PART I [Business Overview](index=9&type=section&id=Item%201%20Business) Xenetic Biosciences, Inc. focuses on developing immuno-oncology technologies, primarily the DNase tumor platform for refractory cancers, pausing XCART development, and leveraging PolyXen for drug delivery partnerships [Company Overview](index=9&type=section&id=Overview) - The company licensed the DNase tumor platform in April 2022, aiming to improve existing immuno-oncology treatments by targeting NETs, with plans to advance IV rhDNase I into first-in-human clinical trials for locally advanced or metastatic solid tumors, including pancreatic cancer[23](index=23&type=chunk)[25](index=25&type=chunk)[27](index=27&type=chunk) - Pancreatic cancer has a five-year survival rate of only **7-8%**, dropping to **3%** for metastatic disease, highlighting the urgent need for new treatment options[25](index=25&type=chunk) - The company partnered with Volition to explore combining Volition's Nu.Q® technology with Xenetic's DNase-Armored CAR T platform for cell therapies targeting various solid tumors[30](index=30&type=chunk) - Development of the XCART personalized CAR T platform technology has been **paused**, with resources redirected to the DNase project[31](index=31&type=chunk) - PolyXen is a proprietary drug delivery platform utilizing polysialic acid (PSA) to extend the half-life of protein and peptide drugs, with existing collaborations with biotechnology and pharmaceutical companies[32](index=32&type=chunk) [Company Strategy](index=10&type=section&id=Our%20Strategy) - The company's primary strategy is to advance the systemic DNase program into clinical trials as an adjuvant therapy for pancreatic and other solid tumors, aiming to improve responses to checkpoint inhibitors, chemotherapy, and other standard treatments while overcoming resistance[36](index=36&type=chunk) - The company plans to seek orphan drug designation and accelerated approval pathways for relevant oncology indications to gain advantages such as market exclusivity[38](index=38&type=chunk) - The company will primarily advance DNase platform development through contract manufacturing organizations (CMOs) and contract research organizations (CROs) to efficiently manage resources[39](index=39&type=chunk) [Business Developments](index=11&type=section&id=Business%20Developments) - On April 26, 2022, the company entered an exclusive sublicense agreement with CLS for the exclusive license of DNase enzyme for cancer treatment, issuing **375,000 shares of common stock** and committing up to **$13 million** in milestone payments and royalties[40](index=40&type=chunk)[41](index=41&type=chunk) - On the same day, the company signed an exclusive license agreement with CLS for the exclusive license of DNase combined with CAR T therapy, paying **$500,000 in cash**, issuing **500,000 shares of common stock**, and committing up to **$13 million** in milestone payments and royalties[42](index=42&type=chunk)[43](index=43&type=chunk) - On October 4, 2022, the company completed patent transfers related to its collaborations with Volition and CLS, issuing **850,000 shares of common stock** to CLS LLC as consideration for certain patent rights[45](index=45&type=chunk) - On August 2, 2022, the company announced a collaboration with Volition to develop adoptive cell therapies targeting NETs, with Volition funding the research and both parties sharing commercialization revenues[46](index=46&type=chunk) - On June 30, 2022, the company signed a statement of work with Catalent for cGMP manufacturing services of recombinant human DNase I, with an estimated total project cost of up to **$5 million**, planned for completion in the first half of 2024[47](index=47&type=chunk)[64](index=64&type=chunk) - On March 17, 2023, the company entered a research funding and option agreement with Scripps Research, providing up to **$938,000** to fund preclinical development of the DNase tumor platform technology[48](index=48&type=chunk)[573](index=573&type=chunk) [Our Technology and Drug Candidates](index=12&type=section&id=Our%20Technology%20and%20Drug%20Candidates) - In 2022, internal development focused on licensing and advancing the DNase tumor platform and XCART technology, while PolyXen and other technologies were not actively pursued[51](index=51&type=chunk) - The DNase platform aims to target NETs to improve existing treatment efficacy, with first-in-human studies planned for **2024-2025**, initially targeting multi-billion dollar markets like pancreatic cancer[53](index=53&type=chunk)[55](index=55&type=chunk) - The XCART technology platform aimed to develop personalized CAR T-cell therapies for B-cell lymphoma by targeting patient-specific B-cell receptors, but further development is currently **paused**[55](index=55&type=chunk) - PolyXen is a bioplatform technology that chemically links PSA to extend drug molecule circulation time in the body, aiming to create superior next-generation therapeutic candidates[55](index=55&type=chunk) - ErepoXen (PSA-EPO) is a PolyXen platform candidate for anemia in chronic kidney disease, with Pharmsynthez completing Phase II(b)/III clinical trials and submitting a registration application in Russia, and Serum Institute completing Phase I/II clinical trials in India[56](index=56&type=chunk)[59](index=59&type=chunk)[61](index=61&type=chunk) [Significant Collaborations and Strategic Arrangements](index=15&type=section&id=Significant%20Collaborations%20and%20Strategic%20Arrangements) - The company has a non-exclusive sublicense agreement with Takeda for PolyXen technology, generating approximately **$1.7 million** and **$1.2 million** in royalty revenue in 2022 and 2021, respectively[63](index=63&type=chunk)[472](index=472&type=chunk) - The company signed a service agreement with Catalent for cGMP manufacturing of recombinant human DNase I protein, with an estimated total project cost of up to **$5 million**, planned for completion in the first half of 2024[64](index=64&type=chunk)[473](index=473&type=chunk) - The research funding agreement with Scripps Research for XCART preclinical development terminated additional funding in the **second quarter of 2022**[66](index=66&type=chunk)[475](index=475&type=chunk) - The company has an exclusive license agreement with Pharmsynthez for PolyXen and ImuXen technology products, with Pharmsynthez responsible for development and commercialization in Russia and CIS countries, and the company entitled to sales royalties[67](index=67&type=chunk)[70](index=70&type=chunk)[484](index=484&type=chunk) - The company has an exclusive license agreement with Serum Institute for PolyXen technology PSA-EPO products, with Serum Institute responsible for clinical trials and regulatory approvals in specific territories, and the company entitled to sales royalties[73](index=73&type=chunk)[487](index=487&type=chunk) [Our Intellectual Property](index=17&type=section&id=Our%20Intellectual%20Property) - As of January 23, 2023, the company directly or indirectly owns over **170** U.S. and international patents and pending patent applications, covering DNase, XCART, and PolyXen platform technologies[77](index=77&type=chunk) - The company has obtained patent protection for PolyXen technologies (e.g., PSA-EPO, PSA-insulin, PSA-rFVIII) and methods for PSA production and endotoxin removal[79](index=79&type=chunk)[80](index=80&type=chunk) - The company also secured patent protection for DNase technology in cancer treatment and mitigating cancer treatment side effects, including use alone or in combination with cancer therapeutics, CAR-T cells, immune checkpoint inhibitors, or modulators[81](index=81&type=chunk) - U.S. patents typically provide **20 years** of exclusivity from the earliest effective filing date, with potential extensions of up to **5 years** through patent term extension mechanisms[82](index=82&type=chunk) [Manufacturing and Supply](index=19&type=section&id=Manufacturing%20and%20Supply) - The company lacks internal manufacturing capabilities and relies on third-party manufacturers to support drug candidate development programs[88](index=88&type=chunk) - The company has agreements with Catalent and Serum Institute for the manufacturing of clinical materials for DNase and PolyXen technology-related drug candidates[88](index=88&type=chunk) - XCART technology currently lacks third-party manufacturing agreements, and the company will seek third-party manufacturers to meet future clinical supply needs[88](index=88&type=chunk) [Government Regulation](index=19&type=section&id=Government%20Regulation) - In the U.S., new drugs require FDA approval via NDA or BLA processes, involving preclinical testing, IND submission, three phases of clinical trials, cGMP manufacturing inspections, and FDA review[89](index=89&type=chunk)[90](index=90&type=chunk)[92](index=92&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[102](index=102&type=chunk) - The FDA offers expedited development and review programs like orphan drug designation (**7 years** of market exclusivity), Fast Track, Priority Review, Accelerated Approval, and Breakthrough Therapy designation to facilitate drug development for serious or life-threatening conditions[106](index=106&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) - Approved products remain subject to ongoing regulatory requirements, including manufacturing, labeling, promotion, post-market studies, and safety reporting, with non-compliance potentially leading to approval withdrawal or market restrictions[105](index=105&type=chunk)[115](index=115&type=chunk)[184](index=184&type=chunk)[186](index=186&type=chunk) - The Biologics Price Competition and Innovation Act (BPCIA) provides **12 years** of data exclusivity for innovative biologics, while the Hatch-Waxman Amendments allow patent term extensions of up to **5 years**[116](index=116&type=chunk)[117](index=117&type=chunk) - In the EU, drug marketing requires a marketing authorization application, with new chemical entities typically receiving **8 years** of data exclusivity and **2 years** of market exclusivity, and orphan drugs potentially gaining **10 years** of market exclusivity[124](index=124&type=chunk)[126](index=126&type=chunk) - Drug sales and reimbursement are heavily regulated by third-party payers (e.g., government healthcare, commercial insurers), who increasingly challenge drug prices and implement cost control measures, such as the Inflation Reduction Act allowing Medicare to directly negotiate drug prices[134](index=134&type=chunk)[135](index=135&type=chunk) [Environmental Regulation](index=29&type=section&id=Environmental%20Regulation) - The company complies with environmental regulations, incurring low compliance costs as it does not engage in manufacturing drug candidates[142](index=142&type=chunk) - The company uses hazardous and flammable materials, posing risks of accidental contamination or injury, but has not purchased specific insurance to mitigate this risk[143](index=143&type=chunk) [Employees](index=29&type=section&id=Employees) - As of December 31, 2022, the company had **four** full-time employees and utilizes external experts and consultants to supplement internal professionals[144](index=144&type=chunk)[145](index=145&type=chunk) [Competition](index=29&type=section&id=Competition) - The biotechnology and pharmaceutical industries are highly competitive, with the company facing competition from large pharmaceutical, specialty pharmaceutical, and biotechnology companies, as well as academic and government institutions[146](index=146&type=chunk)[147](index=147&type=chunk) - Key competitive factors include efficacy, safety, side effects, convenience, price, generic competition, and reimbursement accessibility[148](index=148&type=chunk) - In pancreatic cancer, the company will compete with existing approved treatments (e.g., gemcitabine combined with Abraxane or FOLFIRINOX) and products like Merck's KEYTRUDA and Lynparza[152](index=152&type=chunk) - In B-cell lymphoma CAR T-cell therapy, the company faces competition from approved products like Novartis' Kymriah, Gilead's Yescarta and Tecartus, Bristol Myers Squibb's Breyanzi and Abecma, Janssen's Carvykti, and over a hundred CAR T-cell therapies in development[154](index=154&type=chunk) - In PSA drug delivery platforms, the company faces competition from existing platforms such as PEGylation, Fc-fusion, albumin-fusion, HESylation, PASylation, and CTP-fusion[155](index=155&type=chunk) - The company primarily focuses on advancing the DNase tumor platform, aiming to improve existing cancer treatment efficacy by targeting NETs, especially for pancreatic cancer and locally advanced or metastatic solid tumors[23](index=23&type=chunk)[27](index=27&type=chunk)[36](index=36&type=chunk) - The XCART personalized CAR T-cell platform technology development has been **paused**, with resources prioritized for the DNase project[31](index=31&type=chunk)[55](index=55&type=chunk) - The PolyXen drug delivery platform collaborates with biotechnology and pharmaceutical companies, utilizing polysialic acid (PSA) to extend drug half-life and generate royalty income in the hemophilia field[32](index=32&type=chunk)[63](index=63&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A%20Risk%20Factors) The company faces multiple risks including uncertain profitability, significant capital needs, reliance on its DNase platform, clinical and regulatory challenges, third-party dependencies, intellectual property issues, and stock market volatility [Risks Related to Our Financial Condition and Capital Requirements](index=31&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Capital%20Requirements) - The company has never been profitable, with accumulated losses of approximately **$189.1 million** as of December 31, 2022, and may not achieve or maintain profitability in the future[160](index=160&type=chunk)[162](index=162&type=chunk) - The company requires substantial additional funding to achieve its objectives; failure to obtain financing on acceptable terms in a timely manner may force delays, limitations, or termination of product development or commercialization efforts[163](index=163&type=chunk)[167](index=167&type=chunk) - Raising additional capital may result in **dilution** for existing shareholders, restrict company operations, or require the company to relinquish rights to technologies or drug candidates[169](index=169&type=chunk)[170](index=170&type=chunk) [Risks Related to the Discovery and Development of our Pharmaceutical Products](index=33&type=section&id=Risks%20Related%20to%20the%20Discovery%20and%20Development%20of%20our%20Pharmaceutical%20Products) - The company's business is highly dependent on the successful clinical development, regulatory approval, and commercialization of the DNase tumor platform; failure to secure necessary collaborations or funding may delay or terminate clinical development[171](index=171&type=chunk) - As an early-stage pharmaceutical company, no products have received commercial approval, with revenue primarily from a single partner's royalties, and business operations may not fully materialize or create value for investors[173](index=173&type=chunk) - Clinical studies may be delayed or hindered by difficulties in patient enrollment, impacting product development timelines and regulatory approvals[174](index=174&type=chunk)[176](index=176&type=chunk) - Clinical trials may experience significant delays or fail to demonstrate safety and efficacy, thereby impeding or delaying the commercialization of drug candidates[178](index=178&type=chunk) - Even upon completing clinical studies, it is unpredictable when or if regulatory approval will be obtained, and approval may be limited to narrower indications than anticipated[183](index=183&type=chunk) - Approved products will remain subject to ongoing regulatory scrutiny, and non-compliance may lead to approval withdrawal or market restrictions[184](index=184&type=chunk)[188](index=188&type=chunk) - The commercial success of any future drugs depends on market acceptance by physicians, patients, and third-party payers[189](index=189&type=chunk) - The commercial potential of drug candidates is difficult to predict; if market size is smaller than expected, it could negatively impact revenue and financial condition[193](index=193&type=chunk) - Failure to obtain or maintain adequate reimbursement may limit product market penetration and reduce revenue[194](index=194&type=chunk)[199](index=199&type=chunk) - The company may allocate limited resources to projects with lower ultimate commercial potential or fail to identify and develop more profitable projects[200](index=200&type=chunk) - The company may not successfully identify or discover additional drug products, leading to development failures[201](index=201&type=chunk)[202](index=202&type=chunk) - The market opportunity for drug candidates may be limited to patients who do not qualify for or have failed existing treatments, potentially resulting in a small market size[204](index=204&type=chunk)[205](index=205&type=chunk) - Clinical trials may fail to demonstrate the safety and efficacy of drug candidates, thereby preventing or significantly delaying regulatory approval[206](index=206&type=chunk)[207](index=207&type=chunk) - The company may not obtain orphan drug designation, or even if obtained, may not maintain associated benefits, including market exclusivity[211](index=211&type=chunk)[212](index=212&type=chunk) - Healthcare reform measures could materially adversely affect the company's business and operating results, such as the Inflation Reduction Act potentially impacting Medicare drug pricing[213](index=213&type=chunk)[214](index=214&type=chunk)[216](index=216&type=chunk) [Risks Related to Our Reliance on Third-Parties](index=43&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third-Parties) - The company may seek additional collaborations; failure to secure them on commercially reasonable terms may necessitate changes to development and commercialization plans[219](index=219&type=chunk)[222](index=222&type=chunk) - Conflicts with collaborators or strategic partners may arise, where they act in their own interests, limiting the company's strategic implementation[224](index=224&type=chunk)[225](index=225&type=chunk) - The company relies on third parties for clinical study oversight and monitoring; poor performance by them could harm the company's business[226](index=226&type=chunk)[228](index=228&type=chunk) - Collaborators or strategic partners may adopt alternative technologies or fail to develop commercially viable products using the company's technology, negatively impacting revenue and product development strategy[230](index=230&type=chunk) - If collaborations are established, the company may be forced to relinquish significant rights and control over drug candidate development or accept unfavorable terms[231](index=231&type=chunk) - The company lacks internal manufacturing, sales, marketing, or distribution capabilities and may need to invest substantial resources to develop these[232](index=232&type=chunk)[233](index=233&type=chunk) - Reliance on third parties requires sharing trade secrets, increasing the risk of competitors discovering or misappropriating trade secrets[234](index=234&type=chunk)[236](index=236&type=chunk) - Contract manufacturers are highly regulated; failure to consistently meet regulatory requirements or limited capacity could lead to clinical study delays, hindered regulatory submissions, or commercialization failures[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk)[243](index=243&type=chunk) [Risks Related to Our Intellectual Property](index=48&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) - Failure to adequately protect or enforce intellectual property may hinder effective operations, as patents and trademarks could be challenged, invalidated, or canceled[244](index=244&type=chunk)[245](index=245&type=chunk) - Granted patents for drug candidates, if challenged in court, may be deemed invalid or unenforceable[250](index=250&type=chunk) - The company may be unable to protect intellectual property globally, preventing it from stopping third parties from using its inventions or selling infringing products in certain countries[251](index=251&type=chunk)[252](index=252&type=chunk) - If the company infringes on others' intellectual property, it may face significant liability, be required to cease using relevant technology, or pay royalties, adversely affecting business and profitability[254](index=254&type=chunk) - Failure to comply with license agreement obligations or a breakdown in licensor relationships could result in the loss of license rights critical to the business[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk) - The company may face allegations of improper use or disclosure of third-party confidential information or former employers' trade secrets by employees, consultants, or independent contractors[260](index=260&type=chunk) - The company may face claims challenging the inventorship or ownership of patents or other intellectual property[262](index=262&type=chunk) - Inability to protect confidential information and trade secrets will harm the company's business and competitive position[263](index=263&type=chunk) - The company may become involved in litigation to protect or enforce patents, which can be costly, time-consuming, and potentially unsuccessful[264](index=264&type=chunk)[265](index=265&type=chunk) - Changes in U.S. patent law could diminish patent value and weaken the company's ability to protect its products[268](index=268&type=chunk)[269](index=269&type=chunk) - Obtaining and maintaining patent protection depends on complying with various procedural, filing, and fee payment requirements of government patent agencies; non-compliance may result in loss of patent rights[270](index=270&type=chunk) [Risks Related to Our Business Operations](index=53&type=section&id=Risks%20Related%20to%20Our%20Business%20Operations) - Adverse developments in the financial services industry (e.g., bank liquidity issues or failures) could negatively impact the company's current and future business operations, financial condition, and operating results, such as the SVB collapse[272](index=272&type=chunk)[276](index=276&type=chunk)[277](index=277&type=chunk) - The company's future success depends on retaining key members of its executive team, advisors, and consultants, and attracting, retaining, and motivating qualified personnel[279](index=279&type=chunk) - The company needs to expand its organization and may encounter difficulties managing growth, which could disrupt operations[281](index=281&type=chunk) - The company is a party to collaboration agreements and other material agreements containing complex commercial terms, potentially leading to disputes, litigation, or indemnification liabilities[282](index=282&type=chunk)[283](index=283&type=chunk) - The company operates in a highly competitive field, and competing technologies could harm its business development[285](index=285&type=chunk) - Potential new accounting pronouncements or legislative actions could adversely affect the company's future financial condition or operating results[286](index=286&type=chunk)[287](index=287&type=chunk) [Risks Related to Our Common Stock](index=56&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) - Failure to meet Nasdaq's continued listing requirements (e.g., minimum bid price) could result in common stock delisting, impacting share price and liquidity, and reducing financing capabilities[288](index=288&type=chunk)[289](index=289&type=chunk)[292](index=292&type=chunk) - The market price of the company's securities may be highly volatile, and investors may be unable to sell their securities[293](index=293&type=chunk)[294](index=294&type=chunk) - The rights, preferences, and privileges of preferred stock are senior to common stockholders, potentially leading to divergent interests[295](index=295&type=chunk) - Future issuances of common stock may result in **dilution** for existing shareholders[296](index=296&type=chunk)[297](index=297&type=chunk) - The company may face securities class action lawsuits[298](index=298&type=chunk) - An active, liquid, and orderly market for the company's common stock or warrants may not develop[299](index=299&type=chunk) - Agreements entered into by the company with its shareholders may create conflicts of interest[300](index=300&type=chunk) - The company does not intend to pay dividends on common or preferred stock, so any return will be limited to stock value[302](index=302&type=chunk) - Certain provisions in the company's certificate of incorporation, bylaws, and Nevada Revised Statutes may have anti-takeover effects, potentially leading to a decrease in common stock market price[303](index=303&type=chunk) [General Risk Factors](index=59&type=section&id=General%20Risk%20Factors) - Adverse U.S. or global economic conditions (e.g., COVID-19 pandemic, Russia-Ukraine conflict, and related sanctions) could negatively impact the company's financial condition, operating results, business, and cash flows[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk)[308](index=308&type=chunk) - The company's ability to utilize potential future operating losses and federal and state NOL carryforwards to offset taxable income may be limited[309](index=309&type=chunk)[310](index=310&type=chunk) - Tax reforms could significantly impact the company and its shareholders, leading to inaccurate estimates of effective tax rates and deferred income tax assets and liabilities[311](index=311&type=chunk)[312](index=312&type=chunk) - Governments may implement price controls, adversely affecting the company's future profitability[313](index=313&type=chunk) - Company employees, principal investigators, consultants, and business partners may engage in misconduct, including non-compliance with regulatory standards and insider trading[315](index=315&type=chunk) - Use of the company's drug candidates may result in adverse side effects, leading to hindered regulatory approval or product liability lawsuits[316](index=316&type=chunk)[317](index=317&type=chunk) - The company faces potential product liability; successful claims could result in substantial liabilities and costs[319](index=319&type=chunk) - Failure to comply with environmental, health, and safety laws and regulations could result in fines or costs, materially adversely impacting business success[320](index=320&type=chunk)[321](index=321&type=chunk) - Non-cash expenses such as stock-based compensation may adversely affect operating results[322](index=322&type=chunk) - Differing interpretations of existing standards and rules could lead to the company restating previously reported operating results[324](index=324&type=chunk) - The company's disclosure controls and procedures may not prevent or detect all errors or fraud[325](index=325&type=chunk) - Information technology system failures, including cybersecurity attacks or other data security incidents, could severely disrupt company operations[326](index=326&type=chunk)[327](index=327&type=chunk) - As a smaller reporting company, simplified reporting requirements may reduce the attractiveness of the company's common stock to investors[328](index=328&type=chunk) - The company has never been profitable, with accumulated losses of approximately **$189.1 million** as of December 31, 2022, faces uncertain future profitability, and requires substantial additional funding for product development and commercialization[160](index=160&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - The company's business is highly dependent on the successful development, regulatory approval, and commercialization of the DNase tumor platform; failure to secure necessary collaborations or funding may delay or terminate clinical development[171](index=171&type=chunk) - Clinical studies may be delayed or terminated due to patient recruitment difficulties, regulatory delays, or unfavorable clinical trial results, impacting timely product commercialization[174](index=174&type=chunk)[176](index=176&type=chunk)[178](index=178&type=chunk) - Even with regulatory approval, products will remain subject to ongoing regulatory scrutiny, and commercial success depends on market acceptance by physicians, patients, and third-party payers, as well as adequate reimbursement[184](index=184&type=chunk)[189](index=189&type=chunk)[194](index=194&type=chunk) - The company relies on third parties for manufacturing, clinical research, and distribution; poor performance by or disruption of relationships with third parties could adversely affect the business[226](index=226&type=chunk)[232](index=232&type=chunk)[234](index=234&type=chunk)[237](index=237&type=chunk) - Intellectual property protection faces challenges, with patents potentially being challenged as invalid or unenforceable globally, and the risk of infringing on others' intellectual property[244](index=244&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk)[254](index=254&type=chunk) - The company faces operational risks including adverse financial services industry developments (e.g., SVB collapse), loss of key personnel, difficulties managing organizational expansion, collaboration agreement disputes, intense competition, changes in accounting standards, and information technology system failures[272](index=272&type=chunk)[279](index=279&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk)[285](index=285&type=chunk)[286](index=286&type=chunk)[326](index=326&type=chunk) - The company's common stock may face delisting risk due to failure to meet Nasdaq listing requirements, and its stock price may be highly volatile[288](index=288&type=chunk)[293](index=293&type=chunk) [Unresolved Staff Comments](index=63&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments [Properties](index=64&type=section&id=Item%202%20Properties) The company leases office spaces in Framingham, Massachusetts, and Miami, Florida, deeming current facilities adequate with options for additional space - The company leases shared office space in Framingham, Massachusetts, with the lease term extending until **September 2023**[331](index=331&type=chunk) - The company leases **360 square feet** of office space in Miami, Florida, with the lease term extended until **November 30, 2023**[332](index=332&type=chunk) [Legal Proceedings](index=64&type=section&id=Item%203%20Legal%20Proceedings) The company is occasionally involved in litigation and claims, but management believes these will not materially impact its financial condition or operations as of December 31, 2022 - The company may face litigation and claims, but as of December 31, 2022, management believes these will not materially adversely affect its financial condition, operating results, or cash flows[333](index=333&type=chunk)[334](index=334&type=chunk) [Mine Safety Disclosures](index=64&type=section&id=Item%204%20Mine%20Safety%20Disclosures) Not applicable PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=65&type=section&id=Item%205%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock and warrants are listed on Nasdaq, with 426 common stockholders as of March 10, 2023, and no cash dividends have been declared, with future earnings retained for business development - The company's common stock and warrants are listed on the Nasdaq Capital Market under the symbols **“XBIO”** and **“XBIOW”**, respectively[338](index=338&type=chunk) - As of March 10, 2023, the company had **426** holders of common stock[339](index=339&type=chunk) - The company has never declared or paid any cash dividends on its common stock and plans to retain earnings for business development in the foreseeable future[340](index=340&type=chunk) - The company did not repurchase any outstanding shares of common stock during the **fourth quarter of 2022**[343](index=343&type=chunk) [Item 6 [Reserved]](index=65&type=section&id=Item%206%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%207%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company focuses on the DNase platform, reported increased revenue and R&D expenses in 2022, a net loss of $6.6 million, and faces significant going concern doubts despite securing its funds from SVB [BUSINESS OVERVIEW](index=66&type=section&id=BUSINESS%20OVERVIEW) - The company focuses on advancing the DNase tumor platform, aiming to improve existing cancer treatment efficacy by targeting NETs, and has **paused** XCART platform development, concentrating resources on the DNase project[346](index=346&type=chunk)[347](index=347&type=chunk) - The company collaborates with biotechnology and pharmaceutical companies through its PolyXen drug delivery platform, generating royalties in the hemophilia field[346](index=346&type=chunk)[347](index=347&type=chunk) - To date, none of the company's drug candidates have received marketing authorization or approval from the U.S. FDA or other national regulatory authorities[347](index=347&type=chunk) [Critical Accounting Policies and Estimates](index=66&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The company recognizes revenue under ASC Topic 606, involving five steps: identifying contracts, performance obligations, transaction price, allocating transaction price, and recognizing revenue, with critical judgments for milestone payments and variable consideration[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk) - Research and development expenses are recognized as incurred, including compensation and benefits, facility costs, preclinical development, clinical trials and related manufacturing, and fees paid to CROs and CMOs[358](index=358&type=chunk)[359](index=359&type=chunk) - Stock-based compensation expense is based on the estimated fair value of options or restricted stock units, calculated using the Black-Scholes option pricing model, requiring judgment on assumptions like volatility and expected term[362](index=362&type=chunk)[363](index=363&type=chunk) - Warrants are valued using the Black-Scholes model, with fair value recognized as expense over the service period or on the issuance date[364](index=364&type=chunk)[365](index=365&type=chunk) - Intangible assets (including in-process research and development, IPR&D) are recognized at fair value, not amortized, but reviewed for impairment at least annually[366](index=366&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk) - The ultimate impact of the COVID-19 pandemic and the Russia-Ukraine conflict on the company's business, operations, and financial performance remains uncertain[371](index=371&type=chunk)[372](index=372&type=chunk) [Results of Operations](index=71&type=section&id=Results%20of%20Operations) Operating Results Overview (2022 vs. 2021) | Item | 2022 (USD) | 2021 (USD) | Change (USD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 1,706,925 | 1,160,692 | 546,233 | 47.1% | | Research and Development Expenses | (4,770,834) | (3,163,485) | 1,607,349 | 50.8% | | General and Administrative Expenses | (3,653,999) | (3,743,972) | (89,973) | (2.4)% | | Operating Loss | (6,717,908) | (5,746,765) | 971,143 | 16.9% | | Other Income (Expense) | (1,597) | 1,119 | 2,716 | 242.7% | | Interest Income, Net | 167,152 | 100,467 | 66,685 | 66.4% | | Net Loss | (6,552,353) | (5,645,179) | 907,174 | 16.1% | - Revenue increased by **47.1%** to **$1.7 million** in 2022, primarily due to increased royalty income from the Takeda sublicense agreement[376](index=376&type=chunk) - Research and development expenses increased by **50.8%** to **$4.8 million** in 2022, mainly due to **$1.8 million** in in-process research and development (IPR&D) expenses related to the DNase platform license[377](index=377&type=chunk) - Excluding IPR&D expenses, 2022 R&D expenses decreased by **5.9%** to **$3.0 million**, primarily due to reduced XCART technology platform expenditures, partially offset by initial DNase platform development costs[378](index=378&type=chunk) - General and administrative expenses decreased by **2.4%** to **$3.7 million** in 2022, mainly due to reduced consulting and legal fees related to the intellectual property portfolio, partially offset by increased legal fees for the DNase platform license[379](index=379&type=chunk) - Net interest income increased to approximately **$0.2 million** in 2022, primarily due to higher interest rates on invested funds[381](index=381&type=chunk) [Liquidity and Capital Resources](index=72&type=section&id=Liquidity%20and%20Capital%20Resources) - The company reported a net loss of approximately **$6.6 million** in 2022, with accumulated losses of approximately **$189.1 million**, and working capital decreased from **$17.3 million** in 2021 to **$12.6 million** in 2022[382](index=382&type=chunk) - As of December 31, 2022, the company had approximately **$13.1 million** in cash and **$1.1 million** in current liabilities[383](index=383&type=chunk) - The company faces significant going concern doubts but believes existing resources are sufficient for the next **12 months** of operations and plans to secure additional capital through equity financing, debt financing, or collaborations[385](index=385&type=chunk) - The company fully recovered its deposits at SVB on **March 13, 2023**, and expects no losses from the event[386](index=386&type=chunk)[575](index=575&type=chunk) - Cash outflow from operating activities was approximately **$4.6 million** in 2022, primarily due to net loss, partially offset by non-cash expenses such as in-process research and development (IPR&D) and stock-based compensation[387](index=387&type=chunk) - Cash outflow from investing activities was **$0.5 million** in 2022, used for the DNase tumor platform license[388](index=388&type=chunk) - There was no cash flow from financing activities in 2022, compared to a cash inflow of approximately **$11.5 million** in 2021, primarily from net proceeds of a private placement in **July 2021**[389](index=389&type=chunk) [Contractual Obligations](index=74&type=section&id=Contractual%20Obligations) - The company's contractual obligations primarily stem from office space leases, excluding potential CMO service payments due to their unpredictable timing, amount, and cancellable nature[391](index=391&type=chunk) Contractual Obligations (As of December 31, 2022) | Obligation Type | Total (USD) | Less than 1 Year (USD) | 1-3 Years (USD) | 3-5 Years (USD) | More than 5 Years (USD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Lease Obligations | 28,524 | 28,524 | – | – | – | [Recent Accounting Standards](index=74&type=section&id=Recent%20Accounting%20Standards) - The company is evaluating the impact of ASU 2016-13, Financial Instruments—Credit Losses, and does not expect a material impact on its consolidated financial statements[393](index=393&type=chunk)[471](index=471&type=chunk) - The company primarily focuses on advancing the DNase tumor platform, has **paused** XCART technology platform development, and concentrates resources on the DNase project[346](index=346&type=chunk)[347](index=347&type=chunk)[378](index=378&type=chunk) - The company reported a net loss of approximately **$6.6 million** in 2022, with accumulated losses of approximately **$189.1 million**, and working capital decreased from **$17.3 million** in 2021 to **$12.6 million** in 2022[375](index=375&type=chunk)[382](index=382&type=chunk) - The company faces significant going concern doubts but believes capital can be obtained through equity financing, debt financing, or collaborations, with existing resources sufficient for the next **12 months** of operations[385](index=385&type=chunk) - The company fully recovered its deposits at SVB on **March 13, 2023**, and expects no losses from the event[386](index=386&type=chunk)[575](index=575&type=chunk) Operating Results Overview (2022 vs. 2021) | Item | 2022 (USD) | 2021 (USD) | Change (USD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 1,706,925 | 1,160,692 | 546,233 | 47.1% | | Research and Development Expenses | (4,770,834) | (3,163,485) | 1,607,349 | 50.8% | | General and Administrative Expenses | (3,653,999) | (3,743,972) | (89,973) | (2.4)% | | Operating Loss | (6,717,908) | (5,746,765) | 971,143 | 16.9% | | Other Income (Expense) | (1,597) | 1,119 | 2,716 | 242.7% | | Interest Income, Net | 167,152 | 100,467 | 66,685 | 66.4% | | Net Loss | (6,552,353) | (5,645,179) | 907,174 | 16.1% | [Quantitative and Qualitative Disclosures About Market Risk](index=74&type=section&id=Item%207A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the company is not required to provide this information [Financial Statements and Supplementary Data](index=75&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the company's consolidated financial statements for 2022 and 2021, with an unqualified opinion from Marcum LLP, highlighting going concern and royalty revenue as key audit matters, and detailed notes on accounting policies and strategic agreements - Independent registered public accounting firm Marcum LLP issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2022, and 2021[399](index=399&type=chunk) - Going concern assessment and royalty revenue recognition were identified as key audit matters, involving significant judgments regarding future cash flow projections and variable consideration estimates[404](index=404&type=chunk)[407](index=407&type=chunk)[408](index=408&type=chunk) Consolidated Balance Sheets (As of December 31, 2022 and 2021) | Item | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | **Assets** | | | | Cash | 13,097,265 | 18,244,030 | | Prepaid Expenses and Other Current Assets | 556,094 | 479,399 | | **Total Current Assets** | **13,653,359** | **18,723,429** | | Other Assets | 1,066,931 | 1,091,931 | | **Total Assets** | **14,720,290** | **19,815,360** | | **Liabilities and Stockholders' Equity** | | | | Accounts Payable | 287,360 | 362,470 | | Accrued Expenses and Other Current Liabilities | 785,796 | 1,058,633 | | **Total Current Liabilities** | **1,073,156** | **1,421,103** | | **Total Liabilities** | **1,073,156** | **1,421,103** | | Preferred Stock | 2,774 | 2,774 | | Common Stock | 15,192 | 13,465 | | Additional Paid-in Capital | 207,756,232 | 205,952,729 | | Accumulated Deficit | (189,099,618) | (182,547,265) | | Accumulated Other Comprehensive Income | 253,734 | 253,734 | | Treasury Stock | (5,281,180) | (5,281,180) | | **Total Stockholders' Equity** | **13,647,134** | **18,394,257** | | **Total Liabilities and Stockholders' Equity** | **14,720,290** | **19,815,360** | Consolidated Statements of Comprehensive Loss (For the Years Ended December 31, 2022 and 2021) | Item | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Revenue | 1,706,925 | 1,160,692 | | Operating Costs and Expenses | (8,424,833) | (6,907,457) | | Operating Loss | (6,717,908) | (5,746,765) | | Other Income, Net | 165,555 | 101,586 | | **Net Loss** | **(6,552,353)** | **(5,645,179)** | | Net Loss Per Share, Basic and Diluted | (0.46) | (0.55) | | Weighted-Average Common Shares Outstanding, Basic and Diluted | 14,224,430 | 10,279,408 | Consolidated Statements of Cash Flows (For the Years Ended December 31, 2022 and 2021) | Cash Flow Activities | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (4,646,765) | (4,738,067) | | Net Cash Used in Investing Activities | (500,000) | – | | Net Cash Provided by Financing Activities | – | 11,454,545 | | Net Change in Cash | (5,146,765) | 6,716,478 | | Cash at Beginning of Period | 18,244,030 | 11,527,552 | | Cash at End of Period | 13,097,265 | 18,244,030 | [Notes to Consolidated Financial Statements](index=82&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=110&type=section&id=Item%209%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Not applicable [Controls and Procedures](index=110&type=section&id=Item%209A%20Controls%20and%20Procedures) Management assessed the effectiveness of disclosure controls and internal financial reporting controls as of December 31, 2022, concluding they are effective at a reasonable assurance level, with no auditor attestation report included - As of December 31, 2022, the company's disclosure controls and procedures were assessed by management as **effective** at a reasonable assurance level[578](index=578&type=chunk)[579](index=579&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2022[580](index=580&type=chunk) - This annual report does not include an attestation report of the company's registered public accounting firm regarding the effectiveness of internal control over financial reporting, as the company is a non-accelerated filer[581](index=581&type=chunk) - No material changes occurred in the company's internal control over financial reporting during the reporting period[582](index=582&type=chunk) - Controls and procedures have inherent limitations, providing only reasonable, not absolute, assurance, and may not prevent or detect all errors or fraud[584](index=584&type=chunk) [Other Information](index=111&type=section&id=Item%209B%20Other%20Information) The company entered a research funding and option agreement with Scripps Research on March 17, 2023, providing up to $938,000 for preclinical DNase tumor platform development with exclusive global licensing rights - On March 17, 2023, the company entered a research funding and option agreement with Scripps Research, providing up to **$938,000** to fund preclinical development of the DNase tumor platform technology[585](index=585&type=chunk) - The agreement has a **15-month** term, granting the company the right to an exclusive worldwide license for Scripps Research's related technology or patent rights[586](index=586&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=111&type=section&id=Item%209C%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) Not applicable PART III [Directors, Executive Officers and Corporate Governance](index=112&type=section&id=Item%2010%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information required for this item will be filed via the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders or an amendment to this annual report [Executive Compensation](index=112&type=section&id=Item%2011%20Executive%20Compensation) Information required for this item will be filed via the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders or an amendment to this annual report [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=112&type=section&id=Item%2012%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required for this item will be filed via the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders or an amendment to this annual report [Certain Relationships and Related Transactions, and Director Independence](index=112&type=section&id=Item%2013%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required for this item will be filed via the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders or an amendment to this annual report [Principal Accounting Fees and Services](index=112&type=section&id=Item%2014%20Principal%20Accounting%20Fees%20and%20Services) Information required for this item will be filed via the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders or an amendment to this annual report PART IV [Exhibits and Financial Statement Schedules](index=113&type=section&id=Item%2015%20Exhibits%20and%20Financial%20Statement%20Schedules) This annual report includes consolidated financial statements and the independent registered public accounting firm's report, with all schedules omitted and an exhibit index listing all filed or incorporated by reference exhibits - This annual report includes the consolidated financial statements and the report of the independent registered public accounting firm[601](index=601&type=chunk) - All schedules have been omitted as they are not applicable or required, or the information required is presented in the consolidated financial statements or their notes[601](index=601&type=chunk) - The Exhibit Index lists the exhibits filed with or incorporated by reference into this annual report[601](index=601&type=chunk)[602](index=602&type=chunk) [Form 10-K Summary](index=113&type=section&id=Item%2016%20Form%2010-K%20Summary) Not applicable

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-37937 XENETIC BIOSCIENCES, INC. (Exact name of registrant as specified in its charter) Nevada (State or other jurisdic ...

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) Presents unaudited condensed consolidated financial statements and management's discussion of financial condition and operations [ITEM 1 – FINANCIAL STATEMENTS](index=3&type=section&id=Item%201%20Condensed%20Consolidated%20Financial%20Statements) Presents unaudited condensed consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Details the company's financial position, including assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2022 (Unaudited) ($) | December 31, 2021 ($) | | :-------------------------------- | :------------------------ | :------------------ | | Cash | $14,927,440 | $18,244,030 | | Total current assets | $15,376,173 | $18,723,429 | | Total assets | $16,468,104 | $19,815,360 | | Total current liabilities | $1,279,183 | $1,421,103 | | Total liabilities | $1,279,183 | $1,421,103 | | Total stockholders' equity | $15,188,921 | $18,394,257 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended June 30, 2022 ($) | Three Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Royalty revenue | $416,710 | $287,603 | $805,703 | $478,819 | | Research and development | $(2,077,499) | $(524,550) | $(3,178,898) | $(1,154,279) | | General and administrative | $(1,026,290) | $(890,704) | $(1,933,599) | $(1,821,282) | | Loss from operations | $(2,687,079) | $(1,127,651) | $(4,306,794) | $(2,496,742) | | Net loss | $(2,672,190) | $(1,106,678) | $(4,265,801) | $(2,452,623) | | Basic and diluted net loss per share | $(0.19) | $(0.13) | $(0.31) | $(0.28) | | Weighted-average shares outstanding | 14,066,573 | 8,746,692 | 13,755,046 | 8,746,479 | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Outlines changes in equity accounts, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity (Six Months Ended June 30, 2022) | Item | Change in Common Stock Par Value ($0.001) | Change in Additional Paid in Capital ($) | Change in Accumulated Deficit ($) | Total Stockholders' Equity Impact ($) | | :-------------------------------------------------- | :------------------------------------ | :--------------------------------- | :---------------------------- | :-------------------------------- | | Balance as of January 1, 2022 | $13,465 | $205,952,729 | $(182,547,265) | $18,394,257 | | Issuance of common stock for IPR&D | $875 | $804,125 | – | $805,000 | | Share-based expense | – | $255,465 | – | $255,465 | | Exercise of purchase warrants | $2 | $(2) | – | – | | Net loss | – | – | $(4,265,801) | $(4,265,801) | | Balance as of June 30, 2022 | $14,342 | $207,012,317 | $(186,813,066) | $15,188,921 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights | Cash Flow Activity | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(4,265,801) | $(2,452,623) | | Net cash used in operating activities | $(2,816,590) | $(2,245,998) | | Net cash used in investing activities | $(500,000) | $0 | | Net change in cash | $(3,316,590) | $(2,245,998) | | Cash at beginning of period | $18,244,030 | $11,527,552 | | Cash at end of period | $14,927,440 | $9,281,554 | | Issuance of common stock to acquire IPR&D (non-cash) | $805,000 | $0 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures for figures presented in the condensed consolidated financial statements [Note 1. The Company](index=8&type=section&id=Note%201.%20The%20Company) Describes the company's business, operational challenges, and Nasdaq compliance status - Xenetic Biosciences, Inc. is a biopharmaceutical company focused on immune-oncology technologies, specifically its DNase platform for hard-to-treat cancers and the personalized CAR T platform (XCART) for B-cell lymphomas. The company also has a drug delivery platform, PolyXen, generating royalty payments[26](index=26&type=chunk) - The Company has incurred **substantial losses since inception**, raising substantial doubt about its ability to continue as a going concern. Existing resources are projected to fund operations into **Q3 2023**, but additional capital will be needed long-term[29](index=29&type=chunk) - Xenetic received a Nasdaq notification on June 3, 2022, for non-compliance with the **minimum bid price requirement ($1.00)** and has until **November 30, 2022**, to regain compliance[29](index=29&type=chunk) [Note 2. Impact of COVID-19](index=9&type=section&id=Note%202.%20Impact%20of%20COVID-19) Assesses the current and potential future impact of the COVID-19 pandemic on the company's operations - The COVID-19 pandemic has not significantly impacted the Company's operations to date, but the future impact remains uncertain and dependent on evolving factors[30](index=30&type=chunk) [Note 3. Summary of Significant Accounting Policies](index=9&type=section&id=Note%203.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the key accounting principles and methods used in preparing the interim financial statements - Interim financial statements are prepared in accordance with SEC rules, with certain disclosures condensed or omitted. Results for interim periods are not necessarily indicative of full-year results[31](index=31&type=chunk) - Basic and diluted net loss per share are the same due to the Company's net loss position, making potentially dilutive securities anti-dilutive[34](index=34&type=chunk) - The Company is evaluating ASU 2016-13 (Financial Instruments - Credit Losses) but does not anticipate a material effect on its consolidated financial statements upon adoption[35](index=35&type=chunk) [Note 4. Significant Strategic Collaborations](index=10&type=section&id=Note%204.%20Significant%20Strategic%20Collaborations) Details the company's key partnerships, royalty agreements, and research funding arrangements - The Company recorded royalty revenue of approximately **$0.4 million** and **$0.8 million** for the three and six months ended June 30, 2022, respectively, from a sublicense agreement with Takeda Pharmaceuticals Co. Ltd. for its PolyXen technology[37](index=37&type=chunk) - The research funding and option agreement with The Scripps Research Institute for XCART development was mutually terminated for additional funding during **Q2 2022**, with **$2.4 million** paid to date[38](index=38&type=chunk) - A Statement of Work was entered into with Catalent Pharma Solutions, LLC for cGMP manufacturing of Human DNase I, with an estimated total cost of up to **$5 million** over approximately **17 months**[39](index=39&type=chunk) [Note 5. Acquisitions](index=11&type=section&id=Note%205.%20Acquisitions) Describes recent sublicense and license agreements, including consideration and future milestone obligations - On April 26, 2022, Xenetic entered into exclusive sublicense and license agreements with CLS Therapeutics Ltd. for its DNase enzyme technology for cancer treatment and CAR T therapies[40](index=40&type=chunk)[42](index=42&type=chunk) - Total consideration for these agreements was approximately **$1.3 million**, comprising a **$0.5 million** cash payment and **$0.8 million** in **875,000 common shares** issued. This amount was expensed as in-process research and development (IPR&D)[44](index=44&type=chunk) - The Company is obligated to pay CLS up to **$26 million** in potential cash milestone payments and issue an additional **950,000 shares** of common stock based on regulatory milestones, plus tiered royalties on net sales[41](index=41&type=chunk)[43](index=43&type=chunk) [Note 6. Fair Value Measurements](index=12&type=section&id=Note%206.%20Fair%20Value%20Measurements) Explains valuation methods for financial instruments and their classification within the fair value hierarchy - The carrying amounts of the Company's financial instruments approximate fair value due to their short maturities. No financial instruments were classified as Level 3 in the fair value hierarchy[46](index=46&type=chunk) [Note 7. Stockholders' Equity](index=12&type=section&id=Note%207.%20Stockholders'%20Equity) Provides details on outstanding warrants and their exercise activity impacting stockholders' equity - As of June 30, 2022, **4,629,630 Series A Warrants** were outstanding, exercisable at **$3.30 per share** and expiring on **February 23, 2025**. No Series A Warrants were exercised or forfeited during the reporting period[47](index=47&type=chunk) - Publicly traded warrants to purchase approximately **21,000 shares** were outstanding, with an exercise price of **$13.00** and expiring **July 17, 2024**. Approximately **1,984 shares** were exercised on a cashless basis during the six months ended June 30, 2022[49](index=49&type=chunk) [Note 8. Share-Based Expense](index=12&type=section&id=Note%208.%20Share-Based%20Expense) Details the classification and impact of share-based compensation expenses on the financial statements Share-Based Expense Classification | Category | Three Months Ended June 30, 2022 ($) | Three Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development expenses | $23,128 | $19,026 | $42,306 | $29,736 | | General and administrative expenses | $112,742 | $90,896 | $213,159 | $156,470 | | Total share-based expense | $135,870 | $109,922 | $255,465 | $186,206 | - During the six months ended June 30, 2022, the Company granted **200,000 employee stock option awards** with a weighted-average grant date fair value of **$0.99 per option share**[54](index=54&type=chunk) [Note 9. Income Taxes](index=13&type=section&id=Note%209.%20Income%20Taxes) Explains the company's income tax position, including no provision due to losses and valuation allowances - No provision for income taxes was recorded due to incurred losses. A valuation allowance of approximately **$32.6 million** was recorded against deferred tax assets as of June 30, 2022[56](index=56&type=chunk) [Note 10. Commitments](index=13&type=section&id=Note%2010.%20Commitments) Outlines the company's contractual obligations, primarily related to operating lease liabilities Operating Lease Information | Metric | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Cash paid for lease liabilities | $19,087 | $17,160 | | Right-of-use assets - ST | $9,611 | $37,408 | | Right-of-use assets - LT | $0 | $7,957 | | Current lease liabilities | $9,611 | $37,408 | | Non-current lease liabilities | $0 | $7,957 | [Note 11. Related Party Transactions](index=14&type=section&id=Note%2011.%20Related%20Party%20Transactions) Details transactions with related parties, including loan interest income and director affiliations - Interest income on the Pharmsynthez Loan decreased, with no interest recorded in **Q2 2022** due to Russian sanctions preventing payments. The loan receivable is classified as long-term, with U.S.-based collateral deemed adequate[61](index=61&type=chunk)[63](index=63&type=chunk) - One of the Company's directors, Roger Kornberg, is on CLS's scientific advisory board but does not own equity or receive economic benefit from the CLS license agreements[65](index=65&type=chunk) [Note 12. Subsequent Events](index=15&type=section&id=Note%2012.%20Subsequent%20Events) Reports significant events occurring after the reporting period, such as new research collaborations - On August 2, 2022, the Company announced a research and development collaboration with Belgian Volition SARL Limited to develop NETs-targeted adoptive cell therapies for cancer, with Volition funding the program and shared commercialization proceeds[67](index=67&type=chunk) [ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=16&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's perspective on financial condition, operational results, liquidity, business overview, and performance comparisons [BUSINESS OVERVIEW](index=18&type=section&id=BUSINESS%20OVERVIEW) Describes the company's biopharmaceutical focus, key technology platforms, and R&D strategy - Xenetic is a biopharmaceutical company focused on immune-oncology, advancing its DNase platform for solid tumors and XCART for B-cell lymphomas. The newly acquired DNase oncology platform will be prioritized[74](index=74&type=chunk) - The Company also leverages its PolyXen drug delivery platform through partnerships, generating royalty payments. Significant resources are committed to R&D, with no drug candidates yet approved for commercial sale[74](index=74&type=chunk)[75](index=75&type=chunk) [Effects of the COVID-19 Pandemic](index=18&type=section&id=Effects%20of%20the%20COVID-19%20Pandemic) Assesses current and potential future impact of the COVID-19 pandemic on operations and financial results - The COVID-19 pandemic has not had a significant operational impact on the Company to date, but the ultimate impact on financial results remains uncertain due to evolving factors[76](index=76&type=chunk) [RESULTS OF OPERATIONS](index=19&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes the company's financial performance, comparing revenues and expenses for current and prior periods [Comparison of Quarter Ended June 30, 2022 and 2021](index=19&type=section&id=Comparison%20of%20Quarter%20Ended%20June%2030%2C%202022%20and%202021) Compares financial performance for the three months ended June 30, 2022, against the same period in 2021 Quarterly Financial Performance Comparison (Q2 2022 vs. Q2 2021) | Description | June 30, 2022 ($) | June 30, 2021 ($) | Increase (Decrease) ($) | Percentage Change | | :-------------------------------- | :------------ | :------------ | :------------------ | :---------------- | | Royalty revenue | $416,710 | $287,603 | $129,107 | 44.9% | | Research and development | $(2,077,499) | $(524,550) | $1,552,949 | 296.1% | | General and administrative | $(1,026,290) | $(890,704) | $135,586 | 15.2% | | Loss from operations | $(2,687,079) | $(1,127,651) | $1,559,428 | 138.3% | | Net loss | $(2,672,190) | $(1,106,678) | $1,565,512 | 141.5% | - Research and development expenses increased by **$1.6 million (296.1%)** to **$2.1 million**, primarily due to a **$1.3 million** in-process research and development (IPR&D) expense from licensing the DNase oncology platform[80](index=80&type=chunk) - General and administrative expenses increased by **$0.1 million (15.2%)** to **$1.0 million**, mainly due to higher legal costs associated with the DNase oncology platform licensing[82](index=82&type=chunk) [Comparison of Six Months Ended June 30, 2022 and 2021](index=20&type=section&id=Comparison%20of%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021) Compares financial performance for the six months ended June 30, 2022, against the same period in 2021 Six-Month Financial Performance Comparison (H1 2022 vs. H1 2021) | Description | June 30, 2022 ($) | June 30, 2021 ($) | Increase (Decrease) ($) | Percentage Change | | :-------------------------------- | :------------ | :------------ | :------------------ | :---------------- | | Royalty revenue | $805,703 | $478,819 | $326,884 | 68.3% | | Research and development | $(3,178,898) | $(1,154,279) | $2,024,619 | 175.4% | | General and administrative | $(1,933,599) | $(1,821,282) | $112,317 | 6.2% | | Loss from operations | $(4,306,794) | $(2,496,742) | $1,810,052 | 72.5% | | Net loss | $(4,265,801) | $(2,452,623) | $1,813,178 | 73.9% | - R&D expenses for the six months increased by **$2.0 million (175.4%)** to **$3.2 million**, primarily due to a **$1.3 million** IPR&D expense from the DNase oncology platform licensing and increased spending on the XCART platform[87](index=87&type=chunk) - General and administrative expenses increased by **$0.1 million (6.2%)** to **$1.9 million**, mainly due to increased legal costs related to the DNase oncology platform licensing[88](index=88&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's ability to meet short-term obligations and fund operations, including cash and capital needs - The Company incurred a net loss of approximately **$4.3 million** for the six months ended June 30, 2022, leading to an accumulated deficit of approximately **$186.8 million**[92](index=92&type=chunk) Liquidity and Capital Resources Summary | Metric | June 30, 2022 ($) | December 31, 2021 ($) | | :----------------- | :------------ | :---------------- | | Working capital | $14.1 million | $17.3 million | | Cash | $14.9 million | $18.2 million | | Current liabilities | $1.3 million | $1.4 million | - Working capital decreased by **$3.2 million**, primarily due to the net loss and **$0.5 million** cash used for the DNase oncology platform license[92](index=92&type=chunk) - Management has substantial doubt about the Company's ability to continue as a going concern due to sustained losses, though existing resources are expected to fund operations into **Q3 2023**. Additional capital will be needed long-term[93](index=93&type=chunk) - The Company received a Nasdaq notice on **June 3, 2022**, for non-compliance with the minimum bid price requirement and has until **November 30, 2022**, to regain compliance[93](index=93&type=chunk) Cash Flow Summary (Six Months Ended June 30) | Cash Flow Type | 2022 ($) | 2021 ($) | | :------------------------------------ | :----------- | :----------- | | Net cash used in operating activities | $(2.8) million | $(2.2) million | | Net cash used in investing activities | $(0.5) million | $0 | | Net cash from financing activities | $0 | $0 | [Contractual Obligations and Commitments](index=23&type=section&id=Contractual%20Obligations%20and%20Commitments) Discusses any material changes to the company's contractual obligations and financial commitments - There were no material changes in contractual obligations and commitments from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[98](index=98&type=chunk) [Off Balance Sheet Arrangements](index=23&type=section&id=Off%20Balance%20Sheet%20Arrangements) Confirms the absence of off-balance sheet financing arrangements with material financial impact - The Company does not have any off-balance sheet financing arrangements that have or are reasonably likely to have a material effect on its financial condition or results of operations[99](index=99&type=chunk) [Recent Accounting Standards](index=23&type=section&id=Recent%20Accounting%20Standards) Refers to disclosures on new accounting standards in the company's annual report - For a discussion of recent accounting standards, refer to Note 3 in the Company's Annual Report on Form 10-K for the year ended December 31, 2021[100](index=100&type=chunk) [Critical Accounting Policies and Estimates](index=23&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) States that there are no material changes to the company's critical accounting policies and estimates - There have been no material changes in the Company's critical accounting policies and estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021[101](index=101&type=chunk) [ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=24&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exempt from market risk disclosures as it qualifies as a "smaller reporting company" - The Company is not required to provide market risk disclosures because it is a "smaller reporting company" as defined in Rule 12b-2 of the Exchange Act[102](index=102&type=chunk) [ITEM 4 – CONTROLS AND PROCEDURES](index=24&type=section&id=Item%204%20Controls%20and%20Procedures) Management affirmed the effectiveness of disclosure controls and procedures, with no material changes to internal control - Management concluded that disclosure controls and procedures were designed at a reasonable assurance level and were effective as of **June 30, 2022**[104](index=104&type=chunk) - There were no material changes in internal control over financial reporting during the period covered by this Quarterly Report[105](index=105&type=chunk) [PART II OTHER INFORMATION](index=25&type=section&id=PART%20II%20OTHER%20INFORMATION) Covers legal proceedings, risk factors, equity sales, defaults, and other miscellaneous disclosures [ITEM 1 – LEGAL PROCEEDINGS](index=25&type=section&id=Item%201%20Legal%20Proceedings) The company is not currently involved in or threatened by any material legal proceedings - The Company is not currently subject to any material legal proceedings, nor are any material legal proceedings threatened against it[108](index=108&type=chunk) [ITEM 1A – RISK FACTORS](index=25&type=section&id=Item%201A%20Risk%20Factors) Updates risk factors, highlighting profitability challenges, platform dependence, collaboration reliance, and Nasdaq delisting [Risks Related to Our Financial Condition and Capital Requirements](index=25&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Capital%20Requirements) Addresses risks from historical losses, accumulated deficit, and ongoing need for additional financing - The Company has never been profitable, has an accumulated deficit of approximately **$186.8 million** as of **June 30, 2022**, and expects to incur significant operating losses, requiring additional financing[110](index=110&type=chunk)[111](index=111&type=chunk) - Future profitability depends on funding R&D, regulatory approval, market acceptance of drug candidates, and the ability to raise additional capital[111](index=111&type=chunk) [Risks Related to the Discovery and Development of our Pharmaceutical Products](index=26&type=section&id=Risks%20Related%20to%20the%20Discovery%20and%20Development%20of%20our%20Pharmaceutical%20Products) Highlights risks tied to successful clinical development, regulatory approval, and commercialization of drug candidates - The Company's business is substantially dependent on the successful clinical development, regulatory approval, and commercialization of the DNase oncology platform, which requires substantial resources and efforts[112](index=112&type=chunk) - Failure to maintain or obtain academic and strategic collaborations could delay, limit, or terminate clinical development programs, adversely affecting the business[112](index=112&type=chunk) [Risks Related to Our Reliance on Third-Parties](index=26&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third-Parties) Examines risks stemming from dependence on external collaborations for drug development and commercialization - The Company may seek additional collaborations for drug candidates but faces significant competition. Inability to secure favorable terms could force delays or curtailment of development programs[113](index=113&type=chunk)[114](index=114&type=chunk)[117](index=117&type=chunk) - Establishing collaborations is complex and time-consuming, and a reduced number of potential partners due to industry consolidation adds to the challenge[115](index=115&type=chunk) [Risks Related to Our Common Stock](index=27&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) Discusses risks concerning the company's common stock, including Nasdaq compliance and potential delisting - The Company received a Nasdaq notice on **June 3, 2022**, for non-compliance with the **minimum bid price requirement ($1.00)** and has until **November 30, 2022**, to regain compliance[118](index=118&type=chunk)[119](index=119&type=chunk) - Failure to regain compliance could lead to delisting from the Nasdaq Capital Market, which would materially affect the market price and liquidity of the common stock and reduce the Company's ability to raise capital[120](index=120&type=chunk) [ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=27&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report during the period - None[121](index=121&type=chunk) [ITEM 3 – DEFAULTS UPON SENIOR SECURITIES](index=28&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report during the period - None[123](index=123&type=chunk) [ITEM 4 – MINE SAFETY DISCLOSURES](index=28&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[124](index=124&type=chunk) [ITEM 5 – OTHER INFORMATION](index=28&type=section&id=Item%205%20Other%20Information) There is no other information to report under this item - None[125](index=125&type=chunk) [ITEM 6 – EXHIBITS](index=28&type=section&id=Item%206%20Exhibits) Lists all exhibits incorporated by reference or filed, including agreements, certifications, and financial statements - Key exhibits include Exclusive Sublicense and License Agreements with CLS Therapeutics LTD, a Statement of Work with Catalent Pharma Solutions, LLC, and certifications from the Principal Executive and Financial Officers[127](index=127&type=chunk) [SIGNATURES](index=29&type=section&id=Signatures) The report is formally signed by the Chief Executive Officer and Chief Financial Officer - The report is signed by Jeffrey F. Eisenberg, Chief Executive Officer, and James Parslow, Chief Financial Officer[131](index=131&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-37937 XENETIC BIOSCIENCES, INC. (Exact name of registrant as specified in its charter) Nevada (State or other jurisdiction of incorporation or organization) 45-2952962 (IRS Employer Identification No.) 40 Speen Street, Sui ...

[Table of Contents](index=1&type=section&id=Table%20of%20Contents) [Form 10-K General Information](index=1&type=section&id=Form%2010-K%20General%20Information) This section provides basic information about Xenetic Biosciences, Inc.'s Form 10-K annual report, including company name, jurisdiction, principal executive offices, stock trading symbols, and status as a non-accelerated filer and smaller reporting company Form 10-K General Information | Metric | Detail | | :--- | :--- | | **Company Name** | XENETIC BIOSCIENCES, INC. | | **Jurisdiction of Incorporation** | Nevada | | **Principal Executive Offices** | 40 Speen Street, Suite 102, Framingham, MA 01701 | | **Telephone Number** | 781-778-7720 | | **Common Stock Trading Symbol** | XBIO (Nasdaq Capital Market) | | **Warrant Trading Symbol** | XBIOW (Nasdaq Capital Market) | | **Well-Known Seasoned Issuer** | No | | **Non-Accelerated Filer** | Yes | | **Smaller Reporting Company** | Yes | | **Aggregate Market Value of Common Stock Held by Non-Affiliates (as of June 30, 2021)** | Approximately $17,462,218 | | **Number of Shares of Common Stock Outstanding (as of March 18, 2022)** | 13,441,296 shares | [Documents Incorporated by Reference](index=2&type=section&id=DOCUMENTS%20INCORPORATED%20BY%20REFERENCE) This section states that information required for Part III of Form 10-K will be provided by reference to the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders or an amendment to this annual report - Information required for Part III (Items 10, 11, 12, 13, and 14) of Form 10-K will be provided by reference to the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders, information statement, or an amendment to this annual report[8](index=8&type=chunk) [XENETIC BIOSCIENCES, INC. 2021 Annual Report on Form 10-K Table of Contents](index=3&type=section&id=XENETIC%20BIOSCIENCES%2C%20INC.%202021%20ANNUAL%20REPORT%20ON%20FORM%2010-K%20TABLE%20CONTENTS) This section lists the detailed table of contents for Xenetic Biosciences, Inc.'s 2021 Form 10-K Annual Report, covering sections from business overview to financial statements and exhibits 2021 Annual Report on Form 10-K Table of Contents | Part | Item | Page | | :--- | :--- | :--- | | **PART I** | | 1 | | | Item 1 Business | 1 | | | Item 1A Risk Factors | 21 | | | Item 1B Unresolved Staff Comments | 49 | | | Item 2 Properties | 49 | | | Item 3 Legal Proceedings | 49 | | | Item 4 Mine Safety Disclosures | 49 | | **PART II** | | 50 | | | Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 50 | | | Item 6 [Reserved] | 50 | | | Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations | 50 | | | Item 7A Quantitative and Qualitative Disclosures About Market Risk | 58 | | | Item 8 Financial Statements and Supplementary Data | 59 | | | Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 60 | | | Item 9A Controls and Procedures | 60 | | | Item 9B Other Information | 61 | | | Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 61 | | **PART III** | | 62 | | | Item 10 Directors, Executive Officers and Corporate Governance | 62 | | | Item 11 Executive Compensation | 62 | | | Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 62 | | | Item 13 Certain Relationships and Related Transactions, and Director Independence | 62 | | | Item 14 Principal Accounting Fees and Services | 62 | | **PART IV** | | 63 | | | Item 15 Exhibits and Financial Statement Schedules | 63 | | | Item 16 Form 10-K Summary | 63 | [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=4&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This annual report contains numerous forward-looking statements regarding the company's future operating results, financial condition, business strategy, plans, revenues, costs, prospects, and operational objectives, with particular emphasis on the impact of the COVID-19 pandemic, drug development programs, clinical trials, regulatory approvals, collaboration arrangements, and expected outcomes of XCART technology - All statements in the report that are not historical facts are forward-looking statements, covering future operating results, financial condition, business strategy, plans, revenues, costs, prospects, and operational objectives[11](index=11&type=chunk) - Forward-looking statements include but are not limited to: the anticipated impact and duration of the COVID-19 pandemic; development plans for drug candidates; the nature, timing, and scope of clinical trials; the anticipated timing of regulatory filings; the nature, timing, and scope of collaboration arrangements; expected results under collaboration arrangements, including future payments; outcomes of regulatory approvals for drug candidates; commercialization plans for drug candidates; and the development of XCART CAR T (chimeric antigen receptor T-cell) technology and its potential in treating B-cell lymphoma[11](index=11&type=chunk) - Although the company believes the expectations in its forward-looking statements are reasonable, there is no guarantee of future results, activity levels, performance, or achievements[12](index=12&type=chunk) [Factors Causing Material Differences](index=4&type=section&id=Factors%20Causing%20Material%20Differences) This section lists risk factors that could cause actual results to differ materially from forward-looking statements, including failure to realize the expected potential of technology, financing capabilities, product development and commercialization risks, competitive impacts, changes in laws and regulations, and macroeconomic events - Failure to realize the anticipated potential of XCART or PolyXen technologies - The company's ability to implement its business strategy - Future need to raise additional working capital for further development of XCART technology and continued operations - Product development and commercialization risks, including the ability to successfully develop XCART technology - Impact of adverse safety results and clinical trial outcomes for CAR T-cell therapies - Impact of new CAR T-cell therapies and new uses for existing CAR T therapies on the competitive landscape - The company's ability to successfully commercialize current and future drug candidates - Ability to achieve milestones and other payments related to current and future co-development collaborations and strategic arrangements - Changes in laws and regulations by government agencies - Disruption or cancellation of existing contracts - Impact of competitive products and pricing - Product demand and market acceptance risks - Presence of competitors with greater financial resources - Management's ability to execute plans and motivate employees to execute plans - Ability to attract and retain key personnel - Adverse publicity related to the company's products or the company itself - Adverse claims related to the company's intellectual property - Adoption or changes in new accounting principles - Inherent costs of complying with regulations applicable to public companies (such as the Sarbanes-Oxley Act) - Other new business areas the company may enter in the future - Overall economic and business conditions and inflationary trends - Impact of natural disasters or public health emergencies (such as the COVID-19 global pandemic) and geopolitical events (such as the Russian invasion of Ukraine) and related sanctions and other economic disruptions or concerns on the company's financial condition and operating results - The company has never been profitable and may not achieve or maintain profitability in the future - The company requires substantial additional funding to achieve its objectives, and failure to obtain required funding in a timely manner may force the company to delay, limit, or terminate product development efforts, other operations, or commercialization efforts - Raising additional capital may result in dilution to stockholders' equity, restrict the company's operations, or require the company to relinquish rights to its technology or drug candidates[13](index=13&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk) [PART I](index=8&type=section&id=PART%20I) [ITEM 1 – BUSINESS](index=8&type=section&id=ITEM%201%20%E2%80%93%20BUSINESS) Xenetic Biosciences, Inc. is a biopharmaceutical company focused on advancing its XCART personalized CAR T platform technology, primarily for treating B-cell lymphoma, and also leverages its PolyXen drug delivery platform through collaborations with biotechnology and pharmaceutical companies - The company is a biopharmaceutical company focused on advancing XCART, a personalized CAR T platform technology, designed to target patient and tumor-specific neoantigens, initially for the treatment of B-cell lymphoma[23](index=23&type=chunk)[26](index=26&type=chunk)[297](index=297&type=chunk) - The company also leverages its proprietary drug delivery platform, PolyXen, through collaborations with biotechnology and pharmaceutical companies to extend drug half-life and improve pharmacological properties[27](index=27&type=chunk)[298](index=298&type=chunk) - In 2021, the company's internal development efforts focused on advancing XCART technology, while PolyXen or other technologies were not actively developed[28](index=28&type=chunk)[42](index=42&type=chunk)[299](index=299&type=chunk) [Overview](index=8&type=section&id=Overview) Xenetic Biosciences focuses on its XCART personalized CAR T platform technology, aiming to treat B-cell lymphoma by targeting patient and tumor-specific B-cell receptors, which is expected to enhance the safety and efficacy of cell therapies, and also utilizes its PolyXen drug delivery platform to develop next-generation biologics through collaborations - XCART technology aims to significantly enhance the safety and efficacy of B-cell lymphoma cell therapies by generating patient and tumor-specific CAR T cells[23](index=23&type=chunk)[26](index=26&type=chunk) - The PolyXen platform technology utilizes the natural polymer polysialic acid (PSA) to extend the circulating half-life of drugs and potentially improve other pharmacological properties[27](index=27&type=chunk) - The company currently does not have regulatory marketing approval for any drug candidates but receives ongoing royalty revenue through PolyXen technology licensing agreements[27](index=27&type=chunk) [Our Strategy](index=9&type=section&id=Our%20Strategy) The company's core strategy is to advance XCART technology through regulatory approval and commercialization, seeking industry collaborations to expand its applications, while also planning to advance the PolyXen platform through collaborative licensing arrangements to support XCART development, and pursuing orphan drug designation and accelerated approval pathways - The company plans to apply XCART technology to the development of cell therapies for B-cell lymphoma, with regulatory approval and commercialization as its primary focus[30](index=30&type=chunk) - The company intends to opportunistically advance the PolyXen platform technology through collaborative licensing agreements with pharmaceutical companies to obtain clinical data and working capital to support XCART development[31](index=31&type=chunk) - The company plans to seek orphan drug designation and accelerated approval pathways for relevant oncology indications to gain advantages such as market exclusivity[32](index=32&type=chunk) - The company primarily advances drug candidate development through contract manufacturing and contract research organizations (CROs) to efficiently manage resources[33](index=33&type=chunk) [Business Developments](index=9&type=section&id=Business%20Developments) In 2021, the company undertook several business developments, including revising its XCART technology development agreement with Pharmsynthez, terminating old work orders and entering new ones with associated payments, raising approximately $11.5 million in net proceeds through a private placement of common stock and warrants, and establishing an ATM offering program with no sales in 2021 - The company revised its Master Services Agreement (MSA) with Pharmsynthez on October 12, 2021, terminating all old work orders and entering into a new Second Work Order to support XCART technology development[35](index=35&type=chunk)[427](index=427&type=chunk) - Pursuant to the MSA amendment and Second Work Order, the company paid Pharmsynthez a one-time fee of **$40,000**, with **$21,000** settling all amounts under old work orders and the remaining **$19,000** creditable against future new work order fees[36](index=36&type=chunk)[428](index=428&type=chunk) - The company completed a private placement on July 28, 2021, issuing **950,000 shares of common stock**, **4,629,630 Series A warrants**, and **3,679,630 Series B pre-funded warrants**, raising approximately **$11.5 million in net proceeds**; all Series B warrants were exercised in 2021[40](index=40&type=chunk)[455](index=455&type=chunk)[457](index=457&type=chunk) - The company entered into an ATM offering agreement with H.C. Wainwright & Co., LLC on November 19, 2021, to sell up to **$4.0 million** of common stock from time to time, but no shares were sold under this agreement as of December 31, 2021[37](index=37&type=chunk)[39](index=39&type=chunk)[452](index=452&type=chunk)[454](index=454&type=chunk) [Our Technology and Drug Candidates](index=11&type=section&id=Our%20Technology%20and%20Drug%20Candidates) Xenetic Biosciences applies proprietary technology to internally and collaboratively developed drug candidates, primarily focusing on oncology drugs, with the XCART platform technology designed for personalized B-cell lymphoma treatment and the PolyXen platform technology used to extend drug molecule circulation time in the body, and the company co-develops drugs with partners like Pharmsynthez and Serum Institute, utilizing their clinical data for decision-making - The company applies proprietary and patented technology to internally and collaboratively developed drug candidates, primarily aiming to create next-generation biologics and therapies with a focus on oncology drugs[41](index=41&type=chunk) - The XCART technology platform enables personalized treatment of B-cell lymphoma by screening peptide ligands that bind to unique B-cell receptors on patient tumor cells, then inserting them into the antigen-binding domain of CAR T cells, expected to limit off-target toxicity[44](index=44&type=chunk)[47](index=47&type=chunk) - PolyXen is a bioplatform technology that chemically links polysialic acid (PSA) to drug molecules to extend their circulation time in the human body, thereby creating potentially superior next-generation therapeutic candidates[44](index=44&type=chunk) - The company co-develops drugs with partners such as Pharmsynthez and Serum Institute, retaining rights in key markets and jointly owning clinical data to inform development and commercialization decisions in those markets[45](index=45&type=chunk)[46](index=46&type=chunk)[50](index=50&type=chunk) - ErepoXen (PSA-EPO) utilizes the PolyXen platform technology to treat anemia in chronic kidney disease (CKD) patients, aiming to reduce dosing frequency by extending the circulating half-life of the therapeutic drug; Pharmsynthez has completed Phase IIb/III clinical trials for ErepoXen in Russia and submitted registration documents, while Serum Institute has also completed Phase I/II clinical trials in India[49](index=49&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) [Significant Collaborations and Strategic Arrangements](index=13&type=section&id=Significant%20Collaborations%20and%20Strategic%20Arrangements) Xenetic Biosciences has established several strategic collaborations with Takeda, SynBio LLC, PJSC Pharmsynthez, and Serum Institute; the exclusive R&D license agreement with Takeda terminated in August 2021, but royalty revenue under the non-exclusive sublicense agreement continues to grow, while collaborations with SynBio and Pharmsynthez focus on PolyXen and ImuXen technology development in Russia and CIS markets, leveraging their clinical data to support the company's development in other markets, and the collaboration with Serum Institute focuses on PSA-EPO development - The exclusive R&D license agreement with Takeda terminated in August 2021, but royalty revenue under the non-exclusive sublicense agreement continues to grow[55](index=55&type=chunk)[56](index=56&type=chunk) Takeda Royalty Revenue | Year | Royalty Revenue (USD) | | :--- | :--- | | 2021 | Approximately $1.2 million | | 2020 | Approximately $0.4 million | | **Year-over-Year Growth** | **165.6%** | [56](index=56&type=chunk)[323](index=323&type=chunk) - The co-development agreement with SynBio LLC (a wholly-owned subsidiary of Pharmsynthez) grants SynBio an exclusive license to develop, market, and commercialize drug candidates based on PolyXen, OncoHist, and ImuXen technologies in Russia and CIS markets, while the company obtains an exclusive license to use SynBio's clinical data outside of SynBio's markets[57](index=57&type=chunk)[61](index=61&type=chunk) - The collaboration agreement with PJSC Pharmsynthez grants Pharmsynthez an exclusive license to develop, commercialize, and market six product candidates based on PolyXen and ImuXen technologies in Russia and CIS markets, while the company obtains an exclusive license to use its clinical data outside of these regions[62](index=62&type=chunk) - Pharmsynthez and its subsidiary SynBio hold approximately **3.3%** of the company's common stock and own all of the company's issued Series A preferred stock and approximately **1.5 million shares** of Series B preferred stock[65](index=65&type=chunk)[423](index=423&type=chunk) - The collaboration agreement with Serum Institute grants it an exclusive license to use PolyXen technology to develop PSA-EPO, with Serum Institute responsible for clinical trials and regulatory approvals in specific regions and paying royalties to the company[67](index=67&type=chunk)[432](index=432&type=chunk) [Our Intellectual Property](index=15&type=section&id=Our%20Intellectual%20Property) Xenetic Biosciences protects its intellectual property in the biopharmaceutical sector, particularly in oncology, through patents, trade secrets, and proprietary technology, holding over 170 U.S. and international patents and pending patent applications covering XCART and PolyXen platform technologies and their drug candidates, with a patent strategy focused on major pharmaceutical markets and production sites, but patent protection is limited in duration and subject to challenges and infringement risks - The company protects and enhances its proprietary position through patent applications, reliance on trade secrets and proprietary technology, continuous innovation, and licensing opportunities, particularly in the oncology field[68](index=68&type=chunk) - As of January 20, 2022, the company directly or indirectly owns over **170 U.S. and international patents** and pending patent applications, covering XCART platform technology, PolyXen platform technology, and other product candidates[71](index=71&type=chunk) - Patent protection typically lasts **20 years** from the earliest effective filing date, with U.S. patents potentially receiving up to **5 years** extension due to FDA regulatory review periods, but the total patent term cannot exceed **14 years** after FDA approval[75](index=75&type=chunk) - The company has obtained patent protection for using PolyXen technology to conjugate specific therapeutic drugs (e.g., PSA-EPO, PSA-Insulin, PSA-FVIII) and for methods of endotoxin removal during PSA production and purification[73](index=73&type=chunk)[74](index=74&type=chunk) - The patent landscape for pharmaceutical and biotechnology companies is uncertain, involving complex legal and factual issues; issued patents may be found invalid or unenforceable in court, and competitors may circumvent or design around the company's patents[77](index=77&type=chunk) [Manufacturing and Supply](index=17&type=section&id=Manufacturing%20and%20Supply) Xenetic Biosciences lacks internal drug candidate material production capabilities and plans to rely on third-party manufacturers; currently, there is an agreement with Serum Institute for PolyXen technology-related clinical material production, but no manufacturing agreement exists for XCART technology, and the company is seeking third-party manufacturers to meet clinical supply needs - The company does not have internal capabilities to manufacture drug candidate materials and does not intend to acquire such capabilities in its current business strategy[80](index=80&type=chunk) - The company has an agreement with Serum Institute for the production of PolyXen technology-related clinical materials[80](index=80&type=chunk) - The company currently has no clinical material manufacturing agreement for XCART technology and plans to seek third-party manufacturers to meet clinical supply needs[80](index=80&type=chunk) [Government Regulation](index=17&type=section&id=Government%20Regulation) Xenetic Biosciences' drug development is subject to stringent regulation by U.S. federal, state, and local, as well as other national government agencies, covering all stages from research and development, testing, and manufacturing to approval, marketing, and distribution; the regulatory process is lengthy and resource-intensive, including preclinical testing, IND applications, three phases of clinical trials, NDA/BLA approval, and post-market requirements, and the company may also seek orphan drug designation and utilize fast track, accelerated approval, and other expedited development and review programs, with foreign regulatory bodies having similar requirements and varying regulations and market exclusivity policies - The drug development process includes preclinical testing, IND applications, three phases of clinical trials, cGMP compliance inspections, and FDA review and approval of NDA or BLA[83](index=83&type=chunk)[86](index=86&type=chunk)[90](index=90&type=chunk)[94](index=94&type=chunk) - The Orphan Drug Act provides incentives for drugs treating rare diseases, including a **seven-year market exclusivity period**, but may be limited by clinical superiority or insufficient supply[97](index=97&type=chunk) - The FDA offers expedited development and review programs such as Fast Track, Priority Review, Accelerated Approval, and Breakthrough Therapy designation to accelerate the development and approval of drugs for serious or life-threatening conditions that address unmet medical needs[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) - Post-market, drugs remain subject to ongoing regulatory requirements, including manufacturing, labeling, packaging, storage, advertising, promotion, record-keeping, post-market studies, and adverse event reporting[104](index=104&type=chunk) - The Biologics Price Competition and Innovation Act (BPCIA) provides **12 years of data exclusivity** for innovative biologics, while the Hatch-Waxman Amendments allow for patent term extensions of up to **five years** to compensate for patent term lost during product development and FDA review[105](index=105&type=chunk)[106](index=106&type=chunk) - In the European Union, new chemical entities typically enjoy **eight years of data exclusivity** and an additional **two years of market exclusivity**, with orphan drugs potentially receiving **ten years of market exclusivity**[112](index=112&type=chunk)[113](index=113&type=chunk) [Other Regulatory Matters](index=24&type=section&id=Other%20Regulatory%20Matters) Beyond FDA regulation, Xenetic Biosciences' manufacturing, sales, and promotional activities are subject to numerous U.S. federal and state government agencies and other national regulatory bodies, including anti-kickback, false claims, data privacy and security, and physician payment transparency laws; the company must also comply with requirements for drug distribution, controlled substance handling, and child-resistant packaging, and failure to comply with these regulations could result in adverse consequences such as fines, product recalls, or withdrawal of approvals - The company's post-approval manufacturing, sales, promotion, and other activities are regulated by numerous agencies beyond the FDA (e.g., Centers for Medicare & Medicaid Services, Drug Enforcement Administration, Federal Trade Commission)[116](index=116&type=chunk) - Sales, marketing, and scientific/educational programs must comply with state and federal fraud and abuse laws, including anti-kickback, false claims, data privacy and security, and physician payment transparency laws[116](index=116&type=chunk) - Drug distribution is subject to stringent record-keeping, licensing, storage, and security requirements to prevent unauthorized sales[117](index=117&type=chunk) - Failure to comply with regulatory requirements may result in legal or regulatory actions such as criminal prosecution, fines, product recalls, or withdrawal of product approvals[118](index=118&type=chunk) [Reimbursement](index=25&type=section&id=Reimbursement) Future sales and reimbursement of any approved products by Xenetic Biosciences will depend on coverage by third-party payers, such as government health plans, commercial insurers, and managed care organizations; government and third-party payers are increasingly challenging the prices of medical products and services and implementing cost-control measures, including price controls, reimbursement restrictions, and generic product substitution requirements; in the U.S., Medicaid, Medicare, and PHS drug pricing programs have specific requirements for drug reimbursement, and the Affordable Care Act and its amendments have significantly impacted the healthcare system, with future legislative reforms potentially further affecting drug pricing and reimbursement - Sales and reimbursement of any approved products will depend in part on coverage by third-party payers (such as government health plans, commercial insurance, and managed care organizations)[120](index=120&type=chunk) - Government and third-party payers are increasingly challenging the prices of medical products and services and implementing cost-control measures, including price controls, reimbursement restrictions, and generic product substitution requirements[120](index=120&type=chunk) - In the U.S., Medicaid, Medicare Part D and Part B, and Federal Supply Schedule (FSS) have specific requirements for drug reimbursement, requiring manufacturers to pay rebates or provide discounts[122](index=122&type=chunk) - The Patient Protection and Affordable Care Act (ACA) and its amendments have significantly impacted the healthcare system, and future legislative or administrative actions may further limit the amount government payers will pay for medical products or lead to additional pricing pressure[123](index=123&type=chunk)[124](index=124&type=chunk) [Environmental Regulation](index=26&type=section&id=Environmental%20Regulation) Xenetic Biosciences complies with environmental regulations, but its compliance costs are low due to not engaging in the manufacturing of drug candidates; the company uses third-party manufacturers for material production and believes its procedures for hazardous material use, handling, storage, and disposal comply with environmental standards, but risks of accidental contamination or injury still exist - The company complies with environmental regulations, but its compliance costs are low because it does not engage in the manufacturing of drug candidates[125](index=125&type=chunk) - The company uses third-party manufacturers for all drug candidate materials and is not involved in the manufacturing process itself[125](index=125&type=chunk) - The company believes its procedures for hazardous material use, handling, storage, and disposal comply with environmental standards, but cannot completely eliminate the risk of accidental contamination or injury and has not purchased specific insurance to mitigate this risk[126](index=126&type=chunk) [Employees](index=26&type=section&id=Employees) As of December 31, 2021, Xenetic Biosciences had four full-time employees and utilizes external experts and consultants to supplement its professional team, supporting regulatory affairs, pharmacovigilance, process engineering, manufacturing, quality assurance, preclinical and clinical development, and business development - As of December 31, 2021, the company had **four full-time employees**, was not party to any collective bargaining agreements, and no employees were members of a union[127](index=127&type=chunk) - The company utilizes experts and independent consultants in regulatory affairs, pharmacovigilance, process engineering, manufacturing, quality assurance, preclinical and clinical development, accounting, and business development to supplement its professional team[128](index=128&type=chunk) [Competition](index=26&type=section&id=Competition) Xenetic Biosciences faces intense competition in the biopharmaceutical industry from large pharmaceutical and biotechnology companies, academic institutions, and research organizations, which often possess greater resources and more established products; particularly in oncology and immuno-oncology, the CAR T therapy market is highly competitive, with five approved CAR T therapies and over one hundred products in development, and in drug delivery platforms, the company also faces various competing technologies such as PEGylation - The biopharmaceutical industry is highly competitive, and the company faces competition from pharmaceutical and biotechnology companies, academic institutions, government agencies, and research organizations, many of which have greater resources and more established products[129](index=129&type=chunk) - In the field of XCART technology for B-cell lymphoma, the company will face competition from existing standard treatments and a large number of immunotherapies (including CAR T and TCR therapies) currently in development[130](index=130&type=chunk)[132](index=132&type=chunk) - Currently, there are **five approved CAR T therapies** in the U.S. and EU, with over **one hundred CAR T therapy products** in development, of which more than **35** are allogeneic and off-the-shelf cell therapies[131](index=131&type=chunk) - In drug delivery, the PolyXen platform faces competing platforms such as PEGylation, Fc-fusion, albumin-fusion, HESylation, PASylation, and CTP-fusion[133](index=133&type=chunk) [Available Information](index=27&type=section&id=Available%20Information) Xenetic Biosciences discloses company information through its official website, SEC filings (such as Form 10-K, 10-Q, 8-K), press releases, public conference calls, and webcasts - The company provides SEC filings such as annual reports, quarterly reports, and current reports through its website (www.xeneticbio.com)[134](index=134&type=chunk) - The company also discloses current information through its investor relations website, press releases, public conference calls, and webcasts[135](index=135&type=chunk) [ITEM 1A – RISK FACTORS](index=28&type=section&id=ITEM%201A%20%E2%80%93%20RISK%20FACTORS) Xenetic Biosciences faces multiple risks, including challenges related to financial condition and capital requirements (e.g., never profitable, need for substantial additional funding, equity dilution risk), uncertainties in the drug discovery and development process (e.g., reliance on XCART success, clinical trial delays or failures, market acceptance risk), and dependence on third-party collaborations, intellectual property protection challenges, intense market competition, loss of key personnel, accounting and regulatory changes, and information technology system failures - The company has never been profitable and may not achieve or maintain profitability in the future, requiring substantial additional funding to support drug development and commercialization, which could lead to equity dilution or operational restrictions[138](index=138&type=chunk)[139](index=139&type=chunk)[142](index=142&type=chunk)[147](index=147&type=chunk) - The company's business heavily relies on the success of the XCART platform, but drug development is an expensive, high-risk, and lengthy process, with potential for clinical trial delays or failures, and drug candidates may not receive regulatory approval or market acceptance[149](index=149&type=chunk)[150](index=150&type=chunk)[156](index=156&type=chunk)[160](index=160&type=chunk)[170](index=170&type=chunk) - The company relies on third parties for clinical research, manufacturing, and distribution, increasing risks of collaboration conflicts, poor third-party performance, and trade secret disclosure[192](index=192&type=chunk)[197](index=197&type=chunk)[209](index=209&type=chunk)[213](index=213&type=chunk) - Intellectual property protection faces challenges, including patents being challenged, invalidated, or circumvented by competitors, and difficulties in protecting intellectual property globally[215](index=215&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk) - The company operates in a highly competitive environment, facing challenges from competitors with greater resources and more established products, and the loss of key personnel could hinder the achievement of R&D objectives[240](index=240&type=chunk)[241](index=241&type=chunk) - Macroeconomic conditions (such as the COVID-19 pandemic and geopolitical events) may adversely affect the company's financial condition, operations, and cash flows[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk) [Risks Related to Our Financial Condition and Capital Requirements](index=28&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Capital%20Requirements) Xenetic Biosciences has never been profitable since its inception and expects to continue incurring operating losses; the company requires substantial additional funding to advance drug development and commercialization, but financing may lead to equity dilution, operational restrictions, or forced relinquishment of technology rights, and market volatility and geopolitical events may also affect financing capabilities - The company has never been profitable since its inception, with accumulated losses of approximately **$182.5 million** as of December 31, 2021, and expects to continue incurring significant operating losses in the future[138](index=138&type=chunk)[140](index=140&type=chunk) - The company requires substantial additional funding to initiate and complete clinical trials, obtain regulatory approvals, and commercialize drug candidates[142](index=142&type=chunk)[143](index=143&type=chunk) - Raising additional capital may result in dilution to stockholders' equity, restrict the company's operations, or require the company to relinquish rights to its technology or drug candidates[147](index=147&type=chunk)[148](index=148&type=chunk) - Market volatility (such as the COVID-19 pandemic) and geopolitical tensions (such as the Russian invasion of Ukraine) may adversely affect the company's ability to obtain necessary capital[144](index=144&type=chunk) [Risks Related to the Discovery and Development of our Pharmaceutical Products](index=30&type=section&id=Risks%20Related%20to%20the%20Discovery%20and%20Development%20of%20our%20Pharmaceutical%20Products) Xenetic Biosciences' business heavily relies on the success of XCART, but drug development is a highly speculative and risky process; the company faces risks of difficulty in patient recruitment, delays, or failures in clinical trials, potentially preventing demonstration of drug safety and efficacy, thereby hindering regulatory approval and commercialization; even if approved, drugs may face low market acceptance, smaller-than-expected market size, and insufficient reimbursement, and the company may also fail to identify or develop more commercially promising products or obtain orphan drug designation - The company's business heavily relies on the success of the XCART platform, whose clinical development, regulatory approval, and commercialization face significant challenges and uncertainties[149](index=149&type=chunk) - The company may face difficulties in recruiting sufficient patients for clinical studies, leading to delays or termination of clinical studies, thereby increasing costs and impacting product development[152](index=152&type=chunk)[153](index=153&type=chunk) - Clinical trials may fail to demonstrate the safety and efficacy of drug candidates, leading to delayed or denied regulatory approval, and even if approved, may be limited to narrow indications[156](index=156&type=chunk)[160](index=160&type=chunk)[164](index=164&type=chunk) - The commercial success of drugs depends on market acceptance by physicians, patients, and third-party payers; if market acceptance is insufficient, the company may not generate significant product revenue[170](index=170&type=chunk)[171](index=171&type=chunk) - The commercial potential of drug candidates is difficult to predict, and a smaller-than-expected market size could negatively impact revenue, operating results, and financial condition[173](index=173&type=chunk) - Failure to obtain or maintain adequate coverage and reimbursement will limit the company's ability to market products and generate revenue[174](index=174&type=chunk)[179](index=179&type=chunk) - The company may fail to successfully identify or discover additional drug products, or may allocate resources to projects with lower commercial potential[180](index=180&type=chunk)[181](index=181&type=chunk) - The company may not obtain orphan drug designation, or even if obtained, may not maintain the benefits such as market exclusivity[183](index=183&type=chunk)[184](index=184&type=chunk) - The market opportunity for drug candidates may be limited to patients unsuitable for or who have failed prior treatments, and the market size may be small[185](index=185&type=chunk)[186](index=186&type=chunk) - Healthcare legislative reform measures, including the Affordable Care Act and its future amendments, could have a significant adverse impact on the company's business and operating results[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk) [Risks Related to Our Reliance on Third-Parties](index=38&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third-Parties) Xenetic Biosciences heavily relies on third parties for clinical research, manufacturing, and distribution, which introduces multiple risks; conflicts of interest may arise with collaborators or strategic partners, leading to actions not aligned with the company's interests; third-party CROs and clinical research sites may perform unsatisfactorily, causing clinical trial delays or unreliable data; furthermore, the company lacks internal manufacturing, sales, marketing, and distribution capabilities, requiring substantial resource investment or reliance on partners, which could result in partners failing to fulfill obligations or terminating agreements, and reliance on third parties also increases the risk of trade secret disclosure - Conflicts of interest may arise with collaborators or strategic partners, leading to actions not aligned with the company's interests, or even the development of competing products or withdrawal of support[190](index=190&type=chunk)[191](index=191&type=chunk) - The company relies on CROs, clinical investigators, and clinical research sites for clinical research but has limited control over their performance; failure by third parties to comply with regulations or recruit sufficient patients may lead to clinical trial delays or termination[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) - Collaborators or strategic partners may adopt alternative technologies, or fail to utilize the company's technology to develop commercially viable products, thereby impacting the company's revenue and product development strategy[197](index=197&type=chunk) - The company may be unable to establish additional collaboration relationships on commercially reasonable terms, forcing it to alter development and commercialization plans or bear high development costs independently[198](index=198&type=chunk)[199](index=199&type=chunk)[201](index=201&type=chunk) - Future collaborations may require the company to relinquish significant rights and control over drug candidates or accept unfavorable terms[203](index=203&type=chunk) - The company lacks internal manufacturing, sales, marketing, or distribution capabilities and relies on third-party manufacturers and collaborators, which could lead to supply disruptions, regulatory non-compliance, or partner defaults[204](index=204&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) - Reliance on third parties requires the company to share trade secrets, increasing the likelihood of competitors discovering or trade secrets being misappropriated or disclosed[213](index=213&type=chunk)[214](index=214&type=chunk) [Risks Related to Our Intellectual Property](index=43&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Xenetic Biosciences' success highly depends on its intellectual property, but patents and trademarks may face challenges, invalidation, or cancellation risks; patent applications may not be approved or may have limited scope, and the company may face claims of infringing third-party intellectual property; failure to comply with licensing agreement obligations could result in the loss of important license rights; furthermore, changes in U.S. patent law may weaken patent value, and the company may face risks of employees disclosing trade secrets or disputes over patent ownership - The company's success and competitive ability heavily rely on its patents, proprietary formulations, and trademarks, but these intellectual properties may face challenges, invalidation, or cancellation risks[215](index=215&type=chunk)[216](index=216&type=chunk) - Patent applications may not be approved, or even if approved, their scope may be significantly narrowed before issuance, and the company may be unable to protect its intellectual property globally[217](index=217&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) - The company may infringe on others' intellectual property, leading to inability to continue developing, manufacturing, using, or selling related technologies or products, or requiring payment of substantial damages[224](index=224&type=chunk) - Failure to comply with obligations in licensing agreements or disruption of relationships with licensors may result in the company losing license rights critical to its business[225](index=225&type=chunk)[227](index=227&type=chunk) - Changes in U.S. patent law (such as the Leahy-Smith America Invents Act and Supreme Court rulings) may reduce patent value and increase uncertainty and costs in patent application and enforcement[233](index=233&type=chunk)[234](index=234&type=chunk) - The company may face claims of improper use or disclosure of third-party confidential information or former employers' trade secrets by employees, consultants, or independent contractors[236](index=236&type=chunk) - The company may face claims challenging the inventorship or ownership of patents or other intellectual property[237](index=237&type=chunk) - Failure to protect confidential information and trade secrets will harm the company's competitive position and business[238](index=238&type=chunk) - Obtaining and maintaining patent protection relies on compliance with various procedural, documentation, and fee payment requirements of government patent agencies; non-compliance may result in loss of patent rights[239](index=239&type=chunk) [Risks Related to Our Business Operations](index=49&type=section&id=Risks%20Related%20to%20Our%20Business%20Operations) Xenetic Biosciences operates in a highly competitive biopharmaceutical industry, facing challenges from competitors with greater resources and more established products; the company's future success depends on its ability to retain key executives and consultants and attract qualified personnel; potential new accounting standards or legislative actions may adversely affect future financial condition, and the company needs to expand its organization, where managing growth may lead to operational disruptions; additionally, complex commercial agreements with partners may result in disputes, litigation, or liabilities - The company operates in a highly competitive biopharmaceutical industry, facing challenges from competitors with greater resources and more established products, which may lead to decreased competitiveness or obsolescence of the company's products[240](index=240&type=chunk) - The company's future success depends on its ability to retain key executives and consultants and attract and retain qualified personnel; industry talent shortages and high turnover rates pose risks[241](index=241&type=chunk) - Potential new accounting standards or legislative actions may adversely affect the company's future financial condition or operating results and increase compliance costs[242](index=242&type=chunk)[243](index=243&type=chunk) - The company needs to expand its organization, and managing growth may lead to weak infrastructure, operational errors, lost business opportunities, and decreased employee productivity[245](index=245&type=chunk) - Complex commercial agreements entered into with partners may result in disputes, litigation, or liabilities, thereby adversely affecting the business, operating results, and financial condition[246](index=246&type=chunk)[247](index=247&type=chunk) [Risks Related to Our Common Stock](index=50&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) Xenetic Biosciences' common stock and warrants trade on the Nasdaq Capital Market, but an active, liquid, and orderly market may not develop; the market price of the company's securities may be highly volatile, influenced by various factors including clinical trial results, financing capabilities, regulatory decisions, competition, intellectual property disputes, changes in key personnel, litigation, and macroeconomic conditions; the rights of the company's preferred stock are senior to common stock, and future issuance of common stock may result in dilution; the company does not intend to pay dividends, and certain provisions in the company's charter and Nevada Revised Statutes may have anti-takeover effects - The company's common stock and warrants trade on the Nasdaq Capital Market, but an active, liquid, and orderly market may not develop, affecting investors' ability to sell securities[249](index=249&type=chunk) - The market price of the company's securities may be highly volatile, influenced by various factors including clinical trial results, financing capabilities, regulatory decisions, competition, intellectual property disputes, changes in key personnel, litigation, and macroeconomic conditions[250](index=250&type=chunk)[251](index=251&type=chunk) - The company's preferred stock (Series A and Series B) has liquidation and dividend rights senior to common stock and is convertible into common stock, which could dilute the interests of common stockholders[253](index=253&type=chunk)[255](index=255&type=chunk) - The company does not intend to pay dividends on common or preferred stock, so any return will be limited to appreciation in stock value[257](index=257&type=chunk) - Certain provisions in the company's charter and Nevada Revised Statutes may have anti-takeover effects, potentially delaying, deterring, or preventing acquisition attempts, thereby leading to a decrease in the market price of common stock[258](index=258&type=chunk) [General Risk Factors](index=53&type=section&id=General%20Risk%20Factors) Xenetic Biosciences' financial condition, operating results, and cash flows may be adversely affected by unfavorable U.S. or global economic conditions, including the COVID-19 pandemic and geopolitical events such as the Russian invasion of Ukraine; the company's ability to offset taxable income with future operating losses and federal and state NOL carryforwards may be limited; governments may implement price controls, affecting future profitability; employees, key researchers, consultants, and business partners may engage in misconduct; drug candidates may cause adverse side effects, leading to product liability claims; failure to comply with environmental, health, and safety laws and regulations may result in fines; non-cash expenses (such as equity-based payments) may adversely affect operating results; inconsistent interpretation of accounting standards may lead to restatements; information technology system failures or cybersecurity attacks may disrupt operations; as a smaller reporting company, its simplified reporting requirements may reduce the attractiveness of common stock to investors - The company's financial condition, operating results, business, and cash flows may be adversely affected by unfavorable U.S. or global economic conditions, including the COVID-19 pandemic and geopolitical events such as the Russian invasion of Ukraine[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk) - The company's ability to utilize future operating losses and federal and state NOL carryforwards to offset taxable income may be limited, which could result in income tax payments even with NOL carryforwards[263](index=263&type=chunk)[265](index=265&type=chunk) - Governments may implement price controls, particularly in foreign jurisdictions such as the European Union, which could adversely affect the pricing and profitability of the company's future products[268](index=268&type=chunk) - Employees, key researchers, consultants, and business partners may engage in misconduct, including non-compliance with regulatory standards and insider trading, potentially leading to regulatory sanctions and reputational damage[269](index=269&type=chunk) - The use of drug candidates may be associated with adverse side effects, leading to withdrawal of regulatory approval, product liability claims, and high costs[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) - Failure to comply with environmental, health, and safety laws and regulations may result in fines or costs, significantly adversely affecting business success[274](index=274&type=chunk) - Non-cash expenses (such as equity-based payments) may adversely affect the company's operating results[276](index=276&type=chunk) - Different interpretations of existing accounting standards and rules may lead the company to restate previously reported operating results[277](index=277&type=chunk) - Information technology system failures, including cybersecurity attacks or other data security incidents, could severely disrupt company operations[279](index=279&type=chunk)[280](index=280&type=chunk) - As a smaller reporting company, its simplified reporting requirements may reduce the attractiveness of common stock to investors, leading to an inactive trading market and stock price volatility[281](index=281&type=chunk) [ITEM 1B – UNRESOLVED STAFF COMMENTS](index=58&type=section&id=ITEM%201B%20%E2%80%93%20UNRESOLVED%20STAFF%20COMMENTS) This item is not applicable to the company, therefore there are no unresolved staff comments [ITEM 2 – PROPERTIES](index=58&type=section&id=ITEM%202%20%E2%80%93%20PROPERTIES) Xenetic Biosciences leases approximately 1,700 square feet of office space in Framingham, Massachusetts, as its headquarters, with the lease term extending until September 2022; additionally, the company leases 360 square feet of office space in Miami, Florida, with the lease term extended until November 30, 2022, and the company believes these spaces are sufficient for current needs - The company leases approximately **1,700 square feet** of office space in Framingham, Massachusetts, with the lease term extending until September 2022[283](index=283&type=chunk) - The company leases **360 square feet** of office space in Miami, Florida, with the lease term extended until November 30, 2022[284](index=284&type=chunk) - The company believes its existing office space is sufficient for current needs, and if necessary, additional space can be obtained nearby on reasonable commercial terms[283](index=283&type=chunk)[284](index=284&type=chunk) [ITEM 3 – LEGAL PROCEEDINGS](index=58&type=section&id=ITEM%203%20%E2%80%93%20LEGAL%20PROCEEDINGS) Xenetic Biosciences is occasionally involved in litigation and claims in the ordinary course of business; as of December 31, 2021, management believes the ultimate outcome of these ordinary matters will not have a material adverse effect on the company's business, but litigation itself may incur costs and divert management resources - The company may be involved in litigation and claims in the ordinary course of business from time to time[285](index=285&type=chunk) - As of December 31, 2021, management believes there are no legal matters that could have a material adverse effect on the company's financial condition, operating results, or cash flows[286](index=286&type=chunk) - Regardless of the outcome, litigation may adversely affect the company due to defense and settlement costs, diversion of management resources, and other factors[285](index=285&type=chunk) [ITEM 4 – MINE SAFETY DISCLOSURES](index=58&type=section&id=ITEM%204%20%E2%80%93%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company, therefore there are no mine safety disclosures [PART II](index=59&type=section&id=PART%20II) [ITEM 5 – MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=59&type=section&id=ITEM%205%20%E2%80%93%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Xenetic Biosciences' common stock and warrants trade on the Nasdaq Capital Market; as of March 18, 2022, the company had 424 common stockholders, has never declared or paid cash dividends, and plans to retain future earnings for business development; this section also references equity compensation plan information and notes no unregistered securities sales or equity security repurchases in 2021 - The company's common stock and common stock warrants are listed on the Nasdaq Capital Market under the symbols “XBIO” and “XBIOW”, respectively[290](index=290&type=chunk) - As of March 18, 2022, the company had **424 holders of record** of its common stock[291](index=291&type=chunk) - The company has never declared or paid any cash dividends on its common stock and plans to retain earnings for business development for the foreseeable future[292](index=292&type=chunk) - The company did not repurchase any of its outstanding common stock during the fourth quarter of 2021[295](index=295&type=chunk) [ITEM 6 – [RESERVED]](index=59&type=section&id=ITEM%206%20%E2%80%93%20%5BRESERVED%5D) This item is reserved [ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=59&type=section&id=ITEM%207%20%E2%80%93%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section discusses Xenetic Biosciences' business overview, critical accounting policies and estimates, impact of the COVID-19 pandemic, results of operations, liquidity and capital resources, and contractual obligations; the company focuses on XCART and PolyXen technologies, with 2021 revenue primarily from Takeda royalties and significantly increased R&D expenses; the company continues to incur losses, but a 2021 private placement enhanced liquidity, and existing funds are expected to support operations until Q2 2023 - The company focuses on XCART personalized CAR T platform technology and PolyXen drug delivery platform, with internal development efforts in 2021 primarily on XCART[297](index=297&type=chunk)[298](index=298&type=chunk)[299](index=299&type=chunk) - In 2021, the company's revenue primarily came from Takeda royalties, increasing by **165.6%** to **$1.2 million**[323](index=323&type=chunk) - R&D expenses increased by **82.7%** to **$3.2 million** in 2021, mainly due to increased investment in preclinical development of the XCART platform technology[324](index=324&type=chunk)[325](index=325&type=chunk) - The company incurred a net loss of approximately **$5.6 million** in 2021, a reduction from **$10.9 million** in 2020, but continues to incur losses, with accumulated losses of approximately **$182.5 million**[322](index=322&type=chunk)[332](index=332&type=chunk) - As of December 31, 2021, the company had approximately **$18.2 million in cash** and **$17.3 million in working capital**, primarily due to a **$11.5 million private placement** in July 2021[332](index=332&type=chunk)[333](index=333&type=chunk) - The company expects existing funds to support operations until the second quarter of 2023, but additional capital will be required long-term[334](index=334&type=chunk) [BUSINESS OVERVIEW](index=59&type=section&id=BUSINESS%20OVERVIEW) Xenetic Biosciences is a biopharmaceutical company focused on its XCART personalized CAR T platform technology for B-cell lymphoma treatment and leverages its PolyXen drug delivery platform with partners to develop next-generation biologics; the company currently has no approved drugs but receives ongoing royalty revenue from PolyXen technology licenses, with internal development in 2021 primarily focused on XCART - The company focuses on XCART personalized CAR T platform technology, designed to target patient and tumor-specific neoantigens, initially for the treatment of B-cell lymphoma[297](index=297&type=chunk) - The company leverages its PolyXen drug delivery platform through collaborations with biotechnology and pharmaceutical companies to extend drug half-life and improve pharmacological properties[298](index=298&type=chunk) - The company currently has no approved drugs for market but receives ongoing royalty revenue through PolyXen technology licensing agreements[299](index=299&type=chunk) - In 2021, the company's internal development efforts focused on advancing the XCART platform technology[299](index=299&type=chunk) [Critical Accounting Policies and Estimates](index=60&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines Xenetic Biosciences' critical accounting policies and estimates used in preparing financial statements, including revenue recognition, R&D expenses, equity-based compensation, and accounting for warrants and indefinite-lived intangible assets, which involve significant judgments and assumptions about future events and uncertainties that could lead to material differences between actual and estimated results - The company recognizes revenue in accordance with ASC Topic 606, involving five steps: identifying contracts, performance obligations, transaction price, allocating transaction price, and recognizing revenue, with judgment required for including milestones or variable consideration[303](index=303&type=chunk)[304](index=304&type=chunk) - Non-refundable upfront license fees and milestone payments, if they include future obligations, are recognized proportionally over the expected performance period; if future obligations are not significant, revenue is recognized upon technology delivery[305](index=305&type=chunk)[306](index=306&type=chunk) - R&D expenses are expensed as incurred, including compensation, facilities, preclinical development, clinical trials, and CRO fees; the company needs to estimate accrued R&D expenses and adjust based on service provision[308](index=308&type=chunk)[309](index=309&type=chunk) - Equity-based compensation expenses (including options and restricted stock units) are estimated at fair value using the Black-Scholes option pricing model and recognized on a straight-line basis over the vesting period[310](index=310&type=chunk)[311](index=311&type=chunk)[312](index=312&type=chunk) - Warrants are estimated at fair value using the Black-Scholes model and expensed over the service period or upon issuance; for warrants with performance targets, the company must judge the probability and timing of target achievement[313](index=313&type=chunk)[314](index=314&type=chunk) - Indefinite-lived intangible assets (such as IPR&D) are not amortized but are reviewed for impairment at least annually or when circumstances change; impairment losses are measured as the amount by which the asset's carrying value exceeds its fair value, with the valuation process being complex and highly sensitive[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk) [Effects of the COVID-19 Pandemic](index=64&type=section&id=Effects%20of%20the%20COVID-19%20Pandemic) The COVID-19 pandemic has caused significant volatility and uncertainty in the U.S. economy; although Xenetic Biosciences' operations were not materially affected in 2021, the company is still evaluating the pandemic's potential impact on future business, operations, and financial results, acknowledging its duration and severity remain uncertain - The COVID-19 pandemic has caused significant volatility, uncertainty, and economic disruption in the U.S. economy since March 2020[320](index=320&type=chunk) - Although the company's operations were not materially affected in 2021, it is still evaluating the pandemic's potential impact on future business, operations, and financial results[320](index=320&type=chunk) - The ultimate impact of the pandemic depends on its duration, severity, vaccination rates, and the emergence of new variants, all of which remain uncertain[320](index=320&type=chunk) [Results of Operations](index=64&type=section&id=Results%20of%20Operations) Xenetic Biosciences' operating results for fiscal year 2021 show significant revenue growth, primarily driven by increased Takeda royalty income; R&D expenses rose substantially due to XCART technology investments, but overall operating costs and expenses decreased due to the absence of asset impairment charges present in 2020, leading to a significant narrowing of both operating and net losses Comparison of Operating Results for 2021 vs. 2020 | Description | 2021 (USD) | 2020 (USD) | Change (USD) | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | **Revenue:** | | | | | | Royalty Revenue | $1,160,692 | $436,942 | $723,750 | 165.6% | | **Operating Costs and Expenses:** | | | | | | Research and Development Expenses | $(3,163,485) | $(1,731,406) | $1,432,079 | 82.7% | | General and Administrative Expenses | $(3,743,972) | $(3,400,071) | $343,901 | 10.1% | | Asset Impairment Charge | $– | $(9,243,128) | $(9,243,128) | (100.0)% | | **Total Operating Costs and Expenses** | **$(6,907,457)** | **$(14,374,605)** | **$(7,467,148)** | **(51.9)%** | | **Operating Loss** | **$(5,746,765)** | **$(13,937,663)** | **$(8,190,898)** | **(58.8)%** | | **Other Income (Expense):** | | | | | | Other Income (Expense) | $1,119 | $(492) | $1,611 | 327.4% | | Interest Income, Net | $100,467 | $126,171 | $(25,704) | (20.4)% | | **Loss Before Income Taxes** | **$(5,645,179)** | **$(13,811,984)** | **$(8,166,805)** | **(59.1)%** | | Income Tax Benefit | $– | $2,918,518 | $(2,918,518) | (100.0)% | | **Net Loss** | **$(5,645,179)** | **$(10,893,466)** | **$(5,248,287)** | **(48.2)%** | [322](index=322&type=chunk) - Royalty revenue increased by **165.6%** to **$1.2 million** in 2021, primarily due to the continued global rollout of Takeda's re-licensed products[323](index=323&type=chunk) - R&D expenses increased by **82.7%** to **$3.2 million** in 2021, mainly due to increased investment in preclinical development of the XCART platform technology[324](index=324&type=chunk)[325](index=325&type=chunk) - General and administrative expenses increased by **10.1%** to **$3.7 million** in 2021, primarily driven by higher employee-related costs, consulting, and insurance fees, partially offset by reduced legal and equity-based compensation expenses[326](index=326&type=chunk) - There was no asset impairment charge in 2021, compared to **$9.2 million** in 2020, leading to a significant **51.9

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ Commission File Number: 001-37937 XENETIC BIOSCIENCES, INC. (Exact name of registrant as specified in its charter) Nev ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ Commission File Number: 001-37937 XENETIC BIOSCIENCES, INC. (Exact name of registrant as specified in its charter) Nevada 4 ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements, management's discussion, market risk, and internal controls [Item 1 - Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201%20-%20Condensed%20Consolidated%20Financial%20Statements) This section presents the company's unaudited condensed consolidated financial statements for the quarter, along with detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20March%2031%2C%202021%20%28Unaudited%29%20and%20December%2031%2C%202020) This section presents the company's financial position, detailing assets, liabilities, and equity at quarter-end and year-end - The company's total assets decreased from **$13.18 million** at December 31, 2020, to **$11.76 million** at March 31, 2021, primarily driven by a decrease in cash. Total liabilities also decreased, resulting in a reduction in total stockholders' equity[10](index=10&type=chunk) Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2021 (USD) | December 31, 2020 (USD) | | :--------------------------------- | :------------- | :---------------- | | Cash | $10,008,364 | $11,527,552 | | Total current assets | $11,036,113 | $12,369,510 | | Total assets | $11,761,622 | $13,179,495 | | Total current liabilities | $798,191 | $936,928 | | Total liabilities | $815,759 | $963,971 | | Total stockholders' equity | $10,945,863 | $12,215,524 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20%28Unaudited%29%20for%20the%20three%20months%20ended%20March%2031%2C%202021%20and%202020) This section presents the company's financial performance, including revenues, expenses, and net loss, for the three months ended March 31, 2021, and 2020 - For the three months ended March 31, 2021, the company reported a net loss of **$1.35 million**, an increase from **$1.18 million** in the prior year, primarily due to higher research and development expenses and a decrease in interest income, despite a significant increase in royalty revenue[12](index=12&type=chunk) Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric | 2021 (USD) | 2020 (USD) | Change (USD) | % Change | | :--------------------------------- | :----------- | :----------- | :----------- | :------- | | Royalty revenue | $191,216 | $56,749 | $134,467 | 237.0% | | Research and development expenses | $(629,729) | $(359,651) | $(270,078) | 75.1% | | General and administrative expenses | $(930,578) | $(927,880) | $(2,698) | 0.3% | | Total operating costs and expenses | $(1,560,307) | $(1,287,531) | $(272,776) | 21.2% | | Loss from operations | $(1,369,091) | $(1,230,782) | $(138,309) | 11.2% | | Net loss | $(1,345,945) | $(1,179,429) | $(166,516) | 14.1% | | Basic and diluted loss per share | $(0.15) | $(0.19) | $0.04 | -21.1% | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Unaudited%29%20for%20the%20three%20months%20ended%20March%2031%2C%202021%20and%202020) This section details changes in the company's stockholders' equity, including net loss and share-based expenses, for the three months ended March 31, 2021, and 2020 - Total stockholders' equity decreased from **$12.22 million** at January 1, 2021, to **$10.95 million** at March 31, 2021, primarily due to the net loss incurred during the period, partially offset by share-based expense[15](index=15&type=chunk) Stockholders' Equity Changes (Three Months Ended March 31, 2021) | Item | Amount (USD) | | :--------------------------------- | :------------- | | Balance as of January 1, 2021 | $12,215,524 | | Share-based expense | $76,284 | | Exercise of purchase warrants | $0 | | Net loss | $(1,345,945) | | Balance as of March 31, 2021 | $10,945,863 | Stockholders' Equity Changes (Three Months Ended March 31, 2020) | Item | Amount (USD) | | :--------------------------------- | :------------- | | Balance as of January 1, 2020 | $17,213,251 | | Share-based expense | $165,598 | | Exercise of purchase warrants | $0 | | Net loss | $(1,179,429) | | Balance as of March 31, 2020 | $16,199,420 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29%20for%20the%20three%20months%20ended%20March%2031%2C%202021%20and%202020) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2021, and 2020 - The company experienced a net cash outflow from operating activities of **$1.52 million** for the three months ended March 31, 2021, an increase from **$1.00 million** in the prior year, primarily driven by the net loss and changes in operating assets and liabilities[21](index=21&type=chunk) Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31) | Metric | 2021 (USD) | 2020 (USD) | | :--------------------------------- | :----------- | :----------- | | Net loss | $(1,345,945) | $(1,179,429) | | Net cash used in operating activities | $(1,519,188) | $(1,000,720) | | Net change in cash | $(1,519,188) | $(1,000,720) | | Cash at beginning of period | $11,527,552 | $10,367,920 | | Cash at end of period | $10,008,364 | $9,367,200 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) These notes provide detailed disclosures on the company's background, financial health, accounting policies, strategic collaborations, and other financial instruments, offering context to the condensed consolidated financial statements [Note 1. The Company](index=9&type=section&id=1.%20The%20Company) This note describes Xenetic Biosciences' core business, including its key technologies and financial viability as a going concern - Xenetic Biosciences is a biopharmaceutical company focused on two core technologies: XCART, a personalized CAR T platform for B-cell lymphomas, and PolyXen, a drug delivery platform for protein/peptide therapeutics[24](index=24&type=chunk)[25](index=25&type=chunk) - The company has incurred substantial losses since inception and expects continued operating losses, raising substantial doubt about its ability to continue as a going concern. Existing financing from a December 2020 offering is expected to fund operations through May 2022, but additional long-term capital will be required[28](index=28&type=chunk) [Note 2. Impact of COVID-19](index=10&type=section&id=2.%20Impact%20of%20COVID-19) This note assesses the impact of the COVID-19 pandemic on the company's operations and financial results - The COVID-19 pandemic has not significantly impacted the company's operations as of March 31, 2021, but the future impact on business, operations, and financial results remains uncertain and unpredictable[30](index=30&type=chunk) [Note 3. Summary of Significant Accounting Policies](index=10&type=section&id=3.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and policies applied in preparing the condensed consolidated interim financial statements - The condensed consolidated interim financial statements are prepared in accordance with SEC rules, including normal and recurring adjustments, and should be read with the Annual Report on Form 10-K for the year ended December 31, 2020[31](index=31&type=chunk) - Basic and diluted net loss per share are the same due to the company's net loss position, as potentially dilutive securities would be anti-dilutive[34](index=34&type=chunk) - The company is evaluating ASU 2016-13 (Financial Instruments - Credit Losses), effective for smaller reporting public entities for fiscal years beginning after December 15, 2022, but does not anticipate a material effect on its consolidated financial statements[35](index=35&type=chunk) [Note 4. Significant Strategic Collaborations](index=11&type=section&id=4.%20Significant%20Strategic%20Collaborations) This note details the company's key collaborations, including royalty revenue from a sublicense and funding commitments for preclinical development Royalty Revenue from Takeda Sublicense | Period | Royalty Revenue (USD) | | :--------------------------------- | :-------------- | | Three months ended March 31, 2021 | ~$0.2 million | | Three months ended March 31, 2020 | ~$0.1 million | - The company has committed up to **$3.0 million** to Scripps Research under a Research Funding and Option Agreement to advance XCART preclinical development, with **$1.2 million** paid through March 31, 2021[37](index=37&type=chunk) [Note 5. Property and Equipment, net](index=11&type=section&id=5.%20Property%20and%20Equipment%2C%20net) This note provides information on the company's property and equipment, including net book value and depreciation expense Property and Equipment, Net | Category | March 31, 2021 (USD) | December 31, 2020 (USD) | | :--------------------------------- | :------------- | :---------------- | | Property and equipment – net | $0 | $0 | - No depreciation expense was recorded for the three months ended March 31, 2021, compared to approximately **$1,000** for the same period in 2020[38](index=38&type=chunk) [Note 6. Indefinite-Lived Intangible Assets](index=12&type=section&id=6.%20Indefinite-Lived%20Intangible%20Assets) This note discusses the impairment of the company's indefinite-lived intangible asset, OncoHist, and the reasons behind it - The indefinite-lived intangible asset, OncoHist (in-process research and development), was fully impaired in the third quarter of 2020, resulting in a **$9.2 million** charge[40](index=40&type=chunk) - The impairment was due to management's decision to indefinitely delay further development and not support the underlying intellectual property, along with the failure to sell or license the IPR&D and a reduction in market capitalization[40](index=40&type=chunk) [Note 7. Fair Value Measurements](index=12&type=section&id=7.%20Fair%20Value%20Measurements) This note explains the fair value measurement of the company's financial instruments and their classification within the fair value hierarchy - The carrying amounts of the company's financial instruments approximate fair value due to their short maturities[41](index=41&type=chunk) - No financial instruments were classified as Level 3 in the fair value hierarchy during the three months ended March 31, 2021 and 2020[41](index=41&type=chunk) [Note 8. Stockholders' Equity](index=12&type=section&id=8.%20Stockholders%27%20Equity) This note provides details on the company's stockholders' equity, including outstanding warrants and their exercise or expiration Outstanding Warrants as of March 31, 2021 | Type of Warrant | Shares | Average Weighted Exercise Price (USD) | Expiration Dates | | :--------------------------------- | :----- | :------------------------------ | :--------------- | | Collaboration warrants | 30,307 | $124.74 | April 2021 - May 2021 | | Debt and equity financing warrants | 347,505 | $36.74 | July 2021 - September 2026 | - During the three months ended March 31, 2021, approximately **1,485** debt and equity financing warrants were exercised on a cashless basis, and approximately **29,000** debt and equity warrants expired[43](index=43&type=chunk) [Note 9. Share-Based Expense](index=13&type=section&id=9.%20Share-Based%20Expense) This note details the share-based compensation expense recognized by the company for the three months ended March 31, 2021, and 2020 Share-Based Expense (Three Months Ended March 31) | Category | 2021 (USD) | 2020 (USD) | | :--------------------------------- | :--------- | :--------- | | Research and development expenses | $10,710 | $13,358 | | General and administrative expenses | $65,574 | $152,240 | | Total share-based expense | $76,284 | $165,598 | - The company granted **200,000** employee stock option awards during the three months ended March 31, 2021, with a weighted average grant date fair value of **$2.34** per option share[45](index=45&type=chunk) [Note 10. Income Taxes](index=13&type=section&id=10.%20Income%20Taxes) This note explains the company's income tax position, including the absence of a tax provision due to losses and the valuation allowance against deferred tax assets - No provision for income taxes was recorded for the three months ended March 31, 2021 and 2020, as the company incurred losses in both periods[47](index=47&type=chunk) Valuation Allowance Against Deferred Tax Assets | Date | Valuation Allowance (USD) | | :--------------------------------- | :------------------ | | March 31, 2021 | ~$29.9 million | | December 31, 2020 | ~$29.6 million | [Note 11. Commitments](index=14&type=section&id=11.%20Commitments) This note provides details on the company's contractual commitments, specifically related to operating lease liabilities Operating Lease Information (March 31, 2021) | Item | Amount (USD) | | :--------------------------------- | :------- | | Cash paid for lease liabilities | $8,413 | | Right-of-use assets - ST | $36,545 | | Right-of-use assets - LT | $17,568 | | Current lease liabilities | $36,545 | | Non-current lease liabilities | $17,568 | [Note 12. Related Party Transactions](index=14&type=section&id=12.%20Related%20Party%20Transactions) This note discloses the company's ongoing agreements and financial transactions with related parties, including interest income and development expenses - The company has ongoing related party agreements with Serum Institute, Pharmsynthez, and SynBio[51](index=51&type=chunk) Interest Income from Pharmsynthez Loan | Period | Interest Income (USD) | | :--------------------------------- | :-------------- | | Three months ended March 31, 2021 | ~$12,000 | | Three months ended March 31, 2020 | ~$13,000 | - Under a Master Services Agreement with Pharmsynthez for XCART technology development, approximately **$0.1 million** was expensed in Q1 2021, and **$0.1 million** in milestone payments have been made. The total estimated cost for the Stage 1 study under the Work Order is approximately **$1.8 million**[55](index=55&type=chunk)[57](index=57&type=chunk) [Note 13. Subsequent Events](index=15&type=section&id=13.%20Subsequent%20Events) This note confirms that no subsequent events requiring disclosure were identified up to the financial statement issuance date - No subsequent events requiring recognition or disclosure were identified through the date of financial statement issuance[58](index=58&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202%20-%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2021, highlighting key financial changes, business developments, and liquidity outlook, along with forward-looking statements and risk factors [Cautionary Note Regarding Forward-Looking Statements](index=16&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This note advises readers that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ - The report contains forward-looking statements regarding future results, business strategy, drug candidate development (including XCART), clinical trials, regulatory approvals, and collaborations[60](index=60&type=chunk) - These statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from expectations, including factors discussed in the "Risk Factors" section[61](index=61&type=chunk)[64](index=64&type=chunk) [Business Overview](index=17&type=section&id=BUSINESS%20OVERVIEW) This section provides an overview of the company's strategic focus, including its core technologies and the status of its key development programs - The company's primary focus is on advancing XCART, a personalized CAR T platform technology for B-cell lymphomas, through preclinical efforts in collaboration with Scripps Research and PJSC Pharmsynthez[65](index=65&type=chunk) - Xenetic also leverages its PolyXen drug delivery platform, which uses polysialic acid to prolong drug half-life and improve pharmacological properties, generating ongoing royalties from a license to an industry partner[66](index=66&type=chunk)[67](index=67&type=chunk) - Development of the XBIO-101 oncology therapeutic for endometrial cancer has been suspended due to patient enrollment and retention challenges in its Phase 2 trial[68](index=68&type=chunk)[69](index=69&type=chunk) [Critical Accounting Estimates](index=18&type=section&id=Critical%20Accounting%20Estimates) This section confirms that there have been no material changes to the company's critical accounting estimates since the last annual report - No material changes to critical accounting estimates have occurred since those described in the Annual Report on Form 10-K for the year ended December 31, 2020[71](index=71&type=chunk) [Effects of the COVID-19 Pandemic](index=18&type=section&id=Effects%20of%20the%20COVID-19%20Pandemic) This section discusses the limited direct impact of the COVID-19 pandemic on company operations during the period, while acknowledging future uncertainties - Company operations were not materially affected by the COVID-19 pandemic during the three months ended March 31, 2021[72](index=72&type=chunk) - The ultimate impact of the COVID-19 pandemic on financial condition and results of operations is uncertain and dependent on future developments, with potential for material adverse effects if the global response escalates or is ineffective[72](index=72&type=chunk) [Results of Operations](index=19&type=section&id=RESULTS%20OF%20OPERATIONS) This section details the financial performance for the three months ended March 31, 2021, compared to the same period in 2020, showing a significant increase in royalty revenue but also a rise in research and development expenses, leading to an increased net loss [Revenue](index=19&type=section&id=Revenue) This section analyzes the company's revenue performance, primarily focusing on the increase in royalty revenue for the period Revenue Performance (Three Months Ended March 31) | Metric | 2021 (USD) | 2020 (USD) | Change (USD) | % Change | | :--------------------------------- | :----------- | :----------- | :----------- | :------- | | Royalty revenue | $191,216 | $56,749 | $134,467 | 237.0% | - The increase in royalty revenue is attributed to the sublicensee's continued worldwide launch of the product related to the PolyXen technology[74](index=74&type=chunk) [Research and Development Expenses](index=19&type=section&id=Research%20and%20Development%20Expenses) This section examines the changes in research and development expenses, highlighting increased spending on the XCART platform Research and Development Expenses (Three Months Ended March 31) | Category of Expense | 2021 (USD) | 2020 (USD) | Change (USD) | % Change | | :--------------------------------- | :--------- | :--------- | :--------- | :------- | | Outside services and contract research organizations | $452,625 | $223,622 | $229,003 | 102.4% | | Salaries and wages | $130,047 | $89,842 | $40,205 | 44.7% | | Share-based expense | $10,710 | $13,358 | $(2,648) | -19.8% | | Other | $36,347 | $32,829 | $3,518 | 10.7% | | Total research and development expense | $629,729 | $359,651 | $270,078 | 75.1% | - The increase in R&D was primarily driven by higher spending on the XCART platform technology's preclinical development, partially offset by decreased spending on the XBIO-101 Phase 2 clinical trial, which was closed in Q1 2021[76](index=76&type=chunk) [General and Administrative Expenses](index=20&type=section&id=General%20and%20Administrative%20Expenses) This section reviews the general and administrative expenses, noting stable costs due to offsetting increases and decreases in various categories General and Administrative Expenses (Three Months Ended March 31) | Metric | 2021 (USD) | 2020 (USD) | Change (USD) | % Change | | :--------------------------------- | :--------- | :--------- | :--------- | :------- | | General and administrative | $(930,578) | $(927,880) | $(2,698) | 0.3% | - Increases in consulting and employee-related costs were substantially offset by lower share-based expense and legal and accounting costs, resulting in stable G&A expenses[77](index=77&type=chunk) [Other Income (Expense)](index=20&type=section&id=Other%20Income%20%28Expense%29) This section analyzes the changes in other income and expense, primarily attributing the increase to foreign currency exchange rates Other Income (Expense) (Three Months Ended March 31) | Metric | 2021 (USD) | 2020 (USD) | Change (USD) | % Change | | :--------------------------------- | :------- | :------- | :------- | :------- | | Other income (expense) | $884 | $(134) | $1,018 | 759.7% | - The increase in other income was primarily related to changes in foreign currency exchange rates[78](index=78&type=chunk) [Interest Income](index=20&type=section&id=Interest%20Income) This section discusses the decrease in interest income, primarily due to lower interest rates on invested funds Interest Income (Three Months Ended March 31) | Metric | 2021 (USD) | 2020 (USD) | Change (USD) | % Change | | :--------------------------------- | :------- | :------- | :------- | :------- | | Interest income | $22,262 | $51,487 | $(29,225) | -56.8% | - The decrease in interest income was primarily due to lower interest rates on invested funds[79](index=79&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's financial liquidity, capital resources, and ability to fund operations, highlighting the net loss and need for additional capital - The company reported a net loss of **$1.3 million** and an accumulated deficit of **$178.2 million** as of March 31, 2021. Working capital decreased by **$1.2 million** to **$10.2 million**[80](index=80&type=chunk) - While current resources are expected to fund operations through May 2022, the company anticipates needing additional long-term capital and faces substantial doubt about its ability to continue as a going concern[82](index=82&type=chunk) [Cash Flows from Operating Activities](index=21&type=section&id=Cash%20Flows%20from%20Operating%20Activities) This section analyzes the cash flows generated or used in operating activities, primarily driven by net loss and non-cash charges Cash Flows from Operating Activities (Three Months Ended March 31) | Metric | 2021 (USD) | 2020 (USD) | | :--------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(1,519,188) | $(1,000,720) | - The increase in cash used in operating activities was primarily due to the net loss for the period, partially offset by non-cash charges associated with share-based expense[83](index=83&type=chunk) [Cash Flows from Investing Activities](index=21&type=section&id=Cash%20Flows%20from%20Investing%20Activities) This section reports on the absence of cash flows from investing activities for the current and prior periods - No cash flows from investing activities were reported for the three months ended March 31, 2021, and 2020[84](index=84&type=chunk) [Cash Flow from Financing Activities](index=21&type=section&id=Cash%20Flow%20from%20Financing%20Activities) This section indicates that there were no cash flows from financing activities during the reporting periods - No cash flows from financing activities were reported for the three months ended March 31, 2021, and 2020[85](index=85&type=chunk) [Contractual Obligations and Commitments](index=21&type=section&id=Contractual%20Obligations%20and%20Commitments) This section confirms no material changes to the company's contractual obligations and commitments since the last annual report - No material changes to contractual obligations and commitments since the Annual Report on Form 10-K for the year ended December 31, 2020[86](index=86&type=chunk) [Off Balance Sheet Arrangements](index=21&type=section&id=Off%20Balance%20Sheet%20Arrangements) This section states that the company has no off-balance sheet financing arrangements with a material financial effect - The company does not have any off-balance sheet financing arrangements that are likely to have a material effect on its financial condition or results of operations[87](index=87&type=chunk) [Recent Accounting Standards](index=21&type=section&id=Recent%20Accounting%20Standards) This section refers to the annual report for a discussion of recent accounting standards - Refer to Note 3 in the Annual Report on Form 10-K for the year ended December 31, 2020, for a discussion of recent accounting standards[88](index=88&type=chunk) [Critical Accounting Policies and Estimates](index=21&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no material changes in critical accounting policies since the last annual report - No material changes in critical accounting policies from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[89](index=89&type=chunk) [Item 3 - Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is not required to provide information on quantitative and qualitative disclosures about market risk as it qualifies as a "smaller reporting company" - The company is exempt from providing quantitative and qualitative disclosures about market risk because it is a "smaller reporting company"[90](index=90&type=chunk) [Item 4 - Controls and Procedures](index=22&type=section&id=Item%204%20-%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021, and there were no material changes in internal control over financial reporting during the period [Evaluation of Disclosure Controls and Procedures](index=22&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports management's conclusion on the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021[93](index=93&type=chunk) [Changes in Internal Control over Financial Reporting](index=22&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section confirms that no material changes occurred in the company's internal control over financial reporting during the period - No material changes in internal control over financial reporting occurred during the period covered by this report[94](index=94&type=chunk) [PART II - OTHER INFORMATION](index=23&type=section&id=PART%20II%20OTHER%20INFORMATION) This section provides additional information not covered in Part I, including legal proceedings, risk factors, equity sales, and exhibits [Item 1 - Legal Proceedings](index=23&type=section&id=Item%201%20-%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings, nor are any threatened, and does not expect any incidental legal proceedings to have a material effect on its financial condition or results of operations - The company is not currently subject to any material legal proceedings, nor are any threatened[97](index=97&type=chunk) - Incidental legal proceedings are not expected to have a material effect on financial condition or results of operations[97](index=97&type=chunk) [Item 1A - Risk Factors](index=23&type=section&id=Item%201A%20-%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to risk factors since the Annual Report on Form 10-K for the year ended December 31, 2020[98](index=98&type=chunk) [Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202%20-%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds to report[99](index=99&type=chunk) [Item 3 - Defaults Upon Senior Securities](index=23&type=section&id=Item%203%20-%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report during the period - No defaults upon senior securities to report[100](index=100&type=chunk) [Item 4 - Mine Safety Disclosures](index=23&type=section&id=Item%204%20-%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine safety disclosures are not applicable to the company[101](index=101&type=chunk) [Item 5 - Other Information](index=23&type=section&id=Item%205%20-%20Other%20Information) There is no other information to report under this item - No other information to report[102](index=102&type=chunk) [Item 6 - Exhibits](index=24&type=section&id=Item%206%20-%20Exhibits) This section lists the exhibits filed as part of the report, including certifications under the Sarbanes-Oxley Act and Inline XBRL documents - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[105](index=105&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are filed as part of the report[105](index=105&type=chunk) [Signatures](index=25&type=section&id=Signatures) This section provides the official signatures of the company's executive officers, certifying the report's contents - The report is signed by Jeffrey F. Eisenberg, Chief Executive Officer, and James Parslow, Chief Financial Officer, on May 11, 2021[110](index=110&type=chunk)

PART I [ITEM 1 – BUSINESS](index=8&type=section&id=ITEM%201%20%E2%80%93%20BUSINESS) Xenetic Biosciences, Inc. is a biopharmaceutical company focused on advancing its personalized CAR T platform technology, XCART, for B-cell lymphomas, while also leveraging its PolyXen drug delivery platform through partnerships [Overview](index=8&type=section&id=Overview) Xenetic Biosciences is a biopharmaceutical company focused on XCART, a personalized CAR T platform technology targeting patient- and tumor-specific neoantigens for B-cell lymphomas[24](index=24&type=chunk) - The XCART technology, developed by Scripps Research and IBCH, aims to enhance the safety and efficacy of cell therapy for B-cell lymphomas by generating patient- and tumor-specific CAR T cells[24](index=24&type=chunk)[27](index=27&type=chunk) - The company also utilizes its proprietary PolyXen drug delivery platform to prolong drug half-life and improve pharmacological properties, partnering with other companies for its application[29](index=29&type=chunk)[30](index=30&type=chunk) - Development of XBIO-101 for progestin-resistant endometrial cancer has been suspended due to patient enrollment and retention challenges in its Phase 2 trial[31](index=31&type=chunk)[32](index=32&type=chunk) [Our Strategy](index=9&type=section&id=Our%20Strategy) The company's primary strategy is to advance the XCART technology through regulatory approval and commercialization for B-cell Lymphomas, while also seeking industry collaborations for other uses and indications - Xenetic plans to opportunistically advance its PolyXen platform through collaborative out-license arrangements to generate shareholder value and working capital for XCART development[35](index=35&type=chunk) - The company intends to pursue orphan drug designations and accelerated approval pathways for relevant oncology indications in the U.S. and Europe[36](index=36&type=chunk) [Business Developments](index=10&type=section&id=Business%20Developments) Key business developments in 2020 included a research funding agreement with Scripps Research, a Master Services Agreement with Pharmsynthez for XCART development, and a registered direct offering to increase capital - On May 15, 2020, Xenetic entered into a Research Funding and Option Agreement with Scripps Research, committing up to **$3.0 million** to fund preclinical development of XCART over 27 months[38](index=38&type=chunk) - On June 12, 2020, a Master Services Agreement (MSA) was signed with Pharmsynthez to advance XCART development for B-cell malignancies, with an estimated total cost of approximately **$1.8 million** for a Stage 1 study and potential milestone payments up to **$1,050,000**[39](index=39&type=chunk)[40](index=40&type=chunk) - On December 4, 2020, shareholders approved an increase in authorized Common Stock to **50,000,000 shares**[42](index=42&type=chunk) - On December 10, 2020, the company completed a registered direct offering of **2,448,980 shares** of Common Stock at **$2.45 per share**, generating approximately **$6.0 million** in gross proceeds[43](index=43&type=chunk) [Our Technology and Drug Candidates](index=11&type=section&id=Our%20Technology%20and%20Drug%20Candidates) The company's patent portfolio covers five core proprietary technologies, with a primary focus on oncology drugs and future development anticipated solely on the XCART platform - The company's patent portfolio spans five core proprietary technologies: XCART, XBIO-101, PolyXen, OncoHist, and ImuXen, with a primary focus on oncology drugs[44](index=44&type=chunk) - In 2020, internal development efforts were limited to winding down the XBIO-101 Phase 2 trial and preliminary XCART development, with future focus anticipated solely on XCART[45](index=45&type=chunk) - XCART is a personalized CAR T platform targeting patient-specific tumor neoantigens for B-cell lymphomas, aiming for enhanced safety and efficacy with limited off-tumor toxicities[45](index=45&type=chunk) - PolyXen is a drug delivery platform using polysialic acid (PSA) to extend drug circulation time and improve pharmacological properties[46](index=46&type=chunk) - OncoHist is a therapeutic platform utilizing modified human histone H1.3 for targeted cell apoptosis across various cancer indications[46](index=46&type=chunk) - ImuXen is a liposomal co-entrapment encapsulation technology designed to maximize cell and immune system-mediated responses for vaccines[46](index=46&type=chunk) [Research, Outside Services and Collaborations](index=12&type=section&id=Research%2C%20Outside%20Services%20and%20Collaborations) The company relies on third-party contract manufacturers, CROs, and strategic collaborations for pipeline development, as it lacks in-house research facilities - The company relies on contract manufacturers, CROs, and strategic collaborations (Pharmsynthez/SynBio, Serum Institute, Takeda) for pipeline development, as it lacks in-house research facilities[47](index=47&type=chunk)[49](index=49&type=chunk) - Xenetic expects to collect milestone payments and royalties from collaborations if drugs are successfully developed and marketed, though no near-term milestone or royalty payments are anticipated, except for ongoing royalties from Takeda and potential royalties from SynBio[48](index=48&type=chunk) [Our Drug Candidate Pipeline](index=12&type=section&id=Our%20Drug%20Candidate%20Pipeline) The company's pipeline includes XCART for B-cell Non-Hodgkin lymphomas and ErepoXen, a PolyXen platform drug, with collaborators advancing its clinical development in various territories - XCART is a personalized CAR T cell platform targeting patient-specific tumor neoantigens, with initial focus on B-cell Non-Hodgkin lymphomas, an estimated **$5 billion+** annual global market opportunity[50](index=50&type=chunk)[51](index=51&type=chunk) - ErepoXen (polysialylated erythropoietin, PSA-EPO) uses the PolyXen platform for anemia in CKD patients, designed to extend half-life. Clinical development is not pursued internally, but out-license opportunities are entertained[52](index=52&type=chunk) - SynBio received positive Phase II(b)/III clinical trial data for ErepoXen (Epolong) in Russia in December 2020 and filed for registration, expecting production by Q1 2022[54](index=54&type=chunk) - Serum Institute completed Phase I and Phase II safety trials for ErepoXen in **95 human subjects** with no significant drug-related adverse events, and may leverage SynBio's data for a Phase III waiver in India[55](index=55&type=chunk)[56](index=56&type=chunk) - Collaborators' preclinical and clinical data from licensed territories can be utilized by Xenetic for decision-making regarding development and commercialization in major markets, particularly for PolyXen in orphan oncology indications[57](index=57&type=chunk) [Significant Collaborations and Strategic Arrangements](index=14&type=section&id=Significant%20Collaborations%20and%20Strategic%20Arrangements) Xenetic maintains key collaborations with Takeda, Pharmsynthez (SynBio), and Serum Institute, involving licensing agreements, research funding, and royalty payments for its technology platforms - Takeda has an exclusive research, development, and license agreement for polysialylated blood coagulation factors using PolyXen technology. Takeda terminated SHP656 development in 2017 but commenced a new, undisclosed internal project[58](index=58&type=chunk)[59](index=59&type=chunk) - Under a 2017 Sublicense Agreement, Takeda paid Xenetic a one-time **$7.5 million** and agreed to single-digit royalty payments on net sales of Covered Products, which commenced in late 2019[60](index=60&type=chunk) - SynBio (a Pharmsynthez subsidiary) has an exclusive license to develop and commercialize drug candidates using Xenetic's PolyXen, OncoHist, and ImuXen platforms in Russia and CIS, with Xenetic retaining rights to use generated preclinical/clinical data outside these markets[61](index=61&type=chunk)[65](index=65&type=chunk) - Pharmsynthez has a collaborative R&D license for six drug candidates based on PolyXen and ImuXen in Russia/CIS, with Xenetic having rights to use preclinical/clinical data outside these regions[66](index=66&type=chunk)[68](index=68&type=chunk) - Pharmsynthez (directly and indirectly through SynBio) held approximately **5.1%** of Xenetic's outstanding Common Stock as of December 31, 2020, and also holds preferred stock and warrants[69](index=69&type=chunk) - In June 2020, Xenetic and Pharmsynthez entered into an MSA and Work Order to advance XCART development for B-cell malignancies, superseding a prior SRA[70](index=70&type=chunk) - A **$500,000** loan agreement with Pharmsynthez from Q4 2019 was extended to January 2022, with specific repayment terms for principal and interest[72](index=72&type=chunk) - Serum Institute has an exclusive license to use PolyXen technology for PSA-EPO development in certain territories, responsible for all preclinical and clinical trials at its own expense, with royalty payments based on net sales[73](index=73&type=chunk) [Our Intellectual Property](index=16&type=section&id=Our%20Intellectual%20Property) Xenetic protects its proprietary technology through patents, trade secrets, and know-how, focusing on major pharmaceutical markets globally - Xenetic protects its proprietary technology through patents, trade secrets, and know-how, with a focus on major pharmaceutical markets globally[74](index=74&type=chunk)[77](index=77&type=chunk) - As of February 3, 2021, the company directly or indirectly owns over **170 U.S. and international patents** and pending applications covering XCART, PolyXen, and other product candidates[78](index=78&type=chunk) - Issued patents generally provide **20 years** of exclusionary rights from the earliest filing date, with potential for up to **five years** of patent term extension in the U.S. for FDA-approved products[81](index=81&type=chunk) [Manufacturing and Supply](index=18&type=section&id=Manufacturing%20and%20Supply) Xenetic relies entirely on third-party manufacturers for its drug candidates, including Serum Institute for PolyXen products, and plans to seek a third-party for XCART clinical supply - Xenetic does not have internal manufacturing capabilities and relies on third-party manufacturers, including Serum Institute for PolyXen technology products[87](index=87&type=chunk) - The company anticipates seeking a third-party manufacturer for its XCART technology clinical supply needs[87](index=87&type=chunk) [Government Regulation](index=18&type=section&id=Government%20Regulation) Drug and biologic development, testing, manufacturing, and marketing are extensively regulated by government authorities in the U.S. and other countries, involving rigorous processes and ongoing compliance - Drug and biologic development, testing, manufacturing, and marketing are extensively regulated by government authorities in the U.S. and other countries[88](index=88&type=chunk)[89](index=89&type=chunk) - The U.S. drug development process involves preclinical testing, IND submission, three phases of human clinical trials (Phase 1, 2, 3), NDA/BLA submission, FDA inspection of manufacturing facilities (cGMP), and FDA review and approval[90](index=90&type=chunk)[91](index=91&type=chunk)[96](index=96&type=chunk) - The Orphan Drug Act provides incentives and a **seven-year** exclusive marketing period in the U.S. for drugs treating rare diseases, with similar provisions in the European Union (**ten years**)[102](index=102&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - Expedited development and review programs (Fast Track, Priority Review, Accelerated Approval, Breakthrough Therapy Designation) are available for drugs treating serious conditions with unmet medical needs or substantial improvement potential[105](index=105&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Post-approval, products remain subject to ongoing regulatory requirements, including manufacturing compliance (cGMP), labeling, advertising, and post-marketing studies[109](index=109&type=chunk) - U.S. patents may be eligible for up to **five years** of patent term extension under the Hatch-Waxman Amendments, and new chemical entities can receive **five years** of non-patent marketing exclusivity[111](index=111&type=chunk)[112](index=112&type=chunk) - Sales and reimbursement of approved products depend on coverage by third-party payors (government, commercial insurance), which are increasingly challenging prices and imposing cost controls[127](index=127&type=chunk) [Environmental Regulation](index=29&type=section&id=Environmental%20Regulation) The company's environmental compliance costs are minimal due to its reliance on unaffiliated manufacturers for drug candidate production - The company's environmental compliance costs are minimal as it does not manufacture its own drug candidates, relying on unaffiliated manufacturers[133](index=133&type=chunk) [Employees](index=29&type=section&id=Employees) As of December 31, 2020, Xenetic employed four full-time employees and supplements its workforce with external specialists and consultants for various functions - As of December 31, 2020, Xenetic employed **four full-time employees** and utilizes external specialists and consultants for regulatory affairs, R&D, and other functions[135](index=135&type=chunk)[136](index=136&type=chunk) [Competition](index=29&type=section&id=Competition) The pharmaceutical and biotechnology industries are highly competitive, with numerous companies and institutions developing cancer treatments and immuno-oncology technologies, including CAR T therapies - The pharmaceutical and biotechnology industries are highly competitive, with numerous companies, academic institutions, and governmental agencies developing cancer treatments and immuno-oncology technologies, including CAR T[137](index=137&type=chunk)[138](index=138&type=chunk) - For B-cell lymphomas, Xenetic faces competition from **four currently approved CAR T therapies** (Novartis' Kymriah, Gilead's Yescarta and Tecartus, Bristol Myers Squibb's Breyanzi) and over **100 CAR T products** in development[139](index=139&type=chunk)[140](index=140&type=chunk) - Competing drug delivery platforms for PSA include PEGylation, Fc-fusion, albumin-fusion, HESylation, PASylation, and CTP-fusion[142](index=142&type=chunk) [ITEM 1A – RISK FACTORS](index=31&type=section&id=ITEM%201A%20%E2%80%93%20RISK%20FACTORS) The company faces significant risks, including its history of unprofitability and need for substantial additional funding, which could dilute stockholders or force delays in product development [Risks Related to Our Financial Condition and Capital Requirements](index=31&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Capital%20Requirements) Xenetic has a history of unprofitability and an accumulated deficit, requiring substantial additional funding that could dilute stockholders or restrict operations - Xenetic has never been profitable, had an accumulated deficit of approximately **$176.9 million** as of December 31, 2020, and expects to incur significant operating losses for the foreseeable future[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - The company will require substantial additional funding beyond its **$11.5 million** cash balance as of December 31, 2020, to complete clinical trials, obtain regulatory approval, and commercialize drug candidates[152](index=152&type=chunk)[153](index=153&type=chunk) - Raising additional capital may dilute existing stockholders, restrict operations through debt covenants, or require relinquishing rights to technologies or drug candidates through collaborations[154](index=154&type=chunk)[156](index=156&type=chunk)[158](index=158&type=chunk) [Risks Related to the Discovery and Development of our Pharmaceutical Products](index=33&type=section&id=Risks%20Related%20to%20the%20Discovery%20and%20Development%20of%20our%20Pharmaceutical%20Products) The business is highly dependent on the successful clinical development, regulatory approval, and commercialization of the XCART platform, facing challenges in patient enrollment, trial delays, and market acceptance - The business is substantially dependent on the successful clinical development, regulatory approval, and commercialization of the XCART platform technology[159](index=159&type=chunk) - As an early-stage company, Xenetic has no products approved for commercial sale and its ability to generate product revenues depends on successful development and commercialization of drug candidates, which is a highly speculative and risky undertaking[160](index=160&type=chunk) - Difficulty in enrolling patients in clinical studies could delay or prevent clinical trials, increasing costs and potentially terminating product development[162](index=162&type=chunk)[165](index=165&type=chunk) - Substantial delays in clinical trials or failure to demonstrate safety and efficacy could prevent timely commercialization of drug candidates[166](index=166&type=chunk)[167](index=167&type=chunk) - Clinical trials may fail to demonstrate safety and efficacy, leading to additional testing, delays, or denial of regulatory approval, harming the business and stock price[171](index=171&type=chunk)[172](index=172&type=chunk) - Even if regulatory approval is obtained, it may be for a narrower indication than expected, or the drug candidate will remain subject to ongoing regulatory scrutiny and post-approval requirements[176](index=176&type=chunk)[177](index=177&type=chunk)[179](index=179&type=chunk) - Commercial success depends on market acceptance by physicians, patients, and third-party payors, which is uncertain and influenced by factors like efficacy, safety, pricing, and reimbursement[183](index=183&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) - Failure to obtain or maintain adequate coverage and reimbursement for approved drug candidates could limit marketability and revenue generation[188](index=188&type=chunk)[191](index=191&type=chunk)[193](index=193&type=chunk) - The company may fail to obtain orphan drug designations or maintain associated benefits, and market opportunities for drug candidates may be limited to specific patient populations or later-stage therapies[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) - Healthcare legislative reform measures, such as the Affordable Care Act and subsequent changes, may adversely affect the company's ability to sell drug candidates profitably[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) [Risks Related to Our Reliance on Third-Parties](index=42&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third-Parties) The company's reliance on third-party collaborators, CROs, and manufacturers for development, clinical studies, and production exposes it to risks of conflicts, unsatisfactory performance, and intellectual property misappropriation - Conflicts with collaborators or strategic partners may arise, leading to actions in their self-interest, potentially limiting Xenetic's ability to implement its strategies or causing delays/termination of product development[204](index=204&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) - Reliance on third-parties (CROs, clinical investigators) to conduct clinical studies poses risks if they perform unsatisfactorily, fail to comply with regulations (GCPs), or do not recruit sufficient patients, leading to delays or termination[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) - Collaborators may adopt alternative technologies, shift resources, or fail to develop commercially viable products, negatively impacting revenues and development strategy[211](index=211&type=chunk) - Inability to establish additional collaborations on commercially reasonable terms could force the company to alter development and commercialization plans, or increase expenditures[212](index=212&type=chunk)[213](index=213&type=chunk)[215](index=215&type=chunk) - Entering collaborations may require relinquishing important rights or control over drug candidates, or being subject to unfavorable terms[217](index=217&type=chunk) - The company has no internal manufacturing, sales, marketing, or distribution capabilities and relies on third-party manufacturers, which are subject to significant regulation (cGMP) and capacity limitations[218](index=218&type=chunk)[223](index=223&type=chunk) - Reliance on third-parties necessitates sharing trade secrets, increasing the risk of discovery by competitors or misappropriation/disclosure[227](index=227&type=chunk)[228](index=228&type=chunk) [Risks Related to Our Intellectual Property](index=47&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Failure to adequately protect or enforce intellectual property rights, including patents and trade secrets, could significantly damage commercial prospects and lead to costly litigation or loss of critical license rights - Failure to adequately protect or enforce intellectual property rights (patents, proprietary formulations, trademarks) could significantly damage commercial prospects, as patents may be challenged, invalidated, or circumvented[229](index=229&type=chunk)[230](index=230&type=chunk) - Patent applications may not be issued or may have reduced coverage, and the company may not be the first inventor or filer, impacting licensing and royalty potential[231](index=231&type=chunk) - Issued patents covering drug candidates could be found invalid or unenforceable if challenged in court or administrative bodies, leading to loss of patent protection[234](index=234&type=chunk) - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may offer less protection, allowing competitors to use inventions in other jurisdictions[235](index=235&type=chunk)[236](index=236&type=chunk) - Infringement on the intellectual property rights of others could lead to substantial costs, litigation, or the inability to develop/commercialize infringing technology[238](index=238&type=chunk) - Failure to comply with obligations in license agreements with third-parties could result in loss of critical license rights[239](index=239&type=chunk) - Lawsuits to protect or enforce patents are expensive, time-consuming, and may be unsuccessful, potentially invalidating patents or narrowly interpreting claims[244](index=244&type=chunk)[245](index=245&type=chunk) - Changes in U.S. patent law (e.g., Leahy-Smith America Invents Act, Supreme Court rulings) could diminish the value of patents and weaken the ability to obtain or enforce them[248](index=248&type=chunk)[249](index=249&type=chunk) - Claims that employees or consultants wrongfully used or disclosed confidential information or trade secrets of third-parties could lead to litigation, loss of IP rights, or personnel[250](index=250&type=chunk)[251](index=251&type=chunk) - Inability to protect confidential information and trade secrets, despite non-disclosure agreements, would harm the company's competitive position[252](index=252&type=chunk) [Risks Related to Our Business Operations](index=52&type=section&id=Risks%20Related%20to%20Our%20Business%20Operations) The company operates in a highly competitive environment, faces challenges in retaining key personnel, and may be impacted by new accounting standards, organizational expansion, or collaboration disputes - The company operates in an extremely competitive environment, facing numerous pharmaceutical and biotechnology companies with greater resources and experience, which could render its products obsolete[254](index=254&type=chunk) - Future success depends on retaining key executive team members, consultants, and advisors, and attracting qualified personnel in a competitive market[255](index=255&type=chunk) - Potential new accounting standards or legislative actions may adversely impact future financial position or results of operations, requiring additional expenses for compliance[256](index=256&type=chunk)[257](index=257&type=chunk) - Expansion of the organization may lead to difficulties in managing growth, diverting management attention and potentially disrupting operations[258](index=258&type=chunk) - Collaboration agreements contain complex commercial terms that could result in disputes, litigation, or indemnification liability, adversely affecting business and financial condition[259](index=259&type=chunk)[260](index=260&type=chunk) [Risks Related to Our Common Stock](index=54&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) The market for the company's Common Stock may lack liquidity and experience high volatility, while future stock issuances could dilute existing stockholders and anti-takeover provisions may depress stock price - An active, liquid, and orderly market for the company's Common Stock or Purchase Warrants may not develop or be sustained, making it difficult for investors to sell securities[262](index=262&type=chunk) - The market price of the company's securities may be highly volatile due to various factors, including clinical trial results, funding issues, regulatory decisions, competition, and economic conditions[263](index=263&type=chunk)[264](index=264&type=chunk) - Preferred stock has preferential rights (e.g., liquidation preference, conversion rights) over common stockholders, which could reduce common stock value or cause dilution[266](index=266&type=chunk) - Future issuance of Common Stock, including the **50,000,000 authorized shares**, may result in dilution to existing stockholders and depress the market price[267](index=267&type=chunk)[268](index=268&type=chunk) - The company does not intend to pay dividends on its Common Stock or Preferred Stock, limiting returns to stock appreciation[270](index=270&type=chunk) - Certain provisions in the Articles of Incorporation, Bylaws, and Nevada Revised Statutes may have an anti-takeover effect, potentially causing the common stock price to decline[272](index=272&type=chunk) - Past failures to satisfy Nasdaq listing requirements and potential future non-compliance could affect the market price and liquidity of Common Stock, and reduce the ability to raise capital[273](index=273&type=chunk) [General Risk Factors](index=56&type=section&id=General%20Risk%20Factors) General risks include the uncertain impact of the COVID-19 pandemic, limitations on NOL carryforwards, potential price controls, misconduct by personnel, product liability claims, and cybersecurity failures - The COVID-19 pandemic has created significant volatility and uncertainty, and its ultimate impact on the company's business, operations, and financial results is uncertain and could be materially adverse[274](index=274&type=chunk)[275](index=275&type=chunk) - The use of potential future operating losses and federal/state NOL carryforwards to offset taxable income could be limited by ownership changes or tax law reforms (e.g., TCJA), potentially leading to income tax liabilities despite existing NOLs[277](index=277&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk) - Governments may impose price controls on pharmaceutical products, particularly in foreign jurisdictions, which could adversely affect future profitability and ability to achieve or sustain profitability[281](index=281&type=chunk) - Potential misconduct by employees, principal investigators, consultants, and commercial partners, including non-compliance with regulatory standards or fraud, could result in regulatory sanctions, reputational harm, or significant fines[282](index=282&type=chunk) - The use of drug candidates in clinical studies and commercial sale exposes the company to product liability claims, which could result in substantial liability, costs, and damage to business reputation[283](index=283&type=chunk)[284](index=284&type=chunk) - Failure to comply with environmental, health, and safety laws and regulations could lead to fines, penalties, or significant costs[285](index=285&type=chunk)[286](index=286&type=chunk) - Non-cash charges like share-based payments may materially impact results of operations[287](index=287&type=chunk) - Varying interpretations of accounting standards could lead to restatement of previously reported results[289](index=289&type=chunk) - Failures in information technology systems, including cybersecurity attacks, could disrupt operations, lead to data misappropriation, and result in reputational damage or regulatory fines[291](index=291&type=chunk)[292](index=292&type=chunk) - As a smaller reporting company (SRC), reduced reporting requirements may make its Common Stock less attractive to investors, potentially leading to a less active trading market and increased stock price volatility[293](index=293&type=chunk) [ITEM 1B – UNRESOLVED STAFF COMMENTS](index=60&type=section&id=ITEM%201B%20%E2%80%93%20UNRESOLVED%20STAFF%20COMMENTS) The company has no unresolved staff comments from the SEC [ITEM 2 – PROPERTIES](index=60&type=section&id=ITEM%202%20%E2%80%93%20PROPERTIES) Xenetic Biosciences occupies approximately 1,700 square feet of office space in Framingham, Massachusetts, under a lease through September 2022, and leases 360 square feet of office space in Miami, Florida, extended through November 2021 - The company leases approximately **1,700 square feet** of office space in Framingham, Massachusetts, with a lease term through September 2022[296](index=296&type=chunk) - An additional **360 square feet** of office space is leased in Miami, Florida, with the lease extended through November 30, 2021[297](index=297&type=chunk) [ITEM 3 – LEGAL PROCEEDINGS](index=60&type=section&id=ITEM%203%20%E2%80%93%20LEGAL%20PROCEEDINGS) As of December 31, 2020, Xenetic Biosciences was not a party to any legal proceedings that management believes would have a material adverse effect on its financial position, results of operations, or cash flows - As of December 31, 2020, there were no legal matters that management believed would have a material adverse effect on the company's financial position, results of operations, or cash flows[299](index=299&type=chunk) [ITEM 4 – MINE SAFETY DISCLOSURES](index=60&type=section&id=ITEM%204%20%E2%80%93%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to Xenetic Biosciences, Inc PART II [ITEM 5 – MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=61&type=section&id=ITEM%205%20%E2%80%93%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Xenetic Biosciences' Common Stock is listed on The NASDAQ Capital Market under the symbol "XBIO," with 425 holders of record as of March 11, 2021, and the company has never paid cash dividends, prioritizing earnings for business development - Common Stock is listed on The NASDAQ Capital Market under the symbol "XBIO"[303](index=303&type=chunk) - As of March 11, 2021, there were **425 holders** of record of the Common Stock[303](index=303&type=chunk) - The company has never declared or paid cash dividends on its Common Stock and does not intend to in the foreseeable future, planning to retain earnings for business development[304](index=304&type=chunk)[270](index=270&type=chunk) - No repurchases of equity securities were made during the quarter ended December 31, 2020[307](index=307&type=chunk) [ITEM 6 – SELECTED FINANCIAL DATA](index=61&type=section&id=ITEM%206%20%E2%80%93%20SELECTED%20FINANCIAL%20DATA) As a smaller reporting company, Xenetic Biosciences is not required to provide selected financial data under this item [ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=61&type=section&id=ITEM%207%20%E2%80%93%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Xenetic Biosciences, a biopharmaceutical company focused on XCART technology, reported a net loss of $10.9 million in 2020, an improvement from $12.8 million in 2019, driven by increased Takeda royalties and decreased R&D and G&A expenses, partly offset by a substantial asset impairment charge related to IPR&D [BUSINESS OVERVIEW](index=61&type=section&id=BUSINESS%20OVERVIEW) Xenetic Biosciences is a biopharmaceutical company focused on its XCART platform for B-cell lymphomas and leveraging its PolyXen drug delivery platform, with drug candidates in development and ongoing royalties from a PolyXen license - Xenetic Biosciences is a biopharmaceutical company focused on XCART, a personalized CAR T platform technology for B-cell lymphomas, and leveraging its PolyXen drug delivery platform[309](index=309&type=chunk)[310](index=310&type=chunk) - The company's drug candidates are in development, with no regulatory marketing authorization to date, but it receives ongoing royalties from a PolyXen license[311](index=311&type=chunk) - Development of XBIO-101 for endometrial cancer has been suspended since March 2019[312](index=312&type=chunk) - In 2020, internal development efforts focused on winding down XBIO-101 and preliminary XCART development[313](index=313&type=chunk) [Critical Accounting Estimates](index=62&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates involve revenue recognition for license and collaboration arrangements, expensing research and development costs, valuing share-based compensation and warrants, and annually testing goodwill and indefinite-lived intangible assets for impairment - Revenue recognition for license and collaboration arrangements involves significant judgment in identifying performance obligations, determining transaction price, and allocating it based on stand-alone selling prices, with upfront payments recognized ratably over the expected performance period[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk) - Royalty revenue is recognized in the period of sale upon receipt of reports from third-parties, provided sales are reliably measurable and no remaining performance obligations exist[323](index=323&type=chunk) - Research and development expenses are expensed as incurred, including upfront non-refundable payments and the value of acquired in-process R&D (IPR&D) that does not meet capitalization criteria[324](index=324&type=chunk) - Accrued R&D expenses are estimated based on open contracts, services performed, and communication with personnel, with periodic adjustments[325](index=325&type=chunk) - Share-based expense for options and RSUs is calculated using the Black-Scholes model, requiring judgment for volatility and expected terms. Common stock awards to non-employees are valued based on services provided[328](index=328&type=chunk)[330](index=330&type=chunk) - Warrants are classified as equity awards and measured at fair value using the Black-Scholes model, with expense recognized over the service period or at issuance[331](index=331&type=chunk)[332](index=332&type=chunk) - Goodwill and indefinite-lived intangible assets (IPR&D) are not amortized but tested annually for impairment using qualitative or quantitative analysis (income and market valuation methods)[335](index=335&type=chunk)[336](index=336&type=chunk) - In 2019, a **$3.3 million** asset impairment charge was recorded for Goodwill due to a significant decline in market capitalization. In 2020, a **$9.2 million** asset impairment charge was recorded for IPR&D (OncoHist) due to management's decision to indefinitely delay further development and failure to sell/license[337](index=337&type=chunk)[338](index=338&type=chunk) [Effects of the COVID-19 Pandemic](index=67&type=section&id=Effects%20of%20the%20COVID-19%20Pandemic) The COVID-19 pandemic has created significant economic uncertainties, but the company's operations were not materially affected during 2020, though the ultimate impact on future results remains uncertain - The COVID-19 pandemic has created significant economic uncertainties, but the company's operations were not materially affected during 2020. The ultimate impact on future results remains uncertain[341](index=341&type=chunk) [Results of Operations](index=67&type=section&id=Results%20of%20Operations) In 2020, the company reported a reduced net loss compared to 2019, driven by significantly increased royalty revenue and decreased R&D and G&A expenses, despite higher asset impairment charges Consolidated Statements of Comprehensive Loss Summary | Description | 2020 ($) | 2019 ($) | Increase (Decrease) ($) | Percentage Change (%) | | :---------------------------------- | :--------- | :--------- | :---------------------- | :-------------------- | | Royalty revenue | 436,942 | 17,066 | 419,876 | 2,460.3% | | Research and development | (1,731,406) | (4,889,340) | (3,157,934) | (64.6)% | | General and administrative | (3,400,071) | (4,731,176) | (1,331,105) | (28.1)% | | Asset impairment charges | (9,243,128) | (3,283,379) | 5,959,749 | 181.5% | | Total operating costs and expenses | (14,374,605) | (12,903,895) | 1,470,710 | 11.4% | | Loss from operations | (13,937,663) | (12,886,829) | 1,050,834 | 8.2% | | Other income (expense) | (492) | 3,315 | (3,807) | (114.8)% | | Interest income, net | 126,171 | 108,489 | 17,682 | 16.3% | | Loss before income taxes | (13,811,984) | (12,775,025) | 1,036,959 | 8.1% | | Income tax benefit | 2,918,518 | – | 2,918,518 | 100.0% | | Net loss | (10,893,466) | (12,775,025) | (1,881,559) | (14.7)% | | Basic and diluted loss per share | (1.70) | (6.33) | | | | Weighted-average shares outstanding | 6,392,381 | 2,852,464 | | | - Royalty revenue increased by **$0.4 million (2,460.3%)** to **$0.4 million** in 2020, representing a full year of royalties from the Takeda sublicense agreement, compared to three months in 2019[344](index=344&type=chunk) - Total R&D expenses decreased by **$3.2 million (64.6%)** to **$1.7 million** in 2020, primarily due to a **$3.0 million** IPR&D expense in 2019 not recurring in 2020. Excluding this, R&D decreased by **$127,000 (6.8%)**[345](index=345&type=chunk) Research and Development Expenses by Category | Category of Expense | 2020 ($) | 2019 ($) | | :----------------------------------- | :--------- | :--------- | | IPR&D expense | – | 3,031,226 | | Outside services and CROs | 1,203,582 | 1,357,820 | | Share-based expense | 49,191 | 156,964 | | Personnel costs | 342,883 | 297,651 | | Other | 135,750 | 45,679 | | **Total R&D expense** | **1,731,406** | **4,889,340** | - Decrease in outside services and CROs was due to reduced spending on the XBIO-101 trial, partially offset by increased XCART preclinical development costs[347](index=347&type=chunk) - General and administrative expenses decreased by **$1.3 million (28.1%)** to **$3.4 million** in 2020, mainly due to **$1.1 million** in XCART acquisition transaction costs in 2019 not recurring[348](index=348&type=chunk) - Asset impairment charges increased to **$9.2 million** in 2020 (related to IPR&D) from **$3.3 million** in 2019 (related to Goodwill)[350](index=350&type=chunk) - An income tax benefit of **$2.9 million** was recognized in 2020 due to the IPR&D impairment, with no similar benefit in 2019[353](index=353&type=chunk) [Liquidity and Capital Resources](index=69&type=section&id=Liquidity%20and%20Capital%20Resources) The company incurred a net loss of $10.9 million in 2020, increasing its accumulated deficit to $176.9 million, with existing resources expected to fund operations through Q1 2022, but additional capital will be needed long-term - The company incurred a net loss of **$10.9 million** in 2020 and had an accumulated deficit of **$176.9 million** as of December 31, 2020[355](index=355&type=chunk) - Working capital increased by **$1.8 million** to **$11.4 million** in 2020, primarily due to **$5.4 million** in net proceeds from a December 2020 registered direct Common Stock offering, offset by the net loss[355](index=355&type=chunk) - Cash balance was **$11.5 million** at December 31, 2020, compared to **$10.4 million** at December 31, 2019[357](index=357&type=chunk) - Management believes existing resources and the December 2020 financing will fund operations through Q1 2022, but additional capital will be needed long-term[358](index=358&type=chunk) - Cash flows used in operating activities were **$4.3 million** in 2020, an improvement from **$6.4 million** in 2019[359](index=359&type=chunk) - Cash flows from financing activities totaled **$5.4 million** in 2020 (from the registered direct offering), compared to **$16.1 million** in 2019 (from two stock offerings)[361](index=361&type=chunk) - The company has no off-balance sheet arrangements with a material effect on its financial condition[362](index=362&type=chunk) [Contractual Obligations](index=71&type=section&id=Contractual%20Obligations) The company's contractual obligations primarily consist of property leases for office space, excluding variable and cancelable payments for CRO services Contractual Obligations as of December 31, 2020 | | Total ($) | Less than 1 year ($) | 1-3 years ($) | 3-5 years ($) | More than 5 years ($) | | :---------------- | :-------- | :------------------- | :------------ | :------------ | :-------------------- | | Lease obligations | 83,649 | 54,532 | 29,117 | – | – | - Contractual obligations primarily consist of property leases for office space, excluding potential payments for CRO services due to variable timing and cancelability[364](index=364&type=chunk) [ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=71&type=section&id=ITEM%207A%20%E2%80%93%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a smaller reporting company, Xenetic Biosciences is not required to provide quantitative and qualitative disclosures about market risk ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA [Report of Independent Registered Public Accounting Firm](index=73&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Marcum LLP issued an unqualified opinion on Xenetic Biosciences' consolidated financial statements for 2020 and 2019, with critical audit matters including the company's going concern assessment and revenue recognition for royalty income - Marcum LLP issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2020 and 2019[373](index=373&type=chunk) - Critical audit matters included the company's going concern assessment, requiring high auditor judgment to assess the reasonableness of cash flow forecasts and assumptions[378](index=378&type=chunk)[379](index=379&type=chunk) - Another critical audit matter was revenue recognition over royalty revenue, specifically management's estimate of potential net sales as expected variable consideration[381](index=381&type=chunk)[382](index=382&type=chunk) [Consolidated Balance Sheets](index=75&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2020, total assets decreased to $13.18 million from $21.55 million in 2019, primarily due to asset impairments, while cash increased to $11.53 million, and total liabilities and stockholders' equity also decreased Consolidated Balance Sheet Summary | ASSETS | Dec 31, 2020 ($) | Dec 31, 2019 ($) | | :---------------------------------- | :--------------- | :--------------- | | Cash | 11,527,552 | 10,367,920 | | Total current assets | 12,369,510 | 11,089,999 | | Property and equipment, net | – | 757 | | Goodwill and indefinite-lived intangible assets | – | 9,243,128 | | Other assets | 809,985 | 1,213,042 | | **Total assets** | **13,179,495** | **21,546,926** | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | 936,928 | 1,415,157 | | Deferred tax liability and other long-term liabilities | 27,043 | 2,918,518 | | **Total liabilities** | **963,971** | **4,333,675** | | Total stockholders' equity | 12,215,524 | 17,213,251 | | **Total liabilities and stockholders' equity** | **13,179,495** | **21,546,926** | - Goodwill and indefinite-lived intangible assets decreased from **$9.24 million** in 2019 to **$0** in 2020 due to impairment charges[386](index=386&type=chunk) - Deferred tax liability decreased significantly from **$2.92 million** in 2019 to **$27,043** in 2020[386](index=386&type=chunk) [Consolidated Statements of Comprehensive Loss](index=76&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) Xenetic Biosciences reported a net loss of $10.89 million for the year ended December 31, 2020, an improvement from a $12.78 million net loss in 2019, driven by increased royalty revenue and decreased operating expenses, despite higher asset impairment charges Consolidated Statements of Comprehensive Loss Summary | Description | 2020 ($) | 2019 ($) | | :---------------------------------- | :--------- | :--------- | | Royalty revenue | 436,942 | 17,066 | | Total revenue | 436,942 | 17,066 | | Research and development | (1,731,406) | (4,889,340) | | General and administrative | (3,400,071) | (4,731,176) | | Asset impairment charges | (9,243,128) | (3,283,379) | | Total operating costs and expenses | (14,374,605) | (12,903,895) | | Loss from operations | (13,937,663) | (12,886,829) | | Other income (expense) | (492) | 3,315 | | Interest income, net | 126,171 | 108,489 | | Total other income | 125,679 | 111,804 | | Loss before income taxes | (13,811,984) | (12,775,025) | | Income tax benefit | 2,918,518 | – | | Net loss | (10,893,466) | (12,775,025) | | Net loss applicable to common stockholders | (10,893,466) | (18,059,404) | | Basic and diluted loss per share | (1.70) | (6.33) | | Weighted-average shares outstanding | 6,392,381 | 2,852,464 | - Net loss applicable to common stockholders improved from **$(18.06) million** in 2019 to **$(10.89) million** in 2020, partly due to a deemed dividend related to Series B Preferred Stock in 2019[388](index=388&type=chunk)[513](index=513&type=chunk) [Consolidated Statements of Stockholders' Equity](index=77&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased from $17.21 million in 2019 to $12.22 million in 2020, primarily due to the net loss of $10.89 million, partially offset by $5.43 million in net proceeds from the December 2020 common stock offering, which also significantly increased common stock shares outstanding Consolidated Statements of Stockholders' Equity Summary | Description | Dec 31, 2020 ($) | Dec 31, 2019 ($) | | :----------------------------------- | :--------------- | :--------------- | | Preferred Stock (Par Value) | 2,774 | 2,774 | | Common Stock (Par Value) | 8,771 | 6,092 | | Additional Paid in Capital | 194,133,511 | 188,240,451 | | Accumulated Deficit | (176,902,086) | (166,008,620) | | Accumulated Other Comprehensive Income | 253,734 | 253,734 | | Treasury Stock | (5,281,180) | (5,281,180) | | **Total Stockholders' Equity** | **12,215,524** | **17,213,251** | - Net proceeds from the December 2020 registered direct offering contributed **$5.43 million** to additional paid-in capital[391](index=391&type=chunk) - The accumulated deficit increased by **$10.89 million** in 2020[391](index=391&type=chunk) [Consolidated Statements of Cash Flows](index=78&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash used in operating activities decreased to $4.27 million in 2020 from $6.40 million in 2019, primarily due to non-cash adjustments, while cash provided by financing activities decreased to $5.43 million from $16.13 million Consolidated Statements of Cash Flows Summary | Cash Flow Activity | 2020 ($) | 2019 ($) | | :----------------------------------- | :--------- | :--------- | | Net cash used in operating activities | (4,267,193) | (6,399,404) | | Net cash provided by investing activities | – | 2,000 | | Net cash provided by financing activities | 5,426,825 | 16,127,209 | | Net change in cash | 1,159,632 | 9,729,805 | | Cash at end of period | 11,527,552 | 10,367,920 | - Cash used in operating activities in 2020 was primarily due to net loss, offset by non-cash charges for asset impairment, deferred income taxes, and share-based expense[359](index=359&type=chunk) - Financing activities in 2020 were driven by **$5.43 million** in net proceeds from the December 2020 registered direct Common Stock offering[361](index=361&type=chunk) [Notes to Consolidated Financial Statements](index=79&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on the company's background, going concern status, and the impact of COVID-19, outlining significant accounting policies, key collaborations, and specifics on the XCART acquisition, stockholders' equity, income tax positions, commitments, contingent liabilities, and related party transactions [1. The Company](index=79&type=section&id=1.%20The%20Company) Xenetic Biosciences is a biopharmaceutical company focused on its XCART platform and PolyXen drug delivery technology, facing substantial losses since inception, but management believes recent financing will fund operations through Q1 2022 - Xenetic Biosciences is a biopharmaceutical company focused on XCART, a personalized CAR T platform for B-cell lymphomas, and leveraging its PolyXen drug delivery platform[395](index=395&type=chunk)[396](index=396&type=chunk) - The company has incurred substantial losses since inception, raising substantial doubt about its ability to continue as a going concern. However, management believes recent financing (**$5.4 million** net proceeds from December 2020 offering) and existing resources will fund operations through Q1 2022, with additional capital needed long-term[398](index=398&type=chunk) [2. Impact of COVID-19](index=80&type=section&id=2.%20Impact%20of%20COVID-19) The COVID-19 pandemic has created significant economic uncertainties, but as of the financial statement issuance date, it has not materially impacted the company's operations - The COVID-19 pandemic has created significant economic uncertainties, but as of the financial statement issuance date, there has been no significant impact on the company's operations[400](index=400&type=chunk) [3. Summary of Significant Accounting Policies](index=80&type=section&id=3.%20Summary%20of%20Significant%20Accounting%20Policies) This section details the company's accounting policies, including a 1-for-12 reverse stock split, U.S. dollar as functional currency, revenue recognition under ASC Topic 606, expensing R&D, fair value measurement for share-based compensation and warrants, annual impairment testing for goodwill and IPR&D, income tax accounting, and lease accounting under ASU 2016-02 - The company effected a **1-for-12 reverse stock split** on June 25, 2019, retroactively adjusting all share numbers and prices[401](index=401&type=chunk) - The functional currency for foreign subsidiaries is the U.S. dollar, a change applied prospectively since 2014[405](index=405&type=chunk) - Revenue recognition follows ASC Topic 606, requiring a five-step model to identify performance obligations, determine transaction price, allocate it, and recognize revenue as obligations are satisfied[420](index=420&type=chunk) - Non-refundable upfront license payments and milestone payments with future obligations are recognized ratably over the expected performance period[423](index=423&type=chunk) - Royalty revenue is recognized in the period of sale upon reliable measurement and satisfaction of all criteria[425](index=425&type=chunk) - Research and development expenses are expensed as incurred, including upfront non-refundable payments and acquired IPR&D that does not meet capitalization criteria[427](index=427&type=chunk) - Share-based expense for options and RSUs is based on fair value using the Black-Scholes model, recognized over the vesting period. Common stock awards to non-employees are valued based on services provided[432](index=432&type=chunk)[433](index=433&type=chunk)[434](index=434&type=chunk) - Warrants are classified as equity awards and measured at fair value using the Black-Scholes model, with expense recognized over the service period[435](index=435&type=chunk) - Goodwill and IPR&D are indefinite-lived intangible assets, not amortized but tested for impairment at least annually. IPR&D is amortized upon completion or abandoned[411](index=411&type=chunk)[412](index=412&type=chunk)[415](index=415&type=chunk) - The company accounts for income taxes using the asset and liability method, with deferred tax assets and liabilities determined by temporary differences[436](index=436&type=chunk) - Leases are accounted for under ASU 2016-02 (Topic 842), requiring recognition of a right-of-use asset and lease liability for all non-short-term leases[440](index=440&type=chunk) [4. Significant Strategic Collaborations](index=88&type=section&id=4.%20Significant%20Strategic%20Collaborations) Xenetic's significant strategic collaborations include agreements with Takeda for polysialylated blood coagulation factors, Scripps Research for XCART development, Pharmsynthez (SynBio) for PolyXen and ImuXen licenses, and Serum Institute for PSA-EPO development - Takeda pays single-digit royalty payments based on net sales of Covered Products under a sublicense agreement, with **$437,000** and **$17,000** recognized as revenue in 2020 and 2019, respectively[450](index=450&type=chunk) - Xenetic agreed to provide Scripps Research up to **$3.0 million** to fund preclinical XCART development, with **$0.9 million** paid through December 31, 2020[451](index=451&type=chunk) - Pharmsynthez (and its subsidiary SynBio) holds approximately **5.1%** of Xenetic's outstanding Common Stock as of December 31, 2020, and has exclusive licenses for PolyXen and ImuXen technology in certain territories[452](index=452&type=chunk)[453](index=453&type=chunk) - A Master Services Agreement (MSA) with Pharmsynthez for XCART development, signed June 12, 2020, superseded a prior Sponsored Research Agreement (SRA). The Work Order under MSA has an estimated total cost of **$1.8 million** and potential milestone payments up to **$1,050,000**[454](index=454&type=chunk)[455](index=455&type=chunk)[456](index=456&type=chunk) - SynBio reported positive Phase 3 clinical study data for Epolong (ErepoXen) in December 2020 and filed for Russian approval, expecting production by Q1 2022[459](index=459&type=chunk) - Serum Institute has an exclusive license for PolyXen technology to develop PSA-EPO, responsible for trials in predetermined territories, with royalty payments based on net sales[460](index=460&type=chunk) [5. Acquisitions](index=90&type=section&id=5.%20Acquisitions) On March 1, 2019, Xenetic acquired the XCART technology platform from Hesperix and OPKO Pharmaceuticals LLC, accounted for as an asset acquisition with total consideration of approximately $4.1 million expensed to R&D and G&A - On March 1, 2019, Xenetic acquired the XCART technology platform from Hesperix and OPKO Pharmaceuticals LLC. The acquisition was accounted for as an asset acquisition, not a business combination[462](index=462&type=chunk)[468](index=468&type=chunk) - Total consideration for the IPR&D was approximately **$4.1 million**, including **$3.0 million** in common shares and **$1.1 million** in transaction costs, all expensed to R&D and G&A in 2019[468](index=468&type=chunk) - The acquisition involved issuing **406,246 shares** of Common Stock to Hesperix sellers, and **164,062 shares** to OPKO and **54,687 shares** to Scripps Research[463](index=463&type=chunk)[467](index=467&type=chunk) [6. Property and Equipment, net](index=91&type=section&id=6.%20Property%20and%20Equipment%2C%20net) As of December 31, 2020, the net book value of property and equipment was zero due to accumulated depreciation, with minimal depreciation expense incurred in 2020 and 2019 Property and Equipment, net | | December 31, 2020 ($) | 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** | - Depreciation expense was approximately **$1,000** in 2020 and **$4,000** in 2019[469](index=469&type=chunk) [7. Goodwill, Indefinite-Lived Intangible Assets and Other Long-Term Assets](index=91&type=section&id=7.%20Goodwill%2C%20Indefinite-Lived%20Intangible%20Assets%20and%20Other%20Long-Term%20Assets) Goodwill and the indefinite-lived intangible asset (OncoHist IPR&D) were fully impaired in 2019 and 2020, respectively, reducing their carrying values to zero, while other long-term assets include prepaid clinical PSA supply and a loan to Pharmsynthez - Goodwill was fully impaired in 2019, resulting in a **$3.3 million** asset impairment charge, reducing its carrying value to zero[470](index=470&type=chunk) - The indefinite-lived intangible asset (OncoHist IPR&D) was fully impaired in 2020, resulting in a **$9.2 million** asset impairment charge, reducing its carrying value to zero[471](index=471&type=chunk) - Other long-term assets include **$0.7 million** of prepaid clinical PSA supply from Serum Institute, classified as long-term as of December 31, 2020 and 2019[472](index=472&type=chunk) - A **$500,000** loan to Pharmsynthez (Pharmsynthez Loan) from Q4 2019, accruing **10% interest**, was extended to January 2022. Approximately **$0.1 million** was classified as long-term within Other Assets as of December 31, 2020[473](index=473&type=chunk)[474](index=474&type=chunk) [8. Accrued Expenses](index=93&type=section&id=8.%20Accrued%20Expenses) Accrued expenses increased from $463,987 in 2019 to $574,050 in 2020, primarily driven by increases in accrued payroll and benefits and professional fees Accrued Expenses | | December 31, 2020 ($) | December 31, 2019 ($) | | :-------------------------- | :-------------------- | :-------------------- | | Accrued payroll and benefits | 126,615 | 68,016 | | Accrued professional fees | 375,694 | 306,413 | | Accrued research costs | 62,607 | 80,519 | | Other | 9,134 | 9,039 | | **Total** | **574,050** | **463,987** | [9. Fair Value Measurements](index=93&type=section&id=9.%20Fair%20Value%20Measurements) The carrying amounts of the company's financial instruments approximate fair value due to their short maturities, with no financial instruments classified as Level 3 in the fair value hierarchy during 2020 and 2019 - The carrying amounts of the company's financial instruments approximate fair value due to their short maturities. No financial instruments were classified as Level 3 in the fair value hierarchy during 2020 and 2019[477](index=477&type=chunk) [10. Income Taxes](index=93&type=section&id=10.%20Income%20Taxes) A deferred tax benefit of $2.9 million was recognized in 2020 due to the reversal of a deferred tax liability related to IPR&D impairment, with significant NOL carryforwards subject to potential limitations - A deferred tax benefit of **$2.9 million** was recognized in 2020 due to the reversal of a deferred tax liability related to IPR&D impairment; no benefit was recognized in 2019[478](index=478&type=chunk) Components of Loss Before Income Taxes | | Year ended December 31, 2020 ($) | Year ended December 31, 2019 ($) | | :------------------ | :----------------------------- | :----------------------------- | | Domestic (U.S.) | (4,368,330) | (4,317,585) | | Foreign (U.K.) | (61,867) | (2,302,131) | | Foreign (Germany) | (9,357,256) | (3,389,473) | | Foreign (Switzerland) | (24,531) | (2,765,836) | | **Loss before income taxes** | **(13,811,984)** | **(12,775,025)** | Reconciliation of Income Tax Benefit | | Year ended December 31, 2020 ($) | Year ended December 31, 2019 ($) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Federal | (2,900,517) | (2,682,755) | | State | (230,238) | (284,724) | | Change in valuation allowance | 3,089,617 | 1,878,033 | | Permanent differences, net | 1,399 | 1,323 | | Goodwill impairment | – | 689,510 | | Foreign rate differential | (985,231) | 381,190 | | Share-based payments, net | 22,267 | 11,084 | | Enhanced research and development tax credits | (56,564) | (54,148) | | Rate change | (2,015,683) | – | | Other items | 156,432 | 60,487 | | **Net benefit for income taxes** | **(2,918,518)** | **–** | Deferred Tax Assets and Liabilities | | December 31, 2020 ($) | December 31, 2019 ($) | | :----------------------------------- | :-------------------- | :-------------------- | | U.K. net operating loss carryforwards | 10,733,568 | 8,984,851 | | U.S. federal net operating loss carryforwards | 4,671,789 | 3,857,973 | | Total deferred tax assets before valuation allowance | 29,661,323 | 25,878,322 | | Valuation allowance for deferred tax assets | (29,644,241) | (25,872,847) | | Net deferred tax assets | 17,082 | 5,475 | | Indefinite-lived intangible asset (Deferred tax liabilities) | – | (2,918,518) | | **Net deferred liability** | **–** | **(2,918,518)** | - The company has significant NOL carryforwards in the U.K. (**$56.5 million**), U.S. federal (**$22.2 million**), U.S. state (**$22.3 million**), Germany (**$2.0 million**), and Switzerland (**$0.9 million**)[481](index=481&type=chunk) - A full valuation allowance has been provided on deferred tax assets, as their realization is not considered more likely than not[478](index=478&type=chunk) - The ability to use NOLs and tax credits is subject to limitations under Section 382 of the U.S. Internal Revenue Code and similar foreign legislation due to potential ownership changes[482](index=482&type=chunk)[483](index=483&type=chunk)[484](index=484&type=chunk)[487](index=487&type=chunk) [11. Stockholders' Equity](index=96&type=section&id=11.%20Stockholders%27%20Equity) In 2020, the company completed a registered direct offering of Common Stock, increasing authorized shares to 50,000,000, while also detailing the terms of various preferred stock series and outstanding warrants - On December 10, 2020, the company completed a registered direct offering of **2,448,980 Common Stock shares** at **$2.45 per share**, yielding **$5.4 million** in net proceeds[492](index=492&type=chunk) - On December 4, 2020, authorized Common Stock shares were increased to **50,000,000**[493](index=493&type=chunk) - In July 2019, a public offering of Common Stock, Prefunded Warrants, and Purchase Warrants generated approximately **$13.4 million** in net proceeds[495](index=495&type=chunk) - Purchase Warrants from the July 2019 offering are exercisable at **$13.00 per share** and expire **five years** from issuance. Approximately **0.2 million** and **2.2 million** were exercised on a cashless basis in 2020 and 2019, respectively[496](index=496&type=chunk) - Series A Preferred Stock holders are entitled to a liquidation preference and a **5% non-cumulative cash dividend**, convertible into Common Stock at a **12-for-1 ratio**[502](index=502&type=chunk)[503](index=503&type=chunk)[504](index=504&type=chunk) - Series B Preferred Stock holders have a senior liquidation preference and are convertible into Common Stock at a **1-for-1.63 ratio**, subject to an issuable maximum and full ratchet anti-dilution protection[508](index=508&type=chunk)[509](index=509&type=chunk)[510](index=510&type=chunk)[511](index=511&type=chunk) - The 2019 stock offerings triggered a down-round provision in Series B Preferred Stock, resulting in a **$5.3 million** deemed dividend increasing net loss attributable to common shareholders in 2019[513](index=513&type=chunk) - As of December 31, 2020, **30,307 collaboration and consulting warrants** were outstanding, with an average weighted exercise price of **$124.74** and expiration dates ranging from April to May 2021[514](index=514&type=chunk)[520](index=520&type=chunk) - Approximately **29,000 Purchase Warrants** from the July 2019 offering were outstanding as of December 31, 2020[521](index=521&type=chunk) - As of December 31, 2020, **212,185 debt and equity financing warrants** were outstanding, with a weighted average exercise price of **$50.20** and expiration dates ranging from March to November 2021[524](index=524&type=chunk) [12. Share-Based Expense](index=101&type=section&id=12.%20Share-Based%20Expense) Total share-based expense decreased from $0.9 million in 2019 to $0.5 million in 2020, reflecting

NASDAQ: XBIO xeneticbio.com Expanding the Potential of CAR T Cell Therapy Investor Presentation JANUARY 2021 Forward-Looking Statements This presentation contains forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in this presentation other than statements of historical facts may constitute forward-looking statements within the meaning of the federal securities laws. These statements can be identified by wor ...