Xenetic Biosciences(XBIO) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION 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 This section presents the company's unaudited condensed consolidated financial statements for the quarter, along with detailed notes Condensed Consolidated Balance Sheets 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] 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 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] 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 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] 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 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] 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 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 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][25] - 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] Note 2. Impact of COVID-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] Note 3. Summary of Significant Accounting Policies 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] - 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] - 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] Note 4. Significant Strategic Collaborations 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] Note 5. Property and Equipment, net 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] Note 6. Indefinite-Lived Intangible Assets 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] - 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] Note 7. Fair Value Measurements 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] - No financial instruments were classified as Level 3 in the fair value hierarchy during the three months ended March 31, 2021 and 2020[41] Note 8. Stockholders' Equity 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] Note 9. Share-Based Expense 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] Note 10. Income Taxes 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] 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 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 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] 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][57] Note 13. Subsequent Events 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] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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][64] Business Overview 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] - 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][67] - 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][69] Critical Accounting Estimates 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] Effects of the COVID-19 Pandemic 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] - 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] Results of Operations 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 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] Research and Development Expenses 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] General and Administrative Expenses 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] Other Income (Expense) 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] Interest Income 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] Liquidity and Capital Resources 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] - 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] Cash Flows from Operating Activities 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] Cash Flows from Investing Activities 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] Cash Flow from Financing Activities 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] Contractual Obligations and Commitments 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] Off Balance Sheet Arrangements 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] Recent Accounting Standards 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] Critical Accounting Policies and Estimates 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] Item 3 - Quantitative and Qualitative Disclosures About Market Risk 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] Item 4 - Controls and Procedures 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 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] Changes in Internal Control over Financial Reporting 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] PART II - OTHER INFORMATION This section provides additional information not covered in Part I, including legal proceedings, risk factors, equity sales, and exhibits Item 1 - Legal Proceedings 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] - Incidental legal proceedings are not expected to have a material effect on financial condition or results of operations[97] Item 1A - Risk Factors 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] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3 - Defaults Upon Senior Securities There were no defaults upon senior securities to report during the period - No defaults upon senior securities to report[100] Item 4 - Mine Safety Disclosures This item is not applicable to the company - Mine safety disclosures are not applicable to the company[101] Item 5 - Other Information There is no other information to report under this item - No other information to report[102] Item 6 - Exhibits 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] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are filed as part of the report[105] 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]