   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

 In re: GENEIUS                        )
 BIOTECHNOLOGY, INC., a                )
                                            C.A. No. 2017-0297-TMR
 Delaware corporation.                 )


                        MEMORANDUM OPINION

                      Date Submitted: September 8, 2017
                       Date Decided: December 8, 2017

Adam G. Landis, Rebecca L. Butcher, James S. Green Jr., and Matthew R. Pierce,
LANDIS RATH & COBB LLP, Wilmington, Delaware; Attorneys for Petitioner.

Patricia L. Enerio and Jamie L. Brown, HEYMAN ENERIO GATTUSO & HIRZEL
LLP, Wilmington, Delaware; Francis J. Earley and Kaitlyn A. Crowe, MINTZ,
LEVIN, COHN, FERRIS, GLOVSKY and POPEO, P.C., New York, New York;
Attorneys for Respondent.




MONTGOMERY-REEVES, Vice Chancellor.
      The dispute in this case arises from business management disagreements

between a minority stockholder and the founder of a biotechnology start-up

company. The company is in the business of developing and manufacturing T-cell

therapy technology implicated in treating and curing cancer.         To do this, the

company needs significant upfront capital, and the parties disagree, inter alia, about

the manner in which the company should seek the much needed capital. Because of

their disagreements, the minority stockholder petitioned this Court to appoint a

receiver under 8 Del. C. § 291, alleging that the company is insolvent and a neutral

party is necessary to salvage the company’s remaining value, which is its intellectual

property.

      The threshold issue in this case is whether the company is insolvent, which

the petitioner has the burden to prove by clear and convincing evidence. But the

petitioner attempts to prove insolvency without providing any opinion or evidence

of the value of the company’s assets. Consequently, I hold in this post-trial opinion

that the petitioner has not met its burden of proving the company’s insolvency by

clear and convincing evidence; thus, the petitioner’s request is denied.

I.    BACKGROUND
      On April 18, 2017, the petitioner filed a Verified Petition for Appointment of

a Receiver Pursuant to 8 Del. C. § 291 (the “Petition”) and a Motion to Expedite.

On April 24, 2017, I granted the petitioner’s Motion to Expedite, and the respondent


                                          2
filed a Response to the Petition on May 10. On July 12 and 19, 2017, the parties

conducted trial, followed by extensive post-trial briefing.

      These are my findings of fact based on the parties’ stipulations, documentary

evidence, and testimony of two live witnesses during trial. I accord the evidence the

weight and credibility I find it deserves.1

      A.     Parties and Relevant Non-Parties
      Respondent Geneius Biotechnology, Inc. (“Geneius” or the “Company”) is a

Delaware corporation formed on January 23, 2015.2                 It is an early-stage3

biotechnology company seeking “to develop and manufacture T-cell therapy

technology implicated in treating and curing cancer.”4 Geneius owns one U.S. patent




1
      Citations to testimony presented at trial are in the form “Tr. # (X)” with “X”
      representing the surname of the speaker, if not clear from the text. After being
      identified initially, individuals are referenced herein by their surnames without
      regard to formal titles such as “Dr.” I intend no disrespect. Exhibits are cited as
      “JX #,” and facts drawn from the parties’ Joint Pre-Trial Stipulation and Order are
      cited as “PTO ¶ #.” Unless otherwise indicated, citations to the parties’ briefs are
      to post-trial briefs.
2
      PTO ¶ 3.
3
      Resp’t’s Opening Br. 3; Pet’r’s Opening Br. 11.
4
      Resp’t’s Opening Br. 3. This type of technology is designed to treat various cancers,
      including, but not limited to, non-Hodgkin’s lymphoma, gastric cancer, and
      nasopharyngeal cancer. Tr. 113 (Slanetz).

                                              3
application that has yet to obtain approval from the United States Patent and

Trademark Office.5

      Dr. Alfred E. Slanetz is the founder, president, and chief executive officer of

Geneius and has been since its incorporation.6 Slanetz also has served as a director

on Geneius’s board since its incorporation.7 Slanetz owns approximately 8.2% of

Geneius issued common stock “and controls an additional 18,000,000 shares of

Geneius issued common stock (approximately 54.1%).”8 Slanetz has a bachelor’s

degree in biotechnology from Hamilton College, a master’s degree in biomedical

engineering from Brown University, and a Ph.D. in immunology and molecular

biology from Yale University.9

      Petitioner Empery Asset Master, Ltd. (“Empery”) is a Cayman Islands limited

company and minority stockholder of Geneius.10 Empery is a hedge fund that

“invested in Geneius because of the potential in Geneius’s patents and intellectual




5
      PTO ¶¶ 10-15.
6
      Id. ¶¶ 3, 4.
7
      Id. ¶ 16.
8
      Id. ¶ 5.
9
      Tr. 112 (Slanetz).
10
      PTO ¶ 1.

                                         4
property.”11 Ryan Lane is the managing partner and chief compliance officer of

Empery.12 He has a bachelor’s degree in finance and accounting from Franklin &

Marshall College.13 Lane served as a director on the Geneius board from February

2015 until January 2017.14 Lane brings this action on behalf of Empery as a

stockholder of Geneius.

      Dr. Hingge Hsu joined the Geneius board as an outside director in April 2016

and resigned in January 2017.15

      Steven Kloeblen joined the Geneius board on the same day that Lane left the

Geneius board, January 8, 2017.16 Thus, Slanetz and Kloeblen are the current

directors on the Geneius board, and the third board seat remains vacant.17

      Hugh Austin “controls or is otherwise affiliated with” Small Cap Nation,

Valhalla Ventures, LLC, and Odin Ventures, LLC (Austin, collectively with Small




11
      Pet’r’s Pre-Trial Br. 10.
12
      PTO ¶ 2.
13
      Tr. 4 (Lane).
14
      PTO ¶¶ 19, 32.
15
      Id. ¶¶ 17-18.
16
      Id. ¶ 33.
17
      Id. ¶ 34; Pet’r’s Opening Br. 12.

                                          5
Cap Nation, Valhalla Ventures, LLC, and Odin Ventures, LLC, the “Austin

Entities”).18 Austin is involved with family office networking.

      B.     Pertinent Facts
      Much of the parties’ briefings and supporting exhibits relate to the various

ways the parties blame one another for the Company’s lack of success thus far.

Because much of that information is not relevant to the resolution of this case—and

because time is a finite judicial resource—I only recite the pertinent facts.

             1.     Before Lane left the Geneius board
      On October 1, 2015, Geneius entered into a collaboration and license

agreement with Karolinska Institutet (“Karolinska”) in Sweden “to utilize

Karolinska’s expertise, patient access, facilities, and world class researchers, to

develop a manufacturing process for its patented T-cell technology and perform

clinical trials on patients in Sweden” (the “Karolinska Agreement”).19 Lane helped

negotiate the Karolinska Agreement on behalf of Geneius, for which Lane received

“a pretty decent amount of [Geneius stock] options.”20            Per the terms of the




18
      PTO ¶ 83.
19
      Resp’t’s Opening Br. 8; JX 28. According to Slanetz, Karolinska is “a leading
      medical university in Scandinavia . . . where the Nobel Prize is [] given for
      biotechnology and medicine.” Tr. 148.
20
      Tr. 22, 37 (Lane). Lane also testified that his initial reaction to the proposed
      collaboration with Karolinska was, “No, we can’t do it . . . we have to stay focused”
      because he “learned early on in investing it’s not where you spend money at a
                                            6
Karolinska Agreement, Geneius paid Karolinska €1.4 million up front to be used for

patient enrollment; if Karolinska did not enroll patients, the money was to be

returned to Geneius.21

      Unfortunately, the Karolinska Agreement failed to meet Geneius’s

expectations,22 and eventually, the majority of the Geneius board in place at that time

(Lane and Hsu) voted to terminate the Karolinska Agreement over Slanetz’s

objection.23 After such termination, the board considered numerous proposals to

obtain financing, including a reverse merger into a public company and a rights

offering.24 Ultimately, however, none of these proposals materialized for reasons on




      biotech; it’s where you don’t spend money. You have to be disciplined about
      staying focused, and I didn’t want to do the collaboration.” Id. at 35-36.
21
      Tr. 37 (Lane).
22
      Tr. 38-39 (Lane) (“Everything about it was a disaster. [Slanetz] set no milestones
      for them to achieve. There was no accountability for anything they were doing . . .
      Tracking what they were doing turned out to be difficult. The gentleman we hired
      over there . . . seemed to be more working for them than he was for us, and [Slanetz]
      didn’t control him and have any accountability of him. Turns out the process wasn’t
      nearly as advanced as they said it was, and then we had to allocate a bunch of -- the
      U.S. lab to developing the process that they said they had.”).
23
      Tr. 44-45 (Lane).
24
      Tr. 49 (Lane) (“We probably looked at a half a dozen different proposals that were
      nontraditional because we hadn’t achieved what we needed to achieve to do a
      traditional financing.”).

                                            7
which Slanetz and Lane differ; suffice it to say that Slanetz and Lane disagreed about

the manner in which the Company should obtain financing.25

      During their service on the Geneius board, Lane and Hsu grew increasingly

frustrated with Slanetz’s management and Geneius’s lack of progress.26 Lane

averred that Slanetz “was good on the scientific side, the theorizing, and the process;



25
      With respect to why the Company did not go through with the reverse merger:
      Compare Tr. 56-57 (Lane) (stating Slanetz did not want to risk losing his position
      as CEO and the potential acquiring board was not comfortable with an alternative
      structure), with Tr. 203 (Slanetz) (“[T]he amount of money that . . . could be raised
      in a public company would not have been even enough potentially to meet the
      clinical milestones on our lead program . . . . And even focused on that, you’d have
      to raise more money and . . . the performance of the stock would only be driven by
      clinical news flow. It was a very challenging situation.”). I give credit to Slanetz’s
      testimony that he and Lane could not come to an agreement. Tr. 205.

      With respect to the rights offering: Compare JX 56 and Tr. 207 (Slanetz) (testifying
      he refused the rights offering in part because the valuation was so low “that I was
      very concerned that that could impact our ability to go out to institutional
      shareholders or other shareholders and get a reasonable valuation for the company
      for the fund that we really needed . . . ”), with Tr. 59 (Lane) (testifying that the rights
      offering was not pursued because Slanetz “wanted to remove me from the board
      because my right was up in December of that year. And if we did a rights offering,
      it would dilute his ownership, so he wouldn’t be able to remove me with a vote of
      the shareholders. And so I think he wanted to push off any financing that would
      dilute him below 50 percent in an effort to maintain his control”).

      I give credit to Hsu’s deposition testimony that Alfred’s and Lane’s dysfunctional
      working relationship was likely the root of the problem. Dep. Tr. 54 (“I think the
      fundamental objective is still to try to get capital into the company, and if [Slanetz]
      found someone whom he was comfortable with, I suspect he probably would have
      gone along with it more cooperatively than otherwise. I think I could also speculate
      that if [Lane] were to bring a potential investor on the financing side, that perhaps
      [Slanetz] would have been . . . less cooperative.”).
26
      Tr. 46 (Lane).

                                              8
but beyond that, he was not capable of managing the business.”27 Accordingly, Lane

and Hsu notified Slanetz in June 2016 that if he did not improve his managerial and

operational performance, they would replace him as CEO.28 And Slanetz described

his working relationship with Lane as “challenging” and “pretty combative at

times.”29

             2.     After Lane left the Geneius board
      In January 2017, Lane and Hsu departed from the Geneius board, and

Kloeblen joined.       Nine days after Lane’s departure, Lane emailed Geneius’s

stockholders to express his concerns about Geneius’s future.30 Approximately two

months later, Lane (on behalf of Empery) filed a books and records request under 8

Del. C. § 220 to “figure out how much cash [Geneius] had left and try to understand

the status of things from at least a financial perspective” because “there was no one

baby-sitting” Slanetz.31 On July 3, 2017, the parties filed a stipulation of dismissal




27
      Tr. 47 (Lane).
28
      Tr. 47; JX 21. During the time that Lane and Hsu constituted a majority of the
      board, they never removed or replaced Slanetz as CEO.
29
      Tr. 168 (Slanetz). Lane testified that “[o]ver the course of my time on the board,
      there were times when I did yell at him. I had to repeat myself sometimes dozens
      of times to get any action.” Tr. 87.
30
      JX 79A; JX 106.
31
      Tr. 68, 70 (Lane).

                                          9
in the Section 220 action.32 The Company incurred approximately $150,000 in legal

fees in defending Empery’s Section 220 lawsuit.33

      Also after Lane’s and Hsu’s departures from the Geneius board, Slanetz

reinitiated the Karolinska Agreement, but he modified its terms.34 In addition to

reinitiating the Karolinska Agreement, the board decided to pursue family office

networking to attract investors.35 Slanetz felt that family office investors were “the

perfect type” of investors to pursue “because they feel they’ll get better returns

without paying . . . to invest in different areas, and also they really want to leave a




32
      Resp’t’s Opening Br. 24.
33
      PTO ¶ 44.
34
      JX 5 at 8; see also Tr. 148-49 (Slanetz) (“What we have is a letter agreement which
      amends the agreement that is currently kind of there . . . which they’ve agreed to
      sign . . . providing we raise the capital and also providing that Ryan is no longer
      involved in the collaboration.”).
35
      Tr. 132-33 (Slanetz). Lane testified that the board never considered raising money
      through family offices during Lane’s tenure on the board. Tr. 51. Lane disfavors
      family office networking for the following reasons: “Family offices are tough
      because they’re not professional institutions. They don’t have a process in place to
      evaluate investments and to, you know, say reliable things. They . . . like to say
      they love it. They like to say they’ll invest, but it often doesn’t actually happen. So
      you’re in a process that sort of drags on and you can’t rely on it. And if you’re
      running a business and you can’t rely on the process, then you’re putting everything
      at jeopardy.” Tr. 51-52 (Lane).

                                            10
legacy and make an impact.”36 As part of his efforts,37 he became involved with

Austin, which appears to have been a disaster because Austin fraudulently charged

over $50,000 to Geneius’s credit card between January and March 2017.38

Fortunately, Slanetz recouped approximately $45,000 by disputing such charges

through the bank.39 “In addition to and contemporaneously with these unauthorized

charges, two unauthorized, fraudulent wire transfers totaling $29,000 were sent from

Geneius’s account to John Austin, Hugh Austin’s son.”40 Slanetz sought repayment

from Austin, and Respondent claims that “Geneius is considering its legal options

to recoup these amounts.”41 Petitioner claims that Slanetz’s involvement with the

Austin Entities was fraudulent and reckless mismanagement.




36
      Tr. 130.
37
      Tr. 131 (Slanetz) (“We first hired consultants to help us because, really, the family
      office community is all about . . . making connections and relationships and building
      a brand . . . amongst this community.”).
38
      Tr. 164 (Slanetz).
39
      Tr. 165 (Slanetz).
40
      Resp’t’s Opening Br. 26, n.23; JX 120.
41
      Resp’t’s Opening Br. 26, n.23.

                                           11
             3.      Geneius’s financial condition
      As is not uncommon of start-up companies, Geneius “has never operated at a

profit and has no income.”42            In 2015, investors contributed $10 million

(approximately $2 million of which came from Empery); since then, Geneius

received $100,000 from a single investor in May 2017.43 While Geneius has not

completed an update to its general ledger or accounts payable since January 2017,44

Geneius’s checking accounts had a balance of approximately $2,500 at the time

Petitioner filed its Petition.45 With respect to assets, Slanetz testified that the

Company has lab equipment valued at approximately $240,000 as well as assets

relating to the Karolinska Agreement worth approximately $650,000.46             The

Company’s liabilities amounted to approximately $600,000, and Geneius does not

have enough cash on hand to pay off in full all of its outstanding invoices.47

      By April 2017, the board implemented several measures to improve Geneius’s

financial state. For example, the board reduced the number of full-time employees



42
      PTO ¶ 55.
43
      Pet’r’s Opening Br. 11; JX 205.
44
      PTO ¶¶ 55-56.
45
      JX 183 at 3.
46
      Tr. 177-78, 180-82; JX 51 at 4.
47
      Tr. 214 (Slanetz).

                                            12
to three people (Slanetz, Francis Kenny, and Terry Nakagawa)48 and decreased each

of their salaries to approximately the statutory minimum wage.49 Additionally, the

board approved Slanetz’s personal contribution of a “temporary personal loan” in

the amount of $78,000, plus his payment of “all of the travel and other business

expenses for the entire company.”50 While there are no written agreements for

Slanetz’s personal funding of Geneius, he explained that the Company would pay

back the loan’s principal without interest “at some time when the Company is in a

better financial situation.”51 Moreover, when asked if he would be willing to

continue to contribute funds if needed, he answered “completely, absolutely.”52

II.   ANALYSIS
      Petitioner filed its Petition under 8 Del. C. § 291, alleging that the Company

is insolvent, having no liquid assets available to satisfy existing or future obligations

and no reasonable prospects of additional funding under Slanetz. Petitioner asserts


48
      PTO ¶ 81. Dr. Steven Landau resigned as the Head of Clinical Development in
      January 2017. Id. ¶ 78. Cassandra McGurk resigned as the Operations Manager on
      April 5, 2017. Id. ¶ 80.
49
      JX 167.
50
      Tr. 185; JX 167; JX 226.
51
      Tr. 188.
52
      Tr. 189. This evidence is further supported by the Affidavit of Alfred Slanetz filed
      on April 28, 2017 (the “Slanetz Aff.”), in which Slanetz says he “will continue to
      pay the necessary costs to protect the Company’s intellectual property as they come
      due.” Slanetz Aff. ¶ 10.

                                           13
that a receiver is necessary to “prevent complete loss of value for the Company’s

legitimate creditors and the stockholders,”53 “by restoring order and independence

to the Company’s affairs.”54 Specifically, Petitioner asserts, in part, that “Slanetz

always has controlled the Company and, since January 2017, has done so without

independent oversight . . . .”55 Petitioner argues that with such control, “Geneius

will never have a marketable product under [] Slanetz’s leadership.”56

      Respondent counters that Geneius is solvent and that Petitioner’s request for

a receiver stems from disagreements between Lane and Slanetz.

      A.     Standard for Appointment of a Receiver
      When a corporation is insolvent, Section 291 of the Delaware General

Corporate Law affords this Court the discretion57 to appoint a receiver of and for the

corporation.58   The Court applies an “insolvency plus” standard to determine


53
      Pet’r’s Opening Br. 4.
54
      Pet’r’s Answering Br. 18.
55
      Pet’r’s Opening Br. 2.
56
      Id. Also, Petitioner argues that the Geneius board committed corporate waste and
      acts of bad faith, but the Petition did not assert any claims for a breach of fiduciary
      duty.
57
      Prod. Res. Gp., L.L.C. v. NCT Gp., Inc., 863 A.2d 772, 785 (Del. Ch. 2004) (stating
      the plain terms of Section 291 afford this Court discretion).
58
      8 Del. C. § 291 (“Whenever a corporation shall be insolvent, the Court of Chancery,
      on the application of any creditor or stockholder thereof, may, at any time, appoint
      1 or more persons to be receivers of and for the corporation, to take charge of its
      assets, estate, effects, business and affairs, and to collect the outstanding debts,
                                            14
whether to appoint a receiver under Section 291.59 As a threshold matter, Petitioner

must show that the Company is insolvent “at the time the [petition] was filed,”60 by

“clear and convincing proof.”61 But, as “insolvency plus” implies, insolvency alone

is insufficient to invoke Section 291. Petitioner also must demonstrate the necessity

of a neutral third party “to protect the insolvent corporation’s creditors or

shareholders by showing ‘some benefit that such an appointment would produce or

some harm it could avoid,’”62 and “the potential benefits must outweigh any

potential harm that appointment of a receiver could cause.”63



      claims, and property due and belonging to the corporation, with power to prosecute
      and defend, in the name of the corporation or otherwise, all claims or suits, to
      appoint an agent or agents under them, and to do all other acts which might be done
      by the corporation and which may be necessary or proper. The powers of the
      receivers shall be such and shall continue so long as the Court shall deem
      necessary.”).
59
      Ross Hldg. & Mgmt. Co. v. Advance Realty Gp., LLC, 2010 WL 3448227, at *5
      (Del. Ch. Sept. 2, 2010).
60
      Kenny v. Allerton Corp., 151 A. 257, 257 (Del. Ch. 1930) (“[Y]et if the condition
      of insolvency has since been removed, discretion will be exercised against the
      appointment of a receiver.”).
61
      See Manning v. Middle States Oil Corp., 137 A. 79 (Del. Ch. 1927); see also
      Whitmer v. William Whitmer & Sons, 99 A. 428, 430 (Del. Ch. 1916) (“If there be
      doubt as to the proof of the jurisdictional fact, insolvency, the court should not act,
      for proof of jurisdictional facts should be clear and convincing.”).
62
      Badii ex rel. Badii v. Metro. Hospice, Inc., 2012 WL 764961, at *7 (Del. Ch. Mar.
      12, 2012) (quoting Pope Invs. LLC v. Benda Pharm., Inc., 2010 WL 5233015, at *8
      (Del. Ch. Dec. 15, 2010)).
63
      Id. at *10 (citing Pope, 2010 WL 5233015, at *13).

                                            15
      B.     Insolvency Under Section 291
      While the statute is silent as to the meaning of insolvency, Delaware case law

has defined insolvency in the receivership context in two ways: (1) “a deficiency of

assets below liabilities with no reasonable prospect that the business can be

successfully continued in the face thereof,”64 or (2) “an inability to meet maturing

obligations as they fall due in the usual course of business.”65

      Petitioner contends that Geneius is—and was at the time the Petition was

filed—insolvent under both insolvency tests set forth in the “insolvency plus”

standard.66 Petitioner fails to prove by clear and convincing evidence that Geneius

is insolvent under either standard.




64
      Prod. Res. Gp., L.L.C. v. NCT Gp., Inc., 863 A.2d 772, 782 (Del. Ch. 2004). This
      form of the balance sheet test—referred to as “irretrievable insolvency”—“is one
      that Delaware courts use when determining whether to appoint a receiver.”
      Quadrant Structured Prod. Co., Ltd. v. Vertin, 115 A.3d 535, 544, 558 (Del. Ch.
      2015) (“A close examination of precedent thus demonstrates that [] the irretrievable
      insolvency test only applies in receivership proceedings . . . .”).
65
      Siple v. S & K Plumbing & Heating, Inc., 1982 WL 8789, at *2 (Del. Ch. Apr. 13,
      1982); see also Freeman v. Hare & Chase, 142 A. 793, 795 (Del. Ch. 1928)
      (“Insolvency under the statute may be of two kinds, viz. (a) a deficiency of assets
      below liabilities with no reasonable prospect that the business can be successfully
      continued in the face thereof, or (b) an inability to meet maturing obligations as they
      fall due in the usual course of business.”). This latter form of insolvency is often
      referred to as cash flow insolvency.
66
      Pet’r’s Opening Br. 4.

                                            16
             1.    Assets versus liabilities
      Petitioner avers that Geneius is insolvent because its liabilities exceed its

assets. Petitioner has the burden to prove insolvency by clear and convincing

evidence.

      I begin with the value of the Company’s liabilities, which the parties divide

into two categories: legal and non-legal invoices. The parties agree that at the time

of the Petition, Geneius owed approximately $185,000 in undisputed, non-legal

invoices.67 The parties also agree that “Geneius’s legal fees due and outstanding are

greater than or equal to $419,912.70.”68 Respondent argues that of the $419,912.70

due in legal fees, $161,712.03 of invoices to patent counsel “are subject to dispute”

and, thus, should not be considered in determining the value of the Company’s

liabilities.69 Respondent further argues inter alia that Geneius’s D&O insurance

carrier has paid or will pay the majority or all of the remaining $258,000 (of which

$149,899 primary relates to Empery’s Section 220 lawsuit) in legal fees, and thus,

these fees also should not be considered in my insolvency analysis.70              But


67
      PTO ¶ 37; Resp’t’s Answering Br. 4. Slanetz testified that he has had discussions
      with vendors about payment plans, but none of the alleged payment plans are in
      writing. Tr. 192.
68
      PTO ¶ 49.
69
      Resp’t’s Opening Br. 38 n.38; see also Resp’t’s Answering Br. 12; Tr. 195
      (Slanetz).
70
      Resp’t’s Opening Br. 28; Resp’t’s Answering Br. 4.

                                         17
Respondent does not specify which legal invoices are challenged nor any dollar

amount challenged. Likewise, Respondent does not specify any dollar amount that

the Company’s insurance will or has covered, nor is there any evidence relating to

any insurance deductible. Thus, unable to determine which liabilities to exclude

based on Respondent’s arguments, I find that the Company’s total liabilities

amounted to approximately $605,000 as of the date of the Petition, which is

consistent with Slanetz’s testimony that Geneius has approximately $500,000 to

$600,000 in accounts payable.71

      Determining the value of the Company’s assets is a more onerous task

unfortunately. Respondent contends that the value of the Company’s assets is (or

was at the time of the Petition) $892,546.84, which consists of (1) $2,546.84 in

cash;72 (2) $241,000 in lab equipment/fixed assets;73 (3) $350,000 in research

support funds at Karolinska;74 and (4) $300,000 in lab materials/reagents at

Karolinska.75




71
      Tr. 220. Slanetz’s testimony is consistent with a confidential offering memorandum
      Geneius delivered to investors in June 2017. JX 221 at 13.
72
      JX 183 at 3.
73
      JX 157; Tr. 177-78 (Slanetz).
74
      Tr. 180 (Slanetz); JX 51 at 4.
75
      Tr. 183 (Slanetz).

                                          18
      In response, Petitioner provides no evidence of its own valuation of the

Company’s assets. Instead, Petitioner challenges Respondent’s proposed evidence

of the value of the Company’s assets. Petitioner objects to the valuation of $241,000

in lab equipment/fixed assets76 on hearsay and authenticity grounds under Delaware

Rule of Evidence 802 and Delaware Rule of Evidence 901, respectively. I overrule

Petitioner’s evidentiary objections on both grounds. This evidence falls under the

business records exception in Delaware Rule of Evidence 803(6) because Slanetz

ordered the specific content of the report from the Company’s accountant in

February 2017, received the report close in time to his request, is knowledgeable

about its contents, and is a sufficiently qualified witness. Slanetz authenticated the

document under Delaware Rule of Evidence 901(b) as a person with knowledge of

the document because he identified the e-mail and report as a list of Geneius’s

equipment values that he requested and received from the Company’s accountant.

Petitioner also argues that Slanetz “does not have personal knowledge of the

equipment’s cost outside the information contained in this document, thus the Court

cannot rely on Slanetz’s trial testimony.”77 I disagree. Slanetz is highly involved in

the Company and provided, based on his personal knowledge, a detailed explanation




76
      JX 157.
77
      Pet’r’s Answering Br. 15.

                                         19
of the assets he included in his calculation without any reference to the fixed asset

report in JX 157.78

      As for the $350,000 in research support and $300,000 in lab equipment

relating to the Karolinska Agreement, Petitioner argues that both of those assets

cannot be credited any value for insolvency purposes because Respondent’s asset

valuations are theoretical and do not represent any actual value.79 Lane, however,

concedes that the Karolinska Agreement requires any unused funds be returned to

Geneius.80 Thus, these assets have some value. But Petitioner provides no evidence

of what it considers to be the actual value of these assets.

      With respect to Geneius’s intellectual property—which both parties agree is

the Company’s most valuable asset—the only evidence of its value is Petitioner’s

own internal valuation of its interest, which it valued at $31 million at the time of

the Petition.81 Petitioner argues this document is irrelevant because it is really a




78
      Tr. 178 (“[T]he main piece of equipment actually is the fluorescent activated cell
      sorter, which is a fax machine we call it; but then there’s also other laboratory
      equipment like hoods and incubators and the cell imager, Elispot machines; you
      know, general equipment. . . .”). While I recognize that JX 157 is not net of
      depreciation, it is at the very least an illustration of how Petitioner has not met its
      burden to prove insolvency by clear and convincing evidence.
79
      Petr’r’s Answering Br. 16.
80
      Tr. 37 (Lane); JX 51 at 4.
81
      JX 278.

                                            20
“write-down” schedule and the value is now zero.82 I need not rely on this document

to determine the value of the Company’s assets. Instead, it illustrates how Petitioner

has not met its burden to prove insolvency by clear and convincing evidence.

Petitioner argues, “[u]nable to present competent valuation evidence on its own,

Geneius resorts to relying on an internal report created by Empery as proof of a $31

million Company valuation.”83 Petitioner, however, offers no evidence of the value

of what Petitioner concedes is the Company’s most valuable asset and, instead,

provides reasons why its own document relating to the value is irrelevant. This

argument is reflective of the flaw in Petitioner’s approach to this entire case—

Petitioner attempts to shift the burden to Respondent. These attempts fail. Having

failed to provide any evidence of the value of the assets or to sufficiently rebut

Respondent’s evidence of the value of the assets, I conclude that Petitioner has not

met its burden to prove by clear and convincing evidence that the Company’s

liabilities exceed its assets.

       Even assuming arguendo that I attribute no value to the Company’s

intellectual property, the value of the Company’s assets appear to exceed its

liabilities.84 At the very least, Geneius’s circumstances are similar to “cases where


82
       Tr. 102 (Lane).
83
       Pet’r’s Answering Br. 16.
84
       Compare Respondent’s asset valuation of $892,546.84, with Petitioner’s liability
       valuation of approximately $605,000. But see Quadrant Structured Prod. Co., Ltd.
                                          21
the relevant corporation’s assets and liabilities were approximately equal and where,

with traditional financing, there appeared a prospect for viability.”85

      Alternatively, even if I were to exclude certain of Respondent’s evidence of

the value of its assets, I still would not appoint a receiver because the irretrievable

insolvency test also requires “a deficiency of assets below liabilities with no

reasonable prospect that the business can be successfully continued in the face

thereof.”86   During Lane’s tenure on the board, the board discussed potential

alternative strategies to obtain financing after Geneius terminated the Karolinska

Agreement, such as a rights offering and reverse merger. But Lane testified that the

board chose not to utilize those potential opportunities:

              I think through the course of . . . my term on the board, I
              brought a bunch of proposals and the board brought a
              bunch of proposals and we had a bunch of ideas that were
              never properly considered. And I think if there was
              someone who wasn’t conflicted and was looking out for




      v. Vertin, 115 A.3d 535, 552 (Del. Ch. 2015) (“whether the corporation is solvent
      or insolvent is not a bright-line inquiry”); Prod. Res. Gp., L.L.C. v. NCT Gp., Inc.,
      863 A.2d 772, 789 n.56 (Del. Ch. 2004) (“As our prior case law points out, . . . it is
      not always easy to determine whether a company even meets the test for solvency.”).
85
      Prod. Res., 863 A.2d at 783 (citing Keystone Fuel Oil v. Del–Way Petroleum, Co.,
      1977 WL 2572 (Del. Ch. Jun. 16, 1977)); see also Pope Inv. LLC v. Benda Pharm.,
      Inc., 2010 WL 5233015, at *6 (Del. Ch. Dec. 15, 2010) (citation omitted) (“If there
      is any doubt as to the insolvency of the corporation, a receiver should not be
      appointed.”).
86
      Prod. Res., 863 A.2d at 782 (emphasis added).

                                            22
              the minority shareholders in place, that those would have
              been given adequate consideration.87

Thus, Lane appears to suggest that it may be possible for Geneius to pursue other

financial strategies, if it so chooses; it just has not utilized the methods that Petitioner

would prefer. Consequently, I am not convinced that Petitioner has demonstrated

Geneius’s irretrievable insolvency by clear and convincing proof.

              2.     Cash flow insolvency
       Petitioner contends that Geneius is cash flow insolvent. Petitioner has the

burden to prove by clear and convincing evidence that Geneius has “an inability to

meet maturing obligations as they fall due in the ordinary course of business.”88

While Slanetz conceded that Geneius does not have enough cash on hand to pay off

all of its outstanding invoices,89 Slanetz testified that the Company “pay[s] all the

invoices required to run the business and keep it moving forward on an ongoing

basis.”90 Slanetz also testified that certain of the invoices are in dispute or subject



87
       Tr. 71. Yet when asked to describe the nature of Empery’s business and operations,
       Lane answered, in part: “We are traditionally passive investors. So we don’t take
       control. We’re not looking to have influence in anything. We come in and we, you
       know, have a thesis, and we either make money or we don’t.” Tr. at 6.
88
       Prod. Res., 863 A.2d at 782 (citation omitted).
89
       Tr. 214; PTO ¶¶ 38, 49.
90
       Tr. 218; see also PTO ¶¶ 39, 57-64 (demonstrating that Geneius has continued to
       pay rent and payroll); Resp’t’s Opening Br. 37 (explaining “it prioritizes payments
       to vendors as necessary”).

                                            23
to payment plans.91 Petitioner rejects this assertion because of the lack of written,

third-party evidentiary support.92 But as I have repeatedly stated herein, it is

Petitioner’s burden to prove insolvency by clear and convincing evidence. Petitioner

could have tested the veracity of Slanetz’s testimony of such payment plans either

on cross-examination or through the vendors; Petitioner made the strategic decision

not to do that. I have no reason not to accept Slanetz’s testimony on this.

      Furthermore, Slanetz testified that he is “willing to commit to fund this

company as much as and as long as it takes to get us through.”93 The credibility of

this evidence is supported by the fact that Slanetz made a $78,000 interest-free

personal loan to the Company in April 2017 and pays “all of the travel and other

business expenses for the entire Company.”94 Moreover, Slanetz does not expect




91
      Tr. 192.
92
      Pet’r’s Answering Br. 13. (“Geneius presented no evidence [] of what invoices may
      be disputed, the basis for any legitimate dispute, or even the amount Geneius
      allegedly intends to dispute.”); Pet’r’s Answering Br. 10 (“But none of the
      discussions with vendors about any payment plans are in writing, and there is no
      testimony that any creditor, other than litigation counsel, Mintz Levin, actually
      agreed to defer payment. And as for Mintz Levin, the Company offered no evidence
      of any deferment; tellingly. Slanetz did not testify to any specifics as to amount,
      timeline for payment, interest rate, or other terms that would be expected for
      payment on a deferred basis.”).
93
      Tr. 264; see also supra note 52.
94
      Tr. 185; JX 167; JX 226.

                                          24
repayment of the interest-free personal loan until “the Company is sufficiently

healthy,” and he will “absolutely” continue to fund the Company if needed.95

      Petitioner cites to Pope Investments LLC v. Benda Pharmaceutical, Inc. and

Production Resources Group, L.L.C. v. NCT Group, Inc. to argue that Geneius “must

demonstrate some other means by which it can pay off [its] debts in the ordinary

course of business”;96 that “Geneius has expressed no intention to pay off its debts,

much less demonstrate that it has some means to do so”;97 that Geneius has “no

reasonable prospect of overcoming . . . insolvency”; and that Geneius “‘is limping

along but only through an unusual arrangement’ with Slanetz’s family trust ‘and

only by taking steps to avoid meeting its obligations.’”98 Upon a closer review of

the facts of Pope and Production Resources, I find that the instant case is readily

distinguishable for the reasons explained below.

      In Pope, this Court concluded post-trial that the company was insolvent for

purposes of 8 Del. C. § 291; however, it did not appoint a receiver due to the lack of




95
      Tr. 141, 263; Resp’t’s Opening Br. 37 n.35.
96
      Pet’r’s Answering Br. 17 (citing Pope, 2010 WL 5233015, at *7).
97
      Id. at 18.
98
      Pet’r’s Opening Br. 18 (citing Prod. Res., 863 A.2d at 784).

                                          25
exigent circumstances and beneficial purpose.99 Nevertheless, this Court considered

the following facts regarding the company’s financial condition to find insolvency:

       the plaintiff investment fund had obtained a judgment against the
        defendant company, so the plaintiff (in its capacity as a creditor) sought a
        receiver to allow it to recover the amount of its judgment;
       a third party bank creditor obtained an execution order on one of the
        company’s core assets;
       the company had defaulted on a number of financial obligations, which
        resulted in entry of judgments against it;
       the company’s current liabilities exceeded $29 million and it had a working
        capital deficit of over $27 million;
       the company’s auditor stated the company and its subsidiaries do “not have
        the ability to substantially increase its loan indebtedness with any financial
        institution, nor can the [company and its subsidiaries] provide any
        assurance it will be able to enter into any loan agreements in the future”;
       the company’s public disclosures evidenced that the company could not
        raise the necessary capital for its business by selling equity or taking on
        new debt;
       the company had problems meeting significant regulatory deadlines and
        had incurred more than $2.5 million in penalties as a result; and
       the company and its subsidiaries faced significant operating difficulties
        and had to cease operations at various times.100

      In Production Resources, this Court denied the defendant’s motion to dismiss

the plaintiff’s Section 291 claim at the pleading stage101 based on the following facts

alleging insolvency:

       the plaintiff had obtained a $2 million judgment on the defendant company
        and brought suit, in part, to collect payment on such judgment;

99
      Pope, 2010 WL 5233015, at *14.
100
      Id. at *3-8.
101
      Those parties filed a joint dismissal shortly after the abovementioned ruling.

                                           26
       the company had a working capital deficit of $57.1 million and negative
        net tangible assets of $53.7 million;
       the company had little cash and lacked “the credit necessary to borrow at
        commercially reasonable rates” that would “enable it to meet its
        obligations going forward”;
       the company’s auditors had concluded that there was substantial doubt
        about the company’s ability to continue as a going concern;
       the company had not held an annual meeting in approximately three years
        because it could not afford to;
       the company had issued nearly all of the shares of stock that it was
        authorized to issue and pledged additional shares beyond the level
        authorized in the certificate in order to settle pending legal claims and pay
        for goods and services such as rent, inventory, and temporary help;
       the company acknowledged in its SEC filings that it had been unable to
        repay its indebtedness as it came due on numerous occasions, and the
        company had a history of defaulting on the repayment of obligations to its
        primary creditor;
       the primary creditor allegedly had liens on all of the company’s assets,
        including the stock of its subsidiaries; and
       instead of dealing even-handedly, the primary creditor structured its capital
        infusions to intentionally block the plaintiff from collecting on the debt
        from the company.102

      In contrast to Pope and Production Resources, Petitioner provides no

evidence that Geneius has defaulted on any loan, rent, payroll, or D&O insurance

obligations; there is no evidence that Geneius has any judgment against it for any

payables; there is no evidence of any liens on the Company’s assets; and there is no

evidence that it would impossible for Geneius to raise capital in the future.103 Thus,

I am not convinced that the Company is a hopeless endeavor.


102
      Prod. Res., 863 A.2d at 778-80.
103
      By way of example, in one of the few email exchanges that Petitioner cites to as
      evidence that “multiple investors have refused to invest in Geneius [because] the
                                         27
      Another argument that Petitioner makes in reliance on Production

Resources104 concerns the way the Company manages its outstanding invoices.105

Specifically, Petitioner argues that because the Company chooses which invoices to

pay instead of paying all its outstanding invoices, it is not dealing even-handedly

based on the following language in Production Resources:

            If, for example, the record before the court convinces the
            court that the board of an insolvent company is dealing
            even-handedly and diligently with creditor claims and is
            doing its best to maximize the value of the corporate entity
            for all creditors, then the court would have little
            justification for appointing a receiver.106

Petitioner’s citation to the above-quoted language fails to recognize the

distinguishing facts upon which the Court based its reasoning:

            This is not to say that a board of an insolvent company
            may not negotiate in good faith with creditors for the
            benefit of the firm. Rather, it is to emphasize that here
            there are facts pled that in days past would be deemed to
            have raised a claim for “constructive fraud.” [Defendant
            company] is permitting [the controller] to repeatedly
            expand her position as a fully secured creditor, to the
            detriment of [the plaintiff] and other creditors in the event


      Company is too early stage,” Pet’r’s Opening Br. 22, the potential investor also
      stated that “it would be great to stay in touch with the company. In particular, it
      would be great to meet with the team once they have some clinical data to share.
      We look forward to staying in touch.” JX 163 at 1.
104
      Prod. Res., 863 A.2d at 786.
105
      PTO ¶ 39; Pet’r’s Opening Br. 47 (quoting Tr. 218 (Slanetz)).
106
      Prod. Res., 863 A.2d at 786.

                                          28
             of liquidation. At the same time, [the controller’s] family
             members continue to receive lucrative payments as
             consultants of the company, money that could be used to
             pay the debt owed to [the plaintiff]. Meanwhile,
             defendants Parrella and Lebovics, two members of the
             four member [] board, who [the controller] likely has the
             practical power to displace, continue to draw substantial
             salaries. And [the controller’s] new capital infusions are
             being placed into a subsidiary in order to avoid [the
             plaintiff’s] collection efforts.107

Here, the record indicates that Slanetz is not doing anything other than negotiating

in good faith with creditors for the benefit of the Company; Geneius appears to be

making a bona fide effort to overcome its current financial difficulty, including the

use of a survival budge, the significant cuts to payroll, the personal loans from

Slanetz to the Company, and the investments in fundraising.108 “While future

prospects may not look all that good now, I have no basis to conclude at this point




107
      Id.
108
      Petitioner argues that Slanetz had a more sinister motive in his involvement with the
      Austin Entities. “Lured by the extravagant lifestyle, actually raising money
      evidently lost priority while Slanetz gallivanted around with family office
      consultants and seemingly high net worth investors.” Pet’r’s Opening Br. 16; see
      also Pet’r’s Answering Br. 25-29 (alleging that Slanetz participated in bank fraud
      and filed a false police report to maintain his relationship with the Austin Entities).
      I am not convinced that Slanetz’s involvement with the Austin Entities was more
      than an imprudent business decision, and I give credit to Slanetz’s testimony that he
      is making a bona fide effort to move the Company forward. Tr. 132-41 (Slanetz).

                                            29
with any degree of reasonable certainty that the business will be unable to overcome

the difficulties of its recent past.”109

       For all of the aforementioned reasons, Petitioner has not pled insolvency by

clear and convincing evidence under either definition of insolvency—which is a

threshold issue.110 “When a company is solvent, § 291 is by its plain terms not even

implicated.”111 Petitioner has pled that this case arises out of a dispute between a

founder and minority stockholder about how the Company ought to run.112 The

former appears to be incredibly knowledgeable in the biomedical industry, and the

latter in the investment industry. But “[n]o mere differences of opinion among

stockholders or directors as to business policy or methods pursued by the corporation

can of themselves constitute a legitimate ground for the appointment of a

receiver.”113



109
       Siple v. S & K Plumbing & Heating, Inc, 1982 WL 8789, at *2 (Del. Ch. Apr. 13,
       1982) (applying 8 Del. C. § 291).
110
       Thus, I need not address the remaining “plus” requirements under the “insolvency
       plus” standard.
111
       Prod. Res., 863 A.2d at 785.
112
       See id. at 789 n.52 (“[T] he business judgment rule remains important and provides
       directors with the ability to make a range of good faith, prudent judgments about the
       risks they should undertake on behalf of troubled firms.”).
113
       Banks v. Cristina Copper Mines, Inc., 99 A.2d 504, 507 (1953) (declining to appoint
       a receiver partly because officers and directors made loans to the company in order
       to help the company meet some of its obligations) (citations omitted).

                                            30
III.   CONCLUSION

       For the foregoing reasons, I deny the Petition for Appointment of a Receiver.

       IT IS SO ORDERED.




                                         31
