Xenetic Biosciences, Inc. 10-Q

ITEM 1 – FINANCIAL STATEMENTS XENETIC BIOSCIENCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash $ 10,725,707 $ 13,097,265 Prepaid expenses and other 1,319,035 556,094 Total current assets 12,044,742 13,653,359 Other assets 704,431 1,066,931 Total assets $ 12,749,173 $ 14,720,290 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 221,281 $ 287,360 Accrued expenses and other current liabilities 650,034 785,796 Total current liabilities 871,315 1,073,156 Total liabilities 871,315 1,073,156 Commitments and contingencies (Note 10) – – Stockholders' equity: Preferred stock, 10,000,000 shares authorized Series B, $ 0.001 par value: 1,804,394 shares issued and outstanding as of June 30, 2023 and December 31, 2022 1,804 1,804 Series A, $ 0.001 par value: 970,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022 970 970 Common stock, $ 0.001 par value; 10,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 1,535,301 and 1,519,360 shares issued as of June 30, 2023 and December 31, 2022, respectively; 1,532,600 and 1,516,659 shares outstanding as of June 30, 2023 and December 31, 2022, respectively 1,536 1,520 Additional paid in capital 207,908,129 207,769,904 Accumulated deficit ( 191,007,135 ) ( 189,099,618 ) Accumulated other comprehensive income 253,734 253,734 Treasury stock ( 5,281,180 ) ( 5,281,180 ) Total stockholders' equity 11,877,858 13,647,134 Total liabilities and stockholders' equity $ 12,749,173 $ 14,720,290 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 XENETIC BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2023 2022 2023 2022 Revenue: Royalty revenue $ 651,005 $ 416,710 $ 1,256,849 $ 805,703 Total revenue 651,005 416,710 1,256,849 805,703 Operating costs and expenses: Research and development ( 903,243 ) ( 2,077,499 ) ( 1,498,519 ) ( 3,178,898 ) General and administrative ( 945,950 ) ( 1,026,290 ) ( 1,871,693 ) ( 1,933,599 ) Total operating costs and expenses ( 1,849,193 ) ( 3,103,789 ) ( 3,370,212 ) ( 5,112,497 ) Loss from operations ( 1,198,188 ) ( 2,687,079 ) ( 2,113,363 ) ( 4,306,794 ) Other income (expense): Other income (expense) 21,122 ( 1,076 ) 25,642 ( 877 ) Interest income, net 126,103 15,965 180,204 41,870 Total other income 147,225 14,889 205,846 40,993 Net loss $ ( 1,050,963 ) $ ( 2,672,190 ) $ ( 1,907,517 ) $ ( 4,265,801 ) Basic and diluted net loss per share $ ( 0.69 ) $ ( 1.90 ) $ ( 1.25 ) $ ( 3.10 ) Weighted-average shares of common stock outstanding, basic and diluted 1,524,717 1,406,657 1,520,710 1,375,505 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 XENETIC BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) THREE MONTHS ENDED JUNE 30, 2023 Preferred Stock Common Stock Accumulated Number of Shares Par Value ($0.001) Number of Shares Par Value ($0.001) Additional Paid in Capital Accumulated Deficit Other Comprehensive Income Treasury Stock Total Stockholders’ Equity Balance as of April 1, 2023 2,774,394 $ 2,774 1,519,360 $ 1,520 $ 207,838,756 $ ( 189,956,172 $ 253,734 $ ( 5,281,180 ) $ 12,859,432 Issuance of common stock to adjust for reverse split rounding – – 15,941 16 ( 16 ) – – – – Share-based expense – – – – 69,389 – – – 69,389 Net loss – – – – – ( 1,050,963 – – ( 1,050,963 ) Balance as of June 30, 2023 2,774,394 $ 2,774 1,535,301 $ 1,536 $ 207,908,129 $ ( 191,007,135 $ 253,734 $ ( 5,281,180 ) $ 11,877,858 SIX MONTHS ENDED JUNE 30, 2023 Preferred Stock Common Stock Accumulated Number of Shares Par Value ($0.001) Number of Shares Par Value ($0.001) Additional Paid in Capital Accumulated Deficit Other Comprehensive Income Treasury Stock Total Stockholders' Equity Balance as of January 1, 2023 2,774,394 $ 2,774 1,519,360 $ 1,520 $ 207,769,904 $ ( 189,099,618 ) $ 253,734 $ ( 5,281,180 ) $ 13,647,134 Issuance of common stock to adjust for reverse split rounding – – 15,941 16 ( 16 ) – – – – Share-based expense – – – – 138,241 – – – 138,241 Net loss – – – – – ( 1,907,517 ) – – ( 1,907,517 ) Balance as of June 30, 2023 2,774,394 $ 2,774 1,535,301 $ 1,536 $ 207,908,129 $ ( 191,007,135 ) $ 253,734 $ ( 5,281,180 ) $ 11,877,858 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 XENETIC BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) THREE MONTHS ENDED JUNE 30, 2022 Preferred Stock Common Stock Accumulated Number of Shares Par Value ($0.001) Number of Shares Par Value ($0.001) Additional Paid in Capital Accumulated Deficit Other Comprehensive Income Treasury Stock Total Stockholders' Equity Balance as of April 1, 2022 2,774,394 $ 2,774 1,346,830 $ 1,347 $ 206,084,442 $ ( 184,140,876 ) $ 253,734 $ ( 5,281,180 ) $ 16,920,241 Issuance of common stock in connection with purchase of in-process research and development – – 87,500 88 804,912 – – – 805,000 Share-based expense – – – – 135,870 – – – 135,870 Exercise of purchase warrants – – 30 – – – – – – Net loss – – – – – ( 2,672,190 ) – – ( 2,672,190 ) Balance as of June 30, 2022 2,774,394 $ 2,774 1,434,360 $ 1,435 $ 207,025,224 $ ( 186,813,066 ) $ 253,734 $ ( 5,281,180 ) $ 15,188,921 SIX MONTHS ENDED JUNE 30, 2022 Preferred Stock Common Stock Accumulated Number of Shares Par Value ($0.001) Number of Shares Par Value ($0.001) Additional Paid in Capital Accumulated Deficit Other Comprehensive Income Treasury Stock Total Stockholders' Equity Balance as of January 1, 2022 2,774,394 $ 2,774 1,346,661 $ 1,347 $ 205,964,847 $ ( 182,547,265 ) $ 253,734 $ ( 5,281,180 ) $ 18,394,257 Issuance of common stock in connection with purchase of in-process research and development – – 87,500 88 804,912 – – – 805,000 Share-based expense – – – – 255,465 – – – 255,465 Exercise of purchase warrants – – 199 – – – – – – Net loss – – – – – ( 4,265,801 ) – – ( 4,265,801 ) Balance as of June 30, 2022 2,774,394 $ 2,774 1,434,360 $ 1,435 $ 207,025,224 $ ( 186,813,066 ) $ 253,734 $ ( 5,281,180 ) $ 15,188,921 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 XENETIC BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 1,907,517 ) $ ( 4,265,801 ) Adjustments to reconcile net loss to net cash used in operating activities: Acquired in-process research and development – 1,305,000 Amortization of right of use asset – 19,087 Share-based expense 138,241 255,465 Changes in operating assets and liabilities: Prepaid expenses and other ( 762,941 ) 11,579 Other assets 362,500 – Accounts payable, accrued expenses and other liabilities ( 201,841 ) ( 141,920 Net cash used in operating activities ( 2,371,558 ) ( 2,816,590 ) CASH FLOWS FROM INVESTING ACTIVITIES: Net cash paid to acquire in-process research and development – ( 500,000 ) Net cash used in investing activities – ( 500,000 ) Net change in cash ( 2,371,558 ) ( 3,316,590 ) Cash at beginning of period 13,097,265 18,244,030 Cash at end of period $ 10,725,707 $ 14,927,440 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ – $ – SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock to acquire in-process research and development $ – $ 805,000 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 XENETIC BIOSCIENCES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The Company Background Xenetic Biosciences, Inc. (“Xenetic” or the “Company”), incorporated in the state of Nevada and based in Framingham, Massachusetts, is a biopharmaceutical company focused on advancing innovative immune-oncology technologies addressing hard to treat cancers. The Company’s proprietary Deoxyribonuclease (“DNase”) platform is designed to improve outcomes of existing treatments, including immunotherapies, by targeting neutrophil extracellular traps (“NETs”), which have been implicated in cancer progression and resistance to cancer treatments. Xenetic is currently focused on advancing its systemic DNase program into the clinic as an adjunctive therapy for pancreatic carcinoma and locally advanced or metastatic solid tumors. XCART ™ is the Company’s personalized Chimeric Antigen Receptor (“CAR”) T platform technology engineered to target patient specific tumor neoantigens with a demonstrated proof of mechanism in B-cell lymphomas. Additionally, Xenetic has partnered with biotechnology and pharmaceutical companies to develop its proprietary drug delivery platform, PolyXen ® , and receives royalty payments under an exclusive license arrangement in the field of blood coagulation disorders. As used in this Quarterly Report on Form 10-Q (“Quarterly Report”), unless otherwise indicated, all references herein to “Xenetic,” the “Company,” “we” or “us” refer to Xenetic Biosciences, Inc. and its wholly-owned subsidiaries. The Company, directly or indirectly, through its wholly-owned subsidiaries, Hesperix S.A. (“Hesperix”) and Xenetic Biosciences (U.K.) Limited (“Xenetic UK”), and the wholly-owned subsidiaries of Xenetic UK, Lipoxen Technologies Limited (“Lipoxen”), Xenetic Bioscience, Incorporated and SymbioTec, GmbH (“SymbioTec”), own various United States (“U.S.”) federal trademark registrations and applications along with unregistered trademarks and service marks, including but not limited to XCART, OncoHist™, PolyXen, ErepoXen™, and ImuXen™, which may be used throughout this Quarterly Report. All other company and product names may be trademarks of the respective companies with which they are associated. Going Concern and Management’s Plan Management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company has incurred substantial losses since its inception and expects to continue to incur operating losses in the near-term. These factors raise substantial doubt about its ability to continue as a going concern. The Company believes that it has access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations, related party funding, or other means to continue as a going concern. The Company believes that its existing resources will be adequate to fund the Company’s operations for a period of at least twelve months from the date of these financial statements. However, the Company anticipates it may need additional capital in the long-term to pursue its business initiatives. The terms, timing and extent of any future financing will depend upon several factors, including the achievement of progress in its product development programs, its ability to identify and enter into licensing or other strategic arrangements, its continued listing on the Nasdaq Stock Market (“Nasdaq”), and factors related to financial, economic, geo-political, industry and market conditions, many of which are beyond its control. The capital markets for the biotech industry can be highly volatile, which make the terms, timing and extent of any future financing uncertain. On June 3, 2022, the Company received a written notification (the “Notice”) from the Listing Qualifications Department of Nasdaq notifying the Company that the closing bid price for its common stock had been below $1.00 for 30 consecutive business days and that the Company therefore was not in compliance with the minimum bid price requirement for continued inclusion on Nasdaq under Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). The Notice had no immediate effect on the listing of the Company’s common stock on the Nasdaq Capital Market. On May 15, 2023, the Company effected a reduction, on a 1-for-10 basis, in its authorized common stock, par value $ 0.001 , along with a corresponding and proportional decrease in the number of shares issued and outstanding (the “Reverse Stock Split”). On May 30, 2023, the Company received a letter from Nasdaq notifying the Company that it has regained compliance with the Bid Price Requirement as a result of the closing bid price of the Company’s common stock being at $ 1.00 per share or greater for the 10 consecutive business days from May 15, 2023 through May 26, 2023 and that this matter is now closed. 8 2. Risks and Uncertainties Effects of the COVID-19 Pandemic During March 2020, a global pandemic was declared by the World Health Organization related to the outbreak of a novel strain of coronavirus, or COVID-19. The pandemic significantly affected economic conditions in the U.S., accelerating during the first half of March 2020 and continuing throughout 2021 and 2022 and into 2023, as federal, state and local governments reacted to the public health crisis with mitigation measures, creating significant uncertainties in the U.S. economy. The Company continues to evaluate the effects of the COVID-19 pandemic on its business and while there has been no significant impact to the Company’s operations to date, the Company at this time remains uncertain of the impact this event may have on the Company’s future operations. The extent to which the COVID-19 pandemic affects our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, and such uncertainty is expected to continue for some time. Impact of the conflict in Ukraine on Operations The short and long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time. The imposition of sanctions and counter sanctions may have an adverse effect on the economic markets generally and could impact our business, financial condition, and results of operations. 3. Summary of Significant Accounting Policies Preparation of Interim Financial Statements The accompanying condensed consolidated interim financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results for the interim periods are not necessarily indicative of results for the full year. The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 22, 2023, and amended on April 28, 2023. On May 15, 2023, the Company effected the Reverse Stock Split. On the effective date of the Reverse Stock Split, (i) every 10 shares of common stock were reduced to one share of common stock, with any fractional amounts rounded up to one share; (ii) the number of shares of common stock into which each outstanding warrant, restricted stock unit, or option to purchase common stock were proportionately reduced on the same basis as the common stock; (iii) the exercise price of each outstanding warrant or option to purchase common stock were proportionately increased on a 1-to-10 basis; and (iv) the number of shares of common stock into which each share of preferred stock were proportionately reduced on the same basis as the common stock. Unless otherwise indicated, all of the share numbers, share prices, and exercise prices have been adjusted in this Quarterly Report, on a retroactive basis, to reflect this 1-for-10 Reverse Stock Split . 9 Principles of Consolidation The condensed consolidated financial statements of the Company include the accounts of Hesperix, Xenetic UK and Xenetic UK’s wholly owned subsidiaries: Lipoxen, Xenetic Bioscience, Incorporated, and SymbioTec. All intercompany balances and transactions have been eliminated in consolidation. Cash and concentrations of credit risk The Company considers all highly liquid investments with an original maturity of 90 days or less from the date of purchase to be cash equivalents. Investments with original maturities of greater than 90 days from the date of purchase but less than one year from the balance sheet date are classified as short-term investments, while investments with maturities of one year or beyond from the balance sheet date are classified as long-term investments. Management determines the appropriate classification of its cash equivalents and investment securities at the time of purchase and re-evaluates such determination as of each balance sheet date. The carrying amount of cash equivalents approximate their fair value due to the short-term nature of these instruments. Financial instruments that potentially subject the Company to credit risk consist primarily of cash on deposit with financial institutions, the balances of which may exceed federally insured limits. The Company has not experienced any losses on such accounts, and does not believe it is exposed to any unusual credit risk beyond the normal credit risk currently associated with commercial banking relationships. Cash deposits are insured by the Federal Deposit Insurance Corporations up to $ 250,000 . The Company maintains its primary banking relationship with one large financial institution and all cash on deposit is covered under federally insured limits. Basic and Diluted Net Loss per Share The Company computes basic net loss per share by dividing net loss applicable to common stockholders by the weighted-average number of shares of the Company’s common stock outstanding during the period. The Company computes diluted net loss per share after giving consideration to the dilutive effect of stock options that are outstanding during the period, except where such non-participating securities would be anti-dilutive. For the three and six months ended June 30, 2023 and 2022, basic and diluted net loss per share are the same for each respective period due to the Company’s net loss position. Potentially dilutive, non-participating securities have not been included in the calculations of diluted net loss per share, as their inclusion would be anti-dilutive. Recent Accounting Standards In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The guidance modified the measurement and recognition of credit losses for most financial assets and certain other instruments. The amendment updated the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. This may result in earlier recognition of allowance for losses. The Company adopted ASU 2016-13 as of January 1, 2023 and the adoption did not have a material effect on our consolidated financial statements. 10 4. Significant Strategic Collaborations Takeda Pharmaceutical Co. Ltd. ( together with its wholly-owned subsidiaries, “Takeda”) In October 2017, the Company granted to Takeda the right to grant a non-exclusive sublicense to certain patents related to the Company’s PolyXen technology that were previously exclusively licensed to Takeda in connection with products related to the treatment of blood and bleeding disorders. Royalty payments of approximately $ 0.7 million and $ 1.3 million were recorded as revenue by the Company during the three and six months ended June 30, 2023, respectively, and approximately $ 0.4 million and $ 0.8 million were recorded as revenue by the Company during the three and six months ended June 30, 2022, respectively. These payments are based on single digit royalties on net sales of certain covered products. The Company’s policy is to recognize royalty payments as revenue when they are reliably measurable, which is upon receipt of reports from Takeda. The Company receives these reports in the quarter subsequent to the actual sublicensee sales. At the time the revenue was received, there were no remaining performance obligations and all other revenue recognition criteria were met. CLS Therapeutics Ltd. (“CLS”) On April 26, 2022, the Company entered into an Exclusive Sublicense Agreement (the “Sublicense Agreement”) with CLS pursuant to which the Company received an exclusive license, under certain patent rights and know-how owned or controlled by CLS, to develop and commercialize pharmaceutical products and methods incorporating DNase enzyme for use in treatment of cancer (the “Sublicensed Products”). Under the terms of the Sublicense Agreement, the Company will have sole responsibility for, and shall use commercially reasonable efforts to, among other things, research, develop and obtain marketing approval for the Sublicensed Products in the U.S. and certain European markets, and to commercialize such Sublicensed Products in the relevant market once marketing approval is obtained. Concurrent with the Sublicense Agreement, the Company entered into an Exclusive License Agreement (the “License Agreement”) with CLS, pursuant to which the Company received an exclusive license under certain patent rights and know-how owned or controlled by CLS to develop and commercialize pharmaceutical products and methods incorporating DNase in conjunction with CAR T therapies (the “Licensed Products”). Under the terms of the License Agreement, the Company will have sole responsibility for, and shall use commercially reasonable efforts to, among other things, research, develop and obtain marketing approval for the Licensed Products in the U.S. and certain European markets, and to commercialize such Licensed Products in the relevant market once marketing approval is obtained. Volition Collaboration On August 2, 2022, the Company announced a research and development collaboration with Belgian Volition SARL Limited (“Volition”) to develop NETs-targeted adoptive cell therapies for the treatment of cancer. The collaboration is an early exploratory program to evaluate the potential combination of Volition’s Nu.Q ® technology Test and the Company’s DNase-Armored CAR T platform to develop proprietary adoptive cell therapies potentially targeting multiple types of solid cancers. Under the terms of the collaboration agreement, Volition will fund a research program and the two parties will share proceeds from commercialization or licensing of any products arising from the collaboration. Subsequent to the quarter end, the Company entered into the first Collaborator Statement of Work as part of this collaboration with Volition. 11 Catalent Pharma Solutions LLC (“Catalent”) On June 30, 2022, the Company entered into a Statement of Work (the “SOW”) with Catalent to outline the general scope of work, timeline, and pricing pursuant to which Catalent will provide certain services to the Company to perform cGMP manufacturing of the Company’s recombinant protein, Human DNase I. The parties agreed to enter into a Master Services Agreement (“MSA”) that will contain terms and conditions to govern the project contemplated by the SOW and that will supersede the addendum to the SOW containing Catalent’s standard terms and conditions. In addition, in the event of any conflict between the project-specific terms and conditions set forth in the SOW and the MSA, the MSA terms and conditions shall govern. The estimated total cost of the project contemplated by the SOW is expected to be up to approximately $5 million (exclusive of certain fees and potential alternatives) for the manufacturing services over the course of the term of the project with each phase of the project invoiced separately in connection with the commencement of such phase. Unless earlier amended or terminated, the manufacturing services contemplated by the SOW are currently targeted to be completed by the first half of 2024. The SOW is terminable by the Company at any time with 30 days’ prior written notice to Catalent. The SOW also contains customary provisions related to, among other things, confidentiality, warranties, intellectual property and indemnification. The Company has paid Catalent approximately $ 1.8 million through June 30, 2023, of which $ 0.9 million and $ 0.3 million has been recognized as an advance payment and is included in prepaid expenses and other as of June 30, 2023 and December 31, 2022, respectively. Scripps Research On March 17, 2023, the Company and Scripps Research entered into a Research Funding and Option Agreement (the “Agreement”), pursuant to which the Company has agreed to provide Scripps Research an aggregate of up to $ 938,000 to fund research relating to advancing the pre-clinical development of the Company’s DNase oncology platform technology. The research funding is payable by the Company to Scripps Research on a monthly basis in accordance with a negotiated budget, which provides for an initial payment of approximately $ 78,000 on the date of the Agreement and subsequent monthly payments of approximately $ 78,000 over a 12-month period. Under the Agreement, the Company has the option to acquire a worldwide exclusive license to Scripps Research’s rights in the Technology or Patent Rights (as defined in the Agreement), as well as a non-exclusive, royalty-free, non-transferrable license to make and use TSRI Technology (as defined in the Agreement) solely for the Company’s internal research purposes during the performance of the research program contemplated by the Agreement. Unless earlier terminated, the term of the Agreement continues from the date of the Agreement for fifteen (15) months. The Agreement may be terminated by the Company with 30 days advance written notice to Scripps Research beginning six (6) months after the Effective Date (as defined in the Agreement) or by Scripps Research if the Company fails to make timely payments due under the Agreement, subject to 30 days’ written notice to cure such nonpayment. The Agreement may further be terminated by either party in the event of the other party’s uncured failure to perform any obligations under the Agreement or the bankruptcy of the other party. The Company has paid Scripps Research approximately $ 0.3 million under this agreement through June 30, 2023, of which approximately $ 37,000 has been recognized as an advance payment and is included in prepaid expenses and other as of June 30, 2023. Other Agreements The Company has also entered into various research, development, license and supply agreements with Serum Institute of India (“Serum Institute”), PJSC Pharmsynthez (“Pharmsynthez”) and SynBio LLC (“SynBio”), a wholly owned subsidiary of Pharmsynthez. The Company and its collaborative partners continue to engage in research and development activities with no resultant commercial products through June 30, 2023. No amounts were recognized as revenue related to the Serum Institute, Pharmsynthez or SynBio agreements during the three and six months ended June 30, 2023 and 2022, respectively. 12 5. Fair Value Measurements Accounting Standards Codification Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 utilizes quoted market prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. As of June 30, 2023 and December 31, 2022, the carrying amounts of the Company’s financial instruments approximates fair value due to their short maturities. There were no financial instruments classified as Level 3 in the fair value hierarchy during the three and six months ended June 30, 2023 and 2022. 6. Stockholders’ Equity Common Stock On May 11, 2023, the Company filed a Certificate of Change to the Company’s Articles of Incorporation with the Secretary of State of Nevada to effect the Reverse Stock Split. The Reverse Stock Split was effective at 12:01 a.m., Eastern Time, on May 15, 2023. No fractional shares were issued as a result of the Reverse Stock Split and any remaining share fractions were rounded up to the nearest whole share, resulting in 15,941 new shares of common stock being issued to existing holders of the Company’s common stock. Warrants In connection with its July 2021 private placement, the Company issued warrants to purchase an aggregate of 462,963 shares of the Company’s common stock (the “Series A Warrants”). The Series A Warrants are immediately exercisable at a price of $ 33.00 per share of common stock and expire on February 23, 2025 . No Series A Warrants were exercised or forfeited during the three and six months ended June 30, 2023 and 2022. In addition, the Company has publicly traded warrants to purchase approximately 2,100 shares of common stock outstanding as of both June 30, 2023 and December 31, 2022. These warrants have an exercise price of $ 130.00 per share and expire on July 17, 2024 . The warrants trade on Nasdaq under the symbol “XBIOW.” The warrants also provide that if the weighted-average price of common stock on any trading day on or after 30 days after issuance is lower than the then-applicable exercise price per share, each warrant may be exercised, at the option of the holder, on a cashless basis for one share of common stock. None of these warrants were exercised during the three and six months ended June 30, 2023. Warrants to purchase approximately 30 and 199 shares of common stock were exercised on a cashless, one-for-one basis during the three and six months ended June 30, 2022, respectively. None of these warrants were forfeited during the three and six months ended June 30, 2023 and 2022. The Company also has outstanding warrants to purchase approximately 800 shares of the Company’s common stock as of June 30, 2023 and December 31, 2022. These warrants have an exercise price of $ 29.09 per share and expire on July 3, 2026 . None of these warrants were exercised or forfeited during the three and six months ended June 30, 2023 and 2022. 13 7. Share-Based Expense Total share-based expense related to stock options, restricted stock units and common stock awards was approximately $ 0.1 million for each of the three months ended June 30, 2023 and 2022 and approximately $ 0.1 million and $ 0.3 million for the six months ended June 30, 2023 and 2022, respectively. Share-based compensation expense is classified in the condensed consolidated statements of operations as follows: Schedule of share-based compensation expense Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Research and development expenses $ 13,778 $ 23,128 $ 27,466 $ 42,306 General and administrative expenses 55,611 112,742 110,775 213,159 $ 69,389 $ 135,870 $ 138,241 $ 255,465 Employee Stock Options No stock option awards to purchase shares of common stock were granted during the three and six months ended June 30, 2023. During the six months ended June 30, 2022, the Company granted 20,000 stock option awards to purchase shares of common stock. The Company recognized a total of $ 0.1 million of compensation expense related to employee stock options during each of the three months ended June 30, 2023 and 2022 and $ 0.1 million and $ 0.3 million during the six months ended June 30, 2023 and 2022, respectively. No employee stock options or RSUs were exercised and none expired during the three and six months ended June 30, 2023 and 2022. Non-Employee Stock Options There were no non-employee stock options granted or exercised during the three and six months ended June 30, 2023 and 2022, respectively. During the six months ended June 30, 2023, non-employee stock option grants to purchase approximately 100 shares of common stock expired. No non-employee stock option grants expired during the six months ended June 30, 2022. The Company did no t recognize any expense related to non-employee stock options during the three and six months ended June 30, 2023 and 2022, respectively. 9. Income Taxes During the three and six months ended June 30, 2023 and 2022, there was no provision for income taxes as the Company incurred losses during both periods. Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company records a valuation allowance against its deferred tax assets as the Company believes it is more likely than not the deferred tax assets will not be realized. The valuation allowance against deferred tax assets was approximately $ 39 .0 million and $ 38.6 million as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022, the Company did no t record any unrecognized tax positions. 14 10. Commitments Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows: Cash flow information regarding leases Six Months Ended June 30, Six Months Ended June 30, 2023 2022 Operating cash flow information: Cash paid for amounts included in the measurement of lease liabilities $ – $ 19,087 Supplemental balance sheet information related to the Company’s operating leases is as follows: Supplemental information related to operating leases Balance Sheet Classification June 30, 2023 June 30, 2022 Right-of-use assets - ST Prepaid expenses and other $ – $ 9,611 Current lease liabilities Accrued expenses and other current liabilities $ – $ 9,611 11. Related Party Transactions The Company has entered into various research, development, license and supply agreements with Serum Institute and Pharmsynthez, each a related party whose relationship has not materially changed from that disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 22, 2023, as amended on April 28, 2023. During the fourth quarter of 2019, the Company entered into a loan agreement with Pharmsynthez (the “Pharmsynthez Loan”), pursuant to which the Company advanced Pharmsynthez an aggregate principal amount of up to $ 500,000 to be used for the development of a specific product under the Company’s Co-Development Agreement with Pharmsynthez. The Pharmsynthez Loan had an initial term of 15-months and accrued interest at a rate of 10 % per annum. The Pharmsynthez Loan was guaranteed by all of the operating subsidiaries of Pharmsynthez, including SynBio and AS Kevelt, and was secured by all of the common and preferred stock of the Company owned by Pharmsynthez and SynBio. Pharmsynthez paid all obligations due under the Pharmsynthez Loan in May 2023, and no further amounts are due under the Pharmsynthez Loan. As a result, the Company recognized approximately $ 65,000 of income related to interest and fees associated with the Pharmsynthez Loan including approximately $ 40,000 related to interest income during the three and six months ended June 30, 2023. The Company recognized approximately $ 9,000 of interest income related to the Pharmsynthez Loan during the six months ended June 30, 2022. As of December 31, 2022, approximately $ 0.4 million was included in other assets on the condensed consolidated balance sheet. No amounts were outstanding as of June 30, 2023. 12. Subsequent Events The Company performed a review of events subsequent to the balance sheet date through the date the financial statements were issued and determined that there were no such events requiring recognition or disclosure in the financial statements except as described in footnote 4. 15