Annual Report for Fiscal Year Ending DECEMBER 31, 2025 (Form 10-K)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

eXoZymes is a biotechnology, pre-revenue, development stage company. Management believes that eXoZymes's technology is a differentiated and unique synthetic biology platform. Management believes the platform will enable scalable production of chemical molecules found in nature in a process that is alternative to and more environmentally friendly and sustainable than the typical methods used today, such as chemical synthesis, natural extraction, and synthetic biology. eXoZymes believes its technology could significantly change biomanufacturing through leveraging cell-free, multi-step enzyme-based systems that will be able to transform natural or renewable resources into sought after chemicals. As the eXoZymes synthetic biology platform continues to develop over time, it is expected to enable the production of a diverse range of selected chemicals, including pharmaceuticals, fuels, materials, food additives, and novel compounds

Results of Operations

The Company has determined its reporting units in accordance with ASC (Accounting Standards Codification) 280, Segment Reporting. The Company has one reportable segment for eXoZymes as a whole. A single management team that reports to the Chief Executive Officer comprehensively manages the business. Accordingly, the Company does not have separate reportable segments.

The Company's consolidated statements of operations as discussed herein are presented below.

		Year ended December 31,
		2025				2024				$ Change				% Change
Total operating income		$	-			$	-				-				0.0	%
Operating costs:
General and administrative costs:
Compensation			3,635,756				2,527,772				1,107,984				43.8	%
Professional fees			1,441,659				1,167,249				274,410				23.5	%
Information technology			95,989				38,658				57,331				148.3	%
General and administrative-other			836,076				329,660				506,416				153.6	%
Total general and administrative costs			6,009,480				4,063,339				1,946,141				47.9	%
Research and development costs			3,706,991				1,868,766				1,838,225				98.4	%
Total operating costs			9,716,471				5,932,105				3,784,366				63.8	%
Net operating loss			(9,716,471	)			(5,932,105	)			(3,784,366	)			63.8	%
Other income/(expense):
Interest income, net			363,786				77,612				286,174				368.7	%
Other income/(expense)			88,746				(6,834	)			95,580				-1,398.6	%
Change in fair value of SAFE			-				(8	)			8				-100.0	%
Loss before income taxes			(9,263,939	)			(5,861,335	)			(3,402,604	)			58.1	%
Income tax benefit			105,205				-				105,205				100.0	%
Net loss		$	(9,158,734	)		$	(5,861,335	)			(3,297,399	)			56.3	%

General and Administrative Costs.

During years ended December 31, 2025, and 2024, respectively, several factors contributed to changes in various expense categories:

	●	Compensation Expense: For the year ended December 31, 2025, the increase was primarily driven by the hiring of additional administrative staff whose costs were not funded by grants.
	●	Professional Fees: Compared to year ended December 31, 2024, the increase was primarily attributable to higher consulting costs supporting operational activities, as well as increased legal, tax, and audit fees related to financial reporting. In addition, Nasdaq and SEC compliance and filing fees increased following the 2024 IPO.
	●	Information Technology Costs: This increase was primarily related to additional IT projects undertaken to enhance the Company's infrastructure and operational capabilities.
	●	Other General and Administrative Costs: The increase was primarily related to D&O insurance costs and director fees, which were not incurred in 2024.

Research and Development Costs.

For the year ended December 31, 2025, research and development costs increased by $1,838,225 compared to the same period in 2024, primarily due to higher salary, bonus accruals, stock-based compensation and laboratory expenses, as well as a reduction in grant funding. It is important to note that the decrease in grant funding was not attributable to any specific event.

Consolidated Balance Sheet as of December 31, 2025, and December 31, 2024

		December 31, 2025				December 31, 2024				$ Change				% Change
ASSETS
Cash and cash equivalents		$	3,039,343			$	9,719,310				(6,679,967	)			-68.7	%
Grants receivable			517,359				737,282				(219,923	)			-29.8	%
Prepaid expenses and other current assets			382,886				363,790				19,096				5.2	%
Total current assets			3,939,588				10,820,382				(6,880,794	)			-63.6	%
Property and equipment, net			764,401				882,445				(118,044	)			-13.4	%
Operating lease right-of-use asset, net			1,053,641				1,331,577				(277,936	)			-20.9	%
Finance lease right-of-use asset, net			108,682				-				108,683				100.0	%
Tax receivable			105,205				-				105,205				100.0	%
Total assets		$	5,971,517			$	13,034,404				(7,062,887	)			-54.2	%
LIABILITIES AND EQUITY
Accounts payable		$	1,235,337			$	924,252				311,085				33.7	%
Due to affiliates			5,330				178,966				(173,636	)			-97.0	%
Operating lease liabilities - Current			281,979				230,027				51,952				22.6	%
Finance lease liabilities - Current			44,255				-				44,255				100.0	%
Total current Liabilities			1,566,901				1,333,245				233,656				17.5	%
Deferred grant reimbursement			90,365				123,579				(33,214	)			-26.9	%
Operating lease liabilities - Long term			852,575				1,156,805				(304,230	)			-26.3	%
Finance lease liabilities - Long term			64,427				-				64,427				100.0	%
Total liabilities		$	2,574,268			$	2,613,629				(39,361	)			-1.5	%
Stockholders' Equity:
Preferred stock			-				-				-				0.0	%
Common shares			8				8				(0	)			0.0	%
Additional Paid-in-capital			24,501,933				22,366,725				2,135,208				9.5	%
Accumulated deficit			(21,104,692	)			(11,945,958	)			(9,158,734	)			76.7	%
Total equity			3,397,249				10,420,775				(7,023,526	)			-67.4	%
Total liabilities and equity		$	5,971,517			$	13,034,404				(7,062,887	)			-54.2	%

Financial Condition:

The decrease in assets was due to changes in several asset classes, but primarily in cash and cash equivalents. The decrease in grants receivable was driven by completion of certain grants and timing of grant drawdowns. The increase in prepaid expenses was mainly explained by the increase of prepaid related to software acquisition. The decrease in property and equipment was due to the ongoing accumulated depreciation of fixed assets. The decrease in operating lease right-of-use assets resulted from the usage and payments of office space during the period.

The decrease in total liabilities was primarily attributable to the reduction of operating lease obligations and related-party debt. In contrast, accounts payable increased, driven mainly by higher supplier-financed commercial activity and the accrual of employee bonuses.

The equity decrease was due to losses generated by operations.

Liquidity and Capital Resources - December 31, 2025, and 2024

The Company's consolidated statements of cash flows as discussed herein are presented below.

		Year ended December 31,
		2025				2024
Net cash (used in) operating activities		$	(6,502,040	)			(8,505,650	)
Net cash (used in) investing activities			(150,218	)			(359,216	)
Net cash (used in) by financing activities			(27,709	)			18,517,643
Net increase (decrease) in cash and cash equivalents		$	(6,679,967	)			9,652,777

On December 31, 2025, the Company had working capital of $2,372,687, as compared to working capital of $9,487,137, on December 31, 2024, reflecting a decrease in working capital of $(7,114,450). This decrease in working capital was the result of usage of cash and cash equivalents to fund operations. On December 31, 2025, the Company had cash of $3,039,343 available to fund its operation.

On November 11, 2024, the Company signed a firm commitment underwriting agreement for its IPO, in which it sold an aggregate of 1,987,666 shares of Common Stock, including 112,666 shares pursuant to the underwriter overallotment option, for gross proceeds of $15,901,328, and net proceeds of approximately $15,206,543. The Company used approximately $4,243,022 to repay loans from MDB Capital Holdings, LLC shortly after the closing of the IPO. The balance of the proceeds as of December 31, 2025, will continue to be used throughout 2025, in the expansion of its production capabilities, staffing, R&D, and other working capital requirements.

In a private placement ("Concurrent Private Offering") completed concurrently with the IPO, the Company sold to accredited investors an aggregate of 93,750 warrants to purchase up to 93,750 shares of Common Stock (the "Private Warrants"). The Private Warrants were sold at a purchase price of $0.125. The Private Warrants have an exercise price of $8.00 per share, are exercisable beginning six months after issuance, and expire five years from the date of issuance. The Private Warrants have a cashless exercise provision and registration rights for the underlying shares of Common Stock. The gross proceeds from the Concurrent Private Offering were approximately $11,719, and if the Private Warrants are fully exercised, for cash, the Company will receive up to $750,000.

In October 2024, the Company received a cost share grant from the Department of Defense (DOD) BioMADE initiative to help fund next steps toward cell-free biomanufacturing of isobutanol in the amount of approximately $1,000,000 against our own required expenses of an equal amount.

In March 2025, the Company received an additional grant in the amount of $283,805 from the National Institute of Health (NIH) BioClick. The BioClick grant focuses on a cell free high-throughput platform for engineering of enzymatic group transfer reactions. The Company intends to pursue additional grants from time to time, which if granted to the Company will further improve its working capital position.

Based on its working capital of approximately $2,372,687 as of December 31, 2025, the Company believes that there remains substantial doubt about its ability to continue as a going concern due to anticipated funding shortfalls and the Company's pre-revenue status. The Company's ability to meet its long-term liabilities and obligations depends on securing additional financial support, whether through continued shareholder funding, raising equity or debt financing, or ultimately achieving profitable operations. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

Operating Activities.

For the year ended December 31, 2025, operating activities used cash of $6,502,040 primarily due to increased research and development costs and higher general and administrative expenses.

For the year ended December 31, 2024, operating activities used cash of $8,505,650, which was driven by an increased research and development activity, as well as increased general and administrative costs. Additionally, the Company paid $4,243,022 in related party loans to MDB Capital Holdings, LLC.

Investing Activities.

For the years ended December 31, 2025, and 2024, investing activities consisted of the purchase of laboratory equipment.

Financing Activities.

For the year ended December 31, 2025, the Company incurred cash payments of $27,709 related to its finance lease obligations.

For the year ended December 31, 2024, financing activities consisted of loans from a related party and the proceeds from the IPO.

Accounting Pronouncements Issued and Not Yet Adopted

ASU 2024-03

In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2024-03, Disaggregation of Income Statement Expenses (DISE) ("ASU 2024-03"), which requires disclosure of certain categories of expenses such as the purchase of inventory, employee compensation, depreciation, and intangible asset amortization that are components of existing expense captions presented on the face of the income statement. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 should be applied prospectively; however, retrospective application is permitted. We are currently evaluating ASU 2024-03 to determine the impact it may have on its consolidated financial statements.

ASU 2025-11

In December 2025, the FASB issued ASU 2025-11 Interim Reporting (Topic 270): Narrow-Scope Improvements (ASU 2025-11), which clarifies and improves the guidance for interim financial reporting. The amendments introduce a disclosure principle requiring entities to disclose events since the end of the previous annual reporting period that materially affect the entity, consolidate a comprehensive list of interim disclosure requirements within ASC 270, and provide guidance on the form and content of condensed interim financial statements. ASU 2025-11 will be effective for interim reporting periods in fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating ASU 2025-11 to determine the impact it may have on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

ASU 2023-07

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which requires all public entities, including public entities with a single reportable segment, to provide in interim and annual periods one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance. Additionally, the standard requires disclosures of significant segment expenses and other segment items as well as incremental qualitative disclosures. The Company adopted ASU 2023-07 effective December 31, 2024, on a retrospective basis. The adoption of 2023-07 did not change the way that the Company identifies its reportable segments and, as a result, did not have a material impact on the Company's segment-related disclosures.

ASU 2023-09

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (ASU 2023-09), which is intended to enhance the transparency of income tax matters within consolidated financial statements, providing stakeholders with a clearer understanding of an entity's operations and the associated tax risks. ASU 2023-09 requires public business entities to disclose, on an annual basis, specific categories in the rate of reconciliation and provide additional information for reconciling items that meet a specific quantitative threshold. There is a further requirement that public business entities will need to disclose a tabular reconciliation, using both percentages and reporting currency amounts. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The adoption of ASU 2023-09 resulted in modifications to our income tax disclosures for the fiscal year ended December 31, 2025.

Critical Accounting Estimates

The preparation of financial statements in conformity with general accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. We have identified certain accounting policies as being critical because they require us to make difficult, subjective, or complex judgments about matters that are uncertain. We believe that the judgment, estimates, and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, actual results could differ, and the use of other assumptions or estimates could result in material differences in our results of operations or financial condition. Our critical accounting estimates are:

Accounting for Research Grants

eXoZymes receives grant reimbursements, which are netted against research and development expenses in the consolidated statement of operations. Grant reimbursements for capitalized assets are recognized over the useful life of the assets, with the unrecognized portion considered a deferred liability and are included in accounts payable and accrued expenses in the consolidated balance sheet.

Grants that operate on a reimbursement basis are recognized on the accrual basis as revenues to the extent of disbursements and commitments that are allowable for reimbursement of allowable expenses incurred as of December 31, 2025 and 2024 and expected to be received from funding sources in the subsequent year. Management considers such receivables on December 31, 2025 and 2024, respectively, to be fully collectable, due to the historical experience with the Federal Government of the United States of America. Accordingly, no allowance for grants receivable was recorded in the accompanying consolidated financial statements.

Research grants received from organizations are subject to the contract agreement as to how eXoZymes conducts its research activities, and eXoZymes is required to comply with the agreement terms relating to those grants. Amounts received under research grants are nonrefundable, regardless of the success of the underlying research project, to the extent that such amounts are expended in accordance with the approved grant project. eXoZymes is permitted to draw down (a process of submitting expenses for reimbursement) the research grants after incurring the related expenses. Amounts received under research grants are offset against the related research and development costs in the Company's consolidated statement of operations.

External Risks Associated with the Company's Business Activities

Inflation Risk. The Company does not believe that inflation has had a material effect on its operations to date, other than its impact on the general economy.

Supply Chain Issues. The Company continues to monitor changes in tariffs and indirect trade restraints. The Company does not currently expect that supply chain issues will have a significant impact on its business activities.

Potential Recession. There are various indications that the United States economy may be entering a recessionary period. Also, there is possible economic instability due to the possibility of tariffs and other economic changes due to government policy of the United States and other countries. Although unclear at this time, an economic recession would likely impact the general business environment and the capital markets, which could, in turn, affect the Company.

The Company is continuing to monitor these matters and will adjust its current business and financing plans as more information and guidance become available.

Technology. The Company's endeavors to create and bring new technologies to the market may never come to fruition or might not reach a level of development sufficient for commercial viability. Even if they do achieve a commercial level of development, the acceptance of these technologies within the marketplace is uncertain. There's a possibility that the technologies they develop may not gain widespread or timely acceptance. Moreover, technologies from our Company that undergo regulatory scrutiny, testing, and approval may ultimately fail to receive the necessary approvals from relevant regulatory bodies.

Trends, Events and Uncertainties

Other than as discussed above, we are not currently aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on our financial condition.