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Item 8. Financial Statements and Supplementary Data

2025-03-18 compared with 2024-03-15 · 100 added, 138 removed, 349 unchanged (41% of the section changed)

1 unchanged sentence

Index to Financial Statements

Reports of Independent Registered Public Accounting Firm (PCAOB Firm ID:

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID:

Consolidated Balance Sheets

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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.

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Our audits 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 audits provide a reasonable basis for our opinion.

We believe that our audits provides a reasonable basis for our opinion.

Critical Audit Matters

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Cash and cash equivalents

Interest bearing time deposits

Accrued interest receivable

8 unchanged sentences

Income tax payable

Convertible loan, related party

Convertible loan, third party

Total current liabilities

1 unchanged sentence

Income tax payable

Deferred tax liability

Total liabilities

1 unchanged sentence

Preferred stock, no par value, unlimited shares authorized, no shares outstanding

Common stock, no par value, unlimited shares authorized, 30,436,964 and 30,439,275 shares outstanding at December 31, 2023 and December 31, 2022, respectively

Accumulated other comprehensive income

Common stock, no par value, unlimited shares authorized, 30,487,731 and 30,436,964 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively

Accumulated deficit

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Year Ended December 31,

Manufacturing revenue

Total revenue

Cost of goods sold:

Manufacturing cost

Total cost of goods sold

Operating expenses:

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Loss from operations

Other income:

Interest income

Other income (expense):

Foreign exchange gain (loss)

Interest income

Interest expense

Foreign exchange (loss) gain

Total other income

Loss before income taxes

Income tax (expense) benefit

Net loss per share—basic

Shares used to compute basic net loss per share

Net loss per share—diluted

Shares used to compute diluted net loss per share

Income tax benefit (expense)

Net loss per share—basic and diluted

Shares used to compute basic and diluted net loss per share

See accompanying notes to consolidated financial statements.

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Year Ended December 31,

Realized comprehensive income

Foreign currency translation adjustment

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(in thousands)

Number of Shares

Common Stock Amount

Accumulated Other Comprehensive Income

Retained Earnings (Accumulated deficit)

Accumulated Other

Comprehensive

Accumulated deficit

Balance at December 31, 2022

Foreign currency translation adjustment

Realized comprehensive income

Reclassification of deferred tax assets

Issuance of common stock under stock option plan

Share-based compensation expense

Balance at December 31, 2023

Foreign currency translation adjustment

Reclassification of deferred tax assets

Issuance of common stock under stock option plan

1 unchanged sentence

Balance at December 31, 2024

See accompanying notes to consolidated financial statements.

See accompanying notes to condensed financial statements.

XBiotech Inc.

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

Foreign exchange (gain) loss

Foreign exchange loss (gain)

Share-based compensation expense

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Deferred tax liability

Net cash (used in) provided by operating activities

Net cash used in operating activities

Investing activities

Purchase of property and equipment

Proceeds from maturity (purchases of) interest bearing time deposits

Net cash provided by (used in) investing activities

Proceeds from maturity of interest bearing time deposits

Net cash (used in) provided by investing activities

Financing activities

Proceeds from convertible loan, related party

Proceeds from convertible loan, third party

Cash paid in tender offer

Issuance of common stock under stock option plan

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effect of foreign exchange rate on cash and cash equivalents

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Supplemental Information:

Purchases of property and equipment in accounts payable

Accrued purchases of property and equipment

Cash paid for interest

Cash paid for income taxes

See accompanying notes to consolidated financial statements.

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At the end of 2019, XBiotech sold a True Human™ antibody that blocked IL-1a activity for $750 million in cash and up to $600 million in potential milestone payments (the “Janssen Transaction”).

On February 2, 2022, XBiotech announced an addendum to the 2019 Janssen Manufacturing Agreement.

XBiotech continued to manufacture Bermekimab for use by Janssen in its clinical trials through November 2022.

The potential milestone payments are contingent upon achieving the required commercialization authorization for a product intended for use in any non-dermatological indication by Janssen within twelve years.

As of December 31, 2024, none of the milestone payments have been earned.

As part of the Janssen Transaction, XBiotech maintained the right to develop new antibodies that block IL-1a and develop these therapeutics in all areas of medicine except dermatology.

Moreover, all patents acquired by Janssen relating to IL-1a would be asserted for the benefit of XBiotech to protect its future IL-1a related therapies in all non-dermatological indications.

Consequently, XBiotech is pursuing the development of other True Human™ antibodies targeting IL-1a for areas of medicine outside of dermatology.

The Company’s True Human™ antibody discovery technology has been used to identify new IL-1a targeting product candidates and has already brought one such candidate into a clinical studies in oncology and rheumatology;

and another anti-IL-1a antibody into a Phase I study in neurology.

While the Company previously was focused on a single True Human™ antibody targeting IL-1a, it is now developing more than one product candidate that targets IL-1a to be used in different areas of medicine.

Moreover, Janssen agreed that they would assert all patents they acquired relating to IL-1a for the benefit of XBiotech to protect our future IL-1a-related therapies in all non-dermatological indications.

XBiotech is using its True Human™ antibody discovery technology to identify and develop new IL-1a targeting product candidates and has already brought one such candidate into clinical studies in oncology and rheumatology;

and another unique anti-IL-1a antibody into a Phase I study in neurology.

The Company is subject to a number of risks common to companies in clinical stage of development.

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Actual results could differ from those estimates.

Revenue from the Janssen Agreements

The Company recognized revenues from its Janssen Agreements as follows:

The Company entered into its clinical manufacturing and clinical trial services arrangements in connection with its sale of certain intellectual property on December 30, 2019.

These contracts commenced January 1, 2020.

The Company executed an addendum related to manufacturing agreement, which generated revenue through November 2022.

While these agreements are not considered contracts with a customer based on the terms thereof, the Company has applied the revenue recognition guidance by analogy.

XBiotech is still in the research and development phase.

The eventual output of the Company’s intended ordinary activities will be the licensing of intellectual property and/or sale of commercialized compounds for use in pharmaceutical treatment of disease, not the performance of manufacturing of development stage compounds or clinical trials for others.

Although Janssen was not a customer, as these services are not the output of XBiotech’s ordinary activities, the Company evaluated the terms of the agreements and analogized to Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”) for clinical manufacturing and clinical trial services revenue recognition.

Under ASC 606, an entity recognizes revenue when (or as) its customer obtains control of promised goods or services, in an amount that reflects the consideration that 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 (or for those analogized to it), the Company 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 when (or as) the entity satisfies a performance obligation.

The Company only applies the five-step model to contracts (including by analogy) when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the counterparty.

At contract inception, once the contract is determined to be within the scope of or analogized to ASC 606, the Company assesses the goods or services promised within each contract and determine 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.

Manufacturing Revenue

The Company had a Clinical Manufacturing Agreement that it accounted for by analogy to ASC 606.

In 2022 the Company executed a new manufacturing agreement with a Janssen related company.

The agreement generated $ 4.0 million in revenue through termination in November 2022.

Research and Development Costs

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Clinical Trial Accruals

Expense accruals related to clinical trials are based on the Company’s estimates of services received and efforts expended pursuant to contracts with third party service providers that conduct and manage clinical trials on the Company’s behalf.

Expense accruals related to clinical trials are based on actual services received and efforts expended pursuant to contracts with third party service providers which conduct and manage clinical trials on the Company’s behalf.

The financial terms of these agreements vary from contract to contract and may result in uneven payment flows.

Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.

In accruing costs, the Company estimates the period over which services will be performed and the level of effort to be expended in each period based upon patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred.

The Company accrues costs based on the actual services rendered in the period over which services were performed and the level of effort expended in each period based upon patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred.

Any estimates of the level of services performed or the costs of these services could differ from actual results.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures" ("ASU 2023-09"), which enhances the transparency and decision usefulness of income tax disclosures.

Adjustments to the annual disclosure of income taxes include:

(1) A tabular rate reconciliation comprised of eight specific categories, (2) Incomes taxes paid, disaggregated between significant federal, state, and foreign jurisdictions, (3) Eliminates requirements to disclose the nature and estimate of reasonably possible changes to unrecognized tax benefits in the next 12 months or that an estimated range cannot be made, and (4) Adds a requirement to disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) from continuing operations disaggregated between domestic and foreign.

The ASU is effective for public business entities for fiscal years beginning on or after December 15, 2024 with early adoption permitted.

The amendments in ASU 2023-09 should be applied on a prospective basis and retrospective application is permitted.

The Company is in the process of evaluating the impact of adoption of ASU 2023-09 on the Company's consolidated financial statements and disclosures.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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Interest Bearing Time Deposits

As of December 31, 2022, the Company held guaranteed investment certificates from a financial institution.

The guaranteed investment certificates had a 12-month term at origination with interest payable at maturity.

The Company obtained both the principal amount and accrued interest in July 2023 upon maturity.

During 2023 the Company held guaranteed investment certificates with a financial institution.

The guaranteed investment certificates had a 12 month term at origination with interest receivable at maturity.

The guaranteed investment certificates matured in July 2023.

There has been no related activity in 2024.

Concentrations of Credit Risk

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At December 31, 2024 and 2023, the Company did not have any assets or liabilities that are measured at fair value on a recurring basis.

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, interest bearing time deposits, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their fair values at December 31, 2023 and 2022, due to their short-term nature.

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and debt approximate their fair values at December 31, 2024 and 2023.

Property and Equipment

Property and equipment, which consists of land, construction in process, furniture and fixtures, computers and office equipment, scientific equipment, leasehold improvements, vehicles and building are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, with the exception of land and construction in process which are not depreciated.

Property and equipment, which consists of land, construction in process, furniture and fixtures, computers and office equipment, scientific equipment, vehicles, mobile facility and building are stated at cost and depreciated over the estimated useful lives of the assets, with the exception of land and construction in process which are not depreciated, using the straight line method.

The useful lives are as follows:

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At each balance sheet date, the Company adjusts the assets and liabilities to reflect the current exchange rate, resulting in a translation gain or loss.

Transaction gains and losses are also realized upon a settlement of a foreign currency transaction in determining net loss for the period in which the transaction is settled.

The only significant assets denominated in a foreign currency were certain cash accounts, which were remeasured into the functional currency (U.S.

dollar) as of the end of the year, resulting in a foreign exchange loss of $ 5.5 million for the year ended by December 31, 2024 and a foreign exchange gain of $ 1.9 million for the year ended by December 31, 2023.

The Transaction gains and losses are also realized upon a settlement of a foreign currency transaction in determining net loss for the period in which the transaction is settled.

Comprehensive Income (Loss)

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geographic segment.

Net Income/Loss per Share

Net Loss per Share

Net income/loss per share (“EPS”) is computed by dividing net loss by the weighted average number of common shares outstanding during each period.

1 unchanged sentence

The number of common share equivalents, which include stock options, is computed using the treasury stock method.

The Company does not include the potential impact of dilutive securities in diluted net loss per share, as the impact of these items is anti-dilutive.

For the year ended December 31, 2024, all stock options were not included in the computation of diluted net loss per share, as the impact of these items was anti-dilutive.

In addition, 1,921,828 shares of common stock issuable upon conversion of the related party convertible loan (which was the maximum convertible amount based on ownership restrictions) were excluded from the computation of diluted net loss per share as their impact is anti-dilutive.

For the year ended December 31, 2023, all stock options were not included in the computation of diluted net loss per share, as the impact of these items was anti-dilutive.

Subsequent Events

The Company considered events or transactions occurring after the balance sheet date but prior to the date the consolidated financial statements were available to be issued for potential recognition or disclosure in its consolidated financial statements.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standard Board (‘FASB”) issued Accounting Standards Update (“ASU” or “standard”) No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

Subsequently, the FASB issued several clarifying standard updates to clarify and improve the ASU.

These ASUs significantly change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The most significant change in this standard is a shift from the incurred loss model to the expected loss model that will be based on an estimate of current expected credit loss (“CECL”).

Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an entity’s exposure to credit risk and the measurement of credit losses.

The Company adopted the standard effective January 1, 2023.

The impact of the adoption was not considered material to the consolidated financial statements.

On February 2, 2022, the Company announced an addendum to the 2019 Janssen Manufacturing Agreement XBiotech continued to manufacture Bermekimab for use by Janssen in its clinical trials through November 2022.

For the year ended December 31, 2022, the Company recorded $ 4.0 million of revenues, under the February 2022 agreement.

The agreement was terminated in November 2022.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures" ("ASU 2023-09"), which enhances the transparency and decision usefulness of income tax disclosures.

Adjustments to the annual disclosure of income taxes include:

(1) A tabular rate reconciliation comprised of eight specific categories, (2) Income taxes paid, disaggregated between significant national, state, and foreign jurisdictions, (3) Eliminates requirements to disclose the nature and estimate of reasonably possible changes to unrecognized tax benefits in the next 12 months or that an estimated range cannot be made, and (4) Adds a requirement to disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) from continuing operations disaggregated between domestic and foreign.

The ASU is effective for public business entities for fiscal years beginning on or after December 15, 2024 with early adoption permitted.

The amendments in ASU 2023-09 should be applied on a prospective basis and retrospective application is permitted.

The Company is in process of evaluating the impact of adoption of ASU 2023-09 on the Company's consolidated financial statements and disclosures.

Property and Equipment and Building Construction in Progress

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Accumulated depreciation

Depreciation expenses related to property and equipment amounted to approximately $ 1.7 million and $ 2.6 million, for the years ended December 31, 2023, and 2022, respectively.

Construction in process is related to research and development and manufactory equipment.

Depreciation expense is recorded to research and development and general and administrative expense line items on the Consolidated Statements of Operations (in thousands).

Depreciation expenses related to property and equipment amounted to approximately both $ 1.7 million for the years ended December 31, 2024, and 2023.

Construction in process is related to research and development and manufacturing equipment.

Depreciation expense is allocated between research and development and general and administrative expense line items on the consolidated statements of operations (in thousands).

Accrued Expenses

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Accrued clinical trial expenses

Accrued convertible loan interest

Convertible Loan, Related Party

On January 3, 2024, the Company entered into a Convertible Loan Agreement (the “Loan”) with John Simard, the Company’s Founder, President, Chief Executive Officer and Chairman.

The Loan provided $ 10 million in immediate funding for the construction of a new, state-of-the-art research and development facility at the Company’s property at 5217 Winnebago Lane in Austin, Texas.

The Loan was secured by the real estate and cash holdings of the Company, with interest to accrue at a simple rate equal to eight percent per year and interest-only payments to be made at six-month intervals.

Simard’s election, the balance could be converted to XBiotech stock at any time the Loan balance was outstanding at a fixed conversion price equal to $ 4.048 per share.

The conversion feature was subject to a 19.9 % cap limiting the number of shares that could be converted under the Loan based on Mr.

Simard’s total stock ownership in the Company at the time of conversion.

The Loan included an acceleration feature, allowing Mr.

Simard to declare immediate cash repayment or conversion under specific acceleration events, including certain financial and non-financial measures, such as payment defaults, breaches of covenants, drop in stock price below $ 3.00 per share or drop in cash position below $ 65,000,000 .

The Loan also allowed Mr.

Simard to obtain immediate cash repayment of the Loan balance at his election one year after the loan is funded or upon certain other conditions set forth in the Loan.

The Loan had a contractual maturity date of January 3, 2029.

The Loan was negotiated, evaluated, and approved on behalf of the Company by a committee of independent and disinterested directors.

During 2024, the Company paid $ 400 thousand in interest and accrued $ 400 thousand in interest as of December 31, 2024.

If the loan had been settled on December 31, 2024, the outstanding balance could have been converted into 1,930,983 shares of XBiotech stock at a fixed conversion price of $ 4.048 per share.

The remaining balance of $ 2,183,380.82 is paid in cash.

On January 31, 2025, the Loan was terminated upon full repayment by the Company.

As a result, all conversion rights to XBiotech stock associated with the Loan were extinguished.

Pursuant to its Articles, the Company has an unlimited number of shares available for issuance with no par value.

During the year ended December 31, 2024, 50,767 shares of common stock were issued upon the exercise of stock options, at prices ranging from $ 3.38 to $ 5.62 per share, for total proceeds of $ 200 thousand.

On May 17, 2023, XBiotech announced that it had commenced a “modified Dutch auction” tender offer to purchase up to $ 80.0 million of its common shares, or such lesser number of common shares as are properly tendered and not properly withdrawn, at a price not less than $ 3.80 nor greater than $ 4.00 per common share, to the seller in cash.

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These shares represented an immaterial percent of the shares outstanding.

The repurchased shares were retired and have been classified to reduce common stock in the accompanying consolidated balance sheet as of December 31, 2023.

These repurchased shares were retired and have been classified to reduce common stock in the accompanying consolidated balance sheet as of December 31, 2023.

During the year ended December 31, 2023, 1,250 shares of common stock were issued upon the exercise of stock options at a price of $ 3.84 per share for total proceeds of $ 4,800 .

No stock options were exercised from January 1, 2022 through December 31, 2022.

Common Stock Options

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2005 Incentive Stock Option Plan (the “2005 Plan”), and on March 24, 2015, the Board of Directors of the Company adopted the XBiotech Inc.

2015 Equity Incentive Plan (the “2015 Plan”) pursuant to which the Company may grant incentive stock and non-qualified stock options to directors, officers, employees or consultants of the Company or an affiliate or other persons as the Compensation Committee may approve.

All options under both Plans will be non-transferable and may be exercised only by the participant, or in the event of the death of the participant, a legal representative until the earlier of the options’ expiration date or the first anniversary of the participant’s death, or such other date as may be specified by the Compensation Committee.

2015 Equity Incentive Plan (the “2015 Plan” and, together with the 2005 Plan, the “Plans”) pursuant to which the Company may grant incentive stock and non-qualified stock options to directors, officers, employees or consultants of the Company or an affiliate or other persons as the Compensation Committee may approve.

All options under the Plans will be non-transferable and may be exercised only by the participant, or in the event of the death of the participant, a legal representative until the earlier of the options’ expiration date or the first anniversary of the participant’s death, or such other date as may be specified by the Compensation Committee.

The term of the options is at the discretion of the Compensation Committee, but may not exceed 10 years from the grant date.

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Exercise Price

Weighted-Average

Exercise Price

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The weighted average fair value of the options issued to directors, employees and consultants during the fiscal years ended December 31, 2024, and 2023, was $ 3.96 and $ 2.89 , respectively.

The total intrinsic value of options exercisable and total options outstanding at December 31, 2023 was $ 2.2 million and $ 4.1 million.

The total intrinsic value of options exercisable and total options outstanding at December 31, 2022 was immaterial.

The total intrinsic value of options exercisable and total options outstanding at December 31, 2024, was approximately $ 50 thousand and $ 70 thousand.

The total fair value of options vested during the years ended December 31, 2024, and 2023 was $ 1.6 million, and $ 3.5 million, respectively.

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Year Ended December 31,

Average Granted

Date Fair Value

Average Granted

Date Fair Value

Weighted Average Granted Date Fair Value

Nonvested at January 1,

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Net loss per share—diluted

The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or if-converted method, have been excluded from the computation of diluted weighted-average common shares outstanding, because including them would have had an anti-dilutive effect due to the losses reported.

Year Ended December 31,

Stock options

The components of income before income taxes are as follows (in thousands):

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Foreign Liquidation

The effective tax rate for the year ended December 31, 2023 varied from the Canadian statutory rate primarily due to losses in jurisdictions for which a valuation allowance is recorded and a benefit may not be recognized.

The effective tax rate for the year ended December 31, 2022 varied from the Canadian statutory rate primarily due to losses in jurisdictions for which a valuation allowance is recorded and a benefit may not be recognized, a shift in income between jurisdictions related to certain transfer pricing adjustments which impacted the benefit associated with available loss carrybacks, and non-deductible compensation.

The effective tax rate for the periods ended December 31, 2024 and December 31, 2023 varied from the Canadian statutory rate primarily due to losses in jurisdictions for which a valuation allowance is recorded and a benefit may not be recognized.

The tax effect of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases that give rise to deferred tax assets and liabilities is as follows:

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Accrued liabilities

Foreign exchange

Deferred tax assets before valuation allowance

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Prepaid assets

Uncollectible debts

Deferred tax liability

1 unchanged sentence

For the year ended December 31, 2024, the Company has a USA federal net operating loss carryforward of $ 3.2 M which will carryforward indefinitely.

The Company has $ 6.6 M of USA federal research and development tax credits carryforwards which are presented in the financial statements net of $ 1.4 M of related uncertain tax positions, which will begin to expire in 2037.

In addition, the Company has $ 0.8 M of Texas research and development tax credits carryforwards which are presented in the financial statements net of $ 0.2 M of related uncertain tax positions, which will begin to expire in 2042.

The Company has $ 9.4 million of USA federal research and development tax credits carryforwards which are presented in the financial statements net of $ 1.7 million of related uncertain tax positions, which will begin to expire in 2037.

In addition, the Company has $ 1.8 million of Texas research and development tax credits carryforwards which are presented in the financial statements net of $ 0.4 M of related uncertain tax positions, which will begin to expire in 2042.

The Company has a Canada net operating loss carryforward of $ 1.6 million, which will begin to expire in 2044.

This amount excludes the $ 0.3 million expected to be carried back to the 2023 tax year.

Also, after weighing all available and positive and negative evidence the Company determined a full valuation allowance for all jurisdictions was necessary.

For the year ended December 31, 2024, the Company has not recorded any outside basis difference deferreds given its intention to indefinitely reinvest earnings from its foreign operations.

In addition, given the Company's estimated outside tax basis in its USA investment is in excess of book basis, there is no unrecognized deferred tax liability.

In addition, given the Company's estimated outside tax basis in its USA investment is in excess of book basis, therefore there is no unrecognized deferred tax liability.

The Company is subject to income tax in multiple jurisdictions, including Canada, USA, and the state of Texas.

The Company has Canadian, USA, and Texas income tax returns that are open to examination for the 2021, 2021, and 2020 tax years, respectively.

In addition, the utilization of tax carryforwards, from periods prior to those previously mentioned may also be audited by the taxing authorities once utilized.

In addition, the utilization of tax carryforwards, from years prior to those previously mentioned may also be audited by the taxing authorities once utilized.

As a result, the Company continuously monitors its current and prior filing positions in order to determine if any unrecognized tax positions need to be recorded.

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The Company recognized interest and penalties related to unrecognized tax benefits of $ 98 thousand and $ 93 thousand as a component of income tax expense for the years ended December 31, 2024 and 2023, respectively.

As of December 31, 2023 and 2022, there are $ 1.7 M and $ 1.6 M, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

In addition, it is reasonably possible that approximately $ 0.1 M of the unrecognized tax benefits may be recognized in the next 12 months as a result of a lapse of the statute of limitations.

As of December 31, 2024 and December 31, 2023, there are both $ 1.7 million, of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

In addition, it is reasonably possible that approximately $ 0.1 million of the unrecognized tax benefits may be recognized in the next 12 months as a result of a lapse of the statute of limitations.

No other positions are expected to significantly decrease within the next 12 months.

Subsequent Event

On January 3, 2024, the Company entered into a Convertible Loan Agreement (the “Loan”) with John Simard, the Company’s Founder, President, Chief Executive Officer and Chairman.

The Loan provides $ 10 million in immediate funding for the construction of a new, state-of-the-art research and development facility at the Company's property at 5217 Winnebago Lane in Austin, Texas.

The Loan is secured by the real estate and cash holdings of the Company, with interest to accrue at a simple rate equal to eight percent per year and interest-only payments to be made at six-month intervals after the Loan is funded.

Simard’s election, the balance may be converted to XBiotech stock at any time the Loan balance is outstanding at a fixed conversion price equal to the average Nasdaq Official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of this Agreement, which is $ 4.048 per share.

The conversion feature is subject to a 19.9 % cap limiting the number of shares that could be converted under the Agreement based on Mr.

Simard’s total stock ownership in the Company at the time of conversion.

The Loan also allows Mr.

Simard to obtain immediate cash repayment of the Loan balance at his election one year after the loan is funded or upon certain other conditions set forth in the Loan.

The Loan was negotiated, evaluated, and approved on behalf of the Company by a committee of independent and disinterested directors.

Selected Quarterly Financial Data (Unaudited)

Selected Quarterly Financial Data (Unaudited) for the years ended December 31, 2023 and 2022 is presented below (in thousands except per share data):

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Loss from operations

Net loss per share—basic and diluted

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Loss from operations

Net loss per share—basic and diluted

On January 31, 2025, the Convertible Loan Agreement (the "Loan") dated as of January 3, 2024, between XBiotech Inc.

and John Simard, the Company's Founder, President, Chief Executive Officer, and Chairman, was terminated upon full repayment of the Loan and the interest by the Company.

As a result, all conversion rights to XBiotech stock at $ 4.048 per share associated with the Loan were extinguished.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data