Common Stock

Each share of the Company’s Common Stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to dividends when and if declared by the Board of Directors. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of Common Stock are entitled to share ratably in the assets of the Company available for distribution.

On December 10, 2020, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “2020 Offering”), 2,448,980 shares of the Company’s Common Stock, par value $0.001 per share, at an offering price of $2.45 per share. The net proceeds to the Company from the 2020 Offering were approximately $5.4 million, after deducting expenses of $0.6 million related to the 2020 Offering, including the placement agent’s fees and related offering expenses. The shares were offered by the Company pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-227572), which was initially filed with the SEC on September 27, 2018, and was declared effective on October 12, 2018. The 2020 Offering closed on December 14, 2020. 

On December 4, 2020, shareholders of the Company voted to approve an amendment to the Company’s Articles of Incorporation to increase the authorized shares of Common Stock to 50,000,000 shares (the “Authorized Share Increase”). The Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of the State of Nevada to effect the Authorized Share Increase as of December 4, 2020.

On July 17, 2019, the Company entered into an underwriting agreement (the "Underwriting Agreement") with Maxim Group LLC (the “Underwriter”), relating to the Company’s offering (the “July 2019 Offering”) of 1,730,000 shares (the “Shares”) of the Company’s Common Stock, , Prefunded Warrants to purchase 570,000 shares of Common Stock (the “Prefunded Warrants”), and warrants to purchase 2,300,000 shares of the Common Stock (the “Purchase Warrants,” and together with the Shares and the Prefunded Warrants, the "Firm Securities"). Each Share was sold together with one Purchase Warrant at a combined public offering price of $6.50 per Share and Purchase Warrant. Each Prefunded Warrant purchased was sold together with one Purchase Warrant at a combined public offering price of $6.49 per Prefunded Warrant and Purchase Warrant. The Prefunded Warrants were exercisable beginning on July 17, 2019 at an exercise price of $0.01 per share. The holders of the Prefunded Warrants did not have the right to exercise any portion of the Prefunded Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Prefunded Warrants. The Prefunded Warrants had an intrinsic value of approximately $3.1 million. Pursuant to the Underwriting Agreement, the Company also granted the Underwriter a 45-day option to purchase up to an additional 345,000 shares of Common Stock and/or Purchase Warrants to purchase up to 345,000 shares of Common Stock (the "Additional Securities," and together with the Firm Securities, the "Securities"), at the public offering price less discounts and commissions. The Securities were offered, issued, and sold pursuant to an effective Registration Statement on Form S-1 (Reg. No. 333-231508) and accompanying prospectus filed with the SEC under the Securities Act of 1933, as amended.

On the Closing Date, the Company completed the July 2019 Offering resulting in gross proceeds to the Company of approximately $15.0 million before deducting the underwriting discount and offering fees and expenses payable by the Company. In addition, on the Closing Date, the Underwriter exercised its overallotment option with respect to 160,000 Purchase Warrants, resulting in additional gross proceeds of $1,600. The net proceeds from the July 2019 Offering of approximately $13.4 million is funding the Company’s research, development and clinical programs, including the development of the XCART technology acquired in the Transaction, and for other general corporate purposes. All of the Prefunded Warrants were exercised during the year ended December 31, 2019 resulting in $5,700 of net proceeds to the Company.

The Purchase Warrants are immediately exercisable at a price of $13.00 per share of Common Stock and expire five years from the date of issuance. The Purchase Warrants began trading on NASDAQ on July 23, 2019 under the symbol “XBIOW.” The Purchase 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 Purchase Warrant may be exercised, at the option of the holder, on a cashless basis for one share of Common Stock. The Company evaluated the terms of the warrants issued and determined that they should be classified as equity instruments. The grant date fair value of these warrants was estimated to be $4.61 per share, for a total of approximately $11.3 million. The fair value of these warrants was estimated using a Black-Scholes model utilizing the following key valuation assumptions: the Company’s stock price, a risk free rate of 1.83%, an expected life of 5 years and an expected volatility of 141.89%. Purchase Warrants to purchase approximately 0.2 million and 2.2 million shares of Common Stock were exercised on a cashless one-for-one basis during the years ended December 31, 2020 and 2019.

On July 16, 2019, the Company, in connection with the July 2019 Offering, entered into a consent agreement with certain holders of warrants to purchase shares of the Company’s Common Stock whose consent was sought in connection with the offering. In consideration of the holders’ consent, the Company agreed to (i) issue such holders an aggregate of 16,666 shares of the Company’s Common Stock (“Consent Shares”) and (ii) adjust the exercise price of those certain warrants issued to each holder in connection with the Company’s Reverse Stock Split on June 25, 2019. The Consent Shares and incremental cost associated with the warrant modification were determined to be direct costs of the offering and, as a result, have been included within net proceeds from the offering.

On June 21, 2019, 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 June 25, 2019. 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 1,442 new shares of Common Stock being issued to existing holders of the Company’s Common Stock.

On June 19, 2019, shareholders of the Company voted to approve an amendment to the Company’s Articles of Incorporation to increase the authorized shares of Common Stock to 150,000,000 shares on a pre-Reverse Stock Split basis. The Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of the State of Nevada to effect this increase as of June 25, 2019. As a result of this increase and after giving effect to the Reverse Stock Split, the Company had 12,500,000 authorized shares of Common Stock.

On March 5, 2019, the Company entered into a Securities Purchase Agreement with certain purchasers pursuant to which the Company offered to the purchasers, in a registered direct offering (the “March 2019 Offering”), an aggregate of (i) 86,667 shares of Common Stock, par value $0.001 per share and (ii) prefunded warrants to purchase 42,417 shares of Common Stock. The prefunded warrants were exercisable beginning on March 7, 2019 at an exercise price of $0.012 per share. The shares were sold at a price of $24.00 per share and the prefunded warrants were sold at a price of $23.988 per prefunded warrant, which represents the per share purchase price for the shares less the $0.012 per share exercise price for each such prefunded warrant. The holders of the prefunded warrants did not have the right to exercise any portion of the prefunded warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of our Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the prefunded warrants. The net proceeds to the Company from the March 2019 Offering were approximately $2.7 million, after deducting expenses related to the March 2019 Offering, including dealer-manager fees and expenses. In a concurrent private placement, the Company issued to the purchasers a warrant to purchase one share of the Company’s Common Stock for each share and prefunded warrant purchased in the March 2019 Offering. These warrants have an exercise price of $27.00 per share, were exercisable beginning on September 8, 2019 and expire seven years from such date. The Company evaluated the terms of the warrants issued and determined that they should be classified as equity instruments. The grant date fair value of these warrants was estimated to be $22.74 per share, for a total of approximately $2.9 million. The fair value of the warrants was estimated using a Black-Scholes model utilizing the following key valuation assumptions: the Company’s stock price, a risk free rate of 2.56%, an expected life of 7.5 years and an expected volatility of 111.3%. The prefunded warrants had an intrinsic value of approximately $1.1 million. During the year ended December 31, 2019, all of the prefunded warrants were exercised resulting in $509 of net proceeds to the Company.

Series A Preferred Stock

The Company has designated 1,000,000 shares as Series A preferred stock with each share having a par value of $0.001 and stated value of $4.80 (the “Series A Preferred Stock”). The following is a summary of the material terms of the Series A Preferred Stock.

Liquidation.    Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series A Preferred Stock will be entitled to receive distributions out of the Company’s assets, of an amount equal to the stated value per share of Series A Preferred Stock (as adjusted for stock splits, combinations, reorganizations and the like) plus any accrued and unpaid dividends thereon before any distributions shall be made on the Common Stock or any series of preferred stock ranked junior to the Series A Preferred Stock.

Dividends.    Holders of the Series A Preferred Stock are entitled to receive a non-cumulative cash dividend at an annual rate of 5% of the stated value per share of Series A Preferred Stock, when and if declared by the Company’s Board, out of the Company’s assets legally available therefor. No dividends or other distribution will be made on the Common Stock or any series of preferred stock ranked junior to the Series A Preferred Stock unless the dividend on the Series A Preferred Stock has been paid current and a reserve has been made for the next calendar year. The Company’s ability to pay dividends on Series A Preferred Stock is subject to restrictions in the Company’s Series B Preferred Stock, which ranks senior to the Series A Preferred Stock in right of payment.

Conversion.    Series A Preferred Stock is convertible, at any time and from time to time at the option of the holder thereof, with a minimum of 61 days’ advance notice to the Company on a twelve preferred shares for one share of Common Stock basis.

Redemption. Upon 30 days prior written notice, the Company may require the holder of any Series A Preferred Stock to convert any or all of such holder’s Series A Preferred Stock to Common Stock at a rate of twelve shares of Series A Preferred Stock to one share of Common Stock.

The Series A Preferred Stock has additional terms covering stock dividends and splits, voting rights, fractional shares and fundamental transactions. As of December 31, 2020 and 2019, there were approximately 1.0 million shares of Series A Preferred Stock issued and outstanding which are convertible into 80,834 shares of Common Stock. There were no Series A Preferred Stock conversions during the years ended December 31, 2020 and 2019.

Series B Preferred Stock

The Company has designated 2,500,000 shares as Series B preferred stock with each share having a stated value of $4.00 per share (the “Series B Preferred Stock”). The following is a summary of the material terms of the Company’s Series B Preferred Stock.

Liquidation.    Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series B Preferred Stock will be entitled to receive distributions out of the Company’s assets, of an amount equal to the stated value per share of Series B Preferred Stock (as adjusted for stock splits, combinations, reorganizations and the like) plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under the amended and restated certificate of designation before any distributions shall be made on the Common Stock or any series of preferred stock ranked junior to the Series B Preferred Stock, which includes Series A Preferred Stock. A fundamental transaction or change of control under the amended and restated certificate of designation shall constitute a liquidation for purposes of this right. Xenetic will give each holder of Series B Preferred Stock written notice of any liquidation at least 30 days before any meeting of stockholders to approve such liquidation or at least 45 days before the date of such liquidation if no meeting is to be held.

Dividends.    Subject to any preferential rights of any outstanding series of preferred stock created by the Company’s Board from time to time, the holders of shares of the Company’s Series B Preferred Stock will be entitled to such cash dividends, non-cumulative, as may be declared from time to time by the Company’s Board on shares of the Company’s Common Stock (on an as-converted basis) from funds available therefore. The Company shall not directly or indirectly pay or declare any dividend or make any distribution upon, nor shall any distribution be made in respect of, any junior securities, including Series A Preferred Stock, as long as any dividends due on the Series B Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption of any junior securities or shares pari passu with the Series B Preferred Stock.

Conversion.     Series B Preferred Stock is convertible, at any time and from time to time at the option of the holder thereof on a one preferred share to 1.63 common shares basis, subject to an issuable maximum and the adjustments described below.

Subsequent Equity Sales.    The Series B Preferred Stock has full ratchet price based anti-dilution protection, subject to customary carve outs, in the event of a down-round financing at a price per share below the stated value of the Series B Preferred Stock. There is no bifurcation of the embedded conversion option being clearly and closely related to the host instrument.

The Series B Preferred Stock has additional terms covering stock dividends and splits, voting rights, fractional shares and fundamental transactions. As of December 31, 2020 and 2019, there were approximately 1.8 million shares of Series B Preferred Stock issued and outstanding which are convertible into approximately 0.6 million shares of Common Stock in each year, respectively, which represents the issuable maximum that can be issued upon the conversion of the currently outstanding Series B Preferred Stock and the exercise of outstanding warrants that were issued in connection with the Series B Preferred Stock.

The stock offerings in 2019 triggered the down-round provision in the Company’s Series B Preferred Stock resulting in an adjustment to the conversion ratio and the recording of a deemed dividend of $5.3 million increasing the net loss attributable to common shareholders for the year ended December 31, 2019. There were no Series B Preferred Stock conversions during the years ended December 31, 2020 and 2019.

Warrants Related to Collaboration and Consulting Agreements

In connection with certain of the Company’s collaboration agreements and consulting arrangements, the Company has issued warrants to purchase shares of Common Stock as payment for services. As of December 31, 2020 and 2019, warrants to purchase 30,307 and 32,412 shares of Common Stock were outstanding, respectively. The fair value of these warrants was determined at each issuance date using the Black-Scholes option pricing model. The warrants were subject to re-measurement at each reporting period until the measurement date was reached. Expense was recognized on a straight-line basis over the expected service period or at the date of issuance if there is not a service period.

On December 31, 2014, SynBio was granted a warrant to purchase 17,033 new shares of Common Stock at an exercise price of $304.92 per share (“SynBio 2014 Warrant”). The SynBio 2014 Warrant was exercisable in four equal tranches, each with separate non-market, performance-based vesting criteria. The Company used its judgment to assess the probability and timing of SynBio achieving these vesting criteria and estimated that it was not probable that the vesting criteria for any tranche would be achieved. None of the vesting criteria were met and, therefore, these warrants were forfeited. These warrants expired as of December 31, 2019.

In connection with the SynBio 2014 Warrant grant, warrants to purchase 809 aggregate new shares of Common Stock were issued to SynBio and Pharmsynthez non-director designees (“SynBio Partner Warrants”) on December 31, 2014 under the same terms and conditions of the SynBio 2014 Warrant. The vesting criteria for any tranche were not met and, therefore, these warrants were forfeited. These warrants expired as of December 31, 2019.

On December 31, 2014, the Company granted Serum Institute a warrant to purchase 8,081 new shares of Common Stock at an exercise price of $95.04 per share, as adjusted (“Serum Institute 2014 Warrant”). The Serum Institute 2014 Warrant was exercisable in two equal tranches, each with separate non-market, performance-based vesting criteria. The Company used its judgment to assess the probability and timing of Serum Institute achieving these vesting criteria. These judgments were reassessed at each reporting period until the measurement date was reached. These warrants expired as of December 31, 2019.

In connection with the Serum Institute 2014 Warrant grant, warrants to purchase 410 aggregate new shares of Common Stock were issued to Serum Institute non-director designees (“Serum Institute Partner Warrants”) on December 31, 2014 under the same terms and conditions of the Serum Institute 2014 Warrant. These warrants expired as of December 31, 2019.

As of December 31, 2020, there were 17,677 Serum Institute warrants outstanding to purchase shares of Common Stock with an exercise price of $95.04. These warrants were fully vested and expensed at the time of grant.

The Company did not recognize warrant expense related to collaboration agreements during the years ended December 31, 2020 and 2019. During the years ended December 31, 2020 and 2019, collaboration warrants to purchase 2,105 shares and 12,532 shares expired, respectively. No collaboration or consulting service warrants were granted or exercised during the years ended December 31, 2020 and 2019. As of December 31, 2020, outstanding collaboration warrants have an average weighted exercise price of $124.74 and expiration dates ranging from April 2021 through May 2021.

Warrants Related to Financing Arrangements

In connection with the July 2019 Offering, the Company offered to the purchasers Prefunded Warrants to purchase 570,000 shares of Common Stock. The Prefunded Warrants were exercisable beginning on July 17, 2019 at an exercise price of $0.01 per share. The Prefunded Warrants were sold at a price of $6.49 per Prefunded Warrant, which represented the per share purchase price for the shares less the $0.01 per share exercise price for each such Prefunded Warrant. The holders of the Prefunded Warrants did not have the right to exercise any portion of the Prefunded Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Prefunded Warrants. All of the Prefunded Warrants to purchase 570,000 shares were exercised during the year ended December 31, 2019 resulting in net proceeds to the Company of $5,700. Also in connection with the July 2019 Offering, the Company issued to the purchasers the Purchase Warrants. These Purchase Warrants have an exercise price of $13.00 per share, were exercisable beginning on July 17, 2019 and expire five years from such date. The warrants began trading on NASDAQ on July 23, 2019 under the symbol “XBIOW.” The Purchase 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 Purchase Warrant may be exercised, at the option of the holder, on a cashless basis for one share of Common Stock. Purchase Warrants to purchase approximately 0.2 million shares and 2.2 million shares of Common Stock were exercised on a cashless, one-for-one basis during the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020 there were approximately 29,000 Purchase Warrants outstanding.

On June 24, 2019, the Company entered into a consent agreement with certain holders of warrants to purchase shares of the Company’s Common Stock whose consent was required to effect the Reverse Stock Split. In consideration of the holders’ consent, the Company agreed to issue the holders warrants (the “Consent Warrants”) to purchase 8,335 shares of the Company’s Common Stock, at an exercise price per share based on a volume weighted average price for the five trading days following the effectiveness of the Reverse Stock Split. The Consent Warrants were issued on July 3, 2019 at an exercise price of $10.63. The Company evaluated the terms of the Consent Warrants and determined that they should be classified as equity instruments. The grant date fair value of these warrants was estimated to be $7.62 per share, for a total of approximately $64,000. The fair value of the Consent Warrants was estimated using a Black-Scholes model utilizing the following key valuation assumptions: the Company’s stock price, a risk free rate of 1.83%, an expected life of 7 years and an expected volatility of 114.53%. The Company recorded approximately $64,000 as general and administrative expense during the year ended December 31, 2019. The Consent Warrants were subsequently modified to reflect an exercise price of $2.91 price per share in connection with the July 2019 Offering. As a result of this modification, the Company recognized a $2,000 expense that was netted against the proceeds of the July 2019 Offering.

In March 2019, in connection with the March 2019 Offering, the Company offered to the purchasers prefunded warrants to purchase 42,417 shares of Common Stock. The prefunded warrants were exercisable beginning on March 7, 2019 at an exercise price of $0.012 per share. The prefunded warrants were sold at a price of $23.988 per prefunded warrant, which represents the per share purchase price for the shares less the $0.012 per share exercise price for each such prefunded warrant. The holders of the prefunded warrants did not have the right to exercise any portion of the prefunded warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of our Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the prefunded warrants. All of these prefunded warrants were exercised during the year ended December 31, 2019 resulting in net proceeds to the Company of $509. In a concurrent private placement, the Company issued to the purchasers a warrant to purchase one share of the Company’s Common Stock for each share and prefunded warrant (129,084 shares) purchased in the March 2019 Offering. These warrants have an exercise price of $27.00 per share, are exercisable beginning on September 8, 2019 and expire seven years from such date. As of December 31, 2020, all of these warrants were outstanding.

In addition to the prefunded and purchase warrants issued in the March 2019 Offering and the July 2019 Offering, the Company has outstanding debt and equity financing warrants to purchase an aggregate of 212,185 and 262,690 shares of Common Stock in connection with debt and equity financing arrangements as of December 31, 2020 and 2019 at a weighted average exercise price of $50.20 and $51.97, respectively, and expiration dates ranging from March 2021 through November 2021. There were no debt and equity financing warrants granted or exercised during the year ended December 31, 2020. Except as described above for the March 2019 Offering and the July 2019 Offering, there were no debt and equity financing warrants granted or exercised during the years ended December 31, 2020 and 2019.