Xenetic Biosciences, Inc. 10-K

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm (PCAOB ID 199 ) F-1 Report of Independent Registered Public Accounting Firm (PCAOB ID 688 ) F-2 Consolidated Balance Sheets as of December 31, 2025 and 2024 F-3 Consolidated Statements of Operations for the years ended December 31, 2025 and 2024 F-4 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2025 and 2024 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 F-6 Notes to Consolidated Financial Statements F-7 59 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Xenetic Biosciences, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Xenetic Biosciences, Inc. (the “Company”) as of December 31, 2025, the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audit, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Retrospective Application of a Change in Accounting Principle We also have audited the adjustments to the 2024 financial statements to retrospectively apply the change in accounting due to the adoption of ASU 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures, as described in Note 3. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2024 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2024 financial statements taken as a whole. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ CBIZ CPAs P.C. We have served as the Company’s auditor since 2015 (such date takes into account the acquisition of the attest business of Marcum LLP by CBIZ CPAs P.C. effective November 1, 2024). Hartford, CT March 12, 2026 F- 1 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Xenetic Biosciences, Inc. Opinion on the Financial Statements We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 3, the accompanying consolidated balance sheet of Xenetic Biosciences, Inc. (the “Company”) as of December 31, 2024, the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”) and the 2024 financial statements before the effects of the adjustments discussed in Note 3 are not presented herein). In our opinion, based on our audit, the 2024 financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 3, present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in Note 3 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by CBIZ CPAs. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum LLP We have served as the Company’s auditor from 2015 through 2025. Hartford, CT March 18, 2025 F- 2 XENETIC BIOSCIENCES, INC. CONSOLIDATED BALANCE SHEETS December 31, 2025 December 31, 2024 ASSETS Current assets: Cash $ 7,883,632 $ 6,165,568 Prepaid expenses and other 166,294 421,954 Total current assets 8,049,926 6,587,522 Other assets 313,921 313,921 Total assets $ 8,363,847 $ 6,901,443 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 258,109 $ 283,615 Accrued expenses and other current liabilities 709,916 610,648 Total current liabilities 968,025 894,263 Total liabilities 968,025 894,263 Commitments and contingencies (Note 11) – – Stockholders' equity: Preferred stock, 10,000,000 shares authorized Series B, $ 0.001 par value: 1,454,545 and 1,804,394 shares issued and outstanding as of December 31, 2025 and December 31, 2024 1,454 1,804 Common stock, $ 0.001 par value; 10,000,000 shares authorized as of December 31, 2025 and December 31, 2024; 2,293,757 and 1,544,840 shares issued as of December 31, 2025 and December 31, 2024, respectively; 2,291,056 and 1,542,139 shares outstanding as of December 31, 2025 and December 31, 2024, respectively 2,294 1,545 Additional paid in capital 212,294,851 208,225,748 Accumulated deficit ( 199,875,331 ) ( 197,194,471 ) Accumulated other comprehensive income 253,734 253,734 Treasury stock ( 5,281,180 ) ( 5,281,180 ) Total stockholders' equity 7,395,822 6,007,180 Total liabilities and stockholders' equity $ 8,363,847 $ 6,901,443 The accompanying notes are an integral part of these consolidated financial statements. F- 3 XENETIC BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2025 2024 Revenue Royalty revenue $ 2,976,411 $ 2,500,284 Total revenue 2,976,411 2,500,284 Operating costs and expenses: Research and development ( 3,065,484 ) ( 3,288,332 ) General and administrative ( 2,745,509 ) ( 3,416,380 ) Total operating costs and expenses ( 5,810,993 ) ( 6,704,712 ) Loss from operations ( 2,834,582 ) ( 4,204,428 ) Other income (expense): Other income (expense) 5,725 ( 5,708 ) Interest income, net 147,997 249,861 Total other income, net 153,722 244,153 Net loss $ ( 2,680,860 ) $ ( 3,960,275 ) Basic and diluted net loss per share $ ( 1.58 ) $ ( 2.57 ) Weighted-average shares of common stock outstanding, basic and diluted 1,701,571 1,541,339 The accompanying notes are an integral part of these consolidated financial statements. F- 4 XENETIC BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Preferred Stock Common Stock Accumulated Number of Shares Par Value ($0.001) Number of Shares Par Value ($0.001) Additional Paid in Capital Accumulated Deficit Other Comprehensive Income Treasury Stock Total Stockholders' Equity Balance as of January 1, 2024 1,804,394 $ 1,804 1,543,385 $ 1,544 $ 208,053,935 $ ( 193,234,196 ) $ 253,734 $ ( 5,281,180 ) $ 9,795,641 Issuance of common stock in connection with restricted stock units – – 417 – – – – – – Exercise of purchase warrants – – 1,038 1 ( 1 ) – – – – Share-based expense – – – – 171,814 – – – 171,814 Net loss – – – – – ( 3,960,275 ) – – ( 3,960,275 ) Balance as of December 31, 2024 1,804,394 $ 1,804 1,544,840 $ 1,545 $ 208,225,748 $ ( 197,194,471 ) $ 253,734 $ ( 5,281,180 ) $ 6,007,180 Issuance of common stock in October 2025 underwritten public offering, net of issuance costs – – 735,000 735 4,003,980 – – – 4,004,715 Conversion of Series B preferred stock to shares of common stock ( 349,849 ) ( 350 ) 13,917 14 336 – – – – Share-based expense – – – – 64,787 – – – 64,787 Net loss – – – – – ( 2,680,860 ) – – ( 2,680,860 ) Balance as of December 31, 2025 1,454,545 $ 1,454 2,293,757 $ 2,294 $ 212,294,851 $ ( 199,875,331 ) $ 253,734 $ ( 5,281,180 ) $ 7,395,822 The accompanying notes are an integral part of these consolidated financial statements. F- 5 XENETIC BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 2,680,860 ) $ ( 3,960,275 ) Adjustments to reconcile net loss to net cash used in operating activities: Share-based expense 64,787 171,814 Changes in operating assets and liabilities: Prepaid expenses and other 255,660 181,874 Other long-term assets – 704,431 Accounts payable, accrued expenses and other current liabilities 73,762 84,678 Net cash used in operating activities ( 2,286,651 ) ( 2,817,478 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock in October 2025 underwritten public offering 4,004,715 – Net cash provided by financing activities 4,004,715 – Net change in cash 1,718,064 ( 2,817,478 ) Cash at beginning of period 6,165,568 8,983,046 Cash at end of period $ 7,883,632 $ 6,165,568 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ – $ – SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock from cashless exercise of purchase warrants $ – $ 1 Conversion of Series B preferred stock to common stock $ 350 $ – The accompanying notes are an integral part of these consolidated financial statements. F- 6 XENETIC BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The Company Background Xenetic Biosciences, Inc. (“Xenetic” 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 difficult to treat cancers. The Company’s proprietary Deoxyribonuclease (“DNase”) technology is designed to improve outcomes of existing treatments, including immunotherapies, by targeting neutrophil extracellular traps or NETs, which are involved in cancer progression. 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, 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 may be used throughout this Annual 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 Management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company has incurred substantial losses since its inception and expects to continue to incur operating losses in the near-term. The Company believes that its existing resources will be adequate to fund the Company’s operations for a period of at least twelve months from the date of the issuance of these financial statements. In addition, the Company raised $4.0 million in an underwritten offering of common stock as more fully described in Note 8, Stockholders’ Equity , to the consolidated financial statements. However, the Company anticipates it will need additional capital in the long-term to pursue its business initiatives. While the Company believes it will continue to have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations, related party funding, or other means to continue as a going concern, 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. Recent Developments The Company and its board of directors (the “Board”) have initiated a formal strategic review process with the assistance of outside financial and legal advisors. The Company is considering a wide range of alternatives to maximize shareholder value, including, but not limited to, the sale of all or part of the Company or its assets or a business combination, including a “reverse merger”, share exchange or similarly structured transaction. An independent committee of the Board has engaged in preliminary discussions with third parties regarding potential transactions. Any such completed transaction could have a significant impact on the Company’s stockholders, including if the transaction would result in the current investors of the counterparty holding a substantial majority of the Company’s outstanding common stock following consummation of the potential transaction. Given the preliminary stage of such discussions, at this time there is no way to quantify the potential impact of a transaction, if any. There is no deadline or definitive timetable set for the completion of the strategic alternatives process, and there can be no assurance any proposal will be made or accepted, any agreement will be executed, or any transaction will be consummated in connection with this review. In addition, if the Company does enter into definitive agreements with respect to a potential transaction, the Company expects that consummation of the potential transaction would be subject to a number of conditions, including approval by the Company’s stockholders and Nasdaq, and other customary conditions, which would be out of the Company’s control and may never be satisfied. The Company remains committed to advancing its DNase technology and does not intend to make further announcements regarding the review process unless and until the Board approves a specific transaction or otherwise determines that further disclosure is appropriate. F- 7 2. Risks and Uncertainties Impact of Global Conflicts on Operations The short and long-term implications of geopolitical events and global conflicts, including those in Ukraine and the Middle East are difficult to predict at this time. The imposition of current and future sanctions and counter sanctions may have an adverse effect on the economic markets generally and could impact the Company’s business, financial condition, and results of operations. 3. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of the Company include the accounts of Hesperix, Xenetic UK and Xenetic UK’s wholly-owned subsidiaries: Lipoxen, Xenetic Bioscience, Incorporated, and SymbioTec. Certain of the Company’s subsidiaries require guarantees of support from Xenetic. While all intercompany balances and transactions have been eliminated in consolidation, the Company has $0.2 million of cash collateralizing these guarantees. Use of Estimates The consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of the financial statements in accordance with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenue, costs and expenses in the financial statements and disclosures in the accompanying notes. Actual results and outcomes may differ materially from management’s estimates, judgments and assumptions. Functional Currency Change The functional currency for the Company’s foreign subsidiaries is the U.S. dollar. The functional currency of the Company’s UK-based subsidiaries changed from the British Pound Sterling to the U.S. dollar when the Company relocated to the U.S. in 2014. The change in functional currency was applied on a prospective basis. Therefore, any gains and losses that were previously recorded in accumulated other comprehensive income remain unchanged. Foreign Currency Transactions Realized and unrealized gains and losses resulting from foreign currency transactions arising from exchange rate fluctuations on balances denominated in currencies other than the functional currencies are recognized in “Other income (expense)” in the consolidated statements of operations. Monetary assets and liabilities that are denominated in a currency other than the functional currency are re-measured to the functional currency using the exchange rate at the balance sheet date and gains or losses are recorded in the consolidated statements of operations. Fair Value of Financial Instruments Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 utilizes quoted market prices in markets that are not active, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. As of December 31, 2025 and 2024, the carrying amount of certain of the Company’s financial instruments approximates fair value due to their short maturities. See Note 6, Fair Value Measurements , for discussion of the Company’s fair value measurements. F- 8 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. Management 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 may exceed federally insured limits. The Company has not experienced any losses on such accounts, and does not believe it is exposed to any unusual credit risk beyond the normal credit risk currently associated with commercial banking relationships. The Company maintains banking relationships with two large financial institutions and all cash on deposit is covered under federally insured limits. Indefinite-Lived Intangible Assets Assets acquired and liabilities assumed in business combinations, licensing and other transactions are generally recognized at the date of acquisition at their respective fair values. At acquisition, the Company generally determines the fair value of intangible assets, including in-process research and development (“IPR&D”), using the “income method.” Acquired IPR&D intangible assets are considered indefinite-lived intangible assets and are not amortized until completion or abandonment of the associated research and development efforts. Substantial additional research and development may be required before the Company’s IPR&D reaches technological feasibility. Upon completion of the IPR&D project, the IPR&D assets will be amortized over their estimated useful lives. Indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually or when events or changes in the business environment indicate that it is more likely than not that the carrying value may be impaired. The Company also has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads the Company to determine that it is more likely than not (that is, a likelihood of more than 50%) that the acquired indefinite-lived intangible assets are impaired. If the Company chooses to first assess the qualitative factors and it is determined that it is not more likely than not acquired indefinite-lived intangible assets are impaired, the Company is not required to take further action to test for impairment. The Company also has the option to bypass the qualitative assessment and perform only the quantitative impairment test, which the Company may choose to perform in some periods but not in others. The impairment loss, if any, is measured as the excess of the carrying value of the intangible asset over its fair value. Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for IPR&D. Considering the high risk nature of research and development and the industry’s success rate of bringing developmental compounds to market, indefinite-lived intangible asset impairment charges are likely to occur in future periods. Estimating the fair value of indefinite-lived intangible assets for potential impairment is highly sensitive to changes in projections and assumptions and changes to assumptions could potentially lead to impairment. The Company believes its estimates and assumptions are reasonable and otherwise consistent with assumptions market participants would use in their estimates of fair value. However, if future results are not consistent with the Company’s estimates and assumptions, then the Company may be exposed to an impairment charge, which could be material. Use of different estimates and judgments could yield materially different results in the Company’s analysis and could result in materially different asset values or expense. Impairment of Long-Lived Assets The Company reviews long-lived assets to be held and used, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. Evaluation of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset or asset group and its eventual disposition. Impairment, if any, is calculated as the amount by which an asset’s carrying value exceeds its fair value, typically using discounted cash flows to determine fair value. During the year ended December 31, 2024, the Company recorded an asset impairment charge of $ 0.7 million, which is presented within research and development expenses in the consolidated statements of operations, representing the excess of the long-lived asset’s carrying value over its estimated fair value. F- 9 Revenue Recognition The Company enters into supply, license and collaboration arrangements with pharmaceutical and biotechnology partners, some of which include royalty agreements based on potential net sales of approved commercial pharmaceutical products. The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue at a point in time, or over time, as it satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. As part of the accounting for these arrangements, the Company must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration should be included in the transaction price as described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. In developing the stand-alone price for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company validates the stand-alone selling price for performance obligations by evaluating whether changes in the key assumptions used to determine the stand-alone selling prices will have a significant effect on the allocation of transaction price between multiple performance obligations. The Company recognizes a contract asset or liability for the difference between the Company’s performance (i.e., the goods or services transferred to the customer) and the customer’s performance (i.e., the consideration paid by, and unconditionally due from, the customer). The terms of the Company’s license agreements may include delivery of an intellectual property license to a collaboration partner. The Company may be compensated under license arrangements through a combination of non-refundable upfront receipts, development and regulatory objective receipts and royalty receipts on future product sales by partners. The Company anticipates recognizing non-refundable upfront license payments and development and regulatory milestone payments received by the Company in license and collaboration arrangements that include future obligations, such as supply obligations, ratably over the Company’s expected performance period under each respective arrangement. The Company makes its best estimate of the period over which the Company expects to fulfill the Company’s performance obligations, which may include technology transfer assistance, research activities, clinical development activities, and manufacturing activities from development through the commercialization of the product. Given the uncertainties of these collaboration arrangements, significant judgment is required to determine the duration of the performance period. When the Company enters into an arrangement to sublicense some of its patents, it will consider the performance obligations to determine if there is a single element or multiple elements to the arrangement as it determines the proper method and timing of revenue recognition. The Company considers the terms of the license or sublicense for such elements as price adjustments or refund clauses in addition to any performance obligations for it to provide such as services, patent defense costs, technology support, marketing or sales assistance or any other elements to the arrangement that could constitute an additional deliverable to it that could change the timing of the revenue recognition. Non-refundable upfront license and sublicense fees received, whereby continued performance or future obligations are considered inconsequential or perfunctory to the relevant licensed technology, are recognized as revenue upon delivery of the technology. F- 10 The Company expects to recognize royalty revenue in the period of sale, based on the underlying contract terms, provided that the reported sales are reliably measurable, the Company has no remaining performance obligations, and all other revenue recognition criteria are met. The Company anticipates reimbursements for research and development services completed by the Company related to the collaboration agreements to be recognized in operations as revenue on a gross basis. The Company’s license and collaboration agreements with certain collaboration partners could also provide for future milestone receipts to the Company based solely upon the performance of the respective collaboration partner in consideration of deadline extensions or upon the achievement of specified sales volumes of approved drugs. For such receipts, the Company expects to recognize the receipts as revenue when earned under the applicable contract terms on a performance basis or ratably over the term of the agreement. These receipts may also be recognized as revenue when continued performance or future obligations by the Company are considered inconsequential or perfunctory. See also Note 4, Significant Strategic Collaborations . Research and Development Expenses Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits, facilities expenses, overhead expenses, pre-clinical development, clinical trial and related clinical manufacturing expenses, fees paid to contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”) and other outside expenses. The Company expenses research and development costs as incurred. The Company expenses upfront, non-refundable payments made for research and development services as obligations are incurred, except when deposits are made for specifically identified future services. The value ascribed to intangible assets acquired but which have not met capitalization criteria is expensed as research and development at the time of acquisition. Upfront payments under license agreements are expensed upon receipt of the license. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable. The Company is required to estimate accrued research and development expenses at each reporting period. This process involves reviewing open contracts and purchase orders, communicating with Company personnel and consultants to identify services that have been performed on its behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual costs. The majority of the Company’s service providers invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met. However, some require advanced payments. The Company makes estimates of accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known at that time. The Company periodically confirms the accuracy of the estimates with the service providers and makes adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to: · · Collaborative partners performing research and development and pre-clinical activities; Program managers in connection with overall program management of exploratory studies and clinical trials; · CMOs in connection with cGMP manufacturing; · CROs in connection with exploratory studies and clinical trials; and · Investigative sites in connection with exploratory studies and clinical trials. The Company bases its expenses related to research and development, pre-clinical activities, manufacturing and clinical trials on its estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions, CMOs and CROs that conduct and manage exploratory studies and clinical trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts the accrual or prepaid accordingly. Although it does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to the Company’s prior estimates of accrued research and development expenses. The Company has recorded approximately $ 0.1 million and $ 0.3 million of prepayments as a component of prepaid expenses and other current assets as of December 31, 2025 and 2024, respectively. In addition, the Company had recorded accrued research costs of approximately $ 0.4 million and $ 0.2 million as a component of accrued expenses and other current liabilities as of each of December 31, 2025 and 2024, respectively. F- 11 Share-based Expense The Company grants share-based payments in the form of options and restricted stock units (“RSUs”) to employees and non-employees to purchase shares of the Company’s common stock. In addition, prior to the Company relocating to the U.S. in 2014, the Company had issued Joint Share Ownership Plan (“JSOP”) awards to employees and entered into agreements to issue common stock in exchange for services provided by non-employees. Share-based expense is based on the estimated fair value of the option or calculated using the Black-Scholes option pricing model. Determining the appropriate fair value model and related assumptions requires judgment, including estimating share price volatility and expected terms of the awards. The expected volatility rates are estimated based on the historical volatility of the Company. To the extent Company data is not available for the full expected term of the awards the Company uses a weighted-average of the historical volatility of the Company and of a peer group of comparable publicly traded companies over the expected term of the option. The expected term represents the time that options are expected to be outstanding. The Company accounts for forfeitures as they occur and not at the time of grant. The Company has not paid dividends and does not anticipate paying cash dividends in the foreseeable future and, accordingly, uses an expected dividend yield of zero. The risk-free interest rate is based on the rate of U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. Upon exercise, stock options are redeemed for newly issued shares of common stock. RSUs are redeemed for newly issued shares of common stock as the vesting and settlement provisions of the grant are met. For employee options that vest based solely on service conditions, the fair value measurement date is generally on the date of grant and the related compensation expense is recognized on a straight-line basis over the requisite vesting period of the awards. For non-employee options issued in exchange for goods or services consumed in the Company’s operations, the fair value measurement date is the earlier of the date the performance of services is complete or the date the performance commitment has been reached. The Company generally determines that the fair value of the stock options is more reliably measurable than the fair value of the services received. Compensation expense related to stock options granted to non-employees is recognized on a straight-line basis over requisite vesting periods of the awards. Warrants In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants issued to collaboration partners in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense on a straight-line basis over the requisite service period or at the date of issuance if there is not a service period or if service has already been rendered. Warrant arrangements are more fully described in Note 8, Stockholders’ Equity . Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Additionally, the Company must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. The Company evaluates the recoverability of its deferred tax assets on a quarterly basis. F- 12 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 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. The Company’s JSOP awards, prior to exercise, are considered treasury shares by the Company and thus do not impact the Company’s net loss per share calculation. For the years ended December 31, 2025 and 2024, basic and diluted net loss per share are the same for each year 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. As of December 31, 2025 and 2024, approximately 29,000 and 3,000 potentially dilutive securities were deemed anti-dilutive due to the Company’s net loss position for each period. Segment Information The Company is required to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The Company is principally engaged in pre-clinical research and development activities to advance its DNase technology. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the CODM, who is the Company’s Chief Executive Officer, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as a single operating segment. The Company’s measure of segment profit or loss is net loss. The CODM manages and allocates to the operations of the Company on a total company basis. Managing and allocating resources on a consolidated basis enables the CODM to assess the overall level of resources available and how best to deploy these resources across functions, therapeutic areas and research and development projects that are in line with the Company’s long-term company-wide strategic goals. Consistent with this decision-making process, the CODM uses consolidated financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets. The following table is representative of the significant expense categories regularly provided to the CODM when managing the Company’s single reporting segment. A reconciliation to the consolidated net loss for the years ended December 31, 2025 and 2024 is as follows: Schedule of consolidated net loss Year Ended December 31, 2025 2024 Revenue $ 2,976,411 $ 2,500,284 Program expenses (1) 3,018,568 1,898,121 Non-program expenses (2) 1,989,368 2,754,895 Salaries and wages 738,270 1,879,882 Other segment items (3) ( 88,935 ) ( 72,339 ) Net loss $ ( 2,680,860 ) $ ( 3,960,275 ) (1) Includes external research and development. (2) Includes information technology, legal, intellectual property and other general and administrative expenses. (3) Includes stock-based compensation expense, interest income and other (income) expense. F- 13 Leases The Company accounts for leases in accordance with ASU 2016-02, Leases (Topic 842) and recognizes a lease liability and a right-of-use asset for all leases, with the exception of short-term leases, at the commencement date. The Company leases administrative facilities under operating leases. Lease agreements may include rent holidays, rent escalation clauses and tenant improvement allowances. See Note 11, Commitments and Contingencies for further information. Recent Accounting Standards Income Taxes - Improvements to Income Tax Disclosures (Topic 740) . In December 2023, the FASB issued ASU No. 2023-09, to improve income tax disclosure requirements, primarily through enhanced disclosures related to the income tax rate reconciliation and income taxes paid. This ASU is effective for fiscal 2025, with early adoption permitted, and may be applied retrospectively. The Company adopted this ASU on a retrospective basis and such adoption did not have a material impact on its consolidated financial statements. 4. Significant Strategic Collaborations Takeda Pharmaceutical Co. Ltd. ( together 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 $ 3 .0 million and $ 2.5 million were recorded as revenue by the Company during the years ended December 31, 2025 and 2024, 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. 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 current Good Manufacturing Practices of the Company’s recombinant protein, Human DNase I. The parties agreed to enter into a Master Services Agreement 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. The Company has paid Catalent approximately $ 2.9 million through December 31, 2025, of which approximately $ 53,000 and $ 28,000 has been recognized as an advance payment and is included in prepaid expenses and other current assets as of December 31, 2025 and 2024, respectively, and approximately $ 0.1 million has been recognized as a liability and is included in accrued expenses and other current liabilities as of both December 31, 2025 and 2024. In addition, approximately $ 0.3 million has been recognized as long-term within other assets as of both December 31, 2025 and 2024. Scripps Research On March 17, 2023, the Company and Scripps Research entered into a Research Funding and Option Agreement (as amended to date, the “Agreement”), pursuant to which the Company had agreed to provide Scripps Research an aggregate of up to $ 0.9 million to fund research relating to advancing the pre-clinical development of the Company’s DNase technology. 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. During the second quarter of 2024, the Company amended the Agreement to extend the term to October 31, 2024 with no additional funding required. F- 14 On November 1, 2024, the Company and Scripps Research entered into a Second Amendment to the Agreement (the “Second Amendment”) extending the term of the Agreement for an additional twelve (12) month period and to provide Scripps Research additional funding in an aggregate amount of up to approximately $ 0.4 million to fund continuing research. The research funding was payable by the Company to Scripps Research on a monthly basis in accordance with a negotiated budget, which provided for an initial payment of approximately $65,000 on the date of the Second Amendment and subsequent monthly payments of approximately $65,000 over a 5-month period. All other terms of the Agreement remained unchanged. Effective May 1, 2025, the Company and Scripps Research entered into a Third Amendment to the Agreement (the “Third Amendment”), pursuant to which the Company expanded the services to be performed under the Agreement and provided Scripps Research additional funding in an aggregate amount of up to approximately $ 0.4 million to fund continuing research. The research funding was 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 $70,000 on the date of the Third Amendment and subsequent monthly payments of approximately $70,000 over a 5-month period. All other terms of the Agreement remained unchanged. Effective November 1, 2025, the Company and Scripps Research entered into a Fourth Amendment to the Agreement (the “Fourth Amendment”), pursuant to which the Company extended and expanded the services to be performed under the Agreement and provided Scripps Research with additional funding in an aggregate amount of up to approximately $ 0.3 million. 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 $85,000 on the effective date of the Fourth Amendment and subsequent monthly payments of approximately $85,000 over a 3-month period. All other terms of the Agreement remained unchanged. Effective March 1, 2026, the Company and Scripps Research entered into a Fifth Amendment to the Agreement (the “Fifth Amendment”), pursuant to which the Company extended and expanded the services to be performed under the Agreement and agreed to provide Scripps Research additional funding in an aggregate amount of up to approximately $ 0.5 million. 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 $80,000 on the effective date of the Fifth Amendment and subsequent monthly payments of approximately $80,000 over a 5-month period. All other terms of the Agreement remain unchanged. The Company has incurred approximately $ 1.8 million under the Agreement through December 31, 2025, of which approximately $ 0.2 million was included in accrued expenses and other current liabilities. There were no amounts accrued as of December 31, 2024. University of Virginia (“UVA”) On December 21, 2023, the Company entered into a Research Funding and Material Transfer Agreement with UVA (the “UVA Agreement”) to advance the development of our systemic DNase program. Under the terms of the UVA Agreement, i n addition to advancing our existing intellectual property, the Company has an option to acquire an exclusive license to any new intellectual property arising from the DNase research program. Allan Tsung, MD, a member of the Company’s Scientific Advisory Board and Chair of the Department of Surgery at the UVA School of Medicine, oversees the research conducted under the UVA Agreement. In November 2024, the Company and UVA entered into an amendment to extend the UVA Agreement through December 2025. UVA produced preclinical and translational data under the UVA Agreement and has investigated combinations of DNase I with immunotherapies in models of primary and metastatic colorectal cancer. The Company is currently in discussions with UVA concerning completion of current activities and potential expansion of the scope of work under the UVA Agreement. The Company paid UVA approximately $ 0.5 million under the UVA Agreement through December 31, 2025, of which approximately $ 31,000 was recorded within accrued expenses and other current liabilities as of December 31, 2025 and $ 0.1 million had been recognized as an advance payment and was included within prepaid expenses and other current assets as of December 31, 2024. F- 15 PJSC Pharmsynthez In November 2009, the Company entered into a collaborative research and development license agreement with Pharmsynthez (the “Pharmsynthez Arrangement”) pursuant to which the Company granted an exclusive license to Pharmsynthez to develop, commercialize and market six product candidates based on the Company’s PolyXen and ImuXen technology in certain territories. In exchange, Pharmsynthez granted an exclusive license to the Company to use any preclinical and clinical data developed by Pharmsynthez, within the scope of the Pharmsynthez Arrangement, and to engage in further research, development and commercialization of drug candidates outside of certain territories at the Company’s own expense. Pharmsynthez directly, and indirectly through its wholly-owned subsidiary, SynBio, LLC (“SynBio”), had a share ownership in the Company of approximately 2.3 % and 3.4 % of the total outstanding common stock as of December 31, 2025 and 2024, respectively. In addition to its common stock ownership, Pharmsynthez owns all of our outstanding Series B Preferred Stock (as defined in Note 8, Stockholders’ Equity. ) In August 2011, SynBio and the Company entered into a stock subscription and collaborative development agreement (the “Co-Development Agreement”). The Company granted an exclusive license to SynBio to develop, market and commercialize certain drug candidates utilizing molecules based on SynBio’s technology and the Company’s proprietary technologies (PolyXen, OncoHist and ImuXen) in Russia and Commonwealth of Independent States, collectively referred to herein as the SynBio Market. In return, SynBio granted an exclusive license to the Company to use the preclinical and clinical data generated by SynBio in certain agreed products and to engage in the development of commercial candidates in any territory outside of the SynBio Market. SynBio is solely responsible for funding and conducting their own research and clinical development activities. There are no milestone or other research-related payments provided for under the Co-Development Agreement other than fees for the supply of each company’s respective research supplies based on their technology, which, when provided, are due to mutual convenience and not representative of an ongoing or recurring obligation to supply research supplies. Upon successful commercialization of any resultant products, the Company is entitled to receive a 10% royalty on sales in certain territories and pay royalties to SynBio for sales outside those certain territories, subject to the terms of the Co-Development Agreement. Effective December 20, 2021, SynBio assigned the Co-Development Agreement to Pharmsynthez. Through December 31, 2025, Pharmsynthez continued to engage in research and development activities with no resultant commercial products. Pharmsynthez received regulatory approval to commence a Phase II(b)/III human clinical trial of ErepoXen (also known as Epolong) in Russia with patient recruitment completed in 2020. In December 2020, Pharmsynthez reported positive data from this trial of Epolong, a treatment for anemia in patients with chronic kidney disease leveraging the Company’s PolyXen technology. Pharmsynthez filed a registration dossier to obtain approval in Russia and informed the Company that it has received a response letter indicating certain deficiencies in the dossier. Pharmsynthez further informed the Company that it developed a gap mitigation strategy and is awaiting further feedback from regulatory authorities.. The Company did not recognize revenue in connection with the Co-Development Agreement during the years ended December 31, 2025 and 2024. Serum Institute of India Limited The Company entered into a collaborative research and development agreement with Serum Institute of India Limited (“Serum Institute”) in 2011 providing Serum Institute an exclusive license to use the Company’s PolyXen technology to research and develop one potential commercial product, Polysialylated Erythropoietin. Serum Institute is responsible for conducting all preclinical and clinical trials required to achieve regulatory approvals within the certain predetermined territories at Serum Institute’s own expense. Royalty payments are payable by Serum Institute to the Company for net sales to certain customers in the Serum Institute sales territory. There are no milestone or other research-related payments due under the collaborative arrangement. Serum Institute has informed the Company that it is not actively pursuing this program but may seek to leverage Pharmsynthez’ trial data and potential Russian marketing authorization to request a waiver for a Phase III clinical trial in India, subject to local regulatory authority approval. Through December 31, 2025, no commercial products were developed and no royalty revenue or expense was recognized by the Company related to the arrangement. Serum Institute had a share ownership of less than 1% of the total outstanding common stock of the Company as of each of December 31, 2025 and 2024. F- 16 5. Accrued Expenses and other current liabilities Accrued expenses and other current liabilities consist of the following: Schedule of accrued expenses December 31, 2025 December 31, 2024 Accrued payroll and benefits $ 84,475 $ 243,396 Accrued professional fees 215,056 143,661 Accrued research costs 386,510 189,388 Other 23,875 34,203 Total accrued expenses $ 709,916 $ 610,648 On June 19, 2024, the Company entered into a confidential separation agreement and general release with each of Jeffrey F. Eisenberg, the Company’s former Chief Executive Officer (the “Eisenberg Separation Agreement”), and Curtis Lockshin, the Company’s former Chief Scientific Officer (together, the “Separation Agreements”) pursuant to which Messrs. Eisenberg and Lockshin were each eligible for certain severance payments and benefits consistent with the terms of their then current employment agreements. In addition, the Eisenberg Separation Agreement provided for accelerated vesting of all of the unvested stock options held by Mr. Eisenberg as of May 16, 2024. During the year ended December 31, 2024, the Company expensed approximately $ 0.8 million of accrued payroll and benefits related to the Separation Agreements. In addition, the Company recorded approximately $ 13,000 of share-based expense for the accelerated vesting of unvested stock options. As of December 31, 2024, approximately $ 0.2 million was accrued within accrued expenses and other current liabilities related to these obligations. There was no expense recorded during the year ended December 31, 2025 and there was no accrual as of December 31, 2025 as all obligations were settled during 2025. 6. Fair Value Measurements ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 utilizes quoted market prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. As of December 31, 2025 and December 31, 2024, the carrying amounts of the Company’s financial instruments approximate fair value due to their short maturities. There were no financial instruments classified as Level 3 in the fair value hierarchy during the years ended December 31, 2025 and 2024. 7. Income Taxes Deferred tax assets and liabilities are determined based on temporary differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Additionally, the Company must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. The Company has provided a full valuation allowance on the Company’s deferred tax assets because the Company believes it is more likely than not that its deferred tax assets will not be realized. The Company evaluates the recoverability of its deferred tax assets on a quarterly basis. There was no income tax provision (benefit) for the years ended December 31, 2025 and 2024, as the Company has incurred losses to date. The components of loss before income taxes are as follows: Schedule of components of loss before income taxes Year ended December 31, 2025 2024 Domestic (U.S.) $ ( 5,466,353 ) $ ( 6,251,785 ) Foreign (U.K.) 2,966,647 2,460,945 Foreign (Germany) ( 164,853 ) ( 153,332 ) Foreign (Switzerland) ( 16,301 ) ( 16,103 ) Loss before income taxes $ ( 2,680,860 ) $ ( 3,960,275 ) F- 17 The reconciliation of income tax benefit at the U.S. corporation tax rate, being the rate applicable to the country of domicile of the Company to net income tax benefit, is as follows: Schedule of components of loss before income taxes Year ended December 31, 2025 2024 Federal $ ( 562,981 ) 21.0 % $ ( 831,658 ) 21.0 % Domestic Federal Tax credits ( 117,620 ) 4.4 ( 120,379 ) 3.0 Effect of cross-border tax laws 430,088 ( 16.0 ) 153,506 ( 3.9 ) Change in valuation allowance ( 759,494 ) 28.3 1,057,187 ( 26.7 ) Share-based expense, net 1,105,585 ( 41.2 ) 223,523 ( 5.6 ) Other 489,375 ( 18.3 ) ( 962 ) – Foreign United Kingdom Rate differential 113,467 ( 4.2 ) 93,731 ( 2.4 ) Valuation allowance ( 703,161 ) 26.2 37,533 ( 0.9 ) Attribute adjustments – – ( 617,109 ) 15.6 Other ( 33,301 ) 1.2 ( 30,954 ) 0.8 Other 38,042 ( 1.4 ) 35,582 ( 0.9 ) Net benefit for income taxes $ – – $ – – Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows: Schedule of deferred tax assets and liabilities Year ended December 31, 2025 2024 Deferred tax assets: U.K. net operating loss carryforwards $ 21,235,111 $ 21,938,273 U.K. capital loss carryforwards 1,745,821 1,745,821 U.S. federal net operating loss carryforwards 8,127,082 7,518,011 Switzerland net operating loss carryforwards 22,480 13,392 IPR&D 534,753 586,746 Share-based expense 429,581 1,979,372 Enhanced research and development tax credits 2,278,855 2,165,119 Germany net operating loss carryforwards 844,276 700,617 Capitalized research and experimental expenditure 1,660,590 1,804,979 U.S. state net operating loss carryforwards 2,762,009 2,468,919 Other 151,294 208,288 Total deferred tax assets before valuation allowance 39,791,852 41,129,537 Valuation allowance for deferred tax assets ( 39,791,852 ) ( 41,129,537 ) Net deferred tax assets – – Deferred tax liabilities: Total deferred tax liabilities – – Net deferred liability $ – $ – F- 18 For the years ended December 31, 2025 and 2024, the Company had U.K. net operating loss carryforwards of approximately $ 86.8 million and $ 89.6 million, respectively, U.S. federal net operating loss carryforwards of approximately $ 38.7 million and $ 35.8 million, respectively, U.S. state net operating loss carryforwards of approximately $ 43.7 million and $ 39.1 million, respectively, Germany net operating loss carryforwards of approximately $ 2.7 million and $ 2.2 million, respectively, and Switzerland net operating loss carryforwards of approximately $ 0.3 million and $ 0.2 million, respectively. The U.K. and Germany net operating loss carryforwards can be carried forward indefinitely. $25.3 million of the U.S. federal net operating loss carryforwards can be carried forward indefinitely, and the remaining U.S. federal and state net operating loss carryforwards begin to expire in 2031. The Switzerland net operating loss carryforwards begin to expire in 2026 . The Company’s ability to use its operating loss carryforwards and tax credits generated in the U.S. to offset future taxable income is subject to restrictions under Section 382 of the U.S. Internal Revenue Code (the “Code”). These restrictions may limit the future use of the operating loss carryforwards and tax credits if certain ownership changes described in the Code occur. Future changes in stock ownership may occur that would create further limitations on the Company’s use of the operating loss carryforwards and tax credits. In such a situation, the Company may be required to pay income taxes, even though significant operating loss carryforwards and tax credits exist. The Company’s ability to use its operating loss carryforwards and tax credits generated in the U.K. are subject to restrictions under U.K. tax legislation. These regulations may limit the future use of operating loss carryforwards (i) if there is a change in ownership and a change in the nature or conduct of the business carried on by the Company, and (ii) in certain circumstances where there is a change in the nature or conduct of the business only. In such cases the carryforwards would cease to be available to set against future income. The Company’s ability to use its operating loss carryforwards and tax credits generated in Germany and Switzerland are also subject to restrictions under German and Swiss tax legislation. These regulations may limit the future use of operating loss carryforwards if there is a change in ownership. In such cases the carryforwards would cease to be available to set against future income. As of December 31, 2025 and 2024, the Company did no t record any uncertain tax positions. The Company files income tax returns in the U.S. federal tax jurisdiction, Massachusetts state tax jurisdiction, and certain foreign tax jurisdictions. The Company is subject to examination by the U.S. federal, state, foreign, and local income tax authorities for calendar tax years through 2025 due to available net operating loss carryforwards and research and development tax credits arising in those years. The Company has not been notified of any examinations by the Internal Revenue Service or any other tax authorities as of December 31, 2025. The Company has no t recorded any interest or penalties for unrecognized tax benefits since its inception. Potential 382 Limitation The Company’s net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service. The Company’s ability to utilize its net operating loss (“NOL”) and research and development credit (“R&D”) carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Code, as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined in Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50% of the outstanding stock of a company by certain stockholders or public groups. The Company has not completed a study to assess whether one or more ownership changes have occurred since it became a loss corporation as defined in Section 382 of the Code, but the Company believes that it is likely that an ownership change has occurred. If the Company has experienced an ownership change, utilization of the NOL and R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s common stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any such limitation may result in the expiration of a portion of the NOL or R&D credit carryforwards before utilization. Until a study is completed, and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding adjustment to the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any potential limitation will have a material impact on the Company’s operating results. From time to time the Company may be assessed interest or penalties by major tax jurisdictions, namely the Commonwealth of Massachusetts. As of December 31, 2025, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. No interest and penalties have been recognized by the Company to date. F- 19 8. Stockholders’ Equity Common Stock Each share of the Company’s common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to dividends when and if declared by the Board of Directors. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of common stock are entitled to share ratably in the assets of the Company available for distribution. Underwritten Public Offering On October 10, 2025, the Company entered into an underwriting agreement with Canaccord Genuity LLC as representative of the underwriters named therein, relating to an underwritten public offering (the “Offering”) of 735,000 shares of the Company’s common stock, par value $0.001 per share, at a public offering price of $ 6.12 per share. Net proceeds from the Offering were approximately $ 4.0 million after deducting underwriting discounts and commissions and other offering expenses of approximately $ 0.5 million paid by the Company. The shares were offered by the Company pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-282756), which was initially filed with the SEC on October 21, 2024, and was declared effective on November 1, 2024. The Offering closed on October 14, 2025. Series B Preferred Stock The Company has designated 2,500,000 shares as Series B preferred stock with each share having a stated value of $4.00 per share (the “Series B Preferred Stock”). The following is a summary of the material terms of the Company’s Series B Preferred Stock. Liquidation . Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series B Preferred Stock will be entitled to receive distributions out of the Company’s assets of an amount equal to the stated value per share of Series B Preferred Stock (as adjusted for stock splits, combinations, reorganizations and the like) plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under the amended and restated certificate of designation before any distributions shall be made on the common stock or any series of preferred stock ranked junior to the Series B Preferred Stock. A fundamental transaction or change of control under the amended and restated certificate of designation shall constitute a liquidation for purposes of this right. Xenetic will give each holder of Series B Preferred Stock written notice of any liquidation at least 30 days before any meeting of stockholders to approve such liquidation or at least 45 days before the date of such liquidation if no meeting is to be held. Dividends . Subject to any preferential rights of any outstanding series of preferred stock created by the Company’s Board from time to time, the holders of shares of the Company’s Series B Preferred Stock will be entitled to such cash dividends, non-cumulative, as may be declared from time to time by the Company’s Board on shares of the Company’s common stock (on an as-converted basis) from funds available therefore. The Company shall not directly or indirectly pay or declare any dividend or make any distribution upon, nor shall any distribution be made in respect of, any junior securities as long as any dividends due on the Series B Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption of any junior securities or shares pari passu with the Series B Preferred Stock. Conversion . Series B Preferred Stock is convertible, at any time and from time to time at the option of the holder thereof, at a rate of one preferred share to approximately 0.033 common share basis, subject to an issuable maximum and the adjustments described below. Subsequent Equity Sales . The Series B Preferred Stock has ratchet price based anti-dilution protection, subject to customary carve outs, in the event of a down-round financing at a price per share below the stated value of the Series B Preferred Stock. There is no bifurcation of the embedded conversion option being clearly and closely related to the host instrument. F- 20 The Series B Preferred Stock has additional terms covering stock dividends and splits, voting rights, fractional shares and fundamental transactions. As of December 31, 2025 and 2024, there were approximately 1.5 million and 1.8 million shares of Series B Preferred Stock issued and outstanding, respectively, which are convertible into approximately 45,000 and 60,000 shares of common stock in each year, respectively, which represents the issuable maximum that can be issued upon the conversion of the currently outstanding Series B Preferred Stock. During the year ended December 31, 2025, approximately 350,000 shares of Series B Preferred Stock were converted into approximately 14,000 shares of common stock. There were no conversions during the year ended December 31, 2024. Warrants The Company had warrants to purchase approximately 462,963 shares of the Company’s common stock (the “Series A Warrants”) outstanding as of December 31, 2024. These warrants expired in February 2025 and, as a result, no Series A Warrants were outstanding as of December 31, 2025. No Series A Warrants were exercised or forfeited during the years ended December 31, 2025 and 2024. The Company also has warrants to purchase approximately 800 shares of the Company’s common stock outstanding as of both December 31, 2025 and December 31, 2024. These warrants have an exercise price of $ 29.09 per share of common stock and expire on July 3, 2026 . None of these warrants were exercised or forfeited during the years ended December 31, 2025 and 2024. In addition, the Company had publicly traded warrants to purchase approximately 2,100 shares of common stock outstanding as of December 31, 2023. These warrants had an exercise price of $130.00 per share of common stock and expired on July 19, 2024 . The warrants ceased trading on Nasdaq under the symbol “XBIOW” upon expiration. The warrants also provided that if the weighted-average price of common stock on any trading day on or after 30 days after issuance is lower than the then-applicable exercise price per share, each warrant may be exercised, at the option of the holder, on a cashless basis for one share of common stock, as adjusted for stock splits. Warrants to purchase approximately 1,038 shares of common stock were exercised on a cashless, one-for-one basis during the year ended December 31, 2024. All of the remaining public warrants outstanding as of July 19, 2024 expired, and no public warrants were outstanding at each of December 31, 2025 and 2024. 9. Share-Based Expense Total share-based expense related to stock options, RSUs and common stock awards was approximately $ 0.1 million and $ 0.2 million for the years ended December 31, 2025 and 2024, respectively. Share-based expense is classified in the consolidated statements of operations as follows: Schedule of share-based compensation expense Year Ended December 31, 2025 2024 Research and development expenses $ – $ 11,433 General and administrative expenses 64,787 160,381 $ 64,787 $ 171,814 F- 21 Stock Options The Company grants stock option awards and RSUs to employees and non-employees with varying vesting terms under the Xenetic Biosciences, Inc. Amended and Restated Equity Incentive Plan. The Company measures the fair value of stock option awards using the Black-Scholes option pricing model, which uses the assumptions noted in the tables below, including the risk-free interest rate, expected term, share price volatility, dividend yield and forfeiture rate. The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the time of grant, with a term that approximates the expected life of the option. For stock options issued in 2025 and 2024 that qualify as “plain vanilla” stock options, the expected term is based on the simplified method. The Company has a limited history of stock option exercises, which does not provide a reasonable basis for the Company to estimate the expected term of employee and non-employee stock options. For all other stock options, the Company estimates the expected life using judgment based on the anticipated research and development milestones of the Company’s clinical projects and behavior of the Company’s employees and non-employees. The expected life of non-employee options is the contractual life of the option. Employee Stock Options During the years ended December 31, 2025 and 2024, 10,000 and 30,000 total stock options to purchase shares of common stock were granted by the Company, respectively. The weighted average grant date fair value per option was $ 1.78 and $ 3.41 , respectively. No employee stock options were exercised during the years ended December 31, 2025 and 2024. During the years ended December 31, 2025 and 2024, 93,231 and 32,535 shares having a weighted average grant date fair value of $ 57.11 and $ 40.07 per option, respectively, were forfeited. During the years ended December 31, 2025 and 2024, 18,749 and 53,750 total stock options vested, respectively, with total fair values of approximately $ 0.1 million and $ 0.3 million in December 31, 2025 and 2024, respectively. As of December 31, 2025, there was approximately $ 0.1 million of unrecognized share-based payments related to employee stock options that are expected to vest. The Company expects to recognize this expense over a weighted-average period of approximately 1.2 years. Key assumptions used in the Black-Scholes option pricing model for options granted to employees during the years ending December 31, 2025 and 2024 are as follows: Schedule of assumptions used Year Ended December 31, 2025 2024 Weighted-average expected dividend yield (%) – – Weighted-average expected volatility (%) 109.51 111.50 Weighted-average risk-free interest rate (%) 3.78 4.20 Weighted-average expected life of option (years) 5.5 5.67 Weighted-average exercise price ($) 2.17 4.07 F- 22 The following is a summary of employee stock option activity for the years ended December 31, 2025 and 2024: Schedule of option activity Number of shares Weighted- average exercise price Weighted- average remaining life (years) Aggregate intrinsic value Outstanding as of January 1, 2024 201,388 $ 36.46 7.69 $ – Granted 30,000 4.07 Expired ( 32,535 ) ( 61.90 ) Outstanding as of December 31, 2024 198,853 $ 27.41 4.28 $ 3,300 Granted 10,000 2.17 Expired ( 93,231 ) ( 36.45 ) Outstanding as of December 31, 2025 115,622 $ 17.95 7.01 $ – Vested or expected to vest as of December 31, 2025 115,622 $ 17.95 7.01 $ – Exercisable as of December 31, 2024 166,770 $ 31.84 3.28 $ 2,567 Exercisable as of December 31, 2025 92,288 $ 21.57 6.49 $ – A summary of the status of the Company’s non-vested employee stock option shares as of December 31, 2025, and the changes during the year ended December 31, 2025, is as follows: Schedule of non-vested options Number of shares Weighted- average grant date fair value Balance as of January 1, 2025 32,083 $ 3.49 Granted 10,000 1.78 Forfeited – – Vested ( 18,749 ) ( 3.58 ) Balance as of December 31, 2025 23,334 $ 2.69 Restricted Stock Units There were 417 fully vested RSUs with a grant date fair value of $ 253.70 per share outstanding as of December 31, 2023. No RSUs were granted or expired during the years ended December 31, 2025 and 2024. During the year ended December 31, 2024, the Company issued 417 shares of common stock representing the exercise of all outstanding RSUs. As a result, no RSUs were outstanding at both December 31, 2025 and 2024. F- 23 Non-Employee Stock Options Share-based expense related to stock options granted to non-employees is recognized as the services are rendered on a straight-line basis. The Company determined that the fair value of the stock options is more reliably measurable than the fair value of the services received. No non-employee stock options to purchase shares of common stock were granted or exercised during the years ended December 31, 2025 and 2024. Non-employee stock option grants to purchase 253 shares of common stock expired during the year ended December 31, 2025, representing all remaining outstanding option grants. As a result, no non-employee stock option grants were outstanding as of December 31, 2025. There was no compensation expense related to non-employee options during the years ended December 31, 2025 and December 31, 2024 as all non-employee stock options became were fully vested. The following is a summary of non-employee stock option activity for the years ended December 31, 2025 and 2024: Schedule of option activity Number of shares Weighted- average exercise price Weighted- average remaining life (years) Aggregate intrinsic value Outstanding as of January 1, 2024 1,925 $ 115.99 0.91 $ – Granted – – Expired ( 1,672 ) 50.20 Outstanding as of December 31, 2024 253 550.80 0.68 – Granted – – Expired ( 253 ) 550.80 Outstanding as of December 31, 2025 – $ – – $ – Vested or expected to vest as of December 31, 2025 – $ – – $ – Exercisable as of December 31, 2024 253 $ 550.80 0.68 $ – Exercisable as of December 31, 2025 – $ – – $ – Joint Share Ownership Plan As of December 31, 2025 and 2024, there were approximately 2,701 JSOP awards issued and outstanding to two former senior executives. Under the JSOP, shares in the Company are jointly purchased at fair market value by the participating executives and the trustees of the JSOP trust, with such shares held in the JSOP trust. For U.S. GAAP purposes the awards were valued as employee options and recorded as a reduction in equity as treasury shares until they are exercised by the employee. The JSOP awards are fully vested and have no expiration date. There were no compensation charges during the years ended December 31, 2025 and 2024. F- 24 10. Employee Benefit Plans The Company has a defined contribution 401(k) savings plan (the “401(k) Plan”). The 401(k) Plan covers substantially all U.S. employees, and allows participants to defer a portion of their annual compensation on a pre-tax basis or make post-tax contributions. Company contributions to the 401(k) Plan may be made at the discretion of the Board of Directors. During the years ended December 31, 2025 and 2024, the Company made contributions of approximately $ 16,000 and $ 31,000 to the 401(k) Plan, respectively. 11. Commitments and Contingencies Leases The Company determines whether an arrangement is a lease at inception. The Company leases office space in a shared office location in Framingham, Massachusetts. As this lease had a term of 6 months at inception, the Company did not apply the provisions of ASU 2016-02 and will account for it as an operating lease. As of December 31, 2025, total minimum lease payments on this lease were approximately $ 7,000 , representing a 6 month extension effective from January 1, 2026 through June 30, 2026. Letter of Credit As of December 31, 2025, the Company has an outstanding letter of credit of approximately $ 0.2 million in support of an intercompany loan with its Hesperix subsidiary. As the intercompany loan is eliminated in consolidation, the letter of credit has no effect on the consolidated financial statements. 12. Related Party Transactions The Company has entered into various research, development, license and supply agreements with Pharmsynthez, a related party whose relationship, ownership, and nature of transactions is disclosed within other sections of these footnotes. Please refer to Note 4, Significant Strategic Collaborations for details on these arrangements. During the fourth quarter of 2024, the Company entered into a clinical trial services agreement with PeriNess Ltd. (“PeriNess”) to advance the Company’s development program for its systemic DNase I technology in Israeli medical centers. One of our directors, Dr. Dmitry Genkin, is a significant shareholder of PeriNess and another of our directors, Mr. Moshe Mizrahy, is a majority shareholder and director of PeriNess. The Company expensed approximately $ 123,000 and $ 50,000 under this agreement during the years ended December 31, 2025 and December 31, 2024, respectively. As of December 31, 2025 and 2024, approximately $ 50,000 was recorded as an advanced payment and included in prepaid expenses and other current assets within the consolidated balance sheet in both years. In addition, and approximately $ 28,000 and $ 8,000 was reflected in accounts payable on the December 31, 2025 and 2024 consolidated balance sheet, respectively. During the first quarter of 2025, the Company entered into a Consulting Agreement with Dr. Dmitry Genkin, Chairman of our Board, to provide consulting services related to the Company’s DNase-based oncology program. This agreement was effective January 1, 2025 and the Company paid Dr. Genkin approximately $ 0.4 million during the year ended December 31, 2025, of which approximately $ 30,000 was reflected within accounts payable as of December 31, 2025. Dr. Genkin does not receive any fees for his service as a member of the Board. 13. 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 there were no such events requiring recognition or disclosure in the financial statements except as described in Note 4, Significant Strategic Collaborations . F- 25 ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.