10-Q: eXoZymes Reports Widening Losses, Going Concern Doubt

eXoZymes Inc. reported a significant increase in net losses and cash burn for the nine months ended September 30, 2025, raising substantial doubt about its ability to continue as a going concern.

Summary

• Net loss for the nine months ended September 30, 2025, increased to $6,503,698, up 61.6% from $4,025,361 in the same period of 2024.
• Cash and cash equivalents decreased by 47.5% to $5,098,687 as of September 30, 2025, from $9,719,310 at December 31, 2024.
• Cash used in operating activities for the nine months ended September 30, 2025, was $4,528,240, an increase from $2,798,123 in the prior year period.
• Working capital decreased by $5,095,473 to $4,391,664 as of September 30, 2025, from $9,487,137 at December 31, 2024.
• General and administrative costs rose by 63.3% to $4,426,216, driven by increased compensation, professional fees, IT costs, D&O insurance, and director fees.
• Research and development costs, net of grants, increased by 109.5% to $2,594,765, primarily due to new hires, higher salaries, bonus accruals, stock-based compensation, laboratory expenses, and a reduction in grant funding.
• The company received a $3 million share of a $9.2 million U.S. National Science Foundation (NSF) grant on July 1, 2025, for cell-free systems.
• A discrete income tax benefit of $105,826 was recognized in Q3 2025 due to amended federal income tax returns for 2022 and 2023 under the One Big Beautiful Bill Act (OBBBA).
• Management concluded that there is substantial doubt about the company's ability to continue as a going concern due to anticipated funding shortfalls and its pre-revenue status.
• Disclosure controls and procedures were deemed not effective as of September 30, 2025, due to material weaknesses in internal control over financial reporting.

Sentiment

Score: 2

Explanation: The company reported significantly increased losses, substantial cash burn, and explicitly stated 'substantial doubt about its ability to continue as a going concern.' While there are new grants and a management promotion, the overall financial health and control environment are very weak, indicating a highly negative sentiment.

Positives

• Received a $3 million share of a $9.2 million U.S. National Science Foundation (NSF) grant on July 1, 2025, aimed at transforming the scalability and accessibility of cell-free systems.
• Recognized a discrete income tax benefit of $105,826 in Q3 2025 from amended federal tax returns, retroactively permitting immediate expensing of research and experimental expenditures.
• Tyler Korman was promoted to Chief Science Officer from VP of Research and Development, effective November 15, 2025, with an increased annual base salary of $250,000.
• Interest income significantly improved to $231,742 for the nine months ended September 30, 2025, compared to an expense of $74,429 in the prior year period.
• Other income increased to $285,541 for the nine months ended September 30, 2025, from zero in the prior year period.

Negatives

• Net loss increased by 61.6% to $6,503,698 for the nine months ended September 30, 2025, compared to $4,025,361 in the prior year.
• Cash and cash equivalents decreased by 47.5% from $9,719,310 at December 31, 2024, to $5,098,687 at September 30, 2025.
• Cash used in operating activities increased to $4,528,240 for the nine months ended September 30, 2025, from $2,798,123 in the prior year, indicating higher cash burn.
• Working capital decreased by $5,095,473 to $4,391,664 as of September 30, 2025, from $9,487,137 at December 31, 2024.
• General and administrative costs increased by 63.3% to $4,426,216 for the nine months ended September 30, 2025.
• Research and development costs, net of grants, increased by 109.5% to $2,594,765 for the nine months ended September 30, 2025.
• Grant funding decreased from $1,756,852 in the nine months ended September 30, 2024, to $1,120,907 in the same period of 2025.
• The company's disclosure controls and procedures were not effective as of September 30, 2025, due to material weaknesses in internal control over financial reporting.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to anticipated funding shortfalls and its pre-revenue status.
• The company's ability to meet long-term liabilities and obligations depends on securing additional financial support through shareholder funding, equity/debt financing, or achieving profitable operations.
• The company is a pre-revenue, development stage company, and its technologies may never achieve commercial viability or widespread market acceptance.
• Technologies developed by the company may fail to receive necessary regulatory approvals.
• Changes to United States tariff and import/export regulations may adversely affect business, financial condition, and results of operations by increasing costs, restricting access to suppliers/customers, and hindering funding.
• Government actions on tariffs, trade policies, immigration policies, and reductions in research grants and other federal funding may impede research and capital raising efforts for the company and its partners.
• The company is exposed to credit risk on cash balances exceeding FDIC insurance limits, with approximately $4,924,469 of cash in financial institutions exceeding these limits as of September 30, 2025.
• The company's internal control over financial reporting has material weaknesses, leading to ineffective disclosure controls and procedures, which could adversely affect its ability to record, process, summarize, and report financial information accurately.

Future Outlook

The company believes it has sufficient working capital for the near term but acknowledges substantial doubt about its ability to continue as a going concern due to anticipated funding shortfalls and its pre-revenue status. Its long-term viability depends on securing additional financial support through shareholder funding, equity/debt financing, or achieving profitable operations. The company intends to pursue additional grants and will continue to allocate available working capital toward advancing research, development, and commercialization initiatives. There are no current arrangements for additional funding, and no assurance exists that funding will be obtained on commercially reasonable terms.

Management Comments

• Management believes that eXoZymes' technology is a differentiated and unique synthetic biology platform that will enable scalable production of chemical molecules found in nature in a more environmentally friendly and sustainable process.
• Management believes the platform could significantly change biomanufacturing through leveraging cell-free, multi-step enzyme-based systems.
• The objective with the eXoZymes synthetic biology platform is to enable the production of pharmaceuticals, fuels, materials, food additives, and novel compounds.
• Management believes the company has sufficient funds, in the near term, for its currently planned operations based on its working capital and program of seeking various grants.
• Management believes that disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level, despite identified material weaknesses.

Industry Context

eXoZymes operates in the synthetic biology and biomanufacturing sector, aiming to leverage cell-free, enzyme-based systems for scalable production of various chemical molecules. This approach positions the company within a growing trend towards sustainable and environmentally friendly production methods, potentially disrupting traditional chemical synthesis and natural extraction. The receipt of grants from the NSF, NIH, and DOD indicates alignment with national strategic priorities in biotechnology and advanced manufacturing. However, as a pre-revenue company, it faces the common industry challenge of high R&D costs and the need for substantial, continuous funding to bring its technologies to commercial viability.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• Not currently a party to any material legal proceedings, and not aware of any pending or threatened litigation that would have a material adverse effect on business, operating results, cash flows, or financial condition.

Related Party Transactions

• MDB Capital Holdings, LLC (MDB) holds a 47% minority interest as of September 30, 2025, diluted from a majority ownership after the November 2024 IPO.
• Outstanding payables to MDB Capital Holdings, LLC decreased from $178,966 at December 31, 2024, to $17,085 at September 30, 2025.
• Approximately $4,243,022 from IPO proceeds were used to repay loans from MDB Capital Holdings, LLC shortly after the closing of the IPO.

Stakeholder Impact

• Shareholders face significant dilution risk from potential future capital raises and the vesting of a large number of RSUs on November 11, 2025.
• Shareholders are exposed to substantial financial risk due to widening net losses, high cash burn, and the explicit 'going concern' doubt.
• Employees benefit from increased compensation expenses, new hires, and the approval of the 2025 equity incentive plan, providing more stock options and RSUs.
• Customers and partners (e.g., NSF, NIH, DOD) benefit from continued R&D and new grant funding, but face uncertainty regarding the company's long-term financial stability.
• Creditors may face increased risk due to the company's 'going concern' doubt and reliance on future funding.

Next Steps

• Continue to use IPO proceeds for expansion of production capabilities, staffing, R&D, and other working capital requirements throughout 2025.
• Pursue additional grants to improve working capital position.
• Allocate available working capital toward advancing research, development, and commercialization initiatives.
• Implement measures to remediate material weaknesses in internal control over financial reporting and improve disclosure controls and procedures.
• Monitor economic conditions, tariffs, and government policies to adjust business and financing plans as needed.
• Record stock-based compensation for RSUs when they begin to vest upon the expiration of any lockup period on November 11, 2025, or upon a change of control.

Key Dates

Recommendation

The company's financial position has significantly deteriorated, marked by a 61.6% increase in net losses, a 47.5% reduction in cash, and a substantial increase in cash used for operations. Management explicitly states 'substantial doubt about its ability to continue as a going concern' due to funding shortfalls and its pre-revenue status. Furthermore, the disclosure of ineffective internal controls over financial reporting adds a layer of operational risk and uncertainty. While new grants and a management promotion offer minor positives, they are overshadowed by the severe financial distress and fundamental operational weaknesses. The stock carries a very high risk profile with a clear path to further value erosion without significant, unassured capital infusion.

Keywords

synthetic biology, biomanufacturing, cell-free systems, exozymes, biotechnology, research and development, SEC filing, 10-Q, financial results, going concern, grants, NCTx LLC, N-trans-caffeoyltyramine, corporate governance, internal controls, capital raise