Azitra, Inc.

Previous wording

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto contained elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other filings with the Securities and Exchange Commission, or SEC, including our Form 10-K for the year ended December 31, 2023 and filed with the SEC on March 15, 2024.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and the related notes thereto contained elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other filings with the Securities and Exchange Commission, or SEC, including our Form 10-K for the year ended December 31, 2024 and filed with the SEC on February 24, 2025.

Previous wording

To date, we have capitalized our operations primarily through a series of private placements of our convertible preferred stock and convertible promissory notes and our initial public offering, IPO, of common stock which closed on June 21, 2023. In connection with our IPO, we issued 50,000 shares of our common stock at a public offering price of $150 per share. Concurrent with the close of our IPO, all of our outstanding shares of convertible preferred stock and convertible promissory notes converted into a total of 298,384 shares of our common stock. In February 2024, we completed a follow-on public offering in which we issued and sold 555,567 shares of our common stock at a price to the public of $9.00 per share. On July 25, 2024, the Company completed a follow-on offering of an aggregate of 6,665,000 shares of its common stock, and Class A warrants to purchase up to 13,330,000 shares of common stock, at a combined public offering price of $1.50 per share and accompanying warrants.

Current wording

To date, we have capitalized our operations primarily through a series of private placements of our convertible preferred stock and convertible promissory notes and our initial public offering, IPO, of common stock which closed on June 21, 2023. In connection with our IPO, we issued 50,000 shares of our common stock at a public offering price of $150 per share. Concurrent with the close of our IPO, all of our outstanding shares of convertible preferred stock and convertible promissory notes converted into a total of 298,384 shares of our common stock. In February 2024, we completed a follow-on public offering in which we issued and sold 555,567 shares of our common stock at a price to the public of $9.00 per share. On July 25, 2024, we completed a follow-on offering of an aggregate of 6,665,000 shares of our common stock, and Class A warrants to purchase up to 13,330,000 shares of common stock, at a combined public offering price of $1.50 per share and accompanying warrants. On January 14, 2025, we completed a follow-on offering in which we issued and sold 4,857,780 shares of our common stock at a price of $0.30 per share. The net proceeds received by us from the follow-on offering were $1.2 million, after deducting placement agent's fees and other offering expenses. The shares were offered by us pursuant to a shelf registration statement on Form S-3 filed with the SEC on July 1, 2024, and a final prospectus supplement dated January 15, 2025. On February 5, 2025, we completed a follow-on offering in which we issued 2,495,518 shares of our common stock at a public offering price of $0.2785 per share and warrants to purchase up to 2,245,968 shares of common stock. The net proceeds received by the Company from the follow-on offering were $561 thousand after deducting placement agent's fees and other offering expenses. The shares were offered by us pursuant to a shelf registration statement on Form S-3 filed with the SEC on July 1, 2024, and a final prospectus supplement dated February 6, 2025. The warrants are exercisable on the six-month and one day anniversary of their issuance, and their exercise price is equal to the greater of the (1) book value of the common stock or (ii) market value of the common stock as determined by the NYSE American Rules.

Previous wording

As of November 12, 2024, we had 7,626,056 shares of our common stock issued and outstanding. Except as otherwise indicated, all share and share price this report gives effect to a reverse stock split effected on July 1, 2024 at a ratio of 30-for-1.

Current wording

As of May 13, 2025, we had 16,476,354 shares of our common stock issued and outstanding. Except as otherwise indicated, all share and share price this report gives effect to a reverse stock split effected on July 1, 2024 at a ratio of 30-for-1. As of the date of this filing, our Board is still evaluating the need for a further reverse split and, if needed, the exact split ratio based on our financing alternatives and NYSE American compliance considerations. Our financial statements will not reflect the further reverse stock split until such time as it occurs.

Previous wording

We focus on developing innovative therapies for precision dermatology using engineered proteins and topical live biotherapeutic products. We have built a proprietary platform that includes a microbial library comprised of approximately 1,500 unique bacterial strains that can be screened for unique therapeutic characteristics. The platform is augmented by an artificial intelligence and machine learning technology that analyzes, predicts and helps screen our library of strains for drug like molecules. The platform also utilizes a licensed genetic engineering technology, which can enable the transformation of previously genetically intractable strains. Our initial focus is on the development of genetically engineered strains of Staphylococcus epidermidis, or S.

Current wording

We focused on developing innovative therapies for precision dermatology using engineered proteins and topical live biotherapeutic products. We have built a proprietary platform that includes a microbial library comprised of approximately 1,500 unique bacterial strains that can be screened for unique therapeutic characteristics. The platform is augmented by an artificial intelligence and machine learning technology, which can enable the transformation of previously genetically intractable strains. Our initial focus is on the development of genetically engineered strains of Staphylococcus epidermidis, or S. epidermidis, which we consider to be an optimal therapeutic candidate species for engineering of dermatologic therapies. The particular species demonstrates a number of well-described properties in the skin. As of the date of this report, we have identified among our microbial library over 60 distinct bacterial species that we believe are capable of being engineered to create living organisms or engineered proteins with significant therapeutic effect.

Previous wording

We are a pioneer in genetically engineered bacteria for therapeutic use in dermatology. Our goal is to leverage our platforms and internal microbial library bacterial strains to create new therapeutics that are either engineered living organisms or engineered proteins or peptides to treat skin diseases. Our initial focus is on the development of our current product candidates, including:

Current wording

We are a pioneer in genetically engineered bacteria for therapeutic use in dermatology. Our goal is to leverage our platforms and internal microbial library bacterial strains to create new therapeutics that are either engineered living organisms or engineered proteins or peptides to treat skin diseases. Our initial focus is on the development of our current programs, including:

Previous wording

•ATR-12, a genetically modified strain of S. epidermidisfor treating the orphan disease, Netherton syndrome, a chronic and sometimes fatal disease of the skin estimated to affect approximately one in every 100,000, but its prevalence may be underestimated due to misdiagnosis caused by similarities to other skin diseases. We received Pediatric Rare Disease Designation for ATR-12 by the United States Food and Drug Administration, or FDA, in 2019. In December 2022, we submitted an investigational new drug application, or IND, for a Phase 1b clinical trial of ATR-12 in Netherton syndrome patients, and on January 27, 2023 we received notification from the FDA that the “study may proceed” with respect to the proposed Phase 1b clinical trial. After submitting post-IND manufacturing reports, we have commenced operating activities for our Phase 1b clinical trial in December 2023, and we dosed our first patient in August 2024. We expect to report initial clinical safety results in the first quarter of 2025.

Current wording

•ATR-12, which includes a genetically modified strain of S. epidermidisfor treating the orphan disease, Netherton syndrome, a chronic and sometimes fatal disease of the skin estimated to affect approximately one in every 100,000, but its prevalence may be underestimated due to misdiagnosis caused by similarities to other skin diseases. We received Pediatric Rare Disease Designation for ATR-12 by the United States Food and Drug Administration, or FDA, in 2019. In December 2022, we submitted an investigational new drug application, or IND, for a Phase 1b clinical trial of ATR-12 in Netherton syndrome patients, and on January 27, 2023 we received notification from the FDA that the “study may proceed” with respect to the proposed Phase 1b clinical trial. After submitting post-IND manufacturing reports, we have commenced operating activities for our Phase 1b clinical trial in December 2023, and we dosed our first patient in August 2024. We expect to report initial clinical safety results in the first half of 2025.

Previous wording

•ATR-04, a genetically modified strain of S. epidermidisfor treating the papulopustular rash experienced by cancer patients undergoing epidermal growth factor receptor inhibitor, or EGFRi, targeted therapy. In August 2024, we obtained IND clearance from the FDA to commence a Phase 1/2 clinical trial in certain cancer patients undergoing EGFRi targeted therapy. In September 2024, we obtained Fast Track designation by the FDA in this indication. We expect to commence our Phase 1b clinical trial in the fourth quarter of 2024 and dose the first patient in the first quarter of 2025.

Current wording

•ATR-04, which includes a genetically modified strain of S. epidermidisfor treating the papulopustular rash experienced by cancer patients undergoing epidermal growth factor receptor inhibitor, or EGFRi, targeted therapy. In August 2024, we obtained IND clearance from the FDA to commence a Phase 1/2 clinical trial in certain cancer patients undergoing EGFRi targeted therapy. In September 2024, we obtained Fast Track designation by the FDA in this indication. We expect to dose the first patient in the Phase 1/2 clinical trial in the first half of 2025.

Previous wording

•ATR-01, a genetically modified strain of S. epidermidis that expresses an engineered recombinant human filaggrin protein for treating ichthyosis vulgaris, a chronic, xerotic (abnormally dry), scaly skin disease with an estimated incidence and prevalence of 1 in 250, which suggests a total patient population of 1.3 million in the United States. We are planning to perform lead optimization and IND-enabling studies in 2024 to support an IND filing targeted for early 2026.

Current wording

•ATR-01, which includes a genetically modified strain of S. epidermidis that expresses an engineered recombinant human filaggrin protein for treating ichthyosis vulgaris, a chronic, xerotic (abnormally dry), scaly skin disease with an estimated incidence and prevalence of 1 in 250, which suggests a total patient population of 1.3 million in the United States. We are planning to perform lead optimization and IND-enabling studies in 2025 to support an IND filing in early 2026.

Previous wording

•Two separate strains of bacterial microbes being investigated and developed by us and Bayer Consumer Care AG, the consumer products division of Bayer AG, or Bayer, the international life science company. We entered into a Joint Development Agreement, or JDA, with Bayer in December 2019. Under the terms of the JDA, we are responsible for testing our library of bacterial strains and their natural products for key preclinical properties. After screening through hundreds of strains, we and Bayer have selected two particular strains to move forward into further development. Bayer holds the exclusive option to license the patent rights to these strains. In December 2020, Bayer purchased $8 million of our Series B preferred stock, which converted into 48,324 shares of our common stock.

Current wording

•Two separate strains of bacterial microbes have been investigated and developed by us and Bayer Consumer Care AG, the consumer products division of Bayer AG, or Bayer, the international life science company. We entered into a Joint Development Agreement, or JDA, with Bayer in December 2019. Under the terms of the JDA, we are responsible for testing our library of bacterial strains and their natural products for key preclinical properties. After screening through hundreds of strains, we and Bayer have selected two particular strains to move forward into further development. Bayer holds the exclusive option to license the patent rights to these strains.

Previous wording

Beyond our three lead product candidates and collaboration with Bayer, our goal is to develop a broad portfolio of product candidates focused on expanding the application of our platforms for precision dermatology. We believe that we have established a unique position in advancing the development of biologics for precision dermatology.

Current wording

Beyond our three lead product candidates, our goal is to develop a broad portfolio of product candidates focused on expanding the application of our platforms for precision dermatology. We believe that we have established a unique position in advancing the development of biologics for precision dermatology.

Previous wording

•Advance our lead product candidates, ATR-12 and ATR-04, through clinical trials. In December 2022, we filed an IND for a first-in-human trial of ATR-12 in Netherton syndrome patients. On January 27, 2023, we received notification from the FDA that the “study may proceed” with respect to the proposed Phase 1b clinical trial, and in August 2024 we initiated dosing the first patient in its Phase 1b clinical trial evaluating ATR-12. In April 2024, we held a pre-IND meeting with the FDA to discuss an IND filing for a first-in-human Phase 1b/2a clinical trial in patients with EGFRi-associated rash, and in September 2024 the FDA granted Fast Track designation for ATR-04. We expect to report initial safety results of the first patients dosed in our Phase 1b clinical trial for our ATR-12 in Netherton syndrome patients in early 2025 with full results anticipated in the second half of 2025, and are currently planning to commence a Phase 1b trial of our ATR-04 in certain cancer patients undergoing EGFRi therapy in the fourth quarter of 2024.

Current wording

•Advance our lead programs, ATR-12 and ATR-04, through clinical trials. In 2022, we obtained pre-IND correspondence with the FDA for purposes of discussing our proposed regulatory pathway for the ATR-12 program and obtaining guidance from the FDA on the preclinical plan leading to the filing and acceptance of an IND for ATR-12. In December 2022, we filed an IND for an ATR-12 first-in-human trial in Netherton syndrome patients. On January 27, 2023, we received notification from the FDA that the “study may proceed” with respect to the proposed Phase 1b clinical trial, and in August 2024 we initiated dosing the first patient in the ATR-12 Phase 1b clinical trial. In August 2024, we received IND clearance from the FDA for a first-in-human Phase 1b/2a clinical trial in patients with EGFRi-associated rash, and in September 2024, the FDA granted Fast Track designation for the ATR-04 program. We commenced a Phase 1b trial for our ATR-04 program in certain cancer patients undergoing EGFRi therapy in the fourth quarter of 2024. We expect to dose the first patient in the ATR-04 Phase 1/2 clinical trial in the first half of 2025. We expect to report initial safety results of the first patients dosed in our Phase 1b clinical trial for our ATR-12 program in Netherton syndrome patients in mid-2025 with full results anticipated in the second half of 2025.

Previous wording

•Leverage our academic partnerships. We currently have partnerships with investigators at the Fred Hutchinson Cancer Center, Yale University, Jackson Laboratory for Genomic Medicine, and Carnegie Mellon University. We expect to leverage these partnerships and potentially expand them or form other academic partnerships to bolster our engineering platforms and expand our research and development pipeline.

Current wording

•Leverage our academic partnerships. We currently have partnerships with investigators at the Fred Hutchinson Cancer Center, Yale University, Duke University, and Carnegie Mellon University. We expect to leverage these partnerships and potentially expand them or form other academic partnerships to bolster our engineering platforms and expand our research and development pipeline.

Previous wording

We are an early-stage clinical biopharmaceutical company, formed in January 2014, and have limited operating history. We have not commenced revenue-producing operations apart from limited service revenue derived through our JDA with Bayer. Under the terms of the JDA, we are responsible for testing our library of microbial strains and their natural products for key preclinical properties and Bayer reimburses us for our development costs. To date, our operations have consisted of the development of our proprietary microbial library, the identification, characterization and testing of certain bacterial species from our microbial library that we believe are capable of being engineered to provide significant therapeutic effect and the development of our initial product candidates.

Current wording

We are an early-stage clinical biopharmaceutical company, formed in January 2014, and have limited operating history. We have not commenced revenue-producing operations, and our core focus is on the research and development of innovative therapies for precision dermatology using engineered proteins and live biotherapeutic products. To date, our operations have consisted of the development of our proprietary microbial library, the identification, characterization and testing of certain bacterial species from our microbial library that we believe are capable of being engineered to provide significant therapeutic effect and the development of our initial product candidates.

Previous wording

The following table summarizes our results of operations with respect to the items set forth below for the for the nine months ended September 30, 2024 and 2023 together with the percentage change for those items.

Current wording

The following table summarizes our results of operations with respect to the items set forth below for the for the three months ended March 31, 2025 and 2024 together with the percentage change for those items.

Previous wording

General and administrative costs during the first nine months of fiscal 2024 increased by $1,507,596, or 44%, to $4,951,155 from the prior year period. The increase was primarily related to the costs incurred following, and as a result of, our emergence as a public company in June 2023, including an increase of $462,000 of salaries and benefits, an increase of $429,000 primarily related to the hiring of our CFO, an increase of $112,000 primarily related to the achievement of a milestone for our CEO's performance based options, an increase of $183,000 primarily related to costs associated with listing on the NYSE, an increase of $191,000 primarily related to the cost of directors and officers insurance, an increase of $170,000 in public relations expenditures, an increase of $59,000 in Board member costs, an increase of $32,000 in conference expense offset by a decrease of $25,000 in legal costs, a decrease of $141,000 in accounting and audit expenses and a net increase of $35,596 in other overhead expenses.

Current wording

General and administrative costs during the first three months of fiscal 2025 increased by $361,611, or 24%, to $1,850,138 from the prior year period. The increase was primarily related to an increase of $209,000 in accounting costs primarily related to an increase in fees paid to external auditors and NYSE, an increase of $48,000 in legal fees, an increase of $40,000 in public relations expenditures, an increase of $35,000 for the use of business consultants, and an increase of $12,000 in repairs and maintenance offset by a decrease of $22,000 in insurance costs, a decrease of $10,000 in rent expenses and a net increase of approximately $50,000 in other overhead expenses.

Previous wording

Our other income (expense) consists of interest income, changes in the valuation of warrants, loss on foreign currency translation, loss on issuance of stock, loss on disposal of equipment and interest expense. During the third quarter of fiscal 2024, other income (expense) increased by $1,869,273, or 3,706%, compared to the comparable period in fiscal 2023. The increase was primarily related to an increase of $3,903,408 in warrant value, a net decrease of $98,665 attributable to other income and expense, offset by a increase of $2,132,800 attributable to the loss on issuance of stock.

Current wording

Our other income consists of interest income, loss on foreign currency translation, change in fair value of warrants, gain on disposal of property and equipment, and interest expense. During the first three months of fiscal 2025, other income increased by $3,271, or 11%, compared to the comparable period in fiscal 2024. The increase was primarily related to a increase of $30,000 in interest income offset by a decrease of $28,000 attributable to the decrease in warrant value, and a net increase of approximately $1,000 attributable to other income.

Previous wording

As of September 30, 2024, we had total assets of approximately $9.8 million and working capital of approximately $6.3 million. As of September 30, 2024, our liquidity included approximately $7.3 million of cash and cash equivalents. We believe that our cash on-hand as of the date of this report may not be sufficient to cover our proposed plan of operations over the next twelve months. We intend to seek additional funds through various financing sources, including the sale of our equity and debt securities, federal grants, licensing fees for our technology and joint ventures with industry partners. In addition, we will consider alternatives to our current business plan that may enable us to achieve revenue producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations.

Current wording

As of March 31, 2025, we had total assets of approximately $5.9 million and working capital of approximately $2.6 million. As of March 31, 2025, our liquidity included approximately $3.2 million of cash and cash equivalents. We believe that our cash on-hand as of the date of this report will not be sufficient to cover our proposed plan of operations over the next twelve months. We intend to seek additional funds through various financing sources, including the sale of our equity and debt securities, federal grants, licensing fees for our technology and joint ventures with industry partners. In addition, we will consider alternatives to our current business plan that may enable us to achieve revenue producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations.

Previous wording

As of the date of this filing, management has determined there is substantial doubt about our ability to continue as a going concern based on our lack of revenue from commercial operations, significant losses, and the need to raise additional capital to support ongoing operations.

Current wording

As of the date of this filing, management has determined there is substantial doubt about our ability to continue as a going concern based on our lack of revenue from commercial operations, significant losses, and the need to raise additional capital to support ongoing operations. Our contractual commitments primarily consist of operating and financing leases with contractual undiscounted balances of $470,137, and $23,656, respectively as of March 31, 2025. Refer to Footnote 11 for more detailed information regarding our lease commitments. Additionally, as we continue to progress our product candidates through clinical trials, we will continue to incur additional costs related to our CRO's. It is common in our industry for the CRO's to require significant up-front cash payments prior to the beginning of such trial phases, and additional cash payments upon the achievement of certain milestones per the contracts' terms.

Previous wording

During the first nine months of fiscal 2024, operating activities used $7.6 million of cash primarily driven by our net loss of $6.6 million, and non-cash items of $1.0 million. During the comparable period of fiscal 2023, operating activities used $4.8 million of cash primarily driven by our net loss of $8.8 offset by non-cash items of $4.0 million.

Current wording

During the first three months of fiscal 2025, operating activities used $3.1 million of cash primarily driven by our net loss of $3.1 million. During the comparable period of fiscal 2024, operating activities used $3.0 million of cash primarily driven by our net loss of $2.9 million and by non-cash items of $0.1 million.

Previous wording

During the first nine months of fiscal 2024, investing activities used $263,714 of cash driven by $255,145 trademark and deferred patent costs. During the comparable period of fiscal 2023, investing activities used $258,274 of cash driven by $208,723 of trademark and deferred patent costs, $22,882 for the purchase of furniture and equipment, and $26,669 of patent, trademark, and license costs.

Current wording

During the first three months of fiscal 2025, investing activities used $21,686 of cash driven by $24,839 in trademark and deferred patent costs offset by $3,153 in proceeds from the sale of property and equipment. During the comparable period of fiscal 2024, investing activities used $81,078 of cash attributable to trademark and deferred patent costs.

Previous wording

During the first nine months of fiscal 2024, financing activities provided $13.3 million in cash primarily driven by proceeds from our February and July 2024 follow-on public offerings. During the comparable period of fiscal 2023, financing activities provided $6.0 million in cash primarily driven by proceeds from our June 2023 IPO.

Current wording

During the first three months of fiscal 2025, financing activities provided $1.7 million in cash primarily driven by proceeds from our January and February 2025 follow-on public offerings. During the comparable period of fiscal 2024, financing activities provided $4.3 million in cash primarily driven by proceeds from our February 2024 follow-on offering.

Previous wording

During the nine months ended September 30, 2024, there were no material changes to our critical accounting policies previously disclosed in our Form 10-K dated December 31, 2023 and filed with the SEC on March 15, 2024.

Current wording

During the three months ended March 31, 2025, there were material changes to our critical accounting policies previously disclosed in our Form 10-K dated December 31, 2024 and filed with the SEC on February 24, 2025. We no longer consider our revenue recognition, and estimating the fair value of our common stock critical accounting policies as we currently do not have transactions that produce revenue, and since we are a publicly traded company, we no longer need to estimate the fair value of our common stock as the Company's common stock is traded on the NYSE American.