Stockholders' Equity

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

Stockholders' Equity

Note 10—Stockholders’ Equity

Matters Relating to Our Relationship with Shanxi Taxus Pharmaceuticals Inc. and Affiliated Entities

In April 2015, the Company entered into a term sheet with Shenzhen Qianhai Taxus Capital Management Co., Ltd. (“Shenzhen Qianhai Taxus”), a company affiliated with Shanxi Taxus Pharmaceuticals Co. Ltd., whereby the Company proposed to sell Shenzhen Qianhai Taxus 600,000 shares of common stock in our Angionetics subsidiary in exchange for $3.0 million in cash. The $3.0 million was to be paid in tranches that were to be completed by May 31, 2015. Shenzhen Qianhai Taxus paid $600,000 of the financing, which was recorded as common stock issuable. Shenzhen Qianhai Taxus did not complete this transaction. This subscription was committed and not refundable to Shenzhen Qianhai Taxus. Shenzhen Qianhai Taxus was eligible to apply this amount toward the purchase of common stock of the Company or its subsidiaries based on terms and conditions approved by the Company’s Board of Directors.

On April 10, 2020, we transferred our residual rights in Excellagen to Shanxi Taxus Pharmaceuticals Co. Ltd. in exchange for the release of any rights or claims of an equity ownership interest in Gene Biotherapeutics. As a result, we no longer have an interest in Excellagen, other than the right to receive royalty payments from Olaregen totaling up to $3,350,000, based on monthly net sales of Excellagen worldwide, excluding Greater China, the Russian Federation, and countries in the Commonwealth of Independent States. In connection with this transaction, Shanxi agreed to apply its previously funded $600,000 stock subscription payment in exchange for the rights to Excellagen in the Greater China, the Russian Federation and countries in the Commonwealth of Independent States, and Shanxi released any future rights or claims against us.

In additional to the Excellagen transaction, on April 10, 2020, our Angionetics, Inc. subsidiary entered into a Distribution and License Agreement with Shanxi (as amended, the “Shanxi License Agreement”), granting Shanxi certain license rights with respect to our Generx product candidate. The distribution and license rights commence only after we obtain U.S. FDA approval for marketing and sale of Generx in the United States. The license rights include (a) a non-exclusive right to manufacture Generx products in China, and (b) an exclusive right to market and sell Generx products in Singapore, Macau, Hong Kong, Taiwan, any other municipality other than mainland China where Chinese (Mandarin or Cantonese) is the common language, the Russian Federation, and the Commonwealth of Independent States (i.e., Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan). The Shanxi License Agreement provides for a royalty ranging from 5% up to 10% based on the level of annual net sales of the Generx product sold by Shanxi in the licensed territory.

Series A Preferred Stock

Purchase Agreement with Sabby Healthcare Volatility Master Fund, Ltd.

On April 4, 2013, the Company entered into a securities purchase agreement with Sabby Healthcare Volatility Master Fund, Ltd. (“Sabby”) to purchase up to 4,012 shares of our newly authorized Series A Convertible Preferred Stock (the “Preferred Stock”) for maximum proceeds of $4.0 million. The Preferred Stock was convertible into shares of our common stock at an initial conversion price of $0.6437 per share. The conversion price is subject to downward adjustment if the Company issues common stock or common stock equivalents at a price less than the then effective conversion price. Following the issuance of our Series B Preferred Stock, the current conversion price is $0.0113 per share of Common Stock. Sabby is limited to hold no more than 10% of Gene Biotherapeutics’ issued and outstanding common stock at any time. As long as the Preferred Stock is outstanding, the Company has also agreed not to incur specified indebtedness without the consent of the holders of the Preferred Stock. These factors may restrict our ability to raise capital through equity or debt offerings in the future.

As of September 30, 2020, and December 31, 2019, there was Series A Preferred Stock outstanding of 602 and 790 shares respectively.

Series B Preferred Stock

Amendment to Certificate of Incorporation and Amendment to Bylaws

On May 21, 2020, the Company amended their Certificate of Incorporation with the filing of a Certificate of Designation to establish the rights, privileges, and preferences of a new class of our preferred stock designated Series B Convertible Preferred Stock (“Series B Preferred Stock”). The Series B Preferred have the following material terms and provisions:

Dividends. Each share of our Series B Convertible Preferred Stock is entitled to receive dividends when, as, and if dividends are paid on shares of our Common Stock. Dividends are payable on each share of Series B Convertible Preferred Stock on an “as-converted” basis, in the same amount and form as dividends actually paid on shares of our Common Stock. The Company has never paid dividends on shares of our common stock and the Company does not intend to do so for the foreseeable future.

Voting Rights. Each share of our Series B Convertible Preferred Stock will have the same voting rights as shares of our Common Stock, on an “as-converted” basis, and will vote on all matters with the Common Stock as a single class. In addition, the Series B Convertible Preferred Stock has voting rights that require the approval of a majority of the outstanding shares of Series B Convertible Preferred Stock for any action to: (1) alter or change adversely the powers, preferences or rights given to the shares of our Series B Convertible Preferred Stock or alter or amend its Certificate of Designation, (2) authorize or create any class of shares ranking as to dividends, redemption or distribution of assets upon liquidation senior to, or otherwise pari passu with, the shares of our Series B Convertible Preferred Stock, (3) amend our Certificate of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of our Series B Convertible Preferred Stock, (4) increase the number of authorized shares of our Series B Convertible Preferred Stock, or (5) enter into any agreement with respect to any of the foregoing.

Conversion. The shares of our Series B Convertible Preferred Stock are convertible at any time at the option of the holder into shares of our Common Stock at a ratio determined by dividing the Stated Value of such share of Series B Preferred Stock by the conversion price of $0.0113 per share of Common Stock. Accordingly, each share of our Series B Convertible Preferred Stock is initially convertible into 88.5 shares of our Common Stock. The conversion price is subject to adjustment in the case of share splits, share dividends, combinations of shares and similar recapitalization transactions. In addition, if the Company sells shares of Common Stock or Common Stock equivalents at a price less than the current conversion price, the conversion price of the Series B Convertible Preferred Stock will be reduced to equal eighty percent (80%) of the price at which such Common Stock or Common Stock equivalents are sold.

Liquidation. The Series B Convertible Preferred Stock has a liquidation preference. Upon any liquidation, dissolution or winding up of our company, after payment or provision for payment of our debts and other liabilities and before any distribution or payment is made to the holders of our common stock or any junior securities, the holders of our Series B Convertible Preferred Stock will first be entitled to be paid an amount equal to $1.00 per share plus any other fees, liquidated damages or dividends then owing, before our remaining assets will be distributed among the holders of the other classes or series of shares of our capital stock in accordance with our Certificate of Incorporation.

On May 22, 2020, the Board amended the Company’s bylaws to eliminate the classified Board. Directors will serve one-year terms until the next annual meeting of stockholders or until their successors are duly elected and qualified. year terms until the next annual meeting of stockholders or until their successors are duly elected and qualified.

Stock Options and Other Equity Compensation Plans

The Company had an equity incentive plan that was established in 2005 under which 283,058 shares of our common stock was reserved for issuance to employees, non-employee directors and consultants. The 2005 Equity Incentive Plan expired on October 20, 2015, ten years after its adoption, and the Company is no longer able to issue share or awards under that plan. All options or other awards issued under the 2005 Equity Incentive plan prior to its expiration remain outstanding in accordance with their terms. At June 30,2020, there are no shares outstanding and available for future issuance under the option plan.

There were no stock options or warrants under the Equity Incentive plan and no stock options or warrants issued outside of the plan to employees and consultants during the six -month period ended September 30, 2020. Similarly, there were no options or warrants exercised during the six- month period ended September 30, 2020. The total number of options and warrants outstanding and exercisable were 14,811,333 as of September 30, 2020 with a weighted average exercise price of $0.62 per share, and a weighted average remaining life of 3.82.

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Balance outstanding, January 1, 2017		12,116,334		$	0.62		7.67
Granted		—			—		—
Exercised		—			—		—
Cancelled (unvested)		—			—		—
Expired (vested)		(5,001	)		0.62		—
Balance outstanding, December 31, 2017		12,111,333			0.62		6.67
Granted		—			—		—
Exercised		—			—		—
Cancelled (unvested)		—			—		—
Expired (vested)		—			—		—
Balance outstanding, December 31, 2018		12,111,333		$	0.62		5.67
Granted		—			—		—
Exercised		—			—		—
Cancelled (unvested)		—			—		—
Expired (vested)		—			—		—
Balance outstanding, December 31, 2019		12,111,333		$	0.62		4.67
Balance exercisable, December 31, 2019		12,111,333		$	0.62		4.67
Exercised Balance exercisable, September 30, 2020		12,111,333		$	0.62		3.82

Warrants

In October 2017, the Company issued 1,000,000 fully vested Common Stock warrants to Landmark, in exchange for economic monetization and business mobilization services for the Company. The warrants are exercisable at any time from October 9, 2017 (initial exercise date) and on or prior to the close of business on the 10-year anniversary from the initial exercise date, October 8, 2027, at an exercise price of $0.25 per share. The warrants had a fair value of $0.15 per share and the Company has recognized $150,000 as consulting costs in the statement of operations during the fourth quarter ended December 31, 2017.

In November 2017, the Company issued 700,000 fully vested Common Stock warrants to a consultant for ongoing scientific and business consulting services. The warrants are exercisable at any time from November 14, 2017 (the grant date) for a period up to 10 years at an exercise price of $0.25 per share. The warrants had a fair value of $0.11 per share, determined using the Black-Scholes valuation model, and the Company has recognized $79,222 as consulting costs in the statement of operations during the further quarter ended December 31, 2017.

In April 2018, the Company issued an additional 1,000,000 fully vested Common Stock warrants to Landmark as final consideration paid upon completion of the 6-month Agreement. The Common Stock warrants are exercisable at any time from April 23, 2018 (initial exercise date) and on or prior to the close of business on the 10-year anniversary from the initial exercise date, April 22, 2028, at an exercise price of $0.25 per share. The warrants had a fair value of $0.08 per share, determined using the Black-Scholes valuation model. The Company recognized approximately $80,000, representing the aggregate fair value of the warrants as consulting expenses in the statement of operations during the second quarter ended June 30, 2018.

The Company calculates the fair value of stock options using the Black-Scholes option-pricing model which approximates a binomial lattice model. In determining the expected term, the Company separate groups of employees that have historically exhibited similar behavior regarding option exercises and post-vesting cancellations. The option-pricing model requires the input of subjective assumptions, such as those included in the table below. The volatility rates are based principally on our historical stock prices and expectations of the future volatility of its Common Stock. The risk-free interest rate is based on the U.S. Treasury Yield curve in effect at the time of grant. The total expense to be recorded in future periods will depend on several variables, including the number of share-based awards and expected vesting.

The following table summarizes warrants that we granted during the year ended December 31, 2017 and 2018:

Grant Date	Quantity Issued		Expected Life (Years)		Strike Price		Volatility			Dividend Yield			Risk-Free Interest Rate			Grant Date Fair Value Per Warrant		Aggregate Fair Value
04/23/2018		1,000,000		10.0	$	0.25		126.00	%		0	%		2.47	%	$	0.08	$	80,000
11/14/2017		700,000		10.0	$	0.25		116.47	%		0	%		2.33	%	$	0.11		79,222
10/09/2017		1,000,000		10.0	$	0.25		115.00	%		0	%		2.47	%	$	0.16		150,000

Nostrum Financing

On May 22, 2020, the Company entered into a Preferred Stock Purchase Agreement (“the Agreement”) with Nostrum Pharmaceuticals, LLC, a Delaware limited liability company (“Nostrum”) pursuant to which the Company sold Nostrum 1,700,000 shares of newly designated Series B Preferred Stock, for a total cash consideration of $1.7 million. Legal costs associated with the Nostrum investment were $166,891.Nostrum is the parent of Nostrum Laboratories, Inc., a privately held pharmaceutical company engaged in the formulation and commercialization of specialty pharmaceutical products and controlled release, orally administered branded and generic drug products. Series B Preferred Stock is convertible into shares of our common stock at an initial conversion ratio of $.0113 shares of Series B Preferred Stock for each share of common stock or 150,442,478 shares of the Company’s common stock.

We will use the proceeds from the sale of the Series B Convertible Preferred Stock to fund working capital requirements in preparation for conducting the U.S. FDA-approved Phase 3 clinical trial 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.

Concurrently with the sale of the Series B Preferred Stock, Nostrum acquired 220 shares of the Company’s Series A Preferred Stock from Sabby Master Healthcare Ltd. and agreed to purchase the remaining 570 shares of Series A Convertible Preferred Stock that are outstanding and held by Sabby. As a result of the issuance of the Series B Convertible Preferred Stock, each share of our Series A Convertible Preferred Stock became convertible into 88,496 shares of our Common Stock. The Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock restricts Nostrum from converting any Series A Preferred Stock if Nostrum would beneficially own a number of shares of Common Stock in excess of 9.99% of the shares of Common Stock then issued and outstanding. As a result of its ownership of the Series B Convertible Preferred Stock, Nostrum is currently limited in its entirety from converting any shares of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock has no voting rights on general corporate matters, provided that the Series A Convertible Preferred Stock contain customary protective provisions.

The Company used the proceeds from the sale of the Series B Preferred Stock to fund working capital requirements in preparation for conducting a Phase 3 clinical trial in the United States for its Generx® product candidate. The Company will need additional capital to complete the Phase 3 clinical trial for Generx. Nostrum’s initial investment in the Series B Preferred Stock represented control of 91.2% of the voting power of the Company.

Nostrum Debt Financing

In January 2020, we issued Nostrum a promissory note in exchange for cash of $25,000. These bear interest at 6% per annum and matures 24 months from the date of issuance. The cash funding related to a December 30, 2019 promissory notes was not received by the Company until January 2020, so the Company recorded the note payable in the consolidated balance sheet in January 2020, upon receipt of the cash from Nostrum. As of September 30, 2020, the Company had received debt financing from Nostrum totaling $265,000.

Retirement of Members of the Board of Directors

On May 22, 2020, Andrew Leitch, John Wallace, Jiayue Zhang and Wei-Wei Zhang resigned as members of the Company’s Board of Directors. The resignations were required under the terms of the Series B Preferred Stock Purchase Agreement. On May 22, 2020, at the request of Nostrum, James Grainer and Kaushik K. Vyas were appointed to the Company’s Board of Directors and James L. Grainer was appointed to serve as Chairman of the Board.