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 (“Scripps Research”) 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 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 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. On December 4, 2020,
the Company closed on a $6.0 million registered direct offering of the Company’s common stock, par value $0.001, resulting in $5.4
million of net proceeds to the Company. On July 28, 2021, the Company completed a $12.5 million private placement of the Company’s
common stock, par value $0.001, resulting in approximately $11.5 million of net proceeds to the Company. The Company believes that these
financings, coupled with the Company’s existing resources, will be adequate for the Company to continue as a going concern. However,
the Company anticipates it may need additional capital in the long-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.
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 2020
and continuing into 2021, 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, 2020 filed with the SEC on March 16, 2021 and amended on April 28, 2021.
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, 2021 and 2020, 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 June 2016, the Financial Accounting Standards
Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. The guidance modifies the measurement and recognition of credit losses for most financial
assets and certain other instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets
measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. This may result
in earlier recognition of allowance for losses. ASU 2016-13 is effective for smaller reporting public entities for fiscal years beginning
after December 15, 2022 but early adoption is permitted. The Company is currently evaluating the impact of adoption, but it does not anticipate
that it will have a material effect on the Company’s 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, 2021.
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 $0.3 million and $0.8 million were recorded as revenue by the Company during the three and nine months ended September
30, 2021, respectively, and approximately $0.1 million and $0.3 million 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. At the time the revenue was received, there were no remaining performance obligations and all other revenue recognition criteria
were met. There are no active projects under the Exclusive Research, Development and License Agreement, dated August 15, 2005, by and
between Lipoxen and Baxter Healthcare SA, as amended, (the “Takeda Agreement”), and the parties mutually terminated the agreement
in August 2021. The termination of the Takeda Agreement had no impact on the Company’s non-exclusive sublicense agreement and the
royalties being generated. No amounts were recognized as revenue related to the Serum Institute, Pharmsynthez or SynBio agreements during
the three or nine months ended September 30, 2021 and 2020, respectively.
On May 15, 2020, the Company and 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. The Company has paid $1.8 million to Scripps Research under this agreement through September
30, 2021. As of September 30, 2021 and December 31, 2020, approximately $0.2 million has been recognized as an advance payment under this
agreement and is included in Prepaid expenses and other current assets.
5.
|
Property and Equipment, net
|
Property and equipment, net consists of the following:
Schedule of Property and Equipment, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
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
|
)
|
|
|
(57,027
|
)
|
Property and equipment – net
|
|
$
|
–
|
|
|
$
|
–
|
|
There was no depreciation expense for the three
months ended September 30, 2021 and 2020. There was no depreciation expense for the nine months ended September 30, 2021. Depreciation
expense was approximately $800 for the nine months ended September 30, 2020.
6.
|
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 during 2020 and concluded that the following factors indicated 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. The Company recorded
an asset impairment charge of $9.2
million during the third quarter of 2020 representing the excess of the IPR&D asset’s carrying value over its estimated
fair value. A reconciliation of the change in the carrying value of Indefinite-Lived Intangible Assets is as follows:
Schedule of Indefinite- Lived Intangible Asset
|
|
|
|
|
Balance as of January 1, 2020
|
|
$
|
9,243,128
|
|
Impairment
|
|
|
(9,243,128
|
)
|
Balance as of September 30, 2020
|
|
$
|
–
|
|
7.
|
Fair Value Measurements
|
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 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 amount of certain of the Company’s financial instruments approximate fair value due to their
short maturities. As of September 30, 2021 and December 31, 2020, 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 nine months ended September 30, 2021 and 2020.
Private Placement
On July 26, 2021, the Company entered into a securities
purchase agreement in connection with a private placement with the purchaser named on the signature page thereto (“Purchaser”),
pursuant to which the Company issued and sold to Purchaser, in a private placement priced at-the-market under Nasdaq rules, (i) 950,000
shares of the Company’s common stock, par value $0.001 per share (the “Shares”), (ii) warrants to purchase an aggregate
of 4,629,630 shares of the Company’s common stock, with an exercise price of $3.30 per share (the “Series A Warrants”)
which expire three and one half years from the earlier of (a) the six month anniversary of the initial exercise date and (b) the date
that the registration statement registering all of the warrant shares underlying the Series A Warrants is declared effective, and (iii) pre-funded warrants
to purchase up to 3,679,630 shares of the Company’s common stock, with an exercise price of $0.001 per share (the “Series
B Warrants”) with no expiration (the “Private Placement”), at a purchase price of $2.70 per one Share and one Series
A Warrant and $2.699 per one Series B Warrant and one Series A Warrant. The Private Placement closed on July 28, 2021 resulting in gross
proceeds from the Private Placement of approximately $12.5 million, before deducting placement agent fees and offering expenses, and excluding
the exercise of any such warrants. Net proceeds from the Private Placement were $11.5 million.
On July 26, 2021, in connection with the Private
Placement, the Company entered into a registration rights agreement with Purchaser, pursuant to which the Company filed a registration
statement on Form S-3 to register for resale the Shares, as well as the shares of the Company’s common stock issuable upon exercise
of the Series A Warrants and the Series B Warrants, which was declared effective on August 23, 2021.
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, 2021 and December 31, 2020, collaboration warrants to purchase 0 and 30,307 shares of common stock were
outstanding. No collaboration warrants were granted or exercised in connection with collaboration or consulting services during the three
and nine months ended September 30, 2021. Collaboration warrants to purchase 30,307 shares expired during the nine months ended September
30, 2021. No collaboration warrants were granted or exercised and none expired in connection with collaboration or consulting services
during the three and nine months ended September 30, 2020, respectively.
The Series
B Warrants are immediately exercisable at a price of $0.001 per share of Common Stock. The holders of the Series B Warrants will not have
the right to exercise any portion of the Series B Warrants if the holder (together with its affiliates) would beneficially own in excess
of 4.99% of the number of shares of our Common Stock outstanding immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the Series B Warrants. The holder, upon notice to the Company, may increase or
decrease the beneficial ownership limitation provisions, provided that the beneficial ownership limitation in no event exceeds 9.99% of
the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise
of a Warrant held by the holder. Any increase in the beneficial ownership limitation will not be effective until the 61st day after notice
is delivered to the Company. The Series B Warrants had an intrinsic value of approximately $9.3 million. During
the three and nine months ended September 30, 2021, Series B Warrants to purchase 3,679,630
shares of Common Stock were exercised resulting in $3,679 of net proceeds to the Company. As a result, no Series B Warrants were outstanding
as of September 30, 2021.
The Series
A Warrants are immediately exercisable at a price of $3.30 per share of Common Stock. The holders of the Series A Warrants will not have
the right to exercise any portion of the Series A Warrants if the holder (together with its affiliates) would beneficially own in excess
of 4.99% of the number of shares of our Common Stock outstanding immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the Series A Warrants. The holder, upon notice to the Company, may increase or
decrease the beneficial ownership limitation provisions, provided that the beneficial ownership limitation in no event exceeds 9.99% of
the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise
of a Warrant held by the holder. Any increase in the beneficial ownership limitation will not be effective until the 61st day after notice
is delivered to the Company. The Company evaluated the terms of the warrants issued and determined
that they should be classified as equity instruments. The grant date fair value of these warrants was estimated to be $1.98 per share,
for a total of approximately $9.2 million. The fair value of these warrants was estimated using a Black-Scholes model utilizing the following
key valuation assumptions: the Company’s stock price, a risk free rate of 0.49%, an expected life of 3.6 years and an expected volatility
of 138.76%. No Series A Warrants were exercised during the three and nine months ended September 30, 2021.
In addition, the Company has outstanding warrants
to purchase an aggregate of 333,424 and 378,453 shares of common stock in connection with debt and equity financing arrangements as of
September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, these warrants have an average weighted exercise price
of $36.14 per share and expiration dates ranging from November 2021 through September 2026. No debt and equity financing warrants were
granted during the three and nine months ended September 30, 2021 and 2020 other than the Series A and Series B Warrants issued in connection
with the Private Placement. During the three and nine months ended September 30, 2021, debt and equity financing warrants to purchase
approximately 2,547 and 4,032 shares of common stock, respectively, were exercised on a cashless one-for-one basis. 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. No debt and equity financing warrants were exercised during the three months ended September 30, 2020.
In addition, approximately 12,000 and 41,000 debt and equity warrants expired during the three and nine months ended September 30, 2021.
During the three and nine months ended September 30, 2020, approximately 0.1 million of debt and equity warrants expired.
Total share-based expense related to stock options,
restricted stock units (“RSUs”) and common stock awards was approximately $0.1 million during the three months ended September
30, 2021 and 2020 and approximately $0.3 million and $0.4 million for the nine months ended September 30, 2021 and 2020, respectively.
Share-based compensation expense is classified in the condensed consolidated
statements of operations as follows:
Schedule of Share-Based Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Research and development expenses
|
|
$
|
19,236
|
|
|
$
|
13,078
|
|
|
$
|
48,972
|
|
|
$
|
39,372
|
|
General and administrative expenses
|
|
|
91,895
|
|
|
|
97,721
|
|
|
|
248,365
|
|
|
|
348,759
|
|
|
|
$
|
111,131
|
|
|
$
|
110,799
|
|
|
$
|
297,337
|
|
|
$
|
388,131
|
|
Employee Stock Options
During the nine months ended September 30, 2021,
the Company granted 200,000 stock option awards to purchase shares of common stock. The weighted average grant date fair value per option
share was $2.34. Key assumptions used in the Black-Scholes option pricing model for options granted during the nine months ending September
30, 2021 were the Company’s stock price, a risk free rate of 1.08%, an expected life of 5.88
years and an expected volatility rate of 134.47%. There were no employee stock options or RSUs granted or exercised during the
nine months ended September 30, 2020. The Company recognized a total of $0.1 million of compensation expense related to employee stock
options during the three months ended September 30, 2021 and 2020 and $0.3 million and $0.4 million during the nine months ended September
30, 2021 and 2020, respectively.
Non-Employee Stock Options
The Company did not grant any non-employee stock
options during the three and nine months ended September 30, 2021 and 2020. The Company did not recognize any expense related to non-employee
stock options during the three and nine months ended September 30, 2021. The Company recognized approximately $4,000 and $11,000 of expense
during the three and nine months ended September 30, 2020, respectively.
Common Stock Awards
The Company did not grant any common stock awards
during the three and nine months ended September 30, 2021 and September 30, 2020, respectively. During the three and nine months ended
September 30, 2021, the Company issued 7,153 shares related to common stock awards. During the nine months ended September 30, 2020, the
Company issued 1,188 shares related to common stock awards. As of September 30, 2021, there were 253 common stock awards authorized but
not issued.
During the three and nine months ended September
30, 2021, there was no provision for income taxes as the Company incurred losses during both periods. During the three and nine months
ended September 30, 2020, the Company recorded an income tax benefit of $2.9 million related to a net deferred tax liability that was
eliminated due to the impairment of certain intangible assets. 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 $30.5 million and
$29.6 million as of September 30, 2021 and December 31, 2020, respectively.
As of September 30, 2021 and December 31,
2020, the Company did not record any unrecognized tax positions.
Supplemental cash flow information and non-cash
activity related to our operating leases are as follows:
Cash flow information regarding leases
|
|
|
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2021
|
|
Operating cash flow information:
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
26,199
|
|
Supplemental balance sheet information related
to our operating leases are as follows:
Supplemental information related to operating leases
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
September 30, 2021
|
|
Right-of-use assets - ST
|
|
Prepaid expenses and other
|
|
$
|
36,326
|
|
Right-of-use assets - LT
|
|
Other assets
|
|
$
|
–
|
|
Current lease liabilities
|
|
Accrued expenses and other current liabilities
|
|
$
|
36,326
|
|
Non-current lease liabilities
|
|
Other long-term liabilities
|
|
$
|
–
|
|
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), 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, 2020,
filed with the SEC on March 16, 2021, as amended on April 28, 2021, except as otherwise set forth below.
During the fourth quarter
of 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 Company’s
co-development agreement with SynBio. The Pharmsynthez Loan had a term of 15-months and accrued 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 $12,000 and $35,000
of interest income related to this loan during the three and nine months ended September 30, 2021, respectively. 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.
Effective January 23, 2021, the Company entered
into a First Amendment to Loan Agreement and Other Loan Documents with Pharmsynthez, Kevelt and SynBio (the “Pharmsynthez Loan Extension”)
to modify the repayment terms and maturity of the Pharmsynthez Loan to January 2022. The terms of the Pharmsynthez Loan Extension called
for two (2) equal monthly principal payments of $25,000 in each of January 23, 2021 and February 28, 2021 and the payment of all outstanding
accrued interest in six (6) equal monthly installments from January 31, 2021 through June 30, 2021. In addition, the Pharmsynthez Loan
Extension required monthly interest payments and the repayment of the remaining principal amount in six (6) equal monthly installments
from August 2021 through January 2022. All other terms of the Pharmsynthez Loan remain in effect.
Subsequent to the third quarter of 2021, the Company
entered into a Second Amendment to Loan Agreement and Other Loan Documents, effective August 31, 2021, with Pharmsynthez, Kevelt and SynBio
(the “Second Pharmsynthez Loan Extension”) to modify the repayment terms and maturity of the Pharmsynthez Loan to July 2022.
The terms of the Second Pharmsynthez Loan Extension call for an upfront fee of $12,500 and two (2) equal monthly principal payments of
$25,000 in September 30, 2021 and October 31, 2021. In addition, the Second Pharmsynthez Loan Extension requires monthly interest payments
and the repayment of the remaining principal amount in six (6) equal monthly installments from February 2022 through July 2022. All other
terms of the Pharmsynthez Loan, as amended, remain in effect. All required payments under the Second Pharmsynthez Loan Extension have
been made to date. As of September 30, 2021, approximately $0.4 million was included in Prepaid expenses and other on the condensed consolidated
balance sheet. As of December 31, 2020, approximately $0.5 million was classified within Prepaid expenses and other and approximately
$ million was classified within Other assets on the consolidated balance sheet.
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 was refundable on pro rata basis if the project is terminated
prematurely as a result of Pharmsynthez failing to perform the work. On June 12, 2020, the Company and Pharmsynthez entered into a Master
Services Agreement (“MSA”) to advance the development of the Company’s XCART technology for B-cell malignancies. The
MSA terminated and superseded the SRA. The Company expensed approximately $0.1 million and $0.2 million related to work performed under
these agreements during the nine months ended September 30, 2021 and 2020, respectively. No expense was recorded during the three months
ended September 30, 2021 and 2020. As of September 30, 2021, approximately $40,000 was accrued and included in Accrued expenses and other
current liabilities on the condensed consolidated balance sheet. As of December 31, 2020, approximately $ was recorded as an advanced
payment and included in Prepaid expenses and other on the consolidated balance sheet.
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 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 were 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 provided for additional pass-through costs to be invoiced by Pharmsynthez upon execution of contracts
with third party sites, which were to be further credited against the SRA. Through September 30, 2021, all costs incurred under the MSA
were credited against the amounts paid under the SRA. Additionally, the Work Order provided 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. As of September 30, 2021, approximately $0.1 million of milestone payments had been paid.
On October 12, 2021, the Company entered into
an Amendment Number One to the Master Services Agreement (the “MSA Amendment”) with Pharmsynthez to, among other things, terminate
all work orders under the MSA. As a result, no further services were to be performed under the Work Order and any additional services
will be covered by new work orders. In exchange, the Company entered into a new work order (the “Second Work Order”) simultaneously
with the MSA Amendment. Under the terms of the Second Work Order, Pharmsynthez shall provide certain enumerated services to support the
Company’s development of its XCART technology upon the written request of the Company, which work may be requested by the Company
from time to time.
Pursuant to the MSA Amendment and Second Work
Order, upon entry into the Second Work Order, the Company made a one-time $40,000 payment to Pharmsynthez, of which $21,000 was a one-time
payment in full for all money and other compensation owed by the Company under the Work Order, and the remaining $19,000 will be creditable
against any out of pocket costs and expenses incurred by Pharmsynthez on behalf of the Company pursuant to any new work orders initiated
after the effective date of the MSA Amendment, including the Second 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 12, there
were no other such events requiring recognition or disclosure in the financial statements.