The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
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 progressing XCART™, a personalized Chimeric Antigen Receptor (“CAR”) T platform
technology engineered to target patient- and tumor-specific neoantigens. The Company is initially advancing cell-based therapeutics
targeting the unique B-cell receptor on the surface of an individual patient’s malignant tumor cells, for the treatment of
B-cell lymphomas. The XCART technology, developed by the Scripps Research Institute in collaboration with the Shemyakin-Ovchinnikov
Institute of Bioorganic Chemistry, is believed to have the potential to significantly enhance the safety and efficacy of cell therapy
for B-cell lymphomas by generating patient- and tumor-specific CAR T cells.
Additionally, Xenetic is leveraging its
proprietary drug delivery platform, PolyXen®, by partnering with biotechnology and pharmaceutical companies. PolyXen
is an enabling platform technology which can be applied to protein or peptide therapeutics. It employs the natural polymer polysialic
acid to prolong a drug's circulating half-life and potentially improve other pharmacological properties. Xenetic incorporates its
patented and proprietary technologies into a number of drug candidates currently under development with biotechnology and pharmaceutical
industry collaborators to create what the Company believes will be the next-generation biologic drugs with improved pharmacological
properties over existing therapeutics.
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, and unregistered trademarks and service marks, including but not limited to XCART, OncoHist™, PolyXen, ErepoXen™,
and ImuXen™, which are 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. These factors raise substantial doubt about
its ability to continue as a going concern. The Company had an accumulated deficit of approximately $175.7 million at September
30, 2020 as compared to an accumulated deficit of approximately $166.0 million at December 31, 2019. Working capital was approximately
$7.2 million and $9.7 million at September 30, 2020 and December 31, 2019, respectively. During the nine months ended September
30, 2020, our working capital decreased by $2.5 million primarily due to our net loss for the nine months ended September 30, 2020.
The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital or pursue
other strategic alternatives in the near term in order to continue the pursuit of its business plan and continue as a going concern.
The Company believes
that 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. During 2019, the Company completed two stock offerings that
resulted in $16.1 million of net proceeds to the Company. The Company believes that its existing resources will be adequate to
fund the Company’s operations through mid-2021. However, the Company anticipates it may need additional capital in the near
term to pursue its business initiatives. The terms, timing and extent of any future financing will depend upon several factors,
including the achievement of progress in its clinical development programs, its ability to identify and enter into licensing or
other strategic arrangements, and factors related to financial, economic and market conditions, many of which are beyond its control.
While these condensed consolidated financial
statements have been prepared on a going concern basis, if the Company does not successfully raise additional working capital,
there can be no assurance that the Company will be able to continue its operations and these conditions raise substantial doubt
about its ability to continue as a going concern. Under such circumstances, the Company would have to further reduce the planned
scale of, or possibly suspend, some or all of its pre-clinical development initiatives and clinical trials. In addition, the Company
would have to continue to reduce its general and administrative and other operating expenses and delay or cease the purchase of
clinical research services if and until the Company is able to obtain additional financing. The accompanying condensed consolidated
financial statements do not include any adjustments related to the recoverability or classification of asset carrying amounts or
the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
During March 2020, a global pandemic was
declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus, or COVID-19.
The pandemic has significantly affected economic conditions in the U.S., accelerating during the first half of March and continuing
into November, as federal, state and local governments react to the public health crisis with mitigation measures, creating significant
uncertainties in the U.S. economy. The Company continues to evaluate the effects of the COVID-19 pandemic on its business and while
there has been no significant impact to the Company’s operations to date, the Company at this time is uncertain of the impact
this event may have on the Company’s future operations. The extent to which the COVID-19 pandemic affects our business,
operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, and such
uncertainty is expected to continue for some time.
3.
|
Summary of Significant Accounting Policies
|
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, 2019 filed with the SEC on March 26, 2020 and
amended on April 29, 2020.
On June 25, 2019, the Company effected
a reduction, on a 1 for 12 basis, in its authorized common stock, par value $0.001, along with a corresponding and proportional
decrease in the number of shares issued and outstanding (the “Reverse Stock Split”). On the effective date of the Reverse
Stock Split, (i) every 12 shares of common stock were reduced to one share of common stock, with any fractional amounts rounded
up to one share; (ii) the number of shares of common stock into which each outstanding warrant, restricted stock unit, or option
to purchase common stock were proportionately reduced on the same basis as the common stock; (iii) the exercise price of each outstanding
warrant or option to purchase common stock were proportionately increased on a 1 for 12 basis; and (iv) the number of shares of
common stock into which each share of preferred stock could be converted were proportionately reduced on the same basis as the
common stock. Unless otherwise indicated, all of the share numbers, share prices, and exercise prices have been adjusted, on a
retroactive basis, to reflect this Reverse Stock Split.
Certain prior period amounts have been
reclassified to conform to the presentation for the current period.
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. All intercompany balances and transactions have been eliminated in consolidation.
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.
For the three and nine months ended September
30, 2020 and 2019, basic and diluted net loss per share are the same for each respective period due to the Company’s net
loss position. Potentially dilutive, non-participating securities have not been included in the calculations of diluted net loss
per share, as their inclusion would be anti-dilutive.
Recent Accounting Standards
In November 2018, the Financial Accounting
Standards Board (“FASB”) issued ASU 2018-18, Clarifying the Interaction between Topic 808 and Topic 606. The
guidance clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue
under ASC 606 when the collaborative arrangement participant is a customer for a promised good or service that is distinct within
the collaborative arrangement. The guidance also precludes entities from presenting amounts related to transactions with a collaborative
arrangement participant that is not a customer as revenue, unless those transactions are directly related to third-party sales.
ASU 2018-18 is effective in the first quarter of 2020 and should be applied retrospectively to January 1, 2018, when the Company
adopted ASC 606. Early adoption is permitted. The new guidance was adopted on January 1, 2020 and it did not have a material effect
on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13,
Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The guidance eliminates,
adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. ASU
2018-13 is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods
and early adoption is permitted. The new guidance was adopted on January 1, 2020 and it did not have a material effect on the Company’s
condensed consolidated financial statements.
4.
|
Significant Strategic Collaborations
|
The Company has entered into various research,
development, license and supply agreements with Takeda Pharmaceuticals Co. Ltd. (“Takeda”), Serum Institute of India
(“Serum Institute”), 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 September 30, 2020. 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 $116,000 and $286,000
were recorded as revenue by the Company during the three and nine months ended September 30, 2020, respectively. 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. There were no remaining performance
obligations and all other revenue recognition criteria were met. There were no amounts recognized under this sublicense agreement
during the three and nine months ended September 30, 2019. No amounts were recognized as revenue related to the Serum Institute,
Pharmsynthez or SynBio agreements during the three and nine months ended September 30, 2020 and 2019, respectively.
On May 15, 2020, the Company and The Scripps
Research Institute (“Scripps Research”) entered into a Research Funding and Option Agreement (the “Scripps Agreement”),
pursuant to which the Company has agreed to provide Scripps Research an aggregate of up to $3.0 million to fund research relating
to advancing the pre-clinical development of XCART™. The research funding is payable by the Company to Scripps Research on
a quarterly basis in accordance with a negotiated budget, which provides for an initial payment of approximately $300,000 on the
date of the Scripps Agreement and subsequent quarterly payments of approximately $300,000 over a 27-month period. Under the Scripps
Agreement, Scripps Research has granted the Company a license within the Field (as defined in the Scripps Agreement) to any Patent
Rights or Technology (as defined in the Scripps Agreement) under the terms of that certain license agreement with Scripps Research,
dated February 25, 2019, assigned to the Company on March 1, 2019. Additionally, the Company has the option to acquire a worldwide
exclusive license to Scripps Research’s rights in the Technology or Patent Rights not already licensed to the Company, as
well as a non-exclusive, royalty-free, non-transferrable license to make and use Scripps Research Technology (as defined in the
Scripps Agreement) solely for the Company’s internal research purposes during the performance of the research program contemplated
by the Scripps Agreement.
5.
|
Property and Equipment, net
|
Property and equipment, net consists of
the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Office and computer equipment
|
|
$
|
42,289
|
|
|
$
|
42,289
|
|
Furniture and fixtures
|
|
|
14,738
|
|
|
|
14,738
|
|
Property and equipment – at cost
|
|
|
57,027
|
|
|
|
57,027
|
|
Less accumulated depreciation
|
|
|
(57,027
|
)
|
|
|
(56,270
|
)
|
Property and equipment – net
|
|
$
|
–
|
|
|
$
|
757
|
|
There was no depreciation expense for the
three months ended September 30, 2020. Depreciation expense was approximately $1,000 for the three months ended September 30, 2019
and approximately $800 and $3,000 for the nine months ended September 30, 2020 and 2019, respectively.
6.
|
Goodwill and Indefinite-Lived Intangible Assets
|
Goodwill
Goodwill is comprised of the purchase
price of business combinations in excess of the fair value assigned at acquisition to the net tangible and identifiable
intangible assets acquired and is not amortized. The Company assessed goodwill for impairment at least annually, or when
events or changes in the business environment indicated that the carrying value may not be fully recoverable. The Company
performed its annual impairment review during the fourth quarter at the reporting unit level. Goodwill may be considered
impaired if the carrying value of the reporting unit, including goodwill, exceeds the reporting unit’s fair value. The
Company is comprised of one reporting unit. The Company experienced a significant decline in its stock price during the three
months ended September 30, 2019 resulting in a drop in its market capitalization indicating potential impairment. As a
result, the Company performed an interim impairment test during the three months ended September 30, 2019 to determine the
fair value of the reporting unit using its market capitalization, concluding that the fair value of the reporting unit is
less than the carrying amount in excess of Goodwill, therefore fully impairing Goodwill. For the three and nine months ended
September 30, 2019, the Company recorded an asset impairment charge of $3.3 million in our condensed consolidated statement
of operations related to Goodwill. A reconciliation of the change in the carrying value of Goodwill is as follows:
Balance as of January 1, 2019
|
|
|
$
|
3,283,379
|
|
Impairment
|
|
|
|
(3,283,379
|
)
|
Balance as of September 30, 2019
|
|
|
$
|
–
|
|
Indefinite-Lived Intangible Assets
The Company’s indefinite-lived
intangible asset, OncoHist, is in-process research and development (“IPR&D”) relating to the Company’s
business combination with SymbioTec in 2012. IPR&D is tested for impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable, although it is to be tested at least annually until the project is
completed or abandoned. The Company completed an impairment analysis of the IPR&D as of September 30, 2020 and concluded
that the following factors indicate that the IPR&D was impaired: a decision by management to delay indefinitely any
further development of the IPR&D and to not support the underlying intellectual property; the failure to sell or license
the IPR&D to a third party; and the reduction in market capitalization. For the three and nine months ended September 30,
2020, the Company recorded an asset impairment charge of $9.2 million in our condensed consolidated statement of operations,
which represents the excess of the IPR&D asset’s carrying value over its estimated fair value. No indefinite-lived
intangible asset impairment was recorded during the year ended December 31, 2019. A reconciliation of the change in the
carrying value of Indefinite-Lived Intangible Assets is as follows:
Balance as of January 1, 2019
|
|
$
|
9,243,128
|
|
No changes
|
|
|
–
|
|
Balance as of December 31, 2019
|
|
|
9,243,128
|
|
Impairment
|
|
|
(9,243,128
|
)
|
Balance as of September 30, 2020
|
|
$
|
–
|
|
7.
|
Fair Value Measurements
|
Accounting Standards Codification (“ASC”)
Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or be paid to
transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following
fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within
the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Level 1 inputs are
quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the
measurement date. Level 2 utilizes quoted market prices in markets that are not active, broker or dealer quotations, or alternative
pricing sources with reasonable levels of price transparency. Level 3 inputs are unobservable inputs for the asset or liability
in which there is little, if any, market activity for the asset or liability at the measurement date. The carrying amounts of certain
of the Company’s financial instruments approximates fair value due to their short maturities.
Warrants
In connection with certain of the Company’s
collaboration agreements and consulting arrangements, the Company has issued warrants to purchase shares of common stock as payment
for services. As of September 30, 2020 and December 31, 2019, collaboration warrants to purchase 30,307 and 32,412 shares of common
stock were outstanding, respectively. During the nine months ended September 30, 2020, collaboration warrants to purchase 2,105
shares expired. No collaboration warrants expired during the three months ended September 30, 2020. The outstanding warrants as
of September 30, 2020 have an average weighted exercise price of $124.74 and expiration dates ranging from April 2021 through May
2021. No collaboration warrants were granted or exercised in connection with collaboration or consulting services during the three
and nine months ended September 30, 2020 and 2019, respectively.
In addition, the Company has outstanding
warrants to purchase an aggregate of 378,453 and 658,557 shares of common stock in connection with debt and equity financing arrangements
as of September 30, 2020 and December 31, 2019, respectively. These warrants have an average weighted exercise price of $38.41
as of September 30, 2020 and expiration dates ranging from March 2021 through September 2026. There were prefunded warrants to
purchase approximately 0.5 million and 0.6 million shares of Common Stock issued during the three and nine months ended September
30, 2019, respectively, of which approximately 0.5 million were exercised during the three and nine months ended September 30,
2019 with the remaining 0.1 million of prefunded warrants having been exercised during the fourth quarter of 2019. As of December
31, 2019, there were no pre-funded warrants outstanding. During the three and nine months ended September 30, 2019 debt and equity
warrants to purchase approximately 2.5 million and 2.6 million shares of common stock were granted and 1.9 million debt and equity
warrants were exercised during the three and nine months ended September 30, 2019. During the nine months ended September 30, 2020,
debt and equity financing warrants to purchase approximately 0.2 million shares of common stock were exercised on a cashless one-for-one
basis. In addition, approximately 0.1 million of debt and equity warrants expired during the nine months ended September 30, 2020.
No debt and equity warrants expired during the nine months ended September 30, 2019.
Total share-based expense related to stock
options, restricted stock units (“RSUs”) and common stock awards were approximately $0.1 million and $0.2 million during
the three months ended September 30, 2020 and 2019, respectively, and approximately $0.4 million and $0.7 million for the nine
months ended September 30, 2020 and 2019, respectively.
Share-based compensation expense is classified in the condensed
consolidated statements of operations as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Research and development expenses
|
|
$
|
13,078
|
|
|
$
|
38,843
|
|
|
$
|
39,372
|
|
|
$
|
81,921
|
|
General and administrative expenses
|
|
|
97,721
|
|
|
|
208,594
|
|
|
|
348,759
|
|
|
|
648,610
|
|
|
|
$
|
110,799
|
|
|
$
|
247,437
|
|
|
$
|
388,131
|
|
|
$
|
730,531
|
|
Employee Stock Options
There were no employee stock options
or RSUs granted or exercised during the nine months ended September 30, 2020. During the three and nine months ended
September 30, 2019, the Company granted 50,000 stock option awards. The weighted average grant date fair value per option
share was $1.18. Key assumptions used in the Black-Scholes option pricing model for options granted during the three and nine
months ending September 30, 2019 were the Company’s stock price, a risk free rate
of 1.60%, an expected life of 5.5 years and an expected volatility of 119.11%. There were no employee stock options
exercised during the nine months ended September 30, 2019. The Company recognized a total of $0.1 million and $0.2 million of
compensation expense related to employee stock options during the three months ended September 30, 2020 and 2019,
respectively, and $0.4 million and $0.7 million during the nine months ended September 30, 2020 and 2019, respectively.
Non-Employee Stock Options
The Company did not grant any non-employee
stock options during the nine months ended September 30, 2020 and 2019. There were no non-employee stock options exercised during
the nine months ended September 30, 2020 and 2019. The Company recognized approximately $4,000 and $11,000 of expense during the
three and nine months ended September 30, 2020, respectively. The Company did not recognize any expense related to non-employee
stock options during the three and nine months ended September 30, 2019, respectively.
Common Stock Awards
During the three and nine months ended
September 30, 2019, the Company granted 7,153 and 9,026 common stock awards, respectively, based on the value of the professional
services provided and the average stock price during the respective periods. As all services were rendered during the three and
nine months ended September 30, 2019, approximately $15,000 and $47,000 of expense related to common stock awards was recognized,
respectively. There were no common stock awards granted during the three and nine months ended September 30, 2020. During the nine
months ended September 30, 2020, the Company issued 1,188 shares related to these awards. As of September 30, 2020, there were
7,406 common stock awards authorized but not issued.
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 $26.5 million and $25.9 million as of September 30, 2020 and December 31, 2019, respectively.
As of December 31, 2019, the net deferred
tax liability of $2.9 million on the condensed consolidated balance sheets is related to book and tax basis differences for intangible
assets with indefinite lives. In accordance with ASC 740-10-30-18, the deferred tax liability related to the intangible assets
cannot be used to offset deferred tax assets when determining the amount of the valuation allowance for deferred tax assets which
are not more-likely-than-not to be realized. This results in a net deferred tax liability, even though the Company has a full valuation
allowance on its other net deferred tax assets. During the three and nine months ended September 30, 2020, the related intangible
assets were impaired and the net deferred tax liability was eliminated. As a result, the Company recorded an income tax benefit
of $2.9 million during the three and nine months ended September 30, 2020. There was no provision for income taxes for the three
and nine months ended September 30, 2019 as the Company incurred losses during both periods.
As of September 30, 2020 and December 31,
2019, the Company did not record any unrecognized tax positions.
The Company determines whether an arrangement
is a lease at inception. On October 1, 2020, the Company entered into a two-year lease for its corporate headquarters in Framingham,
Massachusetts. This lease calls for total future minimum rent payments of approximately $78,000 and has a termination date of September
30, 2022. The Company does not have options to extend, termination options or material residual value guarantees. As the lease
agreement was not executed until October 1, 2020, the Company will record a right-of-use (“ROU”) asset and corresponding
lease liability of approximately $71,000 in the fourth quarter of 2020. As the lease does not provide an implicit rate, we used
our incremental borrowing rate (10.2%) based on the information available at the lease’s commencement date in determining
the present value of lease payments.
Supplemental cash flow information and
non-cash activity related to our operating leases are as follows:
|
|
Nine Months
Ended
September 30,
|
|
|
|
2020
|
|
Operating cash flow information:
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
20,042
|
|
As the Company’s existing operating
lease expired on September 30, 2020, there was no ROU or lease liability reflected on the September 30, 2020 balance sheet.
12.
|
Related Party Transactions
|
The Company has entered into various research,
development, license and supply agreements with Serum Institute and Pharmsynthez (as well as SynBio, a wholly owned subsidiary
of 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, 2019 filed with the SEC on March 26, 2020, as amended on April 29, 2020.
On July 19, 2019, the Company acquired
the XCART technology platform from Hesperix and Opko Pharmaceuticals LLC (“OPKO”). Dr. Dmitry Genkin, one of our directors
and Chairman of Pharmsynthez, was a director and significant shareholder of Hesperix. In addition, the Company agreed to repay
an approximate $225,000 loan that Dr. Genkin entered into with Hesperix. Mr. Adam Logal, one of our directors, is Senior Vice President,
Chief Financial Officer, Chief Accounting Officer and Treasurer of OPKO Health, Inc., the parent company of OPKO.
During the third quarter of 2019, the Company
entered into a Sponsored Research Agreement with Pharmsynthez (the “SRA”) related to experiments identified by the
Company to support its efforts for initial tech transfer of the XCART methods to a future academic collaborator. Under the agreement,
the Company made a $350,000 payment to Pharmsynthez during the third quarter of 2019, which is refundable on pro rata basis if
the project is terminated prematurely as a result of Pharmsynthez failing to perform the work. The Company expensed approximately
$0.2 million related to this agreement during the nine months ended September 30, 2020. The Company did not record any expense
during the three months ended September 30, 2020 as the Company and Pharmsynthez entered into a Master Services Agreement (“MSA”)
on June 12, 2020 that terminated and superseded the SRA. As of September 30, 2020 and December 31, 2019, approximately $0.1 million
and $0.2 million, respectively, was recorded as an advanced payment and included in Prepaid expenses and other on the condensed
consolidated balance sheets.
In October 2019, the Company entered into
a loan agreement with Pharmsynthez (the “Pharmsynthez Loan”), pursuant to which the Company advanced Pharmsynthez an
aggregate principal amount of up to $500,000 to be used for the development of a specific product under the August 2011 Stock Subscription
and Collaborative Development of Pharmaceutical Products Agreement between the Company and SynBio. The Pharmsynthez Loan has a
term of 15-months and accrues interest at a rate of 10% per annum. The Pharmsynthez Loan is guaranteed by all of the operating
subsidiaries of Pharmsynthez, including SynBio and AS Kevelt, and is secured by all of the equity interests of the Company owned
by Pharmsynthez and SynBio. The Company recognized approximately $13,000 and $38,000 of interest income related to this loan during
the three and nine months ended September 30, 2020, respectively. As of September 30, 2020, the Pharmsynthez Loan was included
in Prepaid expenses and other on the condensed consolidated balance sheets. As of December 31, 2019, the Pharmsynthez Loan was
included in Other assets on the condensed consolidated balance sheets.
On June 12, 2020, the Company and Pharmsynthez
entered into the MSA to advance the development of the Company’s XCART technology for B-cell malignancies. Under the MSA,
Pharmsynthez agreed to provide services pursuant to work orders agreed upon by the parties from time to time, which services include,
but are not limited to, acting as the Company’s primary contract research organization to assist in managing collaborations
with multiple academic institutions in Russia and Belarus. The Company is required to pay reasonable fees, expenses and pass-through
costs incurred by Pharmsynthez in providing the services in accordance with a budget and payment terms set forth in each work order.
Additionally, in the event that a work order provides for milestone payments, the Company is required to make such payments to
Pharmsynthez, or third party service providers designated by Pharmsynthez, in accordance with the terms set forth in the work order,
which milestone payments may be made, at the sole discretion of the Company, in cash or shares of the Company’s common stock.
The MSA terminated and superseded the SRA between the Company and Pharmsynthez.
The Company and Pharmsynthez executed a
work order on June 12, 2020 (the “Work Order”) under the MSA pursuant to which Pharmsynthez agreed to conduct a Stage
1 study of the Company’s XCART technology under the research program as set forth in the Work Order. The activities to be
performed under the Work Order are currently expected to take approximately 20 months unless earlier terminated in accordance with
the MSA. Under the terms of the Work Order, the Company paid Pharmsynthez $51,000 as an initial payment for trial startup costs,
which amount was credited against the amounts paid under the SRA. The Work Order provides for additional pass-through costs to
be invoiced by Pharmsynthez upon execution of contracts with third party sites, which will be further credited against the SRA.
The total cost under the Work Order is currently estimated to be approximately $1.8 million. Additionally, the Work Order provides
for milestone payments of up to an aggregate of $1,050,000, or, in the Company’s sole discretion, up to an aggregate of 1,000,000
shares of the Company’s common stock, to be paid or issued, as applicable, by the Company upon achievement of milestones
associated with completion of early stages of the research program as set forth in the Work Order. For the three and nine months
ended September 30, 2020, the Company expensed $34,000 under the Work Order.
The Company performed a review of events
subsequent to the balance sheet date through the date the financial statements were issued and determined that other than described
in Note 11, there were no such events requiring recognition or disclosure in the financial statements.