Xenetic Biosciences, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 hard 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 (“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.

As used in this Quarterly Report on Form 10-Q (“Quarterly Report”), unless otherwise indicated, all references herein to “Xenetic,” the “Company,” “we” or “us” refer to Xenetic Biosciences, Inc. and its wholly-owned subsidiaries.

The Company, directly or indirectly, through its wholly-owned subsidiaries, Hesperix S.A. (“Hesperix”) and Xenetic Biosciences (U.K.) Limited (“Xenetic UK”), and the wholly-owned subsidiaries of Xenetic UK, Lipoxen Technologies Limited (“Lipoxen”), Xenetic Bioscience, Incorporated and SymbioTec, GmbH (“SymbioTec”), own various United States (“U.S.”) federal trademark registrations and applications along with unregistered trademarks and service marks, including but not limited to XCART™, OncoHist™, PolyXen®, ErepoXen™, and ImuXen™, which may be used throughout this Quarterly Report. All other company and product names may be trademarks of the respective companies with which they are associated.

Going Concern and Management’s Plan

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. However, the Company anticipates it will need additional capital in the long-term to pursue its business initiatives. While the Company believes it has 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, 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.

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 our business, financial condition, and results of operations.

***Preparation of Interim Financial Statements ***

The accompanying condensed consolidated interim financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results for the interim periods are not necessarily indicative of results for the full year. The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 18, 2025, and amended on April 29, 2025 and May 13, 2025.

Principles of Consolidation

The condensed consolidated financial statements of the Company include the accounts of Hesperix, Xenetic UK and Xenetic UK’s wholly-owned subsidiaries: 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.

Segment Information

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 chief operating decision maker (“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 condensed consolidated net loss for the three and six months ended June 30, 2025 and 2024 is as follows:

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.

Basic and diluted net loss per share are the same in each respective three or six month period due to the Company’s net loss position in each period. 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.

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 $0.6 million and $1.2 million were recorded as revenue by the Company during the three and six months ended June 30, 2025, respectively, and approximately $0.7 million and $1.2 million were recorded as revenue by the Company during the three and six months ended June 30, 2024, respectively. These payments are based on single digit royalties on net sales of certain covered products. The Company’s policy is to recognize royalty payments as revenue when they are reliably measurable, which is upon receipt of reports from Takeda. The Company receives these reports in the quarter subsequent to the actual sublicensee sales. At the time the revenue was received, there were no remaining performance obligations and all other revenue recognition criteria were 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 cGMP manufacturing 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 $2.7 million through June 30, 2025, of which approximately $0.3 million has been recognized as an advance payment and is included in prepaid expenses and other current assets as of June 30, 2025 , and approximately $0.2 million has been recognized as a liability and is included in accounts payable and accrued expenses and other current liabilities as of June 30, 2025. As of December 31, 2024, approximately $28,000 was recognized as an advance payment and is included in prepaid expenses and other current assets and approximately $0.1 million had been recognized as a liability and is included in accrued expenses and other current liabilities. In addition, approximately $0.3 million was recognized within other assets as of December 31, 2024.

Scripps Research Institute (“Scripps Research”)

On March 17, 2023, the Company and Scripps Research entered into a Research Funding and Option Agreement (the “Agreement”), pursuant to which the Company 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.

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 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 $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 remain 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 amended the Agreement in order to expand the services to be performed under the Agreement 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 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 $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 remain unchanged.

The Company has paid Scripps Research approximately $1.4 million under the Agreement through June 30, 2025, of which approximately $0.1 million was accrued as of June 30, 2025. As of December 31, 2024, approximately $0.4 million was recognized as an advance payment and was included in prepaid expenses and other current assets. There were no advance payments as of June 30, 2025.

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, in 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, will oversee 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. Pursuant to the UVA agreement, as amended, UVA will build on the preclinical and translational data produced to date and continue to investigate combinations of DNase I with immunotherapies in models of primary and metastatic colorectal cancer. The Company paid UVA approximately $0.4 million under the UVA Agreement through June 30, 2025, of which $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. There wereno advance payments as of June 30, 2025.

Other Agreements

The Company has also entered into various research, development, license and supply agreements with Serum Institute of India (“Serum Institute”), PJSC Pharmsynthez (“Pharmsynthez”) and SynBio LLC (“SynBio”), a wholly owned subsidiary of Pharmsynthez. The Company and its collaborative partners continue to engage in research and development activities with no resultant commercial products through June 30, 2025. No amounts were recognized as revenue related to the Serum Institute, Pharmsynthez or SynBio agreements during the three and six months ended June 30, 2025 and 2024, respectively.

Accounting Standards Codification 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 June 30, 2025 and December 31, 2024, the carrying amounts of the Company’s financial instruments approximates fair value due to their short maturities. There were no financial instruments classified as Level 3 in the fair value hierarchy during the three and six months ended June 30, 2025 and 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. The Series A Warrants were immediately exercisable at a price of $33.00 per share of common stock. No Series A Warrants were exercised or forfeited during the three and six months ended June 30, 2025 and 2024. These warrants expired in February 2025 and, as a result, no Series A Warrants were outstanding as of June 30, 2025.

The Company also has warrants to purchase approximately 800 shares of the Company’s common stock outstanding as of both June 30, 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 three and six months ended June 30, 2025 and 2024.

Total share-based expense related to stock options and restricted stock units (“RSUs”) was approximately $16,000 and $42,000 for the three months ended June 30, 2025 and 2024, respectively, and approximately $35,000 and $0.1 million for the six months ended June 30, 2025 and 2024, respectively.

Share-based expense is classified in the condensed consolidated statements of operations as follows:

Employee Stock Options and RSU’s

No stock option awards to purchase shares of common stock were granted during the three and six months ended June 30, 2025. During the three and six months ended June 30, 2024,20,000 stock options to purchase shares of common stock were granted by the Company. No RSUs were granted during each of the three and six months ended June 30, 2025 and 2024. The Company recognized a total of approximately $16,000 and $42,000 of share-based expense related to employee stock options during the three months ended June 30, 2025 and 2024, respectively, and approximately $35,000 and $0.1 million during the six months ended June 30, 2025 and 2024, respectively. No employee stock options or RSUs were exercised during the three and six months ended June 30, 2025. The Company issued 417 shares of common stock during the three and six months ended June 30, 2024 related to RSUs representing all RSUs outstanding. No employee stock options were exercised during the three and six months ended June 30, 2024. During the three and six months ended June 30, 2025, options to purchase 64,062 shares and 89,878 shares of common stock expired. During the three and six months ended June 30, 2024, stock options to purchase 11,667 shares of common stock were forfeited.

Non-Employee Stock Options

There wereno non-employee stock options granted or exercised during each of the three and six months ended June 30, 2025 and 2024. No non-employee stock option grants expired during each of the three and six months ended June 30, 2025 and 2024. The Company did not recognize any expense related to non-employee stock options during each of the three and six months ended June 30, 2025 and 2024.

During each of the three and six months ended June 30, 2025 and 2024, there wasno provision for income taxes as the Company incurred losses during both periods. 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. The Company records a valuation allowance against its deferred tax assets as the Company believes it is more likely than not the deferred tax assets will not be realized. The valuation allowance against deferred tax assets was approximately $41.6 million and $41.1 million as of June 30, 2025 and December 31, 2024, respectively.

As of June 30, 2025 and December 31, 2024, the Company didnot record any unrecognized tax positions.

The Company has entered into various research, development, license and supply agreements with PeriNess Ltd. (“PeriNess”), Serum Institute and Pharmsynthez, each a related party whose relationship has not materially changed from that disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 18, 2025, as amended on April 29, 2025 and May 13, 2025. The Company paid PeriNess approximately $55,000 during the six months ended June 30, 2025. As of June 30, 2025 and December 31, 2024, approximately $50,000 was recorded as an advanced payment and included in Prepaid expenses and other. In addition, approximately $22,000 and $8,000 was reflected in accounts payable as of June 30, 2025 and December 31, 2024, respectively. No amounts were incurred in connection with agreements with Serum Institute and Pharmsynthez during the six months ended June 30, 2025 and 2024.

During the first quarter of 2025, the Company entered into a Consulting Agreement with Dr. Dmitry Genkin, Chairman of our Board of Directors, to provide consulting services to the Company’s DNase-based oncology program. This agreement was effective January 1, 2025 and the Company paid Dr. Genkin approximately $0.1 million and $0.2 million during the three and six months ended June 30, 2025, of which approximately $30,000 was reflected within accounts payable as of June 30, 2025. Dr. Genkin does not receive any fees for his service as a member of the Board of Directors.