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Item 1. Financial Statements

2023-05-11 compared with 2022-11-09 · 313 added, 434 removed, 184 unchanged (80% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets:

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Series B, $ 0.001 par value:

1,804,394 shares issued and outstanding as of September 30, 2022 and December 31, 2021

1,804,394 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Series A, $ 0.001 par value:

970,000 shares issued and outstanding as of September 30, 2022 and December 31, 2021

970,000 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Common stock, $ 0.001 par value;

50,000,000 shares authorized as of September 30, 2022 and December 31, 2021;

14,343,587 and 13,466,603 shares issued as of September 30, 2022 and December 31, 2021, respectively;

14,316,596 and 13,439,612 shares outstanding as of September 30, 2022 and December 31, 2021, respectively

100,000,000 shares authorized as of March 31, 2023 and December 31, 2022;

15,193,587 shares issued as of March 31, 2023 and December 31, 2022;

15,166,596 shares outstanding as of March 31, 2023 and December 31, 2022

Additional paid in capital

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Total liabilities and stockholders' equity

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

XENETIC BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED

SEPTEMBER 30,

NINE MONTHS ENDED

SEPTEMBER 30,

Three Months Ended March 31,

Royalty revenue

3 unchanged sentences

( 1,101,399 )

( 1,934,432 )

General and administrative

( 2,796,832 )

( 2,766,397 )

Total operating costs and expenses

1 unchanged sentence

( 2,008,708 )

( 6,374,533 )

( 4,700,829 )

Loss from operations

( 1,619,715 )

( 5,154,580 )

( 3,872,741 )

Other income (expense):

Other expense

Interest income, net

Other income:

Interest income

Total other income

1 unchanged sentence

$ ( 1,593,611 )

$ ( 5,069,818 )

$ ( 3,803,499 )

Basic and diluted net loss per share

Basic and diluted loss per share

Weighted-average shares of common stock outstanding, basic and diluted

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

XENETIC BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'

THREE MONTHS ENDED SEPTEMBER 30, 2022

THREE MONTHS ENDED MARCH 31, 2023

Value ($0.001)

Comprehensive

Stockholders'

as of July 1, 2022

Balance as of January

$ 207,756,232

2 unchanged sentences

Share-based expense

of September 30, 2022

of March 31, 2023

$ 207,825,084

1 unchanged sentence

$ ( 5,281,180 )

NINE MONTHS ENDED SEPTEMBER 30, 2022

THREE MONTHS ENDED MARCH 31, 2022

Comprehensive

4 unchanged sentences

$ ( 5,281,180 )

Issuance of common stock in connection

with purchase of in-process research and development

Share-based expense

2 unchanged sentences

( 1,593,611 )

of September 30, 2022

$ 207,149,681

$ ( 187,617,083 )

$ ( 5,281,180 )

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

XENETIC BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'

THREE MONTHS ENDED SEPTEMBER 30, 2021

Paid in Capital

Comprehensive Income

Stockholders' Equity

Balance as of July 1,

$ 194,319,716

$ ( 179,354,709 )

$ ( 5,281,180 )

Issuance of common stock and warrants,

net of issuance costs

Exercise of pre-funded warrants

Exercise of purchase warrants

Issuance of common stock to vendor

Share-based expense

( 1,350,876 )

of September 30, 2021

$ 205,880,753

$ ( 180,705,585 )

$ ( 5,281,180 )

NINE MONTHS ENDED SEPTEMBER 30, 2021

Paid in Capital

Comprehensive Income

Stockholders' Equity

Balance as of January

$ 194,133,511

$ ( 176,902,086 )

$ ( 5,281,180 )

Issuance of common stock and warrants,

net of issuance costs

Exercise of pre-funded warrants

Exercise of purchase warrants

Issuance of common stock to vendor

Share-based expense

( 3,803,499 )

of September 30, 2021

Balance as of March 31, 2022

$ 206,072,322

1 unchanged sentence

$ ( 5,281,180 )

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

XENETIC BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

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Adjustments to reconcile net loss to net cash used in operating activities:

Acquired in-process research and development

Amortization of right of use asset

2 unchanged sentences

Prepaid expenses and other

Other long-term assets

Accounts payable, accrued expenses and other liabilities

2 unchanged sentences

( 2,087,691 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Net cash paid to acquire in-process research and development

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from issuance of common stock and warrants

Proceeds from exercise of warrants

Net cash provided by financing activities

Net change in cash

( 1,102,438 )

( 2,087,691 )

Cash at beginning of period

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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Issuance of common stock to acquire in-process research and development

Issuance of common stock to vendor

Issuance of common stock from cashless exercise of purchase warrants

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

XENETIC BIOSCIENCES, INC.

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Xenetic Biosciences, Inc.

(“Xenetic” or

the “Company”), incorporated in the state of Nevada and based in Framingham, Massachusetts, is a biopharmaceutical company

or the “Company”), incorporated in the state of Nevada and based in Framingham, Massachusetts, is a biopharmaceutical company

focused on advancing innovative immune-oncology technologies addressing hard to treat cancers.

The Company’s Deoxyribonuclease (“DNase”)

platform is designed to improve outcomes of existing treatments, including immunotherapies, by targeting neutrophil extracellular traps

Xenetic is currently focused on advancing its systemic DNase program into the clinic as an adjunctive therapy for

pancreatic carcinoma and locally advanced or metastatic solid tumors.

The Company is also developing its personalized Chimeric Antigen

Receptor (“CAR”) T platform technology, XCART ™ , to develop cell-based therapeutics targeting the unique B-cell

receptor on the surface of an individual patient’s malignant tumor cells, for the treatment of B-cell lymphomas.

Additionally, Xenetic

has partnered with biotechnology and pharmaceutical companies to develop its proprietary drug delivery platform, PolyXen ® ,

and receives royalty payments under an exclusive license arrangement in the field of blood coagulation disorders.

As used in this Quarterly Report on Form 10-Q (“Quarterly

Report”), unless otherwise indicated, all references herein to “Xenetic,” the “Company,” “we”

or “us” refer to Xenetic Biosciences, Inc.

The Company’s proprietary Deoxyribonuclease

(“DNase”) platform is designed to improve outcomes of existing treatments, including immunotherapies, by targeting neutrophil

extracellular traps (“NETs”), which have been implicated in cancer progression and resistance to cancer treatments.

is currently focused on advancing its systemic DNase program into the clinic as an adjunctive therapy for pancreatic carcinoma and locally

advanced or metastatic solid tumors.

XCART ™ is the Company’s personalized Chimeric Antigen Receptor (“CAR”)

T platform technology engineered to target patient specific tumor neoantigens with a demonstrated proof of mechanism in B-cell lymphomas.

Additionally, Xenetic has partnered with biotechnology and pharmaceutical companies to develop its proprietary drug delivery platform,

PolyXen ® , and receives royalty payments under an exclusive license arrangement in the field of blood coagulation disorders.

As used in this Quarterly Report on Form 10-Q

(“Quarterly Report”), unless otherwise indicated, all references herein to “Xenetic,” the “Company,”

“we” or “us” refer to Xenetic Biosciences, Inc.

and its wholly-owned subsidiaries.

The Company, directly or indirectly, through its wholly-owned

subsidiaries, Hesperix S.A.

(“Hesperix”) and Xenetic Biosciences (U.K.) Limited (“Xenetic UK”), and the wholly-owned

subsidiaries of Xenetic UK, Lipoxen Technologies Limited (“Lipoxen”), Xenetic Bioscience, Incorporated and SymbioTec, GmbH

(“SymbioTec”), own various United States (“U.S.”) federal trademark registrations and applications, and unregistered

trademarks and service marks, including but not limited to XCART, OncoHist™, PolyXen, ErepoXen™, and ImuXen™, which

are used throughout this Quarterly Report.

All other company and product names may be trademarks of the respective companies with which

they are associated.

The Company, directly or indirectly, through its

wholly-owned subsidiaries, Hesperix S.A.

(“Hesperix”) and Xenetic Biosciences (U.K.) Limited (“Xenetic UK”), and

the wholly-owned subsidiaries of Xenetic UK, Lipoxen Technologies Limited (“Lipoxen”), Xenetic Bioscience, Incorporated and

SymbioTec, GmbH (“SymbioTec”), own various United States (“U.S.”) federal trademark registrations and applications

along with unregistered trademarks and service marks, including but not limited to XCART, OncoHist™, PolyXen, ErepoXen™, and

ImuXen™, which are used throughout this Quarterly Report.

All other company and product names may be trademarks of the respective

companies with which they are associated.

Going Concern and Management’s Plan

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The Company believes that

its existing resources will be adequate to fund the Company’s operations into the first quarter of 2024.

However, the Company anticipates

it may need additional capital in the long-term to pursue its business initiatives.

The terms, timing and extent of any future financing

will depend upon several factors, including the achievement of progress in its clinical development programs, its ability to identify

and enter into licensing or other strategic arrangements, its continued listing on the Nasdaq Stock Market (“Nasdaq”), and

factors related to financial, economic, geo-political, industry and market conditions, many of which are beyond its control.

markets for the biotech industry can be highly volatile, which make the terms, timing and extent of any future financing uncertain.

June 3, 2022, the Company received a written notification (the “Notice”) from the Listing Qualifications Department of Nasdaq

notifying the Company that the closing bid price for its common stock had been below $1.00 for 30 consecutive business days and that the

Company therefore is not in compliance with the minimum bid price requirement for continued inclusion on the Nasdaq Capital Market under

Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”).

The Notice has no immediate effect on the listing of the Company’s

common stock on the Nasdaq Capital Market.

Under the Nasdaq Listing Rules, the Company has a period of 180 calendar days from the date

of the Notice to regain compliance with the Bid Price Requirement.

Accordingly, the Company has until November 30, 2022 to regain compliance

with the Bid Price Requirement and may be eligible for an additional 180 calendar day compliance period if certain other criteria are

and Uncertainties

Effects of the COVID-19

During March 2020, a global

pandemic was declared by the World Health Organization related to the outbreak of a novel strain of coronavirus, or COVID-19.

has significantly affected economic conditions in the U.S., accelerating during the first half of March 2020 and continuing throughout

2021 and into 2022, as federal, state and local governments reacted to the public health crisis with mitigation measures, creating significant

uncertainties in the U.S.

The Company continues to evaluate the effects of the COVID-19 pandemic on its business and while there

has been no significant impact to the Company’s operations to date, the Company at this time remains uncertain of the impact this

event may have on the Company’s future operations.

The extent to which the COVID-19 pandemic affects our business, operations and

financial results will depend on numerous evolving factors that we may not be able to accurately predict, and such uncertainty is expected

to continue for some time.

Impact of the

conflict in Ukraine on Operations

The short and long-term

implications of Russia’s invasion of Ukraine are difficult to predict at this time.

The imposition of sanctions and counter sanctions

may have an adverse effect on the economic markets generally and could impact our business, financial condition, and results of operations.

its existing resources will be adequate to fund the Company’s operations for a period of at least twelve months from the date of

these financial statements.

However, the Company anticipates it may need additional capital in the long-term to pursue its business initiatives.

The terms, timing and extent of any future financing will depend upon several factors, including the achievement of progress in its product

development programs, its ability to identify and enter into licensing or other strategic arrangements, its continued listing on the Nasdaq

Stock Market (“Nasdaq”), and factors related to financial, economic, geo-political, industry and market conditions, many of

which are beyond its control.

The capital markets for the biotech industry can be highly volatile, which make the terms, timing and extent

of any future financing uncertain.

On June 3, 2022, the Company received a written notification (the “Notice”) from the Listing

Qualifications Department of Nasdaq notifying the Company that the closing bid price for its common stock had been below $1.00 for 30

consecutive business days and that the Company therefore was not in compliance with the minimum bid price requirement for continued inclusion

on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”).

The Notice has no immediate

effect on the listing of the Company’s common stock on the Nasdaq Capital Market.

Under the Nasdaq Listing Rules, the Company had

a period of 180 calendar days from the date of the Notice to regain compliance with the Bid Price Requirement.

Accordingly, the Company

had until November 30, 2022 to regain compliance with the Bid Price Requirement and was eligible for an additional 180 calendar day compliance

period if certain other criteria were met.

On December 1, 2022, the Company received a letter from Nasdaq informing it that although the

Company’s common stock had not regained compliance with the minimum $1.00 bid price per share requirement, Nasdaq had determined

that the Company was eligible for an additional 180 calendar day period, or until May 29, 2023, to regain compliance.

Nasdaq’s determination

was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements

for initial listing on the Nasdaq Capital Market with the exception of the bid price requirement, and the Company’s written notice

of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

Risks and Uncertainties

Effects of the

COVID-19 Pandemic

During March 2020, a

global pandemic was declared by the World Health Organization related to the outbreak of a novel strain of coronavirus, or COVID-19.

pandemic significantly affected economic conditions in the U.S., accelerating during the first half of March 2020 and continuing throughout

2021 and 2022 and into 2023, as federal, state and local governments reacted to the public health crisis with mitigation measures, creating

significant uncertainties in the U.S.

The Company continues to evaluate the effects of the COVID-19 pandemic on its business

and while there has been no significant impact to the Company’s operations to date, the Company at this time remains uncertain of

the impact this event may have on the Company’s future operations.

The extent to which the COVID-19 pandemic affects our business,

operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, and such uncertainty

is expected to continue for some time.

Impact of the conflict

in Ukraine on Operations

The short and long-term implications of Russia’s

invasion of Ukraine are difficult to predict at this time.

The imposition of sanctions and counter sanctions may have an adverse effect

on the economic markets generally and could impact our business, financial condition, and results of operations.

Summary of Significant Accounting Policies

Preparation of Interim Financial Statements

The accompanying condensed consolidated interim financial

statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”)

The accompanying condensed consolidated interim

financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”)

and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim

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Principles of Consolidation

The condensed consolidated financial statements of

the Company include the accounts of Hesperix, Xenetic UK and Xenetic UK’s wholly owned subsidiaries:

The condensed consolidated financial statements

of the Company include the accounts of Hesperix, Xenetic UK and Xenetic UK’s wholly owned subsidiaries:

Lipoxen, Xenetic Bioscience,

1 unchanged sentence

All intercompany balances and transactions have been eliminated in consolidation.

Cash and concentrations of credit risk

The Company considers all highly liquid investments

with an original maturity of 90 days or less from the date of purchase to be cash equivalents.

Investments with original maturities of

greater than 90 days from the date of purchase but less than one year from the balance sheet date are classified as short-term investments,

while investments with maturities of one year or beyond from the balance sheet date are classified as long-term investments.

determines the appropriate classification of its cash equivalents and investment securities at the time of purchase and re-evaluates such

determination as of each balance sheet date.

The carrying amount of cash equivalents approximate their fair value due to the short-term

nature of these instruments.

Financial instruments that potentially subject

the Company to credit risk consist primarily of cash on deposit with financial institutions, the balances of which frequently exceed federally

insured limits.

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection

and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

The Company’s cash consisted

primarily of money market funds held at SVB.

On March 12, 2023, the U.S.

Treasury, Federal Reserve and FDIC rolled out emergency measures

to fully protect all depositors of SVB and on March 13, 2023, we had full access to our cash on deposit with SVB.

As of March 31, 2023,

the Company had transferred its primary banking relationship to a large financial institution and all cash on deposit is covered under

federally insured limits.

Basic and Diluted Net Loss per Share

The Company computes basic net loss per share by dividing

net loss applicable to common stockholders by the weighted-average number of shares of the Company’s common stock outstanding during

The Company computes diluted net loss per share after giving consideration to the dilutive effect of stock options that are

outstanding during the period, except where such non-participating securities would be anti-dilutive.

For the three and nine months ended September 30,

2022 and 2021, basic and diluted net loss per share are the same for each respective period due to the Company’s net loss position.

Potentially dilutive, non-participating securities have not been included in the calculations of diluted net loss per share, as their

inclusion would be anti-dilutive.

Recent Accounting Standards

In June 2016, the Financial Accounting Standards Board

issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit

Losses on Financial Instruments .

The guidance modifies the measurement and recognition of credit losses for most financial assets

and certain other instruments.

The amendment updates the guidance for measuring and recording credit losses on financial assets measured

at amortized cost by replacing the “incurred loss” model with an “expected loss” model.

This may result in earlier

recognition of allowance for losses.

ASU 2016-13 is effective for smaller reporting public entities for fiscal years beginning after December

15, 2022 but early adoption is permitted.

The Company is currently evaluating the impact of adoption, but it does not anticipate that

adoption will have a material effect on the Company’s consolidated financial statements.

The Company computes basic net loss per share

by dividing net loss applicable to common stockholders by the weighted-average number of shares of the Company’s common stock outstanding

during the period.

The Company computes diluted net loss per share after giving consideration to the dilutive effect of stock options

that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

For the three months ended March 31, 2023 and

2022, basic and diluted net loss per share are the same for each respective period due to the Company’s net loss position.

dilutive, non-participating securities have not been included in the calculations of diluted net loss per share, as their inclusion would

be anti-dilutive.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards

Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

of Credit Losses on Financial Instruments .

The guidance modified the measurement and recognition of credit losses for most financial

assets and certain other instruments.

The amendment updated the guidance for measuring and recording credit losses on financial assets

measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model.

This may result

in earlier recognition of allowance for losses.

The Company adopted ASU 2016-13 as of January 1, 2023 and the adoption did not have a

material effect on our consolidated financial statements.

Significant Strategic Collaborations

The Company has entered into various research, development,

license and supply agreements with Serum Institute of India (“Serum Institute”), PJSC Pharmsynthez (“Pharmsynthez”)

Takeda Pharmaceutical Co.

with its wholly-owned subsidiaries, “Takeda”)

In October 2017, the Company granted to Takeda

the right to grant a non-exclusive sublicense to certain patents related to the Company’s PolyXen technology that were previously

exclusively licensed to Takeda in connection with products related to the treatment of blood and bleeding disorders.

Royalty payments

of approximately $ 0.6 million and $ 0.4 million were recorded as revenue by the Company during the three months ended March 31, 2023 and

2022, respectively, and are based on single digit royalties on net sales of certain covered products.

The Company’s policy is to

recognize royalty payments as revenue when they are reliably measurable, which is upon receipt of reports from Takeda.

The Company receives

these reports in the quarter subsequent to the actual sublicensee sales.

At the time the revenue was received, there were no remaining

performance obligations and all other revenue recognition criteria were met.

CLS Therapeutics Ltd.

On April 26, 2022, the Company entered into an

Exclusive Sublicense Agreement (the “Sublicense Agreement”) with CLS pursuant to which the Company received an exclusive license,

under certain patent rights and know-how owned or controlled by CLS, to develop and commercialize pharmaceutical products and methods

incorporating DNase enzyme for use in treatment of cancer (the “Sublicensed Products”).

Under the terms of the Sublicense

Agreement, the Company will have sole responsibility for, and shall use commercially reasonable efforts to, among other things, research,

develop and obtain marketing approval for the Sublicensed Products in the U.S.

and certain European markets, and to commercialize such

Sublicensed Products in the relevant market once marketing approval is obtained.

Concurrent with the Sublicense Agreement, the

Company entered into an Exclusive License Agreement (the “License Agreement”) with CLS, pursuant to which the Company received

an exclusive license under certain patent rights and know-how owned or controlled by CLS to develop and commercialize pharmaceutical products

and methods incorporating DNase in conjunction with CAR T therapies (the “Licensed Products”).

Under the terms of the License

Agreement, the Company will have sole responsibility for, and shall use commercially reasonable efforts to, among other things, research,

develop and obtain marketing approval for the Licensed Products in the U.S.

and certain European markets, and to commercialize such Licensed

Products in the relevant market once marketing approval is obtained.

Volition Collaboration

On August 2, 2022, the Company announced a research

and development collaboration with Volition to develop NETs-targeted adoptive cell therapies for the treatment of cancer.

The collaboration

is an early exploratory program to evaluate the potential combination of Volition’s Nu.Q ® technology Test and the

Company’s DNase-Armored CAR T platform to develop proprietary adoptive cell therapies potentially targeting multiple types of solid

Under the terms of the collaboration agreement, Volition will fund a research program and the two parties will share proceeds

from commercialization or licensing of any products arising from the collaboration.

Catalent Pharma Solutions LLC (“Catalent”)

On June 30, 2022, the Company entered into a

Statement of Work (the “SOW”) with Catalent to outline the general scope of work, timeline, and pricing pursuant to

which Catalent will provide certain services to the Company to perform cGMP manufacturing of the Company’s recombinant

protein, Human DNase I.

The parties agreed to enter into a Master Services Agreement (“MSA”) that will contain terms and

conditions to govern the project contemplated by the SOW and that will supersede the addendum to the SOW containing Catalent's

standard terms and conditions.

In addition, in the event of any conflict between the project-specific terms and conditions set forth

in the SOW and the MSA, the MSA terms and conditions shall govern.

The estimated total cost of the project contemplated by the SOW

is expected to be up to approximately $5 million (exclusive of certain fees and potential alternatives) for the manufacturing

services over the course of the term of the project with each phase of the project invoiced separately in connection with the

commencement of such phase.

Unless earlier amended or terminated, the manufacturing services contemplated by the SOW are currently

targeted to be completed by the first half of 2024.

The SOW is terminable by the Company at any time with 30 days' prior written

notice to Catalent.

The SOW also contains customary provisions related to, among other things, confidentiality, warranties,

intellectual property and indemnification.

The Company has paid Catalent approximately $ 1 .0 million through March 31, 2023, of which $ 0.4

million and $ 0.3

million has been recognized as an advance payment and is included in prepaid expenses and other as of March 31, 2023 and

December 31, 2022, respectively.

Scripps Research

On March 17, 2023, the Company and Scripps Research

entered into a Research Funding and Option Agreement (the “Agreement”), pursuant to which the Company has agreed to provide

Scripps Research an aggregate of up to $ 938,000 to fund research relating to advancing the pre-clinical development of the Company’s

DNase oncology platform technology.

The research funding is payable by the Company to Scripps Research on a monthly basis in accordance

with a negotiated budget, which provides for an initial payment of approximately $ 78,000 on the date of the Agreement and subsequent monthly

payments of approximately $ 78,000 over a 12-month period.

Under the Agreement, the Company has the option to acquire a worldwide exclusive

license to Scripps Research’s rights in the Technology or Patent Rights (as defined in the Agreement), as well as a non-exclusive,

royalty-free, non-transferrable license to make and use TSRI Technology (as defined in the Agreement) solely for the Company’s internal

research purposes during the performance of the research program contemplated by the Agreement.

Unless earlier terminated, the term of the Agreement

continues from the date of the Agreement for fifteen (15) months.

The Agreement may be terminated by the Company with 30 days advance

written notice to Scripps Research beginning six (6) months after the Effective Date (as defined in the Agreement) or by Scripps Research

if the Company fails to make timely payments due under the Agreement, subject to 30 days’ written notice to cure such nonpayment.

The Agreement may further be terminated by either party in the event of the other party’s uncured failure to perform any obligations

under the Agreement or the bankruptcy of the other party.

No payments were made to Scripps Research under

this agreement through March 31, 2023.

As of March 31, 2023, the Company has recorded accrued program expense of approximately $ 40,000

in connection with this agreement as a component of accrued expenses and other current liabilities.

Other Agreements

The Company has also entered into various research,

development, license and supply agreements with Serum Institute of India (“Serum Institute”), PJSC Pharmsynthez (“Pharmsynthez”)

and SynBio LLC (“SynBio”), a wholly owned subsidiary of Pharmsynthez.

The Company’s collaborative partners continue

to engage in research and development activities with no resultant commercial products through September 30, 2022.

The Company and its collaborative partners continue

to engage in research and development activities with no resultant commercial products through March 31, 2023.

No amounts were recognized

as revenue related to the Serum Institute, Pharmsynthez or SynBio agreements during the three and nine months ended September 30, 2022

and 2021, respectively.

In October 2017, the Company granted to Takeda Pharmaceuticals

(“Takeda”) the right to grant a non-exclusive sublicense to certain patents related to the Company’s PolyXen

technology that were previously exclusively licensed to Takeda in connection with products related to the treatment of blood and bleeding

Royalty payments of approximately $ 0.4 million and $ 1.2 million were recorded as revenue by the Company during the three and

nine months ended September 30, 2022, respectively, and approximately $ 0.3 million and $ 0.8 million were recorded as revenue by the Company

during the three and nine months ended September 30, 2021, respectively.

These payments are based on single digit royalties on net sales

of certain covered products.

The Company’s policy is to recognize royalty payments as revenue when they are reliably measurable,

which is upon receipt of reports from Takeda.

The Company receives these reports in the quarter subsequent to the actual sublicensee sales.

At the time the revenue was received, there were no remaining performance obligations and all other revenue recognition criteria were

On May 15, 2020, the Company and The Scripps Research

Institute (“Scripps Research”) entered into a Research Funding and Option Agreement (the “Scripps Agreement”),

pursuant to which the Company had agreed to provide Scripps Research an aggregate of up to $3.0 million to fund research relating to advancing

the pre-clinical development of XCART.

The research funding was payable by the Company to Scripps Research on a quarterly basis in accordance

with a negotiated budget, which provided for an initial payment of approximately $300,000 on the date of the Scripps Agreement and subsequent

quarterly payments of approximately $300,000 over a 27-month period.

Under the Scripps Agreement, Scripps Research has granted the Company

a license within the Field (as defined in the Scripps Agreement) to any Patent Rights or Technology (as defined in the Scripps Agreement)

under the terms of that certain license agreement with Scripps Research, dated February 25, 2019, assigned to the Company on March 1,

Additionally, the Company has the option to acquire a worldwide exclusive license to Scripps Research’s rights in the Technology

or Patent Rights not already licensed to the Company, as well as a non-exclusive, royalty-free, non-transferrable license to make and

use Scripps Research Technology (as defined in the Scripps Agreement) solely for the Company’s internal research purposes during

the performance of the research program contemplated by the Scripps Agreement.

During the second quarter of 2022, the parties mutually

agreed to terminate additional funding under the Scripps Agreement.

As a result, Scripps Research agreed to continue to perform work under

the agreement until funding previously advanced was expended.

The Company paid $ 2.4 million to Scripps Research under this agreement through

September 30, 2022.

There were no amounts recognized as an advance payment under this agreement or accrued as of September 30, 2022.

of December 31, 2021, approximately $ 0.2 million has been recognized as an advance payment under this agreement and is included in prepaid

expenses and other current assets.

On June 30, 2022, the Company entered into a Statement

of Work (the “SOW”) with Catalent Pharma Solutions, LLC (“Catalent”) to outline the general scope of work, timeline,

and pricing pursuant to which Catalent will provide certain services to the Company to perform cGMP manufacturing of the Company’s

recombinant protein, Human DNase I.

The parties agreed to enter into a Master Services Agreement (“MSA”) that will contain

terms and conditions to govern the project contemplated by the SOW and that will supersede the addendum to the SOW containing Catalent's

standard terms and conditions.

In addition, in the event of any conflict between the project-specific terms and conditions set forth in

the SOW and the MSA, the MSA terms and conditions shall govern.

The estimated total cost of the project contemplated by the SOW is expected

to be up to approximately $5 million (exclusive of certain fees and potential alternatives) for the manufacturing services over the course

of the term of the project with each phase of the project invoiced separately in connection with the commencement of such phase.

earlier terminated, the manufacturing services contemplated by the SOW are currently expected to take approximately 17 months from the

The SOW is terminable by the Company at any time with 30 days' prior written notice to Catalent.

SOW also contains customary provisions related to, among other things, confidentiality, warranties, intellectual property and indemnification.

During the three and nine months ended September 30, 2022, the Company paid Catalent $ 0.3 million , which has been recorded as a long-term

prepayment as of September 30, 2022.

Licensing Arrangements

Exclusive Sublicense Agreement

On April 26, 2022, the Company entered into an Exclusive

Sublicense Agreement (the “Sublicense Agreement”) with CLS Therapeutics Ltd.

(“CLS”) pursuant to which the Company

received an exclusive license, under certain patent rights and know-how owned or controlled by CLS, to develop and commercialize pharmaceutical

products and methods incorporating DNase enzyme for use in treatment of cancer (the “Sublicensed Products”).

Under the terms

of the Sublicense Agreement, the Company will have sole responsibility for, and shall use commercially reasonable efforts to, among other

things, research, develop and obtain marketing approval for the Sublicensed Products in the U.S.

and certain European markets, and to

commercialize such Sublicensed Products in the relevant market once marketing approval is obtained.

In consideration for the license and other rights

granted to the Company under the Sublicense Agreement, the Company issued to CLS 375,000 shares of the Company’s common stock (the

“Sublicense Agreement Shares”), of which 250,000 Sublicense Agreement Shares were issued directly to OPKO Health, Inc.

in lieu of transfer indirectly from CLS to EirGen Pharma Ltd.

(“EirGen”), a wholly owned subsidiary of OPKO, in satisfaction

of certain third-party contractual obligations between CLS and EirGen.

Additionally, the Company is obligated to pay to CLS up to $13,000,000

in cash in potential milestone payments for the achievement of certain clinical and regulatory milestones, as well as issue an additional

950,000 shares of the Company’s common stock to CLS based on the achievement of certain regulatory milestones.

In addition, the

Company is obligated to pay tiered royalties ranging from the mid-single to low-double digits on net sales of licensed products falling

within the scope of the license during the Royalty Term (as defined in the Sublicense Agreement), as well as pay a percentage share in

the low-to-mid teens of certain consideration received by the Company from any sublicensees.

Exclusive License Agreement

On April 26, 2022, the Company entered into an Exclusive

License Agreement (the “License Agreement”) with CLS, pursuant to which the Company received an exclusive license under certain

patent rights and know-how owned or controlled by CLS to develop and commercialize pharmaceutical products and methods incorporating DNase

in conjunction with CAR T therapies (the “Licensed Products”).

Under the terms of the License Agreement, the Company will

have sole responsibility for, and shall use commercially reasonable efforts to, among other things, research, develop and obtain marketing

approval for the Licensed Products in the U.S.

and certain European markets, and to commercialize such Licensed Products in the relevant

market once marketing approval is obtained.

In consideration for the license and other rights

granted to the Company under the License Agreement, the Company paid CLS a one-time fee of $ 500,000 in cash, issued to CLS 500,000 shares

of the Company’s common stock, and is obligated to pay up to $13,000,000 in cash in potential milestone payments for the achievement

of certain clinical and regulatory milestones for each Licensed Product.

In addition, the Company is obligated to pay tiered royalties

ranging from the mid-single to low-double digits on net sales of licensed products falling within the scope of the license during the

Royalty Term (as defined in the License Agreement), as well as pay a percentage share in the mid-teens to low double digits of certain

consideration received by the Company from any sublicensees.

The total consideration for the Sublicense and License

Agreements was approximately $ 1.3 million , which consists of a $ 0.5 million cash payment and the fair value of the 875,000 common shares

issued of $ 0.8 million utilizing the closing market price of the Company’s stock price at the closing date.

As there was no future

alternative use for the sublicense and license, the Company recorded an expense of $ 1.3 million to research and development expense for

the nine months ended September 30, 2022.

In addition, the Company incurred approximately $ 0.2 million and $ 0.4 million related to consulting,

transaction and development costs in connection with the Sublicense and License Agreements in the three and nine months ended September

30, 2022, respectively.

Patent Assignment and Volition Collaboration

On October 4, 2022, the Company completed a patent

assignment related to its collaboration with Belgian Volition SARL Limited (“Volition”) and CLS.

In connection with the patent

assignment, the Company entered into a Subscription Agreement with CLS Therapeutics, LLC, a Delaware limited liability company (“CLS

LLC ”) on October 12, 2022, pursuant to which the Company agreed to issue to CLS LLC, and CLS LLC agreed to subscribe for, 850,000

shares of the Company’s common stock (the “Shares”) as consideration for the assignment by CLS and its affiliates to

the Company of certain patent rights owned by CLS and its affiliates.

The Shares were issued on October 12, 2022.

2022, the Company announced a research and development collaboration with Volition to develop NETs-targeted adoptive cell therapies

for the treatment of cancer.

The collaboration is an early exploratory program to evaluate the potential combination of Volition’s

Nu.Q® technology Test and the Company’s DNase-Armored CAR T platform to develop proprietary adoptive cell therapies potentially

targeting multiple types of solid cancers.

Under the terms of the collaboration agreement, Volition will fund a research program and the

two parties will share proceeds from commercialization or licensing of any products arising from the collaboration.

as revenue related to the Serum Institute, Pharmsynthez or SynBio agreements during the three months ended March 31, 2023 and 2022, respectively.

Fair Value Measurements

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at the measurement date.

As of September 30, 2022 and December 31, 2021, the carrying amounts of the Company’s financial instruments

As of March 31, 2023 and December 31, 2022, the carrying amounts of the Company’s financial instruments

approximates fair value due to their short maturities.

There were no financial instruments classified as Level 3 in the fair value hierarchy

during the three and nine months ended September 30, 2022 and 2021.

during the three months ended March 31, 2023 and 2022.

Stockholders’ Equity

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common stock and expire on February 23, 2025 .

No Series A Warrants were exercised or forfeited during the three and nine months ended

September 30, 2022.

In addition to the Series A Warrants, warrants to

purchase approximately 29,000 and 31,000 shares of the Company’s common stock were outstanding as of September 30, 2022 and December

31, 2021, respectively, as described below.

Publicly traded warrants to purchase approximately

21,000 and 23,000 shares of common stock were outstanding as of September 30, 2022 and December 31, 2021, respectively.

These warrants

have an exercise price of $ 13.00 per share and expire on July 17, 2024 .

No Series A Warrants were exercised or forfeited during the three months ended March 31,

2023 and 2022.

In addition, the Company has publicly traded warrants

to purchase approximately 21,000 shares of common stock outstanding as of both March 31, 2023 and December 31, 2022.

These warrants have

an exercise price of $ 13.00 per share and expire on July 17, 2024 .

The warrants trade on Nasdaq under the symbol “XBIOW.”

2 unchanged sentences

for one share of common stock.

No warrants to purchase shares of common stock were exercised during the three months ended September 30,

Warrants to purchase approximately 2,547 shares of common stock were exercised on a cashless, one-for-one basis during the three

months ended September 30, 2021.

Warrants to purchase approximately 1,984 shares and 4,032 shares of common stock were exercised on a

cashless, one-for-one basis during the nine months ended September 30, 2022 and 2021, respectively.

None of these warrants were forfeited

during the three and nine months ended September 30, 2022 and 2021.

Warrants to purchase approximately 8,000 shares of

the Company’s common stock were outstanding as of September 30, 2022 and December 31, 2021.

These warrants have an exercise price

of $ 2.91 per share and expire on July 3, 2026 .

None of these warrants were exercised or forfeited during the three and nine months ended

September 30, 2022 and 2021.

None of these warrants were exercised during the three months ended March 31, 2023.

Warrants to purchase

1,684 shares of common stock were exercised on a cashless, one-for-one basis during the three months ended March 31, 2022.

None of these

warrants were forfeited during the three months ended March 31, 2023 and 2022.

The Company also has outstanding warrants to purchase

approximately 8,000 shares of the Company’s common stock as of March 31, 2023 and December 31, 2022.

These warrants have an exercise

price of $ 2.91 per share and expire on July 3, 2026 .

None of these warrants were exercised or forfeited during the three months ended

March 31, 2023 and 2022.

Share-Based Expense

Total share-based expense related to stock options

restricted stock units and common stock awards was approximately $ 0.1 million for each of the three months ended September 30, 2022 and

2021 and approximately $ 0.4 million and $ 0.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Share-based compensation expense is classified in the condensed consolidated

statements of operations as follows:

and restricted stock units (“RSUs”) was approximately $ 0.1 million during each of the three months ended March 31, 2023 and

Share-based expense is classified in the condensed

consolidated statements of operations as follows:

Schedule of Share-Based Compensation Expense

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Research and development expenses

1 unchanged sentence

Employee Stock Options

During the nine months ended September 30, 2022, the

Company granted 200,000 stock option awards to purchase shares of common stock.

The weighted average grant date fair value per option

share was $ 0.99 .

Key assumptions used in the Black-Scholes option pricing model for options granted during the nine months ending September

30, 2022 were the Company’s stock price, a risk free rate of 2.38 %, an expected life of 5.88

years and an expected volatility rate of 126.32 %.

During the nine months ended September 30, 2021, the Company granted 200,000

stock option awards to purchase shares of common stock.

The Company recognized a total of $ 0.1 million of compensation expense related

to employee stock options during each of the three months ended September 30, 2022 and 2021 and $ 0.4 million and $ 0.3 million during the

nine months ended September 30, 2022 and 2021, respectively.

No stock option awards to purchase shares of common

stock were granted during the three months ended March 31, 2023.

D uring the three months

ended March 31, 2022, the Company granted 200,000 stock option awards to purchase shares of common stock.

The Company recognized a total

of approximately $ 0.1 million of compensation expense related to employee stock options during each of the three months ended March 31,

2023 and 2022.

No employee stock options or RSUs were exercised and none expired during the three months ended March 31, 2023 and 2022.

Non-Employee Stock Options

The Company did no t grant any non-employee stock options

during the nine months ended September 30, 2022 and 2021.

The Company did not recognize any expense related to non-employee stock options

during the three and nine months ended September 30, 2022 and 2021, respectively.

During the three and nine months ended September 30,

2022 and 2021, there was no provision for income taxes as the Company incurred losses during both periods.

There were no non-employee stock options granted

or exercised during the three months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023, non-employee

stock option grants to purchase approximately 1,000 shares of common stock expired.

No non-employee stock option grants expired during

the three months ended March 31, 2022.

The Company did not recognize any expense related to non-employee stock options during the three

months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023 and

2022, there was no provision for income taxes as the Company incurred losses during both periods.

Deferred tax assets and liabilities

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The valuation allowance against deferred tax assets

was approximately $ 32.8 million and $ 31.4 million as of September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021,

was approximately $ 38.7 million and $ 38.6 million as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023 and December 31, 2022,

the Company did no t record any unrecognized tax positions.

Supplemental cash flow information and non-cash activity

related to the Company’s operating leases are as follows:

Commitments and contingencies

Supplemental cash flow information and non-cash

activity related to our operating leases are as follows:

Cash flow information regarding leases

September 30,

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

Supplemental balance sheet information related to

the Company’s operating leases is as follows:

Supplemental balance sheet information related

to our operating leases is as follows:

Supplemental information related to operating leases

Balance Sheet Classification

September 30,

September 30, 2021

March 31, 2023

March 31, 2022

Right-of-use assets - ST

Prepaid expenses and other

Right-of-use assets - LT

Current lease liabilities

Accrued expenses and other current liabilities

Non-current lease liabilities

Other long-term liabilities

Related Party Transactions

The Company has entered into various research, development,

license and supply agreements with Serum Institute and Pharmsynthez each a related party whose relationship has not materially changed

from that disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March

22, 2022, as amended on April 28, 2022.

The Company has entered into various research,

development, license and supply agreements with Serum Institute and Pharmsynthez, each a related party whose relationship has not materially

changed from that disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC

on March 22, 2023, as amended on April 28, 2023.

During the fourth quarter

2 unchanged sentences

Co-Development Agreement with Pharmsynthez.

The Pharmsynthez Loan had a term of 15-months and accrued interest at a rate of 10 % per annum.

The Pharmsynthez Loan is guaranteed by all of the operating subsidiaries of Pharmsynthez, including SynBio and AS Kevelt (“Kevelt”),

and is secured by all of the common and preferred stock of the Company owned by Pharmsynthez and SynBio.

The Company recognized approximately

$ 12,000 of interest income related to this loan during the three months ended September 30, 2021 and approximately $ 9,000 and $ 35,000

of interest income related to this loan during the nine months ended September 30, 2022 and 2021, respectively.

The Company did no t recognize

any interest income during the three months ended September 30, 2022 as Pharmsynthez informed the Company that it could not make interest

payments commencing in the second quarter as a result of Russian sanctions imposed in response to sanctions from the U.S.

and other countries,

as discussed below.

Effective January 23, 2021, the Company entered into

a First Amendment to Loan Agreement and Other Loan Documents with Pharmsynthez, Kevelt and SynBio (the “Pharmsynthez Loan Extension”)

to modify the repayment terms and maturity of the Pharmsynthez Loan to January 2022.

The terms of the Pharmsynthez Loan Extension called

for two (2) equal monthly principal payments of $ 25,000 in each of January 23, 2021 and February 28, 2021 and the payment of all outstanding

accrued interest in six (6) equal monthly installments from January 31, 2021 through June 30, 2021.

In addition, the Pharmsynthez Loan

Extension required monthly interest payments and the repayment of the remaining principal amount in six (6) equal monthly installments

from August 2021 through January 2022.

Effective August 31, 2021, the Company entered into

a Second Amendment to Loan Agreement and Other Loan Documents with Pharmsynthez, Kevelt and SynBio (the “Second Pharmsynthez Loan

Extension”) to modify the repayment terms and maturity of the Pharmsynthez Loan to July 2022.

The terms of the Second Pharmsynthez

Loan Extension called for an upfront fee of $ 12,500 and two (2) equal monthly principal payments of $ 25,000 on September 30, 2021 and

October 31, 2021.

In addition, the Second Pharmsynthez Loan Extension required monthly interest payments and the repayment of the remaining

principal amount in six (6) equal monthly installments from February 2022 through July 2022.

All other terms of the Pharmsynthez Loan,

as amended, remained in effect.

All required payments under the Second Pharmsynthez Loan Extension had been made through January 31, 2022.

In February 2022, the Company received a request from Pharmsynthez to further extend the principal repayments and the maturity of the

Subsequent to quarter end, the Company

entered into a Third Amendment to Loan Agreement and Other Loan Documents with Pharmsynthez, Kevelt and SynBio dated October 31,

2022 (the “Third Pharmsynthez Loan Extension”) primarily to modify the repayment terms and maturity of the Pharmsynthez

Loan to May 31, 2023.

The terms of the Third Pharmsynthez Loan Extension require certain payments of principal, interest and fees at

the signing of the Third Pharmsynthez Loan Extension.

In addition, the Third Pharmsynthez Loan Extension requires the repayment of

the remaining principal amount, plus interest, in seven (7) monthly installments from November 30, 2022 through May 31, 2023 as well

as certain other terms and conditions.

All other terms of the Pharmsynthez Loan, as amended, remained in effect.

As the payments

required under the Third Pharmsynthez Loan Extension have not been received to date and as a result of the ongoing economic

uncertainty due to the conflict between Russia and Ukraine and associated sanctions imposed by the U.S.

and other countries in

response, the Company has classified the loan receivable as long-term as of September 30, 2022 and December 31, 2021.

assessed the collectability of the loan and determined that the U.S.-based collateral held by the Company, consisting of all of the

common and preferred stock of the Company owned by Pharmsynthez and SynBio, was adequate to support the repayment of the outstanding

The Pharmsynthez Loan had an initial term of 15-months and accrued interest at a rate of 10 %

The Pharmsynthez Loan is guaranteed by all of the operating subsidiaries of Pharmsynthez, including SynBio and AS Kevelt, and

is secured by all of the common and preferred stock of the Company owned by Pharmsynthez and SynBio.

The Pharmsynthez Loan has been amended at various

times primarily to extend the principal repayment schedule and maturity date.

The Pharmsynthez Loan, as amended, currently has a maturity

date of May 31, 2023 and requires the repayment of the remaining principal amount, plus interest, in seven (7) monthly installments from

November 30, 2022 through May 31, 2023 as well as certain other terms and conditions.

While Pharmsynthez has made certain payments in

accordance with the repayment schedule, all principal and interest payments required to date under the Pharmsynthez Loan, as amended,

have not been made.

As a result, the Company has classified the loan receivable as long-term as of March 31, 2023 and December 31, 2022.

The Company assessed the collectability of the loan and determined that the U.S.-based collateral held by the Company, consisting of all

of the common and preferred stock of the Company owned by Pharmsynthez and SynBio, was adequate to support the repayment of the outstanding

principal balance.

As of September 30, 2022 and December 31, 2021, approximately $ 0.4

million was included in other assets on the condensed consolidated balance sheet.

In April 2022, the Company entered into Exclusive

License and Sublicense Agreements with CLS as described in Note 5.

One of the Company’s directors, Roger Kornberg, is a member of

the scientific advisory board of CLS, however, Mr.

Kornberg does not own any equity of CLS and is not receiving any economic benefit as

a result of the transactions contemplated by the License Agreement and Sublicense Agreement.

Adam Logal, one of our directors, is

Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer of OPKO.

As of March 31, 2023 and December 31, 2022, approximately $ 0.2 million and $ 0.4 million , respectively, was included

in other assets on the condensed consolidated balance sheet.

The Company did no t recognize any interest income related to this loan during

the three months ended March 31, 2023.

The Company recognized approximately $ 9,000 of interest income related to this loan during the

three months ended March 31, 2022.

Subsequent Events

The Company performed a review of events subsequent

to the balance sheet date through the date the financial statements were issued and determined that other than described in Notes 5 and

11, there were no such events requiring recognition or disclosure in the financial statements.

to the balance sheet date through the date the financial statements were issued and determined that there were no such events requiring

recognition or disclosure in the financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements