Quarterly Report for Quarter Ending SEPTEMBER 30, 2025 (Form 10-Q)

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. The objective with the eXoZymes synthetic biology platform, as it is developed over time, for diverse range of select chemicals will enable the production of 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 separately reportable segments.

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

Consolidated Results of Operations for the Nine months Ended September 30, 2025 and 2024

		Nine Months ended September 30,
		2025				2024				$ Change				% Change
Total operating income		$	-			$	-				-				0.0	%
Operating costs:
General and administrative costs:
Compensation			2,527,936				1,667,748				860,188				51.6	%
Professional fees			1,139,083				816,009				323,074				39.6	%
Information technology			75,327				29,267				46,060				157.4	%
General and administrative-other			683,870				197,302				486,568				246.6	%
Total general and administrative costs			4,426,216				2,710,326				1,715,890				63.3	%
Research and development costs, net of grants amounting to $1,120,907, and $1,807,706, for the nine months ended September 31			2,594,765				1,238,463				1,356,302				109.5	%
Total operating costs			7,020,981				3,948,789				3,072,192				77.8	%
Net operating loss			(7,020,981	)			(3,948,789	)			(3,072,192	)			77.8	%
Other income/(expense):
Interest income/ (expense)			231,742				(74,429	)			306,171				-411.4	%
Other income/(expense):			285,541				-				285,541				100.0	%
Loss before income taxes			(6,503,698	)			(4,023,218	)			(2,480,480	)			61.7	%
Income taxes			-				2,143				(2,143	)			-100.0	%
Net loss		$	(6,503,698	)		$	(4,025,361	)			(2,478,337	)			61.6	%

General and Administrative Costs.

During nine months ended September 30, 2025, and 2024, respectively, several factors contributed to changes in various expense categories:

	●	Compensation Expense: The increase in compensation expense during the nine months ending September 30, 2025, resulted from the recruitment of additional staff, who are not covered by grants. This was accompanied by increases in compensation and additional accrual of bonuses compared to nine months period ended September 30, 2024.
	●	Professional Fees: The increase in professional fees compared to previous period was due to higher consulting costs related to operations and higher legal, tax, and consulting costs.
	●	Information Technology Costs: The increase in costs for the nine months ending September 30, 2025, were related to additional IT projects to improve the company's infrastructure and operations.
	●	Other General and Administrative Costs: The increase in costs for the nine months ended September 30, 2025, relate to D&O insurance costs and director fees, which did not occur in the nine months ended September 30, 2024.

Research and Development Costs.

For the nine months ended September 30, 2025, research and development costs increased by $1,356,302 compared to the same period in 2024, primarily due to new hires, 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 Results of Operations for the Three months Ended September 30, 2025 and 2024

		Three Months ended September 30,
		2025				2024				$ Change				% Change
Total operating income		$	-			$	-				-				0.0	%
Operating costs:
General and administrative costs:
Compensation			845,174				546,095				299,079				54.8	%
Professional fees			237,916				269,543				(31,627	)			-11.7	%
Information technology			8,175				15,661				(7,486	)			-47.8	%
General and administrative-other			214,181				56,940				157,241				276.2	%
Total general and administrative costs			1,305,446				888,239				417,207				47.0	%
Research and development costs, net of grants amounting to $256,474 and $489,798 for the three months ended September 30			1,216,762				723,487				493,275				68.2	%
Total operating costs			2,522,208				1,611,726				910,482				56.5	%
Net operating loss			(2,522,208	)			(1,611,726	)			(910,482	)			56.5	%
Other income/(expense):
Interest income/ (expense)			59,185				(44,647	)			103,832				-232.6	%
Other income/(expense):			176,032				-				176,032				100.0	%
Loss before income taxes			(2,286,991	)			(1,656,373	)			(630,618	)			38.1	%
Income taxes			-				-				-				0.0	%
Net loss		$	(2,286,991	)		$	(1,656,373	)			(630,618	)			38.1	%

General and Administrative Costs.

For three months ended September 30, 2025, and 2024, respectively, several factors contributed to changes in various expense categories:

	●	Compensation Expense: The increase in compensation expenses for the three months ended September 30, 2025, was primarily driven by the hiring of new employees not funded by grants.
	●	Professional Fees: The decrease in professional fees over the prior period were mainly due to lower consulting expenses related to business operations, as well as lower legal and tax fees.
	●	Information Technology Costs: The decrease in IT expenses during the three months ended September 30, 2025, were associated with lower technology initiatives in the period.
	●	Other General and Administrative Costs: The increase in costs for the three months ended September 30, 2025, relate to D&O insurance costs and director fees, which did not occur in the three months ended September 30, 2024.

Research and Development Costs.

For the three months ended September 30, 2025, research and development costs increased by $493,275 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 September 30, 2025 and December 31, 2024

		September 30, 2025				December 31, 2024				$ Change				% Change
ASSETS
Cash and cash equivalents		$	5,098,687			$	9,719,310				(4,620,623	)			-47.5	%
Grants receivable			302,643				737,282				(434,639	)			-59.0	%
Prepaid expenses and other current assets			204,720				363,790				(159,070	)			-43.7	%
Total current assets			5,606,050				10,820,382				(5,214,332	)			-48.2	%
Property and equipment, net			763,012				882,445				(119,433	)			-13.5	%
Operating lease right-of-use asset, net			1,124,925				1,331,577				(206,652	)			-15.5	%
Finance lease right-of-use asset, net			119,236				-				119,236				100.0	%
Deferred Tax Assets			105,826				-				105,826				100.0	%
Total assets		$	7,719,049			$	13,034,404				(5,315,355	)			-40.8	%
LIABILITIES AND EQUITY
Accounts payable		$	904,353			$	924,252				(19,899	)			-2.2	%
Due to affiliates			17,085				178,966				(161,881	)			-90.5	%
Operating lease liabilities - Current			274,301				230,027				44,274				19.2	%
Finance lease liabilities - Current			42,623				-				42,623				100.0	%
Total current Liabilities			1,238,362				1,333,245				(94,883	)			-7.1	%
Deferred grant reimbursement			103,065				123,579				(20,514	)			-16.6	%
Operating lease liabilities - long term			926,587				1,156,805				(230,218	)			-19.9	%
Finance lease liabilities - long term			76,613				-				76,613				100.0	%
Total liabilities		$	2,344,627			$	2,613,629				(269,002	)			-10.3	%
Stockholders' Equity:											-
Common shares			8				8				-				0.0	%
Additional Paid-in-capital			23,824,070				22,366,725				1,457,345				6.5	%
Accumulated deficit			(18,449,656	)			(11,945,958	)			(6,503,698	)			54.4	%
Total equity			5,374,422				10,420,775				(5,046,353	)			-48.4	%
Total liabilities and equity		$	7,719,049			$	13,034,404				(5,315,355	)			-40.8	%

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 decrease in prepaid expenses was due to ongoing amortization of prepaids to expenses. 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.

During the three months ended September 30, 2025, eXoZymes recognized a discrete income tax receivable of $105,826. This receivable resulted from the filing of amended prior years income tax returns.

The decrease in liabilities was primarily driven by the decrease in the amount of Due to affiliates, as well as reductions in both finance and operating leases.

The equity decrease was due to losses generated by operations.

Liquidity and Capital Resources - September 30, 2025, and 2024

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

		Nine Months ended September 30,
		2025				2024
Net cash (used in) operating activities		$	(4,528,240	)		$	(2,798,123	)
Net cash (used in) investing activities			(75,228	)			(148,809	)
Net cash (used in) by financing activities			(17,155	)			3,114,334
Net increase (decrease) in cash and cash equivalents		$	(4,620,623	)		$	167,402

On September 30, 2025, the Company had working capital of $4,391,664, as compared to working capital of $9,487,137 on December 31, 2024, reflecting a decrease in working capital of $5,095,473. This decrease in working capital was the result of usage of cash and cash equivalents to fund operations. On September 30, 2025, the Company had cash of $5,098,687 available to fund its operations.

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 September 30, 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 $4,391,664 as of September 30, 2025, and its program of seeking various grants, the Company believes it has sufficient funds, in the near term, for its currently planned operations. The Company will continue to allocate its available working capital toward advancing its research, development, and commercialization initiatives. If and when it requires capital, it may sell its equity securities, seek institutional and bank funding, and sell or license various of its intellectual property rights. The Company does not have any current arrangements for additional funding, and there is no assurance that it will be able to obtain funding, when needed, on terms that are commercially reasonable. 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.

Operating Activities.

For the nine months ended September 30, 2025, operating activities utilized cash of $4,528,240, which was driven by an increased research and development activity, as well as increased general and administrative costs.

For the nine months ended September 30, 2024, operating activities utilized cash of $2,798,123. This was primarily driven by increased research and development activity, as well as higher general and administrative expenses, which resulted in a deficit for the period. However, this deficit was offset by cash received from related parties.

Investing Activities.

For the nine months ended September 30, 2025, and 2024, investing activities primarily consisted of the purchase of laboratory equipment.

Financing Activities.

For the nine months ended September 30, 2025, the Company incurred cash payments of $17,155 related to its finance lease obligations.

For the nine months ended September 30, 2024, the Company had cash expenditures that related to the ongoing IPO activities and totaled $107,732 and received $3,222,066 from a related party note.

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 condensed unaudited 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 offset against research and development expenses in the consolidated statements of operations. In addition to actual reimbursements, eXoZymes also receives indirect expense grants (which are not reimbursement-based) and fees (typically of minor significance). It is important to note that there may be instances where the grants received for indirect costs exceed the actual costs. For capitalized assets, grant reimbursements are recognized over the useful life of the assets. Any portion of the grant not yet recognized is recorded as deferred grant reimbursements and included as a liability in the consolidated balance sheet.

Grants that operate on a reimbursement basis are recognized on the accrual basis and are recorded as offsets to expenses, to the extent of disbursements and commitments for allowable expenses incurred as of September 30, 2025, that are expected to be reimbursed in the subsequent period. Management considers the grants receivable as of September 30, 2025, to be fully collectible, based on historical experience with the Federal Government of the United States of America. Accordingly, no allowance for credit losses on grants receivable was recorded in the accompanying condensed unaudited 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.

Summary of Business Activities and Plans

On November 11, 2024, the Company signed a firm commitment underwriting agreement for its initial public offering (IPO) with a closing date of November 14, 2024, which consisted of the sale of an aggregate of 1,875,000 shares of Common Stock. The public offering price was $8.00 per share, for gross proceeds of $15,000,000. The underwriter was granted an overallotment option for up to an additional 281,250 shares until December 26, 2024. The net proceeds for the initial public offering with the overallotment were $15,206,543. The proceeds are being used for the development of eXoZymes, expansion of production capabilities, increased staff and related expenses, R&D expenses, repayment of a related party loan and other general corporate and working capital requirements.

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.