GENE BIOTHERAPEUTICS, INC. The following discussion and analysis are intended to help you understand our
financial condition and results of operations for the year ended
Overview
We are a clinical stage biotechnology company focused on pre-clinical, clinical and commercialization of angiogenic gene therapy biotherapeutics for strategic niche markets, primarily for the treatment of cardiovascular disease. Our technology platform is designed to biologically activate the human body's innate angiogenic healing process to stimulate the growth of microvascular networks for patients with ischemic cardiovascular, cerebral, and other medical conditions and diseases, as well as for advanced tissue engineering applications. Historically, we have developed and sold various medical devices, product candidates and products.
We operated throughout the period covered by this report, with severely limited
financial resources. During 2015 and 2016, prior to the period covered in this
report, we took significant actions to reduce our operating expenses, including
headcount reductions, downsizing offices, and suspending some operations while
we sought capital to continue our business operations. In 2016 we contributed
our assets related to our Generx product candidate into our
Our current business is focused exclusively on the development of Generx, a gene
therapy product candidate targeted for men and women with advanced ischemic
heart disease and refractory angina. We have received FDA clearance and FAST
Track designation covering our conduct of the AFFIRM Phase 3 clinical trial. We
do not currently have any other products or other product candidates under
clinical study and have not generated any revenues from operations for the year
ended
-44- Significant Developments
? On
connection with the Ratification Agreement, we terminated all prior agreements
with
entered into a mutual release of claims.
? On
License Agreement, granting
Generx product candidate. The distribution and license rights commence only
after we obtain
manufacture Generx products in
sell Generx products in
municipality other than mainland
the common language, the
and
upfront, which was paid by application of the prepaid equity subscription, and
a royalty ranging from 5% up to 10% based on the level of annual net sales of
the Generx product sold by
? On
the Shanxi Assignment Agreement pursuant to which we transferred all of our
license rights to manufacture, use, market and sell Excellagen to
also assigned to
result, we no longer have an interest in Excellagen, other than the right to
the royalty payments from Olaregen.
? In
selling Nostrum 1,700,000 shares of our newly authorized Series B Convertible
Preferred Stock in exchange for
sale of the Series B Convertible Preferred Stock to fund working capital
requirements in preparation for conducting a Phase 3 clinical trial in the
for our Generx product candidate. We believe that Nostrum's assets and
experience in the formulation and commercialization of pharmaceutical products
will facilitate the administration and completion of the Phase 3 clinical trial
for Generx on a cost-effective basis.
? The Series B Convertible Preferred Stock financing resulted in a reset of the
conversion price of our outstanding Series A Convertible Preferred Stock, such
that each Series A Convertible Preferred Stock is convertible into Common Stock
at a conversion rate of 88,496. In a separate but concurrent transaction, when
Nostrum acquired the 1,700,000 shares of Series B Convertible Preferred Stock,
it also acquired 220 shares of Series A Convertible Preferred Stock from a
previous investor,
into 19,469,026 shares of Common Stock.
? Since
converted its 570 shares of Series A Convertible Preferred Stock, into
50,442,491 shares of our Common Stock that has increased our outstanding Common
Stock to 64,931,888 shares as of
? During 2020, we entered into additional settlement agreements with third party
vendors resulting in additional gains on vendor payables of
accounts payable.
In
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Critical Accounting Policies and Estimates
Our consolidated financial statements included in this report have been prepared
in accordance with accounting principles generally accepted in
Accounting estimates or assumptions are inherently subject to change, and certain estimates or assumptions are difficult to measure or value. Our estimates are based on historical experience, industry standards, and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. If results differ materially from our estimates, we will adjust our financial statements prospectively as we become aware of the necessity for an adjustment.
Preferred Stock
The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Shares that are subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, preferred shares are classified as stockholders' equity.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income(loss) in the years in which those temporary differences are expected to be recovered or settled. Due to the Company's history of losses, a full valuation allowance has been recognized against the deferred tax assets.
The Company has adopted the provisions of ASC 740-10, which clarifies the
accounting for uncertain tax positions. ASC 740-10 requires that the Company
recognize the impact of a tax position in its financial statements if the
position is more likely than not to be sustained upon examination base on the
technical merits of the position. For the year ended
The Company's policy is to recognize interest and penalties related to income
tax matters in income tax expense. For the years ended
When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
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Tax positions that meet the more likely than not recognition threshold is measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes our tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
Warrants
Warrants issued to third parties in connection with consulting and other services do not trade in an active securities market, and as such, we estimate the fair value of these warrants using an option pricing model. Following the authoritative accounting guidance, warrants with variable exercise price features or with potential cash settlement outside of our control are accounted for as liabilities, with changes in the fair value included in operating expenses, otherwise warrants determined to be equity classified are fair valued at the date of issuance, with no change in the fair value recorded in subsequent periods. We estimated the fair value of the warrants using the Black Scholes option pricing model. The Black Scholes model requires that our management make certain estimates regarding the expected stock volatility, the risk-free interest rate, the warrant's expected life, and the expected forfeiture rate, to derive an estimated fair market value.
Results of Operations
Fiscal 2020 Compared to Fiscal 2019
The following tables sets forth our results of operations for the years endedDecember 31, 2020 and 2019, and the relative dollar and percentage change between the two years. Year Ended Change December 31, (2020 to 2019) 2020 2019 ($) % Operating Expenses: Research and development$ 217,582 $ 243,453 (25,871 ) (10.6 )% Selling, general and administrative 1,044,600 593,549 451,051 75.9 %
Income (Loss) from Operations (1,262,182 ) (837,002 ) (425,180 ) (50.8 )%
Other Income (Expense): Gain on sale of assets and technology 600,000 600,000 100 % Gain on forgiveness of account payables 68,032 1,659,917 (1,591,885 ) (95.9 )% Interest Expense (57,400 ) (43,787 ) (13,613 ) 10.8 % Total Other Income (Expense) 610,632 1,616,130 (1,005,498 ) (62.2 )% Net Income (Loss)$ (651,550 ) $ 779,128 (1,430,678 ) (183.6 )% Net (Loss) attributable to the non-controlling interest$ (133,653 ) $ (87,547 ) (46,106 ) (52.7 )% Net Income (Loss) attributable to the controlling interest$ (517,897 ) $ 866,675 (1,384,572 ) (159.8 )%
Research and development costs decreased in 2020 compared to 2019 by
During the year ended
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Other Income (Expenses) for the year ended
Liquidity and Capital Resources
The following table summarizes our liquidity and working capital position on
Year Ended December 31,
2020 2019
Cash $ 386,027 $ 400
Other Current Assets 24,611 32,395
Accounts Payable 745,569 967,126
Other Current Liabilities 4,281727 3,795,863
Working Capital (Deficiency)
Following the period covered by this report:
? We entered into several agreements with employees, former employees, and
vendors to restructure claims reducing the amount of our accounts payable and
our other current liabilities and/or extending the payment terms until after
commercialization and Generx products sales commence.
? In May 2020 we secured $1,700,000 financing from the sale of our newly
authorized Series B Convertible Preferred Stock to Nostrum. We will use the
proceeds from the sale of the Series B Convertible Preferred Stock to fund
working capital requirements in preparation for conducting a Phase 3 clinical
trial in the U.S. for our Generx product candidate.
The following table summarizes our cash flows from (used in) operating,
investing, and financing activities for the years ended December 31, 2020 and
2019.
Year Ended December 31,
2020 2019
Net cash generated from (used in) operating activities
(3,433 )
Net cash generated from (used in) financing activities 1,522,065 55,447
Net increase (decrease) in cash and cash equivalents
The Company has not generated cash from operating activities. We did not generate revenue in any of the years covered by this report, and generally record operating losses in each of the years.
Differences in net cash provided by financing activities in 2020 compared to
cash from financing activities in 2019 is primarily due to Nostrum providing
We anticipate that negative cash flows from operations will continue for the foreseeable future. We do not have any unused credit facilities. Our cash position, even after the Series B Convertible Preferred Stock financing with Nostrum, will not be sufficient to sustain our operations. We intend to secure additional working capital to support our continued operations through sales of additional equity and debt securities. As long as any shares of our Series A Preferred Stock are outstanding, we have agreed that we will not, without the consent of the holders of two-thirds of the Series A Convertible Preferred Stock, incur indebtedness other than specified "Permitted Indebtedness", or incur any liens other than specified "Permitted Liens".
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Our principal business objective is to advance our Generx product candidate
through the AFFIRM Phase 3 clinical trial and to begin commercialization of
Generx in
Our history of recurring losses and uncertainties as to whether our operations will become profitable raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments related to the recoverability of assets or classifications of liabilities that might be necessary should we be unable to continue as a going concern.
Off-Balance Sheet Arrangements
As of
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements included elsewhere in this report for disclosure and discussion of new accounting standards.
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