raised $2.0 million in net cash proceeds from the convertible note and warrant private placements. The Company analyzed the convertible notes and identified certain features that require bifurcation from the host and accounting as derivatives measured at fair value, with changes in fair value recognized in the consolidated statement of operations. The derivatives associated with the convertible notes have been deemed de minimis. However, as the convertible notes were issued with warrants, the net proceeds from the issuance were allocated to the convertible notes and the warrants based on their relative fair values, resulting in an allocation of $1.4 million to the convertible notes and $0.6 million to the warrants. The Company recorded a debt discount of approximately $0.6 million for the difference between the face value of the convertible notes and the amount allocated to the debt at the issuance date. These notes were subsequently converted into shares of non-voting convertible preferred stock and warrants in connection with the preferred stock private placement described below, and the remaining unamortized debt discount was expensed in full.

Sonnet BioTherapeutics Holdings, Inc.

Notes to Consolidated Financial Statements

The fair value of the warrants at the issuance date was determined using a Black-Scholes option pricing model, which includes the use of Level 3 inputs. The Company estimates its stock price volatility using the historical volatility of publicly traded peer companies. The term is equal to the contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for the time period equal to the term of the warrants. The expected dividend yield is zero based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future. Assumptions used in calculating the fair value of the warrants at the issuance date include the following:

 Schedule of Fair Value of Assumptions

The Company’s Chief Medical Officer, Dr. Richard Kenney, participated in the private placement and purchased notes for a principal amount of $0.2 million and warrants to purchase up to an aggregate of 86,505 shares of common stock. As described below, Dr. Kenney’s notes converted into shares of non-voting convertible preferred stock, which are convertible into an aggregate of 160,000 shares of common stock and warrants to purchase up to an aggregate of 320,000 shares of common stock.

Preferred stock and warrant private placements

Concurrently with the signing of the BCA, the Company raised an aggregate of $5.5 million in a private placement to accredited investors through the issuance and sale of an aggregate of 5,500 shares of non-voting Series 5 convertible preferred stock, convertible into up to an aggregate of 4,400,000 shares of common stock, and five-year warrants to purchase up to an aggregate of 8,800,000 shares of common stock at an exercise price of $1.25 per share. At the closing of the PIPE, the $2.0 million principal amount of convertible notes issued in July 2025 automatically converted into 2,000 shares of convertible preferred stock and the investors received additional warrants to purchase up to an aggregate of 3,200,000 shares of common stock on the same terms as the PIPE investors.

The significant rights and preferences of the Company’s Series 5 convertible preferred stock are as follows:

Liquidation

In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, holders of Series 5 convertible preferred stock are entitled to receive, prior and in preference to any distribution to holders of junior securities (including common stock) and pari passu with any designated parity preferred, an amount per share equal to the stated value of $1,000 plus all unpaid, accrued and accumulated preferential dividends (whether or not declared). If the assets available for distribution are insufficient to pay the full amounts due, distributions to Series 5 holders will be made ratably based on the aggregate amounts otherwise payable.

Sonnet BioTherapeutics Holdings, Inc.

Notes to Consolidated Financial Statements

Conversion

Each share of Series 5 preferred stock is convertible, at the option of the holder at any time, into a number of shares of common stock equal to (i) the stated value plus all unpaid, accrued and accumulated preferential dividends, divided by (ii) the conversion price. The initial conversion price is $1.25 per share, subject to adjustment for standard structural events (e.g., stock splits, stock dividends, combinations, and reclassifications), but there is no price-based anti-dilution adjustment. Conversions are subject to a beneficial ownership limitation (generally 4.99%, or 9.99% if elected, subject to notice-based increases up to but not exceeding applicable exchange limits) and to an exchange cap until required stockholder approval is obtained. Immediately prior to the closing of the transactions contemplated by the BCA, each outstanding share of Series 5 convertible preferred stock will automatically convert at the then-applicable conversion rate. No fractional shares will be issued upon conversion; the Company will round or make a customary cash adjustment consistent with the Certificate of Designation.

Voting

Holders of Series 5 convertible preferred stock have no general voting rights. A separate class vote of the holders of a majority of the outstanding Series 5 convertible preferred stock is required to approve specified actions, including (among others) altering or changing the powers, preferences, or rights of the Series 5 convertible preferred stock; authorizing or issuing any class or series ranking senior to or pari passu with the Series 5 convertible preferred stock as to dividends, redemption, or liquidation; increasing authorized shares of preferred stock; or certain distributions and redemptions.

Redemption rights

The Series 5 convertible preferred stock is not mandatorily redeemable at a fixed date, is not redeemable at the option of the holders, and is not redeemable upon events outside the Company’s control. The instrument provides only a liquidation preference payable upon an actual liquidation, dissolution, or winding up, and addresses mergers and similar transactions through conversion and Fundamental Transaction provisions rather than redemption.

Dividends

Dividends on the Series 5 convertible preferred stock are cumulative at 6.0% per annum of the stated value, payable quarterly in arrears. At the Company’s election and subject to applicable limitations, dividends may be paid in cash, in shares of common stock, or by accruing and compounding into the stated value. Unpaid, accrued and accumulated dividends are included in the conversion and liquidation preference calculations as described above.

Sonnet BioTherapeutics Holdings, Inc.

Notes to Consolidated Financial Statements

Common stock warrants

As of September 30, 2025, the following equity-classified warrants and related terms were outstanding:

 Schedule of Warrants Outstanding

During the year ended September 30, 2025, 2,419 warrants were net share settled, resulting in the issuance of 1,209 shares of common stock, and 5,018,060 warrants were exercised on a cash basis, resulting in proceeds of $11.2 million. In accordance with the BCA, any cash proceeds in excess of $3.0 million received from the exercise of warrants may not be spent by the Company without the prior written consent of Rorschach.

On June 19, 2024, the Company entered into inducement offer letter agreements with holders of certain existing warrants issued in October 2023 having an original exercise price of $12.80 per share to purchase up to an aggregate of 353,562 shares of the Company’s common stock at a reduced exercise price of $9.60 per share. The transaction closed on June 21, 2024, resulting in net proceeds of the Company of $2.9 million. Due to beneficial ownership limitations, 187,500 shares of common stock related to the exercise of warrants in this transaction were initially held in abeyance. All 187,500 shares of common stock were released from abeyance during the year ended September 30, 2025. Also in connection with this inducement offer, the Company (i) issued to holders who participated in the transaction new common stock warrants to purchase an aggregate of 703,125 shares of common stock, (ii) reduced the exercise price of existing warrants to purchase 354.994 shares of common stock for those holders who did not exercise warrants in the transaction from $12.80 per share to $9.60 per share for the remaining term of the warrants, and (iii) reduced the exercise price of certain existing warrants issued in June 2023 to purchase 28,409 shares of common stock from $118.78 per share to $12.40 per share and extended the expiration date of these warrants from December 30, 2026 to June 21, 2029. The new common stock warrants were immediately exercisable at a price of $12.40 per share and expire five years from the date of issuance. Warrants to purchase 14,142 shares of common stock were issued to the placement agent as compensation for its services related to the offering. These common stock warrants were immediately exercisable at a price of $14.88 per share and expire five years from the date of issuance. The incremental fair value associated with the modification of certain existing June and October 2023 warrants to purchase common stock was accounted for in additional paid-in capital as an equity cost because the modification was done in order to raise equity by inducing the exercise of warrants.

Sonnet BioTherapeutics Holdings, Inc.

Notes to Consolidated Financial Statements

During the year ended September 30, 2024, an aggregate of 96,090 warrants were net share settled, resulting in the issuance of 94,288 shares of common stock, 355,937 warrants were exercised on a cash basis (including 187,500 warrants for which the related shares were held in abeyance as of September 30, 2024 due to beneficial ownership limitations), resulting in proceeds of $3.0 million, and 4,302 warrants were abandoned by the warrant holder.