UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 20202021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 001-38561001-39336
Aditx Therapeutics,Aditxt, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 82-3204328 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
737 N. Fifth Street, Richmond, VA | ||
| (Address of principal executive offices) | (Zip Code) |
(909) 488-0844(650) 870-1200
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share | ADTX | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of AugustNovember 12, 2020,2021, the registrant had 7,078,81727,027,149 and 6,978,01426,926,346 shares of common stock, $0.001 par value per share, issued and outstanding, respectively.
Table of Contents
-i-i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
| ● | Our plans to initiate clinical trials for our product candidates; |
| ● | ||
| Our plans to research, develop and commercialize our product |
| ● | Our ability to comply with the provisions of our license |
| ● | The results of clinical testing and trial activities of our product candidates; |
| ● | Our ability to obtain regulatory approval and market acceptance of, and reimbursement for our products; |
| ● | Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; |
| ● | Our ability to compete and succeed in a highly competitive and evolving industry; |
| ● | Our lack of operating history on which to judge our business prospects and management; |
| ● | Our ability to raise capital and the availability of future financing; |
| ● | Our ability to manage our research, development, expansion, growth, and operating expenses; |
| ● | Our reliance on third parties to conduct our research, preclinical studies and expected clinical trials; |
| ● | Our ability to complete the transactions contemplated under our Transaction Agreement with AiPharma Global; |
| ● | the impacts of COVID-19, or other future pandemics on our business; and |
| ● | the impact of government laws and regulation. |
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition, and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes, or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles, and surveys. Industry surveys, publications, consultant surveys, and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.
References to Aditxt, Inc.
Throughout this Quarterly Report on Form 10-Q, the “Company,” “Aditxt,” “we,” “us,” and “our” refers to Aditx Therapeutics,Aditxt, Inc. and “our board of directors” refers to the board of directors of Aditx Therapeutics,Aditxt, Inc.
-ii-
ii
PART I - FINANCIAL INFORMATION
ADITXT, INC.
BALANCE SHEETS
(Unaudited)
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 49,925 | $ | 4,090 | ||||
| Prepaid expenses | 25,083 | - | ||||||
| TOTAL CURRENT ASSETS | 75,008 | 4,090 | ||||||
| Deferred offering costs | 542,581 | 119,442 | ||||||
| TOTAL ASSETS | $ | 617,589 | $ | 123,532 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 2,268,581 | $ | 1,847,458 | ||||
| Accrued compensation to related parties | 1,220,629 | 962,651 | ||||||
| Notes payable - related party | 10,000 | 10,000 | ||||||
| Notes payable, net of discount | 830,600 | 155,600 | ||||||
| TOTAL CURRENT LIABILITIES | 4,329,810 | 2,975,709 | ||||||
| TOTAL LIABILITIES | 4,329,810 | 2,975,709 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock, $0.001 par value, 3,000,000 shares authorized, zero shares issued and outstanding, respectively | - | - | ||||||
| Common stock, $0.001 par value, 27,000,000 shares authorized, 4,069,115 and 3,915,900 shares issued and 3,968,312 and 3,821,087 shares outstanding, respectively | 4,069 | 3,916 | ||||||
| Treasury stock, 100,803 and 94,813 shares, respectively | (201,605 | ) | (189,625 | ) | ||||
| Additional paid-in capital | 9,938,946 | 9,063,483 | ||||||
| Accumulated deficit | (13,453,631 | ) | (11,729,951 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | (3,712,221 | ) | (2,852,177 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 617,589 | $ | 123,532 | ||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 5,469,435 | $ | 10,500,826 | ||||
| Prepaid expenses | 416,072 | 147,642 | ||||||
| ROU asset - short term | - | 384,685 | ||||||
| Note receivable | 6,500,000 | - | ||||||
| TOTAL CURRENT ASSETS | 12,385,507 | 11,033,153 | ||||||
| Fixed assets, net | 2,255,089 | 798,919 | ||||||
| Intangible assets, net | 240,970 | 321,000 | ||||||
| ROU asset - long term | 3,967,338 | 871,136 | ||||||
| Deposits | 315,655 | 72,296 | ||||||
| Other assets | 422,108 | - | ||||||
| TOTAL ASSETS | $ | 19,586,667 | $ | 13,096,504 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 1,655,976 | $ | 241,613 | ||||
| Financing of fixed asset – short term | 744,299 | 587,588 | ||||||
| Deferred rent | 180,940 | 6,536 | ||||||
| Lease liability - short term | 1,019,613 | 391,221 | ||||||
| TOTAL CURRENT LIABILITIES | 3,600,828 | 1,226,958 | ||||||
| Financing of fixed asset - long term | 246,723 | - | ||||||
| Lease liability - long term | 2,766,785 | 858,064 | ||||||
| TOTAL LIABILITIES | 6,614,336 | 2,085,022 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $0.001 par value, 3,000,000 shares authorized, 0 shares issued and outstanding, respectively | - | - | ||||||
| Common stock, $0.001 par value, 100,000,000 shares authorized, 24,193,816 and 13,074,495 shares issued and 24,093,013 and 12,973,692 shares outstanding, respectively | 24,198 | 13,078 | ||||||
| Treasury stock, 100,803 and 100,803 shares, respectively | (201,605 | ) | (201,605 | ) | ||||
| Additional paid-in capital | 56,450,015 | 32,079,187 | ||||||
| Accumulated deficit | (43,300,277 | ) | (20,879,178 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 12,972,331 | 11,011,482 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 19,586,667 | $ | 13,096,504 | ||||
See accompanying notes to the financial statements.
-1-
1
ADITXT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
| June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | |||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses, includes $160,329, $2,098,759, $689,766 and $2,822,367 in stock-based compensation | 367,338 | 2,511,438 | $ | 1,223,765 | $ | 3,711,221 | ||||||||||
| Research and development, includes $0, $0, $0 and $0 in stock-based compensation | 28,294 | 43,978 | 228,665 | 88,846 | ||||||||||||
| Sales and marketing, includes $0, $0, $0 and $0 in stock-based compensation | 2,848 | 109 | 2,848 | 147 | ||||||||||||
| Total Operating Expenses | 398,480 | 2,555,525 | 1,455,278 | 3,800,214 | ||||||||||||
| NET LOSS FROM OPERATIONS | (398,480 | ) | (2,555,525 | ) | (1,455,278 | ) | (3,800,214 | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest expense | (448 | ) | (448 | ) | (902 | ) | (1,027 | ) | ||||||||
| Gain on forgiveness of debt | - | - | 32,500 | 45,000 | ||||||||||||
| Amortization of debt discount | (135,389 | ) | - | (300,000 | ) | - | ||||||||||
| Total Other Income (Expense) | (135,837 | ) | (448 | ) | (268,402 | ) | 43,973 | |||||||||
| Net loss before income taxes | (534,317 | ) | (2,555,973 | ) | (1,723,680 | ) | (3,756,241 | ) | ||||||||
| Income tax provision | - | - | - | - | ||||||||||||
| NET LOSS | $ | (534,317 | ) | $ | (2,555,973 | ) | $ | (1,723,680 | ) | $ | (3,756,241 | ) | ||||
| Net loss per share - basic and diluted | $ | (0.14 | ) | $ | (0.67 | ) | $ | (0.44 | ) | $ | (0.98 | ) | ||||
| Weighted average number of shares outstanding during the period - basic and diluted | 3,929,205 | 3,842,967 | 3,917,891 | 3,821,278 | ||||||||||||
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses, including $650,325, $874,363, $2,887,657 and $1,564,129, in stock-based compensation, respectively | $ | 4,451,545 | $ | 2,453,725 | $ | 14,348,375 | $ | 3,677,490 | ||||||||
| Research and development expenses, including $248,989, $0, $248,989, and $0 in stock-based compensation, respectively | 1,471,544 | 285,813 | 3,340,247 | 514,478 | ||||||||||||
| Sales and marketing expenses, including $0, $0, $0, and $0 in stock-based compensation, respectively | 150,056 | 5,000 | 252,562 | 7,848 | ||||||||||||
| Total operating expenses | 6,073,145 | 2,744,538 | 17,941,184 | 4,199,816 | ||||||||||||
| NET LOSS FROM OPERATIONS | (6,073,145 | ) | (2,744,538 | ) | (17,941,184 | ) | (4,199,816 | ) | ||||||||
| OTHER EXPENSE | ||||||||||||||||
| Interest expense | (38,198 | ) | - | (74,587 | ) | (902 | ) | |||||||||
| Interest income | 42,838 | 116 | 43,267 | 116 | ||||||||||||
| Gain on forgiveness of debt | - | - | - | 32,500 | ||||||||||||
| Loss on extinguishment of debt | (2,500,970 | ) | - | (2,500,970 | ) | - | ||||||||||
| Amortization of debt discount | (1,191,254 | ) | - | (1,845,358 | ) | (300,000 | ) | |||||||||
| Total other expense | (3,687,584 | ) | 116 | (4,377,648 | ) | (268,286 | ) | |||||||||
| Net loss before income taxes | (9,760,729 | ) | (2,744,422 | ) | (22,318,832 | ) | (4,468,102 | ) | ||||||||
| Income tax provision | - | - | - | - | ||||||||||||
| NET LOSS | $ | (9,760,729 | ) | $ | (2,744,422 | ) | $ | (22,318,832 | ) | $ | (4,468,102 | ) | ||||
| Net loss per share - basic and diluted | $ | (0.56 | ) | $ | (0.37 | ) | $ | (1.46 | ) | $ | (0.88 | ) | ||||
| Weighted average number of shares outstanding during the period - basic and diluted | 17,380,505 | 7,439,225 | 15,270,814 | 5,091,584 | ||||||||||||
See accompanying notes to the financial statements.
-2-2
ADITXT, INC.
STATEMENTS OF STOCKHOLDERS' DEFICITSTOCKHOLDERS’ EQUITY (DEFICIT)
SIXTHREE AND NINE MONTHS ENDED JUNESEPTEMBER 30, 20202021 AND 20192020
(Unaudited)
| Additional | Total | |||||||||||||||||||||||
| Common | Treasury | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Par | Shares | Capital | Deficit | Deficit | |||||||||||||||||||
| Balance December 31, 2019 | 3,821,087 | $ | 3,916 | $ | (189,625 | ) | $ | 9,063,483 | $ | (11,729,951 | ) | $ | (2,852,177 | ) | ||||||||||
| Issuance of shares for services | 104,750 | 105 | - | 418,895 | - | 419,000 | ||||||||||||||||||
| Stock option and warrant compensation | - | - | - | 110,437 | - | 110,437 | ||||||||||||||||||
| Treasury stock | (5,990 | ) | - | (11,980 | ) | - | - | (11,980 | ) | |||||||||||||||
| Net loss | - | - | - | - | (1,189,363 | ) | (1,189,363 | ) | ||||||||||||||||
| Balance March 31, 2020 (unaudited) | 3,919,847 | $ | 4,021 | $ | (201,605 | ) | $ | 9,592,815 | $ | (12,919,314 | ) | $ | (3,524,083 | ) | ||||||||||
| Exercise of warrants | 30,975 | 31 | - | 185,819 | - | 185,850 | ||||||||||||||||||
| Stock option and warrant compensation | - | - | - | 77,138 | - | 77,138 | ||||||||||||||||||
| Issuance of shares for services | 17,500 | 18 | - | 83,174 | - | 83,192 | ||||||||||||||||||
| Adjustment to Common Shares due to reverse stock split | (10 | ) | (1 | ) | - | - | - | (1 | ) | |||||||||||||||
| Net loss | - | - | - | - | (534,317 | ) | (534,317 | ) | ||||||||||||||||
| Balance June 30, 2020 (unaudited) | 3,968,312 | $ | 4,069 | $ | (201,605 | ) | $ | 9,938,946 | $ | (13,453,631 | ) | $ | (3,712,221 | ) | ||||||||||
Preferred Outstanding | Preferred Shares Par | Common Outstanding | Common Par | Treasury Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||
| Balance December 31, 2020 | - | $ | - | 12,973,692 | $ | 13,078 | $ | (201,605 | ) | $ | 32,079,187 | $ | (20,879,178 | ) | $ | 11,011,482 | ||||||||||||||||
| Exercise of warrants | - | - | 1,163,556 | 1,164 | - | 3,717,792 | - | 3,718,956 | ||||||||||||||||||||||||
| Issuance of shares for services | - | - | 18,000 | 18 | - | 51,222 | - | 51,240 | ||||||||||||||||||||||||
| Issuance of shares for employee compensation | - | - | 335,000 | 335 | - | 1,111,865 | - | 1,112,200 | ||||||||||||||||||||||||
| Stock option and warrant compensation | - | - | - | - | - | 301,462 | - | 301,462 | ||||||||||||||||||||||||
| Fair value of warrants issued with convertible note payable | - | - | - | - | - | 1,322,840 | - | 1,322,840 | ||||||||||||||||||||||||
| Warrant consideration for convertible note offering costs | - | - | - | - | - | 231,316 | - | 231,316 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (6,379,667 | ) | (6,379,667 | ) | ||||||||||||||||||||||
| Balance March 31, 2021 (unaudited) | - | $ | - | 14,490,248 | $ | 14,595 | $ | (201,605 | ) | $ | 38,815,684 | $ | (27,258,845 | ) | $ | 11,369,829 | ||||||||||||||||
| Issuance of shares for services | - | - | 68,000 | 68 | - | 181,792 | - | 181,860 | ||||||||||||||||||||||||
| Issuance of shares for employee compensation | - | - | 130,000 | 130 | - | 331,370 | - | 331,500 | ||||||||||||||||||||||||
| Stock option and warrant compensation | - | - | - | - | - | 259,070 | - | 259,070 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (6,178,436 | ) | (6,178,436 | ) | ||||||||||||||||||||||
| Balance June 30, 2021 (unaudited) | - | $ | - | 14,688,248 | $ | 14,793 | $ | (201,605 | ) | $ | 39,587,916 | $ | (33,437,281 | ) | $ | 5,963,823 | ||||||||||||||||
| Stock option and warrant compensation | - | - | - | - | - | 219,885 | - | 219,885 | ||||||||||||||||||||||||
| Issuance of shares for the conversion of debt | - | - | 4,802,497 | 4,803 | - | 5,745,119 | - | 5,749,922 | ||||||||||||||||||||||||
| Issuance of shares and warrants for offering, net of issuance costs | - | - | 4,583,334 | 4,583 | - | 10,115,418 | - | 10,120,001 | ||||||||||||||||||||||||
| Restricted stock unit compensation | - | - | - | 674,265 | - | 674,265 | ||||||||||||||||||||||||||
| Issuance of shares for vested restricted stock units | - | - | 16,000 | 16 | - | (16 | ) | - | - | |||||||||||||||||||||||
| Issuance of shares for services | - | - | 2,934 | 3 | - | 5,161 | - | 5,164 | ||||||||||||||||||||||||
| Reduction in exercise price of warrants | - | - | - | - | - | 102,267 | (102,267 | ) | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (9,760,729 | ) | (9,760,729 | ) | ||||||||||||||||||||||
| Balance September 30, 2021 (unaudited) | - | - | 24,093,013 | 24,198 | (201,605 | ) | 56,450,015 | (43,300,277 | ) | 12,972,331 | ||||||||||||||||||||||
3
| Additional | Total | |||||||||||||||||||||||
| Common | Treasury | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||
| Shares | Par | Shares | Capital | Deficit | Deficit | |||||||||||||||||||
| Balance December 31, 2018 | 3,763,925 | $ | 3,764 | $ | - | $ | 4,361,725 | $ | (5,902,223 | ) | $ | (1,536,734 | ) | |||||||||||
| Issuance of shares for cash, net of issuance costs | 60,250 | 60 | - | 198,594 | - | 198,654 | ||||||||||||||||||
| Issuance of shares for services and licenses | 13,000 | 13 | - | 51,987 | - | 52,000 | ||||||||||||||||||
| Stock option and warrant compensation | - | - | - | 671,608 | - | 671,608 | ||||||||||||||||||
| Net loss | - | - | - | - | (1,200,268 | ) | (1,200,268 | ) | ||||||||||||||||
| Balance March 31, 2019 (unaudited) | 3,837,175 | $ | 3,837 | $ | - | $ | 5,283,914 | $ | (7,102,491 | ) | $ | (1,814,740 | ) | |||||||||||
| Issuance of shares for cash, net of issuance costs | 11,250 | 11 | - | 36,799 | - | 36,810 | ||||||||||||||||||
| Issuance of shares for services and licenses | 7,500 | 8 | - | 29,992 | - | 30,000 | ||||||||||||||||||
| Stock option and warrant compensation | - | - | - | 2,068,759 | - | 2,068,759 | ||||||||||||||||||
| Treasury stock | (45,356 | ) | - | (90,712 | ) | - | - | (90,712 | ) | |||||||||||||||
| Net loss | - | - | - | - | (2,555,973 | ) | (2,555,973 | ) | ||||||||||||||||
| Balance June 30, 2019 (unaudited) | 3,810,569 | $ | 3,856 | $ | (90,712 | ) | $ | 7,419,464 | $ | (9,658,464 | ) | $ | (2,325,856 | ) | ||||||||||
| Preferred Shares | Preferred Shares | Common Shares | Common Shares | Treasury | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||
| Outstanding | Par | Outstanding | Par | Stock | Capital | Deficit | Equity (Deficit) | |||||||||||||||||||||||||
| Balance December 31, 2019 | - | $ | - | 3,821,087 | $ | 3,916 | $ | (189,625 | ) | $ | 9,063,483 | $ | (11,729,951 | ) | $ | (2,852,177 | ) | |||||||||||||||
| Issuance of shares for services | - | - | 104,750 | 105 | - | 418,895 | - | 419,000 | ||||||||||||||||||||||||
| Stock option and warrant compensation | - | - | - | - | - | 110,437 | - | 110,437 | ||||||||||||||||||||||||
| Treasury stock | - | - | (5,990 | ) | - | (11,980 | ) | - | - | (11,980 | ) | |||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (1,189,363 | ) | (1,189,363 | ) | ||||||||||||||||||||||
| Balance March 31, 2020 (unaudited) | - | $ | - | 3,919,847 | $ | 4,021 | $ | (201,605 | ) | $ | 9,592,815 | $ | (12,919,314 | ) | $ | (3,524,083 | ) | |||||||||||||||
| Exercise of warrants | - | - | 30,975 | 31 | - | 185,819 | - | 185,850 | ||||||||||||||||||||||||
| Stock option and warrant compensation | - | - | - | - | - | 77,138 | - | 77,138 | ||||||||||||||||||||||||
| Issuance of shares for services | - | - | 17,500 | 18 | - | 83,174 | - | 83,192 | ||||||||||||||||||||||||
| Adjustment to Common Shares due to reverse stock split | - | - | (10 | ) | (1 | ) | - | - | - | (1 | ) | |||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (534,317 | ) | (534,317 | ) | ||||||||||||||||||||||
| Balance June 30, 2020 (unaudited) | - | $ | - | 3,968,312 | $ | 4,069 | $ | (201,605 | ) | $ | 9,938,946 | $ | (13,453,631 | ) | $ | (3,712,221 | ) | |||||||||||||||
| Exercise of warrants | - | - | 3,709,778 | 3,712 | - | 20,982 | - | 24,694 | ||||||||||||||||||||||||
| Stock option and warrant compensation | - | - | - | - | - | 63,621 | - | 63,621 | ||||||||||||||||||||||||
| Issuance of shares for services | - | - | 208,666 | 209 | - | 810,533 | - | 810,742 | ||||||||||||||||||||||||
| Issuance of shares for the settlement of accrued compensation and accounts payable | - | - | 146,818 | 147 | - | 1,221,878 | - | 1,222,025 | ||||||||||||||||||||||||
| Issuance of shares and warrants for IPO, net of issuance costs | - | - | 1,226,668 | 1,227 | - | 9,429,455 | - | 9,430,682 | ||||||||||||||||||||||||
| Issuance of shares and warrants for offering, net of issuance costs | 1,250,000 | 1,250 | 1,150,000 | 1,150 | - | 8,524,376 | - | 8,526,776 | ||||||||||||||||||||||||
| Issuance of shares for the settlement of debt | - | - | 62,500 | 63 | - | 124,937 | - | 125,000 | ||||||||||||||||||||||||
| Exercise conversion of preferred shares | (1,250,000 | ) | (1,250 | ) | 1,250,000 | 1,250 | - | - | - | - | ||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (2,744,422 | ) | (2,744,422 | ) | ||||||||||||||||||||||
| Balance September 30, 2020 (unaudited) | - | - | 11,722,742 | 11,827 | (201,605 | ) | 30,134,728 | (16,198,053 | ) | 13,746,897 | ||||||||||||||||||||||
See accompanying notes to the financial statements.
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4
ADITXT, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended | Six Months Ended | |||||||
| June 30, 2020 | June 30, 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,723,680 | ) | $ | (3,756,241 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Stock-based compensation | 689,766 | 2,822,367 | ||||||
| Amortization of debt discount | 300,000 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (25,083 | ) | - | |||||
| Accounts payable and accrued expenses | 95,429 | 365,653 | ||||||
| Accrued compensation to related parties | 257,978 | 259,014 | ||||||
| Net cash used in operating activities | (405,590 | ) | (309,207 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable - related party | - | 10,000 | ||||||
| Proceeds from notes payable | 375,000 | - | ||||||
| Repayments of notes payable - related party | - | (42,502 | ) | |||||
| Repayments of notes payable | - | (5,000 | ) | |||||
| Common stock issued for cash, net of issuance costs | - | 235,464 | ||||||
| Deferred offering costs | (109,425 | ) | - | |||||
| Exercise of warrants | 185,850 | - | ||||||
| Net cash provided by financing activities | 451,425 | 197,962 | ||||||
| NET INCREASE (DECREASE) IN CASH | 45,835 | (111,245 | ) | |||||
| CASH AT BEGINNING OF PERIOD | 4,090 | 115,709 | ||||||
| CASH AT END OF PERIOD | $ | 49,925 | $ | 4,464 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest expense | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Liabilities assumed for common stock | $ | 11,980 | $ | 90,712 | ||||
| Deferred offering costs accrued and payable | $ | 313,714 | $ | - | ||||
| Original issuance discount on notes payable | $ | 300,000 | $ | - | ||||
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (22,318,832 | ) | $ | (4,468,102 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Stock-based compensation | 3,136,646 | 1,564,129 | ||||||
| Depreciation expense | 266,385 | 2,796 | ||||||
| Amortization of intangible assets | 80,030 | - | ||||||
| Amortization of debt discount | 1,845,358 | 300,000 | ||||||
| Loss on extinguishment of debt | 2,500,970 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (268,430 | ) | (238,308 | ) | ||||
| Deposits | (243,359 | ) | (61,586 | ) | ||||
| Accounts payable and accrued expenses | 1,414,363 | (1,302,193 | ) | |||||
| Accrued compensation to related parties | - | 128,396 | ||||||
| Net cash used in operating activities | (13,586,869 | ) | (4,074,868 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | (900,693 | ) | (160,534 | ) | ||||
| TI allowance receivable | (226,738 | ) | - | |||||
| Deferred acquisition costs | (152,630 | ) | - | |||||
| Note receivable and accrued interest | (6,542,740 | ) | - | |||||
| Net cash used in investing activities | (7,822,801 | ) | (160,534 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible note payable | 5,000,000 | 375,000 | ||||||
| Discount on convertible note payable from offering costs | (526,460 | ) | - | |||||
| Repayments of note payable | (315,790 | ) | (715,600 | ) | ||||
| Common stock and warrants issued for cash, net of issuance costs | 10,120,001 | 18,500,039 | ||||||
| Offering costs | - | (423,139 | ) | |||||
| Proceeds from exercise of warrants | 3,718,956 | 210,546 | ||||||
| Payments on financing of fixed asset | (418,428 | ) | - | |||||
| Cash paid on extinguishment of note payable | (1,200,000 | ) | - | |||||
| Net cash provided by financing activities | 16,378,279 | 17,946,846 | ||||||
| NET (DECREASE) INCREASE IN CASH | (5,031,391 | ) | 13,711,444 | |||||
| CASH AT BEGINNING OF PERIOD | 10,500,826 | 4,090 | ||||||
| CASH AT END OF PERIOD | $ | 5,469,435 | $ | 13,715,534 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest expense | $ | 15,789 | $ | 5,842 | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Liabilities assumed for common stock | $ | - | $ | 11,980 | ||||
| Issuance of shares for the conversion of notes payable | $ | 5,749,922 | $ | 125,000 | ||||
| Lease liability recognized from right of use asset | $ | 2,806,427 | $ | - | ||||
| Issuance of shares for the settlement of accounts payable | $ | - | $ | 1,222,025 | ||||
| Original offering discount on note payable | $ | 1,000,000 | $ | 300,000 | ||||
| Debt Discount from warrants issued with convertible note payable | $ | 1,322,840 | $ | - | ||||
| Debt Discount from warrant consideration for convertible debt offering costs | $ | 231,316 | $ | - | ||||
| Liability recognized for financed assets | $ | 821,862 | $ | 1,191,985 | ||||
| Reduction in exercise price of warrants | $ | 102,267 | $ | |||||
See accompanying notes to the financial statements.
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5
ADITXT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Company Background
Aditx Therapeutics,Overview
Aditxt, Inc. (“Aditxt” or the “Company”), formally known as Aditx Therapeutics, Inc., was incorporated in the State of Delaware on September 28, 2017 underand the laws of the State of Delaware.Company’s headquarters are located in Richmond, VA. The Company is a pre-clinical stage, life sciencesbiotech innovation company with a mission of prolonging life and enhancing its quality by improving the health of the immune system. Aditxt
The Company is developing technologiesbiotechnologies specifically focused on improving the health of the immune system through immune reprogramming and monitoring. Aditxt’sThe Company’s immune reprogramming technology istechnologies are currently at the pre-clinical stage and isare designed to retrain the immune system to induce tolerance with an objective of addressing rejection of transplanted organs, autoimmune diseases, and allergies. Aditxt’sThe Company’s immune monitoring technology istechnologies are designed to provide a personalized comprehensive profile of the immune system and the Company plans to utilize them in its upcoming reprogramming clinical trials to monitor subjects’ immune response before, during and after drug administration. Aditxt is also evaluating plans to obtain approval from the U.S. Food and Drug Administration (FDA) for this monitoring tool’s use as a clinical assay.
Offerings
On July 2, 2020, the Company completed its initial public offering (“IPO”). In connection therewith, the Company issued 1,226,668 Units (the “Units”), excluding the underwriters’ option to cover overallotments, at an offering price of $9.00 per Unit, resulting in gross proceeds of approximately $11.0 million. The Units issued in the IPO consisted of one share of common stock, one Series A warrant, and one Series B warrant. The Series A warrants haveoriginally had an exercise price of $9.00 and a term of 5 years. In addition, the Company issued a Unit Purchase Option at an exercise price of $11.25 per unit to the underwriters to purchase up to 67,466 units, with each unit consisting of (i) one share of common stock and (ii) one Series A warrant. On August 19, 2020, the Company modified the exercise price of the Series A warrants from $9.00 per share to $4.50 per share. The term of the Series A warrants was not modified. The Series B warrants have an exercise price of $11.25 per share, a term of 5 years and contain a cashless exercise option upon certain criteria being met. Subsequent to quarter end,As of September 30, 2021, substantially all of the Series B warrants issued in the IPO have been exercised pursuant to a cashless provision therein.
On September 10, 2020, the Company completed a follow-on public offering (“September 2020 Offering”). In connection therewith, the Company issued 2,400,000 Units (the “Follow-On Units”), at an offering price of $4.00 per Follow-On Unit, resulting in gross proceeds of approximately $9.6 million. The Follow-On Units issued in the September 2020 Offering consisted of one share of common stock (or Series A Preferred Stock for investors who would own more than 4.99% of the Company if they invested in common stock), one Series A-1 warrant, and one Series B-1 warrant. The Series A-1 warrants have an exercise price of $3.19 per share and a term of 5 years. The Series B-1 warrants have an exercise price of $5.00 per share, a term of 5 years and contain a cashless exercise option upon certain criteria being met. In addition, the Company issued a warrant to the underwriters to purchase up to 60,000 shares of common stock at an exercise price of $5.00 per share. Subsequent to quarter end, substantially all of the Series B-1 warrants issued in the September 2020 Offering have been exercised pursuant to a cashless provision therein.
On August 31, 2021, the Company completed a registered direct offering (“August 2021 Offering”). In connection therewith, the Company issued 4,583,334 shares of common stock, at a purchase price of $2.40 per share, resulting in gross proceeds of approximately $11.0 million. In a concurrent private placement, the Company issued warrants to purchase up to 4,583,334 shares. The warrants have an exercise price of $2.53 per share and are exercisable for a five-year period commencing six months from the date of issuance. In addition, the Company issued a warrant to the placement agent to purchase up to 229,166 shares of common stock at an exercise price of $3.00 per share.
Risks and Uncertainties
The Company has a limited operating history and has not generated revenue from intended operations. The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include: changes in the biotechnology regulatory environment, technological advances that render our technologies obsolete, availability of resources for clinical trials, acceptance of technologies into the medical community, and competition from larger, more well-funded companies. These adverse conditions could affect the Company’s financial condition and the results of its operations.
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On January 30, 2020, the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the financial impact will be to the Company, it is reasonably possible that future capital raiseraising efforts and additional development of our technologies may be negatively affected.
NOTE 2 – GOING CONCERN ANALYSIS
Management Plans
The Company was incorporated on September 28, 2017 and has not generated revenues to date. During the sixnine months ended JuneSeptember 30, 2020,2021, the Company had a net loss of $1,723,680$22,318,832 and cash of $49,925. However, subsequent to June$5,469,435 at September 30, 2020, the Company received approximately $9.5 million in cash as net proceeds from the IPO (See Note 1).2021. The Company will be conducting medical research and development, and the time at which the Company will begin generating revenue is unknown. These factors indicate substantial doubt about the Company’s ability to continue as a going concern. The Company believes, however, that the funds raised by August 2021 Offering as well as its remaining availability of approximately $89.0 million to raise future funds pursuant to an effective shelf registration statement filed with the IPOSEC on Form S-3 declared effective on July 13, 2021 will be sufficient to fund the Company’s operationoperations for at least the next 12 months. Because of these factors, the Company believes that this alleviates issuessubstantial doubt in connection with the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
The financial statements included in this report do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein. While we believe in the viability of our strategy to generate sufficient revenue, control costs, and raise additional funds, when necessary, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the ability to complete clinical studies and implement the business plan, generate sufficient revenues and to control operating expenses.
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NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended JuneSeptember 30, 20202021 and 2019.September 30, 2020. Although management believes that the disclosures in these unaudited financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance U.S. GAAP have been or omitted pursuant to the rules and regulations of the SEC.
The accompanying unaudited financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which contain the audited financial statements and notes thereto, included in the Company’s Prospectus, dated June 29, 2020, filed with the SEC pursuant to Rule 424(b).on March 25, 2021. The interim results for the sixnine months ended JuneSeptember 30, 20202021 are not necessarily indicative of the results to be expected for the year ended December 31, 20202021 or for any future interim periods.
7
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Significant estimates underlying the financial statements include the fair value of stock options and warrants.
Fair Value Measurements and Fair Value of Financial Instruments
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
| Level 1 - | Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
| Level 2 - | Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
| Level 3 - | Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820.
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Due to the short-term nature of all financial assets and liabilities, their carrying value approximates their fair value as of the balance sheet dates.
Concentrations of Credit Risk
The Company maintains its cash accounts at financial institutions which are insured by the Federal Deposit Insurance Corporation. At times, the Company may have deposits in excess of federally insured limits.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of June 30, 2020 and December 31, 2019, the Company did not have any cash equivalents.
Cash and cash equivalents include short-term, liquid investments.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Cost includes expenditures for furniture, office equipment, laboratory equipment, and other assets. Maintenance and repairs are charged to expense as incurred. When assets are sold, retired, or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. The costs of fixed assets are depreciated using the straight-line method over the estimated useful lives or lease life of the related assets.
Intangible Assets
Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested periodically for impairment.
8
Offering Costs
The Company accounts for offering costs in accordance with ASC 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs were capitalized as deferred offering costs on the balance sheet. The deferred offering costs are netted against the proceeds of the offering in stockholders’ deficitequity (deficit) or the related debt, as applicable. Costs related to unsuccessful offerings are expensed.
Leases
Under Topic 842, adopted in 2020 with no impact related to adoption, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases consisting of office space, laboratory space, and lab equipment.
Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered or reassessed after the adoption of Topic 842, we combine the lease and non-lease components in determining the lease liabilities and right of use (“ROU”) assets.
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC.ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services.
Patents
The Company incurs fees from patent licenses.licenses, which are expensed as incurred. During the sixnine months ended JuneSeptember 30, 2021 and September 30, 2020, and 2019, the Company had aincurred patent licensing feefees for the patents of $126,670$76,245 and $15,181,$258,635, respectively.
Research and Development
We incur research and development costs during the process of researching and developing our technologies and future offerings. Our research and development costs mainly consist of licensing costs. We expense these costs as incurred unless such costs qualify for capitalization under applicable guidance. During the nine months ended September 30, 2021 and September 30, 2020, the Company incurred research and development costs of $3,340,247 and $514,478, respectively.
Basic and Diluted Net Loss per Common Share
Basic loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for each period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of JuneSeptember 30, 2020, 1,110,0002021, 2,143,000 stock options, 1,428,800 restricted stock units, and 1,291,50310,263,964 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive. As of JuneSeptember 30, 2019, 1,102,5002020, 1,110,000 stock options and 1,077,1736,237,296 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive.
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9
Recent Accounting Pronouncements
In February 2016,August 2020, the FASB issued Accounting Standards Update (“ASU”) 2016-02: Leases (Topic 842).ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The new guidance generally requires an entity to recognize on its balance sheet operatingelimination of these models will reduce reported interest expense and financing lease liabilities and corresponding right-of-use assets. The standard will be effectiveincrease reported net income for entities that have issued a convertible instrument that is within the first interim period within annual reporting periodsscope of ASU 2020-06. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2018 and2021, with early adoption is permitted. The new standard requires a modified retrospective transition for existing leases to each prior reporting period presented. The Company has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periodspermitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact ofhas elected to early adopt this ASU and the adoption of this ASU 2016-02did not have a material impact on itsthe Company’s consolidated financial position, results of operationsstatements and cash flows once adopted.related disclosures.
The FASB issues ASUs to amend the authoritative literature in ASC. There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact on our financial statements.
NOTE 4 – NOTE RECEIVABLE
On August 25, 2021, the Company entered into a letter of intent ("the LOI") to acquire a biopharmaceutical company, the (“Target Company”), commercializing COVID-19 antiviral oral therapy. Key terms of the proposed transaction as stated in the Letter of Intent included: the completion of a proposed $6.5 million secured loan from the Company to the Target Company by August 31, 2021, as well as the issuance of such number of shares of the Company’s common stock that yields 50% of the number of the Company’s outstanding shares post-closing of the transaction. The acquisition is subject to the satisfaction of numerous conditions, including satisfactory due diligence, the negotiation and execution of definitive agreements and other closing conditions, including board and shareholder approval and approval by Nasdaq of the listing of shares proposed to be issued in the transaction. The Company and the Target Company have agreed to an exclusivity period until September 30, 2021 (the “Exclusivity Period”), with a view to settling the definitive agreement. On September 30, 2021, the parties entered into a letter agreement pursuant to which they agreed to extend the Exclusivity Period until October 4, 2021.
As contemplated by the Letter of Intent, on August 30, 2021, the Company entered into a secured credit agreement dated August 27, 2021 (the “Credit Agreement”) with the Target Company and certain affiliated entities, pursuant to which the Company made a secured loan to the Target Company in the principal amount of $6.5 million (the “Loan”). The Loan was funded on August 31, 2021, following the closing of the Company’s August 2021 Offering. The Loan bears interest at a rate of 8% per annum and matures on November 30, 2021 or upon such earlier date as the Letter of Intent or Exclusivity Period is terminated in accordance with the terms thereof. The Loan is secured by certain accounts receivable and other assets of the Target Company and certain of its affiliates. The Credit Agreement also contains certain covenants that prohibit the Target Company from incurring additional indebtedness, incurring liens or making any dispositions of its property.
NOTE 5 – FIXED ASSETS
The Company’s fixed assets include the following on September 30, 2021:
| Cost Basis | Accumulated Depreciation | Net | ||||||||||
| Computers | $ | 312,489 | $ | (48,798 | ) | $ | 263,691 | |||||
| Lab Equipment | 2,134,809 | (232,590 | ) | 1,902,219 | ||||||||
| Office Furniture | 83,345 | (2,625 | ) | 80,720 | ||||||||
| Other Fixed Assets | 8,605 | (146 | ) | 8,459 | ||||||||
| Total Fixed Assets | $ | 2,539,248 | $ | (284,159 | ) | $ | 2,255,089 | |||||
The Company’s fixed assets include the following on December 31, 2020:
| Cost Basis | Accumulated Depreciation | Net | ||||||||||
| Computers | $ | 54,579 | $ | (3,079 | ) | $ | 51,500 | |||||
| Lab Equipment | 750,658 | (14,350 | ) | 736,308 | ||||||||
| Office Furniture | 10,407 | (312 | ) | 10,095 | ||||||||
| Other Fixed Assets | 1,048 | (32 | ) | 1,016 | ||||||||
| Total Fixed Assets | $ | 816,692 | $ | (17,773 | ) | $ | 798,919 | |||||
Depreciation expense was $99,857 for the three months ended September 30, 2021 and $2,796 for the three months ended for September 30, 2020. Depreciation expense was $266,385 for the nine months ended September 30, 2021 and $2,796 for the nine months ended for September 30, 2020. None of the Company’s fixed assets serve as collateral against any loans as of September 30, 2021 and December 31, 2020, other than those subject to the financed asset liability.
10
NOTE 6 – INTANGIBLE ASSETS
The Company’s intangible assets include the following on September 30, 2021:
| Cost Basis | Accumulated Amortization | Net | ||||||||||
| Proprietary Technology | $ | 321,000 | $ | (80,030 | ) | $ | 240,970 | |||||
| Total Intangible Assets | $ | 321,000 | (80,030 | ) | $ | 240,970 | ||||||
The Company’s intangible assets include the following on December 31, 2020:
| Cost Basis | Accumulated Amortization | Net | ||||||||||
| Proprietary Technology | $ | 321,000 | $ | - | $ | 321,000 | ||||||
| Total Intangible Assets | $ | 321,000 | - | $ | 321,000 | |||||||
Amortization expense was $26,970 for the three months ended September 30, 2021 and zero for the three months ended for September 30, 2020. Amortization expense was $80,030 for the nine months ended September 30, 2021 and zero for the nine months ended for September 30, 2020. None of the Company’s intangible assets serve as collateral against any loans as of September 30, 2021 and December 31, 2020.
NOTE 47 – RELATED PARTY TRANSACTIONS
TheOn February 24, 2021, the Company granted 225,000 shares of restricted stock pursuant to the Company’s 2017 Equity Incentive Plan to the Company’s Chief Executive Officer (“CEO”) has provided certain periodsOfficer. The Company recognized $747,000 in stock-based compensation for the issuance of service without payment. Asthese shares. The grant vests in equal annual installments over the course of June 30, 2020 and December(3) three years, beginning on March 31, 2019,2021.
On February 24, 2021, the CEO is owed $375,500 and $309,500, respectively, related to compensation. SubsequentCompany granted 110,000 shares of restricted stock pursuant to the period,Company’s 2017 Equity Incentive Plan to the Company’s current President and former Chief Financial Officer. The Company recognized $365,200 in stock-based compensation for the issuance of these shares. The grant vests in equal annual installments over the course of (3) three years, beginning on March 31, 2021.
On June 4, 2021, the Company issued 38,055 Units consistinggranted 75,000 shares of 1 share of commonrestricted stock and 1 Series A warrant and 1 Series B warrant to settle $342,500 in accrued compensation.
The Company’s Chief Innovation Officer (“CIO”) has provided certain periods of service without payment. As of June 30, 2020 and December 31, 2019, the CIO is owed $476,000 and $377,000, respectively, related to compensation. Subsequentpursuant to the period, the Company issued 47,222 Units consisting of 1 share of common stock and 1 Series A warrant and 1 Series B warrantCompany’s 2021 Equity Incentive Plan to settle $425,000 in accrued compensation.
Effective July 10, 2020, the Board of Directors appointed the Company’s Chief Operations Officer (“COO”). PriorExecutive Officer. The Company recognized $191,250 in stock-based compensation for the issuance of these shares.
On June 4, 2021, the Company granted 55,000 shares of restricted stock pursuant to the appointment, the COO was an independent operations consultant and had provided certain periods of service without payment. As of June 30, 2020 and December 31, 2019, the COO is owed $365,000 and $275,000, respectively, related to compensation. SubsequentCompany’s 2021 Equity Incentive Plan to the period,Company’s current President and former Chief Financial Officer. The Company recognized $140,250 in stock-based compensation for the issuance of these shares.
On August 5, 2021, the Company issued 35,555granted 225,000 shares of Restricted Stock Units consistingpursuant to the Company’s 2021 Equity Incentive Plan to officers and board members of 1 sharethe Company. 5,000 of common stock, 1 Series A warrant,these shares vested during the quarter, the remaining 220,000 shares are unvested as of September 30, 2021. The Company recognized $46,264 in stock-based compensation for the issuance of these vested and 1 Series B warrant to settle $320,000 in accrued compensation.unvested shares during the three months ended September 30, 2021.
-8-
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NOTE 8 – FINANCING AGREEMENT
In February 2021, the Company entered into an additional 24-month financing agreement for lab equipment. The aggregate cost of this financing agreement, net of a $200,000 down payment is $892,094, of which $821,861 represents principal and $70,233 represents interest. The financing agreement has an interest rate of 8% per year.
NOTE 9 – CONVERTIBLE NOTE PAYABLE
On March 21, 2019,January 25, 2021, the Company entered into a noteSecurities Purchase Agreement with an institutional accredited investor (the “Investor”) for the offering, sale, and issuance of a related party.$6,000,000 Senior Convertible Promissory Note (the “January 2021 Securities Purchase Agreement, or the Convertible Note”). The noteConvertible Note had a principaltwenty-four-month term and was convertible at the option of $10,000, athe Investor at any time prior to maturity datein shares of September 21, 2019, andcommon stock at an interest rateinitial conversion price of 4%$4.00 per year. The note remained outstanding on June 30, 2020. This note was paid in full subsequentshare. Pursuant to June 30, 2020.
During the six months ended June 30, 2020,January 2021 Securities Purchase Agreement, the Company assumed $11,980 of liabilities fromalso issued a related party in exchange forwarrant to the return of 5,990Investor to purchase up to 800,000 shares of the Company’s common stock. The warrant is immediately exercisable for a period of three (3) years at an exercise price of $4.00 per share, subject to adjustment. An additional 75,000 warrants to purchase shares of the Company’s common stock was also issued to the underwriters. These underwriter warrants are immediately exercisable for a period of five (5) years at an exercise price of $4.00 per share, subject to adjustment. The Convertible Note had an original issuance discount of $1,000,000. The Company also recognized an additional discount of $526,460 from the issuance costs of the debt, $1,322,840 from the relative fair value of the warrants issued to the Investor, and $231,316 from the fair value of warrants issued to the underwriters. The total debt discount from these items was $3,080,616 which would have been amortized over the life of the Convertible Note. Repayment of the Convertible Note’s principal amount would occur in nineteen monthly cash or common stock payments beginning in July 2021. The Convertible Note could have been prepaid by the Company at any time without penalty at 105% of the then outstanding principal amount due under the Convertible Note.
On August 25, 2021, commensurate with the offering of securities described in Note One, the exercise price of the warrants was reset based on the sale of securities at a lesser price than the original strike price of the warrants. The reset provision was partially waived at the time and formally waived based on the defeasance and waiver agreement on August 30, 2021, described below. The reset provision resulted in a warrant reset adjustment for $102,267 and recorded as an increase to accumulated deficit and an increase to additional paid-in-capital.
On August 30, 2021, the Company entered into a defeasance and waiver agreement with the holder (the “Noteholder”) of the Convertible Note pursuant to which the Noteholder has agreed in exchange for (a) a cash payment by the Company to the Convertible Noteholder of $1.2 million, (b) a waiver, in part, of the conversion price adjustment provision such that the January 2021 Note shall be convertible into 4,802,497 shares of common stock (without giving effect to the conversion notices received by the Company from the Noteholder prior to the date hereof totaling 1,005,748 shares) and (c) a voluntary and permanent reduction by the Company of the exercise price of the warrant to purchase 800,000 shares of common stock of the Company to $2.53 per share. As a result of the modification of the debt terms, the Company determined that an extinguishment of the debt occurred and recorded a loss on extinguishment of the debt in the amount of $2,500,970 for the three and nine months ended September 30, 2021.
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NOTE 510 – LEASES
Our lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. We used the incremental borrowing rate on September 30, 2021 and December 31, 2020 for all leases that commenced prior to that date. In determining this rate, which is used to determine the present value of future lease payments, we estimate the rate of interest we would pay on a collateralized basis, with similar payment terms as the lease and in a similar economic environment.
Lease Costs
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||
| Components of total lease costs: | �� | |||||||
| Operating lease expense | $ | 515,956 | $ | 46,698 | ||||
| Total lease costs | $ | 515,956 | $ | 46,698 | ||||
Lease Positions as of September 30, 2021
ROU lease assets and lease liabilities for our operating leases are recorded on the balance sheet as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Right of use asset – short term | $ | - | $ | 384,685 | ||||
| Right of use asset – long term | 3,967,338 | 871,136 | ||||||
| Total right of use asset | $ | 3,967,338 | $ | 1,255,821 | ||||
| Liabilities | ||||||||
| Operating lease liabilities – short term | $ | 1,019,613 | $ | 391,221 | ||||
| Operating lease liabilities – long term | 2,766,785 | 858,064 | ||||||
| Total lease liability | $ | 3,786,398 | $ | 1,249,285 | ||||
Lease Terms and Discount Rate
| Weighted average remaining lease term (in years) – operating leases | 2.92 | |||
| Weighted average discount rate – operating leases | 8.00 | % |
On May 4, 2021, the Company entered a triple net lease (the “Richmond Lease”) for approximately 25,000 square feet of laboratory and office space in Richmond, Virginia. The Richmond Lease has a term of sixty-three months. The monthly base rent is approximately $53,000, plus applicable pro-rata common area charges, taxes, and maintenance. The Richmond Lease contains a base rent escalation clause of 3% per lease calendar year as well as a tenant improvement allowance of $375,000 in aggregate.
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NOTE 11 – STOCKHOLDERS’ DEFICITEQUITY
Preferred Stock
The Company is authorized to issue 3,000,000 shares of preferred stock, par value $0.001 per share.
Common Stock
TheOn May 24, 2021, the Company isincreased the number of authorized to issue 27,000,000 shares of the Company’s common stock, par value $0.001 per share.share, from 27,000,000 to 100,000,000 (the “Authorized Shares Increase”) by filing a Certificate of Amendment (the “Certificate of Amendment”) to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. In accordance with the General Corporation Law of the State of Delaware, the Authorized Shares Increase and the Certificate of Amendment were approved by the stockholders of the Company at the Company’s Annual Meeting of Stockholders on May 19, 2021.
During the sixnine months ended JuneSeptember 30, 2020,2021, the Company issued 122,25088,934 shares of common stock and recognized expense of $502,192$238,264 in stock-based compensation for consulting services. The Company also issued 1,163,556 shares of common stock upon the exercise of warrants and received $3,718,956 in cash proceeds. The Company granted 465,000 shares of restricted common stock for employee compensation and recognized expense of $1,443,700 in stock-based compensation. The Company also granted 1,445,400 Restricted Stock Units, of which 16,000 vested and resulted in the issuance of shares, as a result, the Company recognized expense of $674,265 in stock-based compensation (See Note 7) The Company issued 4,802,497 shares of common stock for the conversion of a convertible note. (See Note 9) The Company issued 4,583,334 shares of common stock as part of the August 2021 Offering. The stock-based compensation for shares issued or RSU’s granted during the period, were valued based on the fair market value on the date of grant.
During the nine months ended September 30, 2020, the Company issued 330,916 shares of common stock and recognized expense of $1,312,930 in stock compensation for consulting services. The Company also issued 30,9753,740,753 shares of commons stock for the exercise of warrants and received $185,850$210,546 for the exercise of the warrants. The Company issued 1,250,000 shares of common stock for the exercise of 1,250,000 shares of Series A Preferred Stock. The Company issued 146,818 shares of common stock for the settlement of accounts payable and issued 62,500 shares of common stock for the settlement of debt. The Company issued 1,226,668 shares of common stock related to the IPO and issued 1,150,000 shares of common stock related to the September 2020 Offering. The stock compensation for the period was valued based on prior private placements or based on management’s estimates of value immediately prior to the IPO and the value of the shares based on public information post IPO.
During six months ended June 30, 2019, thePreferred Stock
The Company issued 20,500is authorized to issue 3,000,000 shares of commonpreferred stock, for services and recognized expense of $82,000 in stock compensation, issued 71,500par value $0.001 per share. There were no shares of commonpreferred stock for $235,464 in cash, netoutstanding as of offering costs,September 30, 2021 and received 45,356 shares of the Company’s common stock in exchange for the assumption of $90,712 in liabilities. Shares issued for compensation were valued based on the price which common shares were being sold in the above private placements.December 31, 2020, respectively.
Reverse Stock Split
On June 29, 2020, the Company effectuated a 1-for-2 reverse stock split of its issued and outstanding shares of common stock by filing a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split.
Stock-Based Compensation
In October 2017, our Board of Directors adopted the Aditx Therapeutics, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan provides for the grant of equity awards to directors, employees, and consultants. UpThe Company is authorized to issue up to 2,500,000 shares of our common stock may be issued pursuant to awards granted under the 2017 Plan. The 2017 Plan is administered by our Board of Directors, and expires ten years after adoption, unless terminated earlier by the Board.Board of Directors.
On February 24, 2021, our Board of Directors adopted the Aditx Therapeutics, Inc. 2021 Omnibus Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock and restricted stock units, and other stock-based awards (collectively, the “Awards”). Eligible recipients of Awards include employees, directors or independent contractors of the Company or any affiliate of the Company. The Compensation Committee of the Board of Directors (the “Committee”) will administer the 2021 Plan. A total of 3,000,000 shares of common stock, par value $0.001 per share, of the Company may be issued pursuant to Awards granted under the 2021 Plan. The exercise price per share for the shares to be issued pursuant to an exercise of a stock option will be no less than one hundred percent (100%) of the Fair Market Value (as defined in the 2021 Plan) of a share of Common Stock on the date of grant. The 2021 Plan was submitted and approved by the Company’s stockholders at the 2021 annual meeting of stockholders, held on May 19, 2021.
During the sixnine months ended JuneSeptember 30, 2021, the Company granted no new stock options.
During the nine months ended September 30, 2020, the Company granted 7,500 stock options to a related party with an exercise pricesprice of $11.00 per share vesting on issuance. The total grant date fair value was determined to be $27,799.
DuringThe following is an analysis of the sixstock option grant activity under the Plan:
| Vested and Nonvested Stock Options | Number | Weighted Average Exercise Price | Weighted Average Remaining Life | |||||||||
| Outstanding December 31, 2020 | 2,143,000 | $ | 3.18 | 7.81 | ||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Expired or forfeited | - | - | - | |||||||||
| Outstanding September 30, 2021 | 2,143,000 | $ | 3.18 | 7.06 | ||||||||
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| Nonvested Stock Options | Number | Weighted- Average Exercise Price | ||||||
| Nonvested on December 31, 2020 | 973,000 | $ | 2.28 | |||||
| Granted | - | - | ||||||
| Vested | (129,250 | ) | 3.49 | |||||
| Expired or forfeited | - | - | ||||||
| Nonvested on September 30, 2021 | 843,750 | $ | 2.09 | |||||
The Company recognized stock-based compensation expense related to options issued and vesting of $616,781 during the nine months ended JuneSeptember 30, 2019,2021, of which $556,817 is included in general and administrative expenses and $59,964 is included in research and development expenses in the Company granted 550,000 stock options with exercise pricesaccompanying statements of $4.00 per share vesting on issuance.operations. The total grant date fairremaining value was determined to be $1,960,831. expensed is $1,164,704 with a weighted average vesting term of 1.12 years as of September 30, 2021. The Company recognized stock-based compensation expense related to options issued and vesting of $27,799 during the nine months ended September 30, 2020, which is included in general and administrative expenses in the accompanying statements of operations.
Warrants
For all periods presented,the nine months ended September 30, 2021, the fair value of each stock optionwarrant granted was estimated using the Black-Scholes assumption ranges and and/or factors in the Black-Scholes Model as follows:
| Exercise price | $ | 4.00 | ||
| Expected dividend yield | 0 | % | ||
| Risk free interest rate | 0.17%-0.42 | % | ||
| Expected life in years | 3.00-5.00 | |||
| Expected volatility | 154%-159 | % |
-9-
The risk-free interest rate assumption for optionswarrants granted is based upon observed interest rates on the United States government securitiesGovernment Bond Equivalent Yield appropriate for the expected term of stock options.warrants.
The expected term of stock options is calculated using either the simplified method for employee options which takes into consideration the contractual life and vesting terms of the options, unless the options are expected to vest in which case the contractual term of the options.
The Company determined the expected volatility assumption for optionswarrants granted using the historical volatility of comparable public companies’ common stock. The Company will continue to monitor peer companies and other relevant factors used to measure expected volatility for future stock optionwarrant grants, until such time that the Company’s common stock has enough market history to use historical volatility.
The dividend yield assumption for optionswarrants granted is based on the Company’s history and expectation of dividend payouts. The Company has never declared ornor paid any cash dividends on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.
Management estimated the fair value of common stock by looking at a market approach which takes into consideration past sales of stock to third parties and Company developments to date.
The Company recognizes stock optionwarrant forfeitures as they occur as there is insufficient historical data to accurately determine future forfeitures rates.
The following is an analysis of the stock option grant activity under the Plan:
| Weighted Average | Weighted Average | |||||||||||
| Number | Exercise Price | Remaining Life | ||||||||||
| Stock Options | ||||||||||||
| Outstanding December 31, 2019 | 1,102,500 | $ | 4.00 | 7.77 | ||||||||
| Granted | 7,500 | 11.00 | 7.52 | |||||||||
| Expired or forfeited | - | - | - | |||||||||
| Outstanding June 30, 2020 (unaudited) | 1,110,000 | $ | 4.05 | 7.25 | ||||||||
| Nonvested Options | Shares | Weighted- Average Exercise Price | ||||||
| Nonvested at December 31, 2019 | - | $ | - | |||||
| Granted | 7,500 | 11.00 | ||||||
| Vested | (7,500 | ) | 11.00 | |||||
| Forfeited | - | - | ||||||
| Nonvested at June 30, 2020 (unaudited) | - | $ | - | |||||
-10-
The Company recognized compensation expense related to options issued and vesting of $27,799 during the six months ended June 30, 2020, which is included in general and administrative expenses in the accompanying statements of operations. There is no additional expense to be recognized on previously granted options as of June 30, 2020. The Company recognized compensation expense related to options issued and vesting of $2,513,826 during the period ended June 30, 2019, which is included in general and administrative expenses in the accompanying statements of operations.
Warrants
A summary of warrant issuances are as follows:
| Number | Weighted Average Exercise Price | Weighted Average Remaining Life | ||||||||||
| Warrants | ||||||||||||
| Outstanding December 31, 2019 | 1,382,478 | 4.44 | 2.84 | |||||||||
| Granted | 5,000 | 11.00 | 3.00 | |||||||||
| Forfeited | (65,000 | ) | 4.00 | - | ||||||||
| Exercised | (30,975 | ) | 6.00 | - | ||||||||
| Outstanding June 30, 2020 (unaudited) | 1,291,503 | $ | 4.46 | 2.32 | ||||||||
| Vested and Nonvested Warrants | Number | Weighted Average Exercise Price | Weighted Average Remaining Life | |||||||||
| Outstanding December 31, 2020 | 5,799,146 | $ | 5.05 | 4.00 | ||||||||
| Granted | 5,687,500 | 2.57 | - | |||||||||
| Exercised | (1,163,556 | ) | 3.21 | - | ||||||||
| Expired or forfeited | (59,126 | ) | 5.56 | - | ||||||||
| Outstanding September 30, 2021 | 10,263,964 | $ | 3.17 | 4.54 | ||||||||
| Nonvested Warrants | Shares | Weighted- Average Exercise Price | ||||||
| Nonvested at December 31, 2019 | 200,000 | 4.00 | ||||||
| Granted | 5,000 | - | ||||||
| Vested | - | - | ||||||
| Forfeited | (65,000 | ) | - | |||||
| Nonvested at June 30, 2020 (unaudited) | 140,000 | $ | 4.00 | |||||
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The warrants are valued using similar inputs as noted in the stock options section above, with the exception of the expected life which is the contractual life.
| Nonvested Warrants | Number | Weighted- Average Exercise Price | ||||||
| Nonvested on December 31, 2020 | 320,000 | $ | 3.69 | |||||
| Granted | 5,687,500 | 2.57 | ||||||
| Vested | (1,304,166 | ) | 3.18 | |||||
| Expired or forfeited | - | - | ||||||
| Nonvested on September 30, 2021 | 4,703,334 | $ | 2.51 | |||||
The Company recognized stock-based compensation expense related to warrants issued and vesting of $159,777$163,637 and $226,541$223,398 during the sixnine months ended JuneSeptember 30, 2021 and September 30, 2020, and 2019,respectively, which is included in general and administrative in the accompanying Statements of Operations. The remaining value to be expensed is $212,093$131,311 with a weighted average vesting term of 0.971.25 years as of JuneSeptember 30, 2020.2021.
During the sixnine months ended JuneSeptember 30, 2020, 30,9752021, 1,163,556 warrants were exercised for 30,9751,163,556 shares of common stock. The Company recognized proceeds of $185,850$3,718,956 related to the exercises.
-11-
DuringOn January 25, 2021, pursuant to the three months ended June 30, 2020,January 2021 Securities Purchase Agreement the Company issued 5,000 warrants with an exercise price of $11.00 and a term of 3 years.
On April 10, 2020, the Company terminated a consulting agreement dated December 1, 2018. As part of this termination agreementJanuary 2021 Warrant to the consultant forfeited 65,000 non-vested. The consultant holds 25,000 warrants which were previously vested.
NOTE 6 – AGREEMENTS
On December 27, 2019, the Company entered into a consulting agreement for advisory services that requires a monthly retainer payment of $2,000. The Company issued 10,000 shares of its common stock during January 2020. Additionally, the Company issued 15,000 shares of its common stock within ten business days of the Company’s IPO and will issue 15,000 shares of its common stock within ten business days of December 31, 2020.
On December 27, 2019, the Company entered into a consulting agreement for advisory services. As part of this agreement the Company paid a one-time retainer of $15,000. Additionally, the Company paid a $7,500 success fee and issued 5,000 shares of its common stock within ten business days of the Company’s IPO.
On January 9, 2020, the Company entered into a consulting agreement for advisory services that requires a monthly retainer payment of $4,000. In addition, the Company issued 10,000 shares of its common stock during January 2020. Additionally, the Company issued 15,000 shares of its commons stock in June 2020 and will be requiredInvestor to issue 15,000 shares of its common stock within ten business days after December 17, 2020.
On January 10, 2020, the Company entered into a consulting agreement for advisory services, which was amended in May 2020. As part of this agreement the Company issued 55,000 shares of its common stock during January 2020. Additionally, the Company issued 55,000 shares of its common stock within ten business days of the Company’s IPO.
On January 22, 2020, as amended, effective July 1, 2020, the Company entered into a consulting agreement for investor relations and capital market advisory services. As part of this agreement the Company will pay a fee of $12,000 per month and issue 30,000purchase up to 800,000 shares of the Company’s common stock.
On February 3, 2020, the Company entered into a patent licensing agreement. As part of this agreement the CompanyThe January 2021 Warrant is required to pay a fee of $25,000. The Company also issued 18,750 shares of the Company’s common stock to the patent holder. The Company is required to pay an annual licensing fee on the anniversary of the agreement in the amount of $40,000 for 2021 through 2024 and $60,000 in starting in 2025 until the license expires. The Company will also pay milestone fees of $50,000 on the first commercial sales of a licensed product and $25,000 at the beginning of any clinical study for regulatory clearance of an in vitro diagnostic product developed and a potential licensed product. The Company will be responsible for paying royalty fees on the Company’s net sales. These royalty fees are set at a rate of 4% when net sales are below or equal to $5 million annually or 6% when net sales are above $5 million annually.
On February 23, 2020, the Company entered into a consulting agreement for business development services. As part of this agreement the Company issued 5,000 shares of its common stock. The Company also issued an additional 3,000 shares of its common stock upon the completion of its IPO. Subsequent to the IPO the Company will pay a monthly fee of $8,000. The Company will also pay a success fee equal to 4% of transaction proceeds in connection with qualified transactions.
On March 30, 2020, the Company entered into an employment agreementimmediately exercisable for a permanent, full-time Chief Financial Officer that is effective upon the closingperiod of the Company’s IPO. As part of the employment agreement the Company agreed to pay the employee $225,000 per year. The Company also granted stock options to purchase shares of the Company’s common stock. An initial grant of 7,500 options was made upon the signing of the agreement and a subsequent grant of 165,000 options was made upon the completion of the IPO. The initial grant hasthree years at an exercise price of $11.00 and expires on October 5, 2027, the subsequent grant$4.00 per share. The warrant was issued at the IPO price. The initial grant vested immediately and the subsequent grant vests 1/3 on the first anniversary of the agreement and the remaining 2/3 vests quarterly over the next two years.
-12-
On April 30, 2020,subsequently adjusted to $2.53 as disclosed in Note 9. In addition, the Company entered into an employment agreement for a Vice President of Preclinical Research and Development that is effective uponissued 75,000 warrants to the closing ofplacement agent related to the Company’s IPO. As part of the employment agreement, the Company agreed to pay the employee $200,000 per year. The Company granted 90,000 stock options to purchase shares of the Company’s common stock upon the completion of the IPO. The initial grant hasJanuary 2021 Securities Purchase Agreement. These warrants have an exercise price of equal to that$4.00 and a term of five years. All the IPO and expires75,000 warrants are exercisable on October 5, 2027. The grant vests 1/3 on the first anniversary of the start date of the employee and the remaining 2/3 vests quarterly over the following two years starting on the end of the 15th month following the start date.issuance. (See Note 8)
On May 16, 2020,In connection with the August 2021 Offering, the Company entered into an employment agreement for a Vice President of Innovation Portfolio and Development that is effective upon the closing of the Company’s IPO. As part of the employment agreement,issued warrants to purchase up to 4,583,334 shares. In addition, the Company agreedissued a warrant to pay the employee $200,000 per year. The Company granted 90,000 stock optionsplacement agent to purchase up to 229,166 shares of the Company’s common stock upon the completion of the IPO. The initial grant hasat an exercise price of equal to that of the IPO and expires on October 5, 2027. The grant vests 1/3 on the first anniversary of the start date of the employee and the remaining 2/3 vests quarterly over the following two years starting on the end of the 15th month following the start date.$3.00 per share. (See Note 1)
On June 15, 2020 the Company entered into a consulting agreement for advisory services that required a fee equivalent to 3,000 shares of the Company’s common stock which were issued in July 2020.Restricted Stock Units
NOTE 7 – NOTES PAYABLEA summary of Restricted Stock Units (“RSUs”) issuances are as follows:
| Nonvested RSUs | Number | Weighted Average Price | ||||||
| Outstanding December 31, 2020 | - | $ | - | |||||
| Granted | 1,445,400 | 2.11 | ||||||
| Vested | (16,000 | ) | 2.12 | |||||
| Expired or forfeited | (600 | ) | 2.12 | |||||
| Outstanding September 30, 2021 | 1,428,800 | $ | 2.10 | |||||
On April 12, 2018,
The Company recognized stock-based compensation expense related to RSUs issued and straight-line vesting expense of $674,265 and zero during the nine months ended September 30, 2021 and September 30, 2020, respectively, of which, $485,240 is included in general and administrative and $189,025 is included in research and development in the accompanying Statements of Operations. The remaining value to be expensed is $2,367,211 as of September 30, 2021.
During the nine months ended September 30, 2021, the Company issued an unsecured promissory notea total of 1,445,400 RSUs. As of September 30, 2021, 16,000 of these RSUs have vested and 600 were forfeited. The Company issued 16,000 shares of common stock for $35,000the 16,000 vested RSUs.
NOTE 12 – INCOME TAXES
The Company has incurred losses since inception. During the nine months ended September 30, 2021, the Company did not provide any provision for income taxes as the Company incurred losses during such period. The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that accrued interestdeferred tax assets and liabilities are recognized for the expected future tax consequences of 4% annually. The notetemporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. In assessing the need for a valuation allowance, the Company has considered both positive and negative evidence related to the likelihood of realization of deferred tax assets using a “more likely than not” standard. In making such assessment, more weight was duegiven to evidence that could be objectively verified, including recent cumulative losses. Based on the earlierCompany’s review of November 12, 2018 or inthis evidence, the eventCompany has recorded a full valuation allowance for its net deferred tax assets as of default, as defined in the agreement. This note was paid in full subsequent to JuneSeptember 30, 2020.2021.
-13-As of September 30, 2021, the Company did not have any amounts recorded pertaining to uncertain tax positions.
16
On July 10, 2018, the Company entered into a bridge loan with a principal of $15,600. The note was due on the earlier of October 8, 2018 or in the event of default, as defined in the agreement. This note was paid in full subsequent to June 30, 2020.
On July 18, 2018, the Company entered into a bridge loan with a principal of $130,000. The note was due on the earlier of October 16, 2018 or in the event of default, as defined in the agreement. This note was paid in full subsequent to June 30, 2020.
On November 1, 2019, the Company entered into a bridge loan with a principal of $50,000. This loan did not accrue any interest. The note was due on the earlier of April 28, 2020 or in the event of default, as defined in the agreement. The note was convertible into the same class of securities as those sold in the public offering with a conversion price of $2.00 per share. On July 24, 2020, the Company entered into an exchange agreement with respect to the previously issued note to exchange the note into Units on the same terms as the securities offered by the Company in its IPO. The note was converted in full subsequent to June 30, 2020.
On January 10, 2020, the Company entered into a bridge loan with a principal amount of $75,000. This Note carried an original issue discount of $40,000. This loan did not accrue any interest. The note was due on the earlier of July 8, 2020 or in the event of default, as defined in the agreement, as amended. The note was convertible into the same class of securities as those sold in the public offering with a conversion price of $2.00 per share. The note was converted in full subsequent to June 30, 2020.
During the first quarter of 2020, the Company entered into six bridge loans with a total principal amount of $600,000. These notes carried a total original issue discount of $300,000. The notes were due on the earlier of April 19, 2020 or ten days after the close of the Company’s IPO. These notes were paid in full subsequent to June 30, 2020.
NOTE 913 – SUBSEQUENT EVENTS
Transaction agreement:
On July 1, 2020,October 4, 2021 the Company entered into a transaction agreement (the “Transaction Agreement”) with AiPharma Global Holdings LLC (“AiPharma Global”), pursuant to which the Company agreed to reach a definitive agreement (the “Definitive Agreement”) no later than November 30, 2021 to acquire a subsidiary (“AiPharma Subsidiary” or Holdco”) of AiPharma Global which is to own all of the assets of AiPharma Global, following a restructuring of AiPharma Global. AiPharma Global is a biopharmaceutical company focused on discovering, developing and commercializing antiviral therapies across a broad spectrum of infectious diseases.
Pursuant to the Transaction Agreement, the Company also agreed to permit AiPharma Global to borrow an additional principal amount of $8.5 million under the Credit Agreement resulting in total availability of $15 million, as well as the Company issuing such number of shares of common stock that yields 65% of the number of the Company’s outstanding shares as of September 30, 2021 upon satisfaction of all closing conditions at the closing of the transaction.
The Transaction Agreement contemplates two events. First, upon the execution of the Definitive Agreement (the “Initial Closing”), AiPharma Global would acquire 19.99% of the Company’s common stock as of September 30, 2021, subject to the filing of the Company’s Quarterly Report on Form 10-Q (the “Initial Shares”), in exchange for 10% of the issued and outstanding equity interests of AiPharma Subsidiary. In addition, the Company would forgive all amounts then outstanding under the Credit Agreement, as amended. Following the execution of the Definitive Agreement, the Company has also agreed to take all necessary actions to cause two individuals designated by AiPharma Global to be appointed to the board of directors of the Company.
The Transaction Agreement may be terminated: (i) by mutual agreement of the parties, (ii) by either party if the Definitive Agreement has not be executed by November 30, 2021, (iii) by either party if there has been material breach or any material failure to perform any covenant or agreement and such breach or failure has not been cured or is incapable of being cured, (iv) by the Company if the Company is not satisfied with the currant due diligence conditions, (v) by the board of directors of the Company if it received a proposal that it deems to be superior to the AiPharma Global proposal described in the Transaction Agreement, (vi) by AiPharma Global if the Company breaches certain convents under the Transaction Agreement restricting issuance of securities during the period from execution of the Transaction Agreement through the Initial Closing, or termination of the Transaction Agreement, or (vii) if at any time period to the Initial Closing or earlier termination of the Transaction Agreement, the Initial Shares and Secondary Shares (defined below) represent less than 50.1% of the issued and outstanding shares of the Company. In the event that the Transaction Agreement is terminated pursuant to (i) or (ii), AiPharma Global is required to pay the Termination Fee to the Company by November 30, 2021. The Credit Agreement provided for a termination fee of $4 million (the “Termination Fee”) in the event that the Definitive agreement is not entered into by November 30, 2021. In the event that the Transaction Agreement is terminated by the Company pursuant to (iii) or (iv), AiPharma Global is required to pay the Termination Fee to the Company of $4 million and AiPharma Global is not required to pay the Termination Fee. In the event that the Transaction Agreement is terminated by AiPharma Global pursuant to (vii) the Company is not required to pay a termination fee and AiPharma Global is not required to pay the Termination Fee.
The Secondary Closing (as defined below) is conditioned upon certain closing conditions, including but not limited to: (i) the approvals of the stockholders of the Company of all matters required for the Secondary Closing, and (ii) Nasdaq approval of the issuance of shares to AiPharma Global at the Secondary Closing and the continued listing of the Company’s common stock following the Secondary Closing (collectively, the Closing Conditions”).
The second event under the Transaction agreement occurs upon the satisfaction of all Closing Conditions (the “Secondary Closing”) the Company shall issue an additional number of shares of the Company’s common stock that yields 65.00% of the Company’s outstanding shares of common stock as of September 30, 2021 (the “Secondary Shares”) to AiPharma Global in exchange for all remaining equity interest of AiPharma Subsidiary.
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Common stock offering:
On October 18, 2021, the Company entered into an amendment to patent and technology licensingunderwriting agreement (the “Underwriting Agreement”) with Loma Linda University (“LLU”), dated March 15, 2018. PursuantRevere Securities LLC, relating to the amendment, the Company was to pay LLU $455,000 within four dayspublic offering (the “October Offering”) of the signing of such amendment. The amendment also updated the milestone payment dates to be $175,000 on March 31, 2022; $100,000 on March 31, 2024; $500,000 on March 31, 2026; and $500,000 on March 31, 2027.
Effective on July 1, 2020, the Company entered into a consulting agreement for investor relations and public relations services. As part of this agreement the Company will pay a fee of $8,000 per month and issue 20,0002,833,333 shares of the Company’s common stock.stock (the “Shares”) by the Company.
The Shares were offered, issued, and sold at a price to the public of $1.50 per share under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement filed with the SEC on Form S-3 (File No. 333-257645), which was declared effective by the SEC on July 13, 2021.
The October Offering closed on October 20, 2021 for gross proceeds of $4.25 million. The Company utilized a portion of the proceeds, net of underwriting discounts of approximately $3.91 million from the October Offering to fund certain obligations under the Credit Agreement.
Amendment to Credit Agreement:
On July 2, 2020,October 18, 2021, the Company completed its IPO. (See Note 1).entered into the first amendment to the Credit Agreement with AiPharma Global and certain affiliated entities (the “Credit Agreement Amendment”), pursuant to which the Company agreed to increase the amount which AiPharma is permitted to borrow under the Credit Agreement by $8.5 million to an aggregate of $15.0 million, of which $6.5 million was outstanding prior to entering the Credit Agreement Amendment. The Company agreed to fund such additional borrowings, as requested by AiPharma, by advancing 70% of any amounts received by the Company from the exercise of existing warrants or any other capital raises, including the October Offering.
Lease:
On July 2, 2020,November 3, 2021, the Company settled outstanding compensation with certain related parties. (See Note 4).entered a modified gross lease (the “Melville Lease”) for approximately 3,150 square feet of office space in Melville, New York. The Melville Lease has a term of thirty-six months. The monthly base rent is approximately $7,240, plus applicable pro-rata common area charges. The Melville Lease contains a base rent escalation clause of 3.00% per lease calendar year. The Company anticipates moving into the space before the end of 2021.
See Note 6 for descriptionsRSU grant:
On November 10, 2021, the Compensation Committee approved the grant of agreements that required shares335,400 RSUs to be issued or optionsemployees pursuant to bethe Company’s 2021 Equity Incentive Plan. Included in this grant were 195,000 RSUs granted upon completionto officers of the Company’s IPO. Such shares have been issued and options granted. Company.
Subsequent to June 30, 2020, the Company repaid or exchanged for shares all debt agreements described in Note 8.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with ourthe unaudited financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and ourthe audited financial statements and related notes for the year ended December 31, 20192020 included in our final prospectus for our initial public offering of our common stockAnnual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, pursuant to Rule 424(b) of the Securities Act, dated June 29, 2020, which we refer to as the Prospectus of Aditx Theraputics,Inc.(the “Company,” “Aditxt”, “we,” or “our”SEC. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Quarterly Report on Form 10-Q, including those factors set forth in the section entitled “Cautionary Note Regarding Forward-Looking Statements and Industry Data” and in the section entitled “Risk Factors” in Part II, Item 1A.
Overview
We are a life sciencesbiotech innovation company with a mission of prolonging life and enhancing its quality by improving the health of the immune system. We are developing biotechnologies specifically focused on improving the health of the immune system through immune reprogramming and monitoring. Our immune reprogramming technology istechnologies are currently at the pre-clinical stage and are designed to retrain the immune system to induce tolerance with an objective of addressing rejection of transplanted organs, autoimmune diseases, and allergies. Our immune monitoring technology istechnologies are designed to provide a personalized comprehensive profile of the immune system and we plan to utilize itthem in our upcoming reprogramming clinical trials to monitor subjects’ immune response before, during and after drug administration. We are also evaluating plans to obtain FDA approval for this monitoring tool’s use as a clinical assay.
Immune Reprogramming
The discovery of immunosuppressive (anti-rejection and monoclonal) drugs over 40 years ago has made possible life-saving organ transplantation procedures and blocking of unwanted immune responses in autoimmune diseases. However, immune suppression leads to significant undesirable side effects, such as increased susceptibility to life-threatening infections and cancers, because it indiscriminately and broadly suppresses immune function throughout the body. While the use of these drugs has been justifiable because they prevent or delay organ rejection, their use for treatment of autoimmune diseases and allergies may not be acceptable because of the aforementioned side effects. Furthermore, transplanted organs often ultimately fail despite the use of immune suppression, and about 40% of transplanted organs survive no more than 5 years.
New, focused therapeutic approaches are needed that modulate only the small portion of immune cells that are involved in rejection of the transplanted organ, as this approach can be safer for patients than indiscriminate immune suppression. Such approaches are referred to as immune tolerance, and when therapeutically induced, may be safer for patients and also potentially allow long-term survival of transplanted tissues and organs.
In the late 1990s, academic research on these approaches was conducted at the Transplant Center in Loma Linda University (“LLU”) in connection with a project that secured initial grant funding from the U.S. Department of Defense. The focus of that project was for skin grafting for burn victims. Twenty years of research at LLU and an affiliated incubator led to a series of discoveries that have been translated into a large patent portfolio of therapeutic approaches that may be applied to the modulation of the immune system in order to induce tolerance to self and transplanted organs.
We have an exclusive worldwide license for commercializing this nucleic acid-based technology (which is currently at the pre-clinical stage), named Apoptotic DNA Immunotherapy™ (ADi™) from LLU, which utilizes a novel approach that mimics the way the body naturally induces tolerance to our own tissues (“therapeutically induced immune tolerance”). While immune suppression requires continuous administration to prevent rejection of a transplanted organ, induction of tolerance has the potential to retrain the immune system to accept the organ for longer periods of time. Thus, ADi™ may allow patients to live with transplanted organs with significantly reduced immune suppression. ADi™ is a technology platform which we believe can be engineered to address a wide variety of indications.
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We are developing ADi™ products for organ transplantation including skin grafting, autoimmune diseases, and allergies, with the initial focus on skin allografts and psoriasis, as we believe these indications will be most efficient in providing safety and efficacy data in clinical trials. To submit a Biologics License Application (“BLA”) for a biopharmaceutical product, clinical safety and efficacy must be demonstrated in a series of clinical studies conducted with human subjects. For products in our class of drugs, the first-in-human trials will be a combination of Phase I (safety/tolerability) and Phase II (efficacy) in affected subjects. To obtain approval to initiate the Phase I/IIa studies, an Investigational New Drug Application will be submitted to compile non-clinical efficacy data as well as manufacturing and pre-clinical safety/toxicology data. To date, we have conducted non-clinical studies in a stringent model of skin transplantation using genetically mismatched donor and recipient animals demonstrating a 3-fold increase in the survival of the skin graft in animals that were tolerized with ADi™ compared to animals that receive immune suppression alone. Prolongation of graft life was observed despite discontinuation of immune suppression after the first 5 weeks. Additionally, in an induced non-clinical model for psoriasis, ADi™ treatment resulted in a 69% reduction in skin thickness and a 38% decrease in skin flaking (two clinical parameters for assessment of psoriasis skin lesions). The Phase I/IIa studies in psoriasis will evaluate the safety/tolerability of ADi™ in patients diagnosed with psoriasis. Since the drug will be administered in subjects diagnosed with psoriasis, effectiveness of the drug to improve psoriatic lesions will also be evaluated. In another Phase I/IIa study, patients requiring skin allografts will receive weekly intra-dermal injections of ADi™ in combination with standard immune suppression to assess safety/tolerability and possibility of reducing levels of immunosuppressive drugs as well as prolongation of graft life. Later phase trials are planned after successful completion of these studies in preparation for submission for a BLA to regulatory agencies.
Immune Monitoring
We believe that understanding the status of an individual’s immune system is key to developing and administering immunotherapies such as ADi™. We have secured an exclusive worldwide license for commercializing a technology platform named Aditxt Immune Monitor™ (AiM™), which provides a personalized comprehensive profile of the immune system. It is intended to be informative for individual immune responses to viruses, bacterial antigens, peptides, drugs, bone marrow and solid organ transplants, and cancer. It has broad applicability to many other agents of clinical interest impacting the immune system, including those not yet identified such as future infectious agents. We plan to brand this technology, and other future licensed and/or in-house developed monitoring technologies collectively as AditxtScore™.
AiM™AditxtScore™ is being designed to allow individuals to understand, manage and monitor their immune profiles in order to be informed about attacks on or by their immune system. We believe AiM™AditxtScore™ can also assist the medical community in anticipating possible immune responses and reactions to viruses, bacteria, allergens, and transplanted organs. It can be useful in anticipating attacks on the body by having the ability to determine its potential response and for developing a plan to deal with an undesirable reaction by the immune system. Its advantages include the ability to provide a simple, rapid, accurate, high throughput, single platform assay that can be multiplexed to determine the immune status with respect to several factors simultaneously, in 3-16 hours, as well as detect antigen and antibody in a single test (i.e., infectious, recovered, immune). In addition, it can determine and differentiate between various types of cellular and humoral immune responses (T and B cells). It also provides for simultaneous monitoring of cell activation and levels of cytokine release (i.e., cytokine storms).
We plan to utilize AiM™AditxtScore™ in our upcoming clinical trials to monitor subjects’ immune response before, during, and after ADi™ drug administration. We are also evaluating plansworking with regulatory consultants with the objective to obtain FDA approval for AiM™’s useAditxtScore™ as a clinical assay and seeking to secure manufacturing,assay. We are currently securing marketing and distribution partnerships for application of AditxtScore™ in the Infectious Diseases market, by end of 2020.infectious diseases market. To obtain FDA approval to use AiM™AditxtScore™ as a clinical assay, we plan to conductare performing validation studies comparing AiM™ to other immunological tests to demonstrate reproducibility of data andAditxtScore™’s utility to demonstrate the sensitivityevaluate various components of the assays for use in different indications (e.g., detection of antigens present in infectious agents or antibodies against infectious agents).immune system reproducibly. We believe that thesethis data will show AiM™’s ability to multiplex in two ways using a single assay: (i) evaluating the immune response to multiple antigens (from different infectious agents) and (ii) measuring quantities of multiple cytokines. Furthermore, we believe that the additional validation studies will demonstrate AiM™AditxtScore™’s ability to measure various components of the presenceimmune system (e.g., humoral and cell-mediated immune responses) to provide a broader view of several antibody isotypes against several antigensthe immune system and its status in a single reaction.health and disease. Our plan is to submit a 510(K) application to the FDA after successful completioncompilation of these studies. We have engaged consultants for our communications and submissions to the FDA.data. Beyond 2020,infectious diseases, we plan to develop AiM™AditxtScore™ for applications in additional markets such as Organ Rejection, Allergies, Drug/Vaccine Response,organ rejection, allergies, drug/vaccine response, and Disease Susceptibility.
disease susceptibility.
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License Agreement with Loma Linda University
On March 8, 2018, we entered into an Assignment Agreement (the “Assignment Agreement”) with Sekris Biomedical, Inc. (“Sekris”). Sekris was a party to a License Agreementlicense agreement with Loma Linda University (“LLU”),LLU, entered into and made effective on May 25, 2011, and amended on June 24, 2011, July 16, 2012 and December 27, 2012 (the “Original Agreement,” and together with the Assignment Agreement, the “Sekris Agreements”). Pursuant to the Assignment Agreement, Sekris transferred and assigned all of its rights, and obligations in and to and liabilities under the Original Agreement, of whatever kind or nature, to us. In exchange, on March 8, 2018, we issued a warrant to Sekris to purchase up to 500,000 shares of our common stock (the “Sekris Warrant”). The warrant was immediately exercisable and has an exercise price of $4.00 per share. The expiration date of the warrant is March 8, 2023. On March 15, 2018, as amended on July 1, 2020, we entered into a LLU License Agreement directly with Loma Linda University, which amends and restates the Sekris Agreements.
Pursuant to the LLU License Agreement, we obtained the exclusive royalty-bearing worldwide license in and to all intellectual property, including patents, technical information, trade secrets, proprietary rights, technology, know-how, data, formulas, drawings, and specifications, owned or controlled by LLU and/or any of its affiliates (the “LLU Patent and Technology Rights”) and related to therapy for immune-mediated inflammatory diseases (the ADi™ technology). We refer you to the section titled “Our Business—Intellectual Property—Patent Rights” for a summary of the patents and patent applications that we licensed from LLU pursuant to the LLU License Agreement. In consideration for the LLU License Agreement, we issued 25,000 shares of common stock to LLU.
Pursuant to the LLU License Agreement, we are required to pay an annual license fee to LLU. Also,. We agreed to pay we paid LLU $455,000 in July 2020 in payment offor outstanding milestone payments and license fees. We are also required to pay to LLU milestone payments in connection with certain development milestones. Specifically, we are required to make the following milestone payments:payments to LLU: $175,000 on March 31, 2022; $100,000 on March 31, 2024; $500,000 on March 31, 2026; and $500,000 on March 31, 2027. Additionally, as consideration for prior expenses incurred by LLU to prosecute, maintain and defend the LLU Patent and Technology Rights, we are obligated to makemade the following payments to LLU:, $70,000 due at the end of December 2018, and a final payment of $60,000 due at the end of March 2019. We are required to defend the LLU Patent and Technology Rights during the term of the LLU License Agreement. Additionally, we will owe royalty payments of (i) 1.5% of Net Product Sales (as such terms are defined under the LLU License Agreement) and Net Service Sales on any Licensed Products (defined as any finished pharmaceutical products which utilizes the LLU Patent and Technology Rights in its development, manufacture or supply), and (ii) 0.75% of Net Product Sales and Net Service Sales for Licensed Products and Licensed Services (as such terms are defined under the LLU License Agreement) not covered by a valid patent claim for technology rights and know-how for a three (3) year period beyond the expiration of all valid patent claims. We also are required to produce a written progress report to LLU, discussing our development and commercialization efforts, within 45 days following the end of each year. All intellectual property rights in and to LLU Patent and Technology Rights shall remain with LLU (other than improvements developed by or on our behalf).
The LLU License Agreement shall terminate on the last day that a patent granted in to us by LLU is valid and enforceable or the day that the last patent application licensed to us is abandoned. The LLU License Agreement may be terminated by mutual agreement or by us upon 90 days written notice to LLU. LLU may terminate the LLU License Agreement in the event of (i) non-payments or late payments of royalty, milestone and license maintenance fees not cured within 90 days after delivery of written notice by LLU, (ii) a breach of any non-payment provision (including the provision that requires us to meet certain deadlines for milestone events (each, a “Milestone Deadline”)) not cured within 90 days after delivery of written notice by LLU and (iii) LLU delivers notice to us of three or more actual breaches of the LLU License Agreement by us in any 12-month period. Additional Milestone Deadlines include: (i) the requirement to have regulatory approval of an IND application to initiate a first-in-human clinical trials on or before March 31, 2020,2022, (ii) the completion of first-in-human (phase I/II) clinical trials by March 31, 2022,2024, (iii) the completion of Phase III clinical trials by March 31, 20242026 and (iv) biologic licensing approval by the FDA by March 31, 2025.2027.
License Agreement with Leland Stanford Junior University (“Stanford”)
On February 3, 2020, we entered into an exclusive license agreement (the “February 2020 License Agreement”) with Stanford with regard toregarding a patent concerning a method for detection and measurement of specific cellular responses. Pursuant to the February 2020 License Agreement, we received an exclusive worldwide license to Stanford’s patent with regard toregarding use, import, offer, and sale of Licensed Products (as defined in the agreement). The license to the patented technology is exclusive, including the right to sublicense, beginning on the effective date of the agreement, and ending when the patent expires. Under the exclusivity agreement, we acknowledged that Stanford had already granted a non-exclusive license in the Nonexclusive Field of Use, under the Licensed Patents in the Licensed Field of Use in the Licensed Territory (as those terms are defined in the February 2020 License Agreement”). However, Stanford agreed to not grant further licenses under the Licensed Patents in the Licensed Field of Use in the Licensed Territory.
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We were obligated to pay and paid a fee of $25,000 to Stanford within 60 days of February 3, 2020. We also issued 18,750 shares of the Company’s common stock to Stanford. An annual licensing maintenance fee is payable by us on the first anniversary of the February 2020 License Agreement in the amount of $40,000 for 2021 through 2024 and $60,000 in starting in 2025 until the license expires upon the expiration of the patent. The Company is required to pay and has paid $25,000 for the issuances of certain patents. The Company will pay milestone fees of $50,000 on the first commercial sales of a licensed product and $25,000 at the beginning of any clinical study for regulatory clearance of an in vitro diagnostic product developed and a potential licensed product. We are also required to: (i) provide a listing of the management team or a schedule for the recruitment of key management positions by March 31, 2020 (which has been completed), (ii) provide a business plan covering projected product development, markets and sales forecasts, manufacturing and operations, and financial forecasts until at least $10,000,000 in revenue by June 30, 2020 (iii)(which has been completed), conduct validation studies by September 30, 2020 (iv)(which has been completed), (iii) hold a pre-submission meeting with the FDA by September 30, 2020 (v)(which has been completed), (iv) submit a 510(k) application to the FDA, Emergency Use Authorization (“EUA”), or a Laboratory Developed Test (“LDT”) by DecemberMarch 31, 2020, (vi)2021 (LDT has been developed and being validated; also, working with a FDA consultant to submit an application for regulatory clearance), (v) obtain FDA approval by December 31, 2021, (vii)(vi) complete a prototype assay kit by December 31, 2021, and (viii)(vii) have a written agreement with Stanford on further development and commercialization milestones for specific fields of use by December 31, 2021.
In addition to the annual license maintenance fees outlined above, we will pay Stanford royalties on Net Sales (as such term is defined in the February 2020 License Agreement) during the of the term of the agreement as follows: 4% when Net Sales are below or equal to $5 million annually or 6% when Net Sales are above $5 million annually. The February 2020 License Agreement may be terminated upon our election on at least 30 days advance notice to Stanford, or by Stanford if we: (i) are delinquent on any report or payment; (ii) are not diligently developing and commercializing Licensed Product; (iii) miss certain performance milestones; (iv) are in breach of any provision of the February 2020 License Agreement; or (v) provide any false report to Stanford. Should any events in the preceding sentence occur, we have a thirty (30) day cure period to remedy such violation.
Our Team
We have assembled a team of experts from a variety of scientific fields and commercial backgrounds, with many years of collective experience that ranges from founding startup biotech companies, to developing and marketing biopharmaceutical products, to designing clinical trials, and to management of private and public companies.
Going Concern
The Company wasWe were incorporated on September 28, 2017 and hashave not generated revenues to date. During the sixnine months ended JuneSeptember 30, 2020 the Company2021 we had a net loss of $1,723,680$22,318,832 and cash of $5,469,435. The Company will require significant additional capital in order to operate in the normal course of business and fund clinical studies in the long-term. As a result of the IPO,September 2020 Offering, the CompanyJanuary 2021 Securities Purchase Agreement, and the August 2021 Offering, we received net proceeds of approximately $9.5 million subsequent to$23,000,000 during the period presented. The Company believeslast twelve months. We believe that the funds raised byas well as the IPOremaining availability of approximately $89.0 million to raise future funds pursuant to an effective shelf registration statement filed with the SEC on Form S-3 declared effective on July 13, 2021 will be sufficient to fund the Company’s operationour operations for at least the next 12 months. As a result, these conditions have alleviated the doubt regarding our ability to continue as a going concern beyond one year.
Financial Results
We have a limited operating history. Therefore, there is limited historical financial information upon which to base an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations. Our financial statements as of JuneSeptember 30, 2020,2021, show a net loss of $1,723,680.$22,318,832. We expect to incur additional net expenses over the next several years as we continue to maintain and expand our existing operations. The amount of future losses and when, if ever, we will achieve profitability are uncertain.
On July 2, 2020, the Company completed its initial public offering (“IPO”). In connection therewith, the Company issued 1,226,668 Units, excluding the underwriters’ overallotment, at an offering price of $9.00 per Unit, resulting in gross proceeds of approximately $11.0 million. The Units issued in the IPO consisted of one share of common stock, one Series A warrant, and one Series B warrant. The Series A warrants have an exercise price of $9.00 and a term of 5 years. The Series B warrants have exercise price of $11.25 and a term of 5 years. Substantially all of the Series B warrants issued in the IPO as part of the Units have been exercised pursuant to a cashless provision therein.
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Results of Operations
Results of operations for the three months ended JuneSeptember 30, 2021 and 2020
During the three months ended JuneSeptember 30, 2021, we incurred a loss from operations of $6,073,145. This is due to general and administrative expenses of $4,451,545, which includes $650,325 in stock-based compensation, research and development of $1,471,544, which includes $248,989 in stock-based compensation, and sales and marketing expenses of $150,056. The $1,471,544 in research and development is comprised of $3,700 in licensing fees, $484,197 in product development, $736,997 in compensation, and $246,650 in other research and development expense.
During the three months ended September 30, 2020, we incurred a loss from operations of $398,479.$2,744,538. This is due to general and administrative expenses of $352,338,$2,453,725, which includes $160,329$874,363 in stock-based compensation, research and development of $28,294,$285,813, and sales and marketing expenses of $2,848.$5,000. The $28,294$285,813 in research and development is comprised of $625$131,965 in licensing fees, $13,500$126,987 in product development, and $14,169$26,861 in other research and development expense.
DuringThe increase in expenses during the three months ended JuneSeptember 30, 2019,2021 compared to the three months ended September 30, 2020 was due to the Company continuing to execute its business plan and incur costs of being a public company.
Results of operations for the nine months ended September 30, 2021 and 2020
During the nine months ended September 30, 2021, we incurred a loss from operations of $2,555,525.$17,941,184. This is due to general and administrative expenses of $2,511,438,$14,348,375, which includes $2,098,759$2,887,657 in stock-based compensation, research and development of $43,978,$3,340,247, which includes $248,989 in stock-based compensation, and sales and marketing expenses of $109.$252,562. The $43,978$3,340,247 in research and development is comprised of $15,181$76,245 in licensing fees, $13,500$1,460,086 in product development, $736,997 in compensation, and $15,297$1,066,919 in other research and development expense.
Results of operations forDuring the sixnine months ended June 30, 2020
During the six months ended JuneSeptember 30, 2020, we incurred a loss from operations of $1,455,277.$4,199,816. This is due to general and administrative expenses of $1,208,765,$3,677,490, which includes $689,766$1,564,129 in stock-based compensation, research and development of $228,665,$514,478, and sales and marketing expenses of $2,848.$7,848. The $228,665$514,478 in research and development is comprised of $126,670$258,635 in licensing fees, $27,000$57,000 in product development, and $74,995$198,843 in other research and development expense.
DuringThe increase in expenses during the sixnine months ended JuneSeptember 30, 2019, we incurred a loss from operations of $3,800,214. This is2021 compared to the nine months ended September 30, 2020 was due to generalthe Company continuing to execute its business plan and administrative expensesincurring costs of $3,711,221, which includes $2,822,367 in stock-based compensation, researchbeing a public company.
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Liquidity and development of $88,846, and sales and marketing expenses of $147. The $88,846 in research and development is comprised of $15,181 in licensing fees, $27,000 in product development and $46,665 in other research and development expense.Capital Resources
Liquidity
We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. Although the Company has signed agreements with channel partners throughout the period, no receivables have been recorded as there has been no history of collectability. As of JuneSeptember 30, 2020,2021, we had an accumulated deficit of approximately $13.5 million. The Company$43,300,277. We had a working capital deficit of $4,254,802$8,784,679 as of JuneSeptember 30, 2020.2021. During the nine months ended September 30, 2021, we purchased $1,722,555 in fixed assets, for which we made cash payments of $900,693 and financed $821,862. These fixed assets were purchased to continue the buildout of our operations. Approximately $1,384,000 of these purchased fixed assets were lab equipment, $258,000 was for computers, $73,000 was for office furniture, and $8,000 was for other fixed assets.
Our financial statements have been prepared assuming that we will continue as a going concern.
The Company hasWe have funded itsour operations from proceeds from the sale of equity and debt securities. On July 2, 2020, the Companywe completed itsour IPO and raised approximately $9.5 million in net proceeds. The CompanyAt the time of the IPO, we believed that these funds willwould be sufficient to fund the Company’sour operations for the foreseeable future. The
On September 10, 2020, we completed a follow-on public offering. In connection therewith, we issued 2,400,000 units, or Follow-On Units, excluding the underwriters’ option to cover overallotments, at an offering price of $4.00 per Follow-On Unit, resulting in gross proceeds of approximately $9.6 million.
On January 25, 2021, the Company may need to raise additional funding through strategic relationships, public or private equity or debt financings, grants or other arrangements to develop and seek regulatory approvalsentered into a securities purchase agreement with an institutional accredited investor (the “Investor”) for the Company’s existingsale of a $6,000,000 senior secured convertible note (the “Convertible Note”). The Convertible Note had a term of 24 months, was originally convertible at a price of $4.00 per share and new product candidates. If such funding is not available or not available on terms acceptablewas issued at an original issuance discount of $1,000,000. On August 30, 2021, the Company entered into a defeasance and waiver agreement with the Investor, pursuant to which the Noteholder has agreed in exchange for (a) a cash payment by the Company to the Investor of $1.2 million (the Cash Payment”), (b) a waiver, in part of the conversion price adjustment provision such that the January 2021 Note shall be convertible into 4,802,497 shares of common stock (without giving effect to the conversion notice received by the company form the Noteholder prior to the date hereof totaling (1,005,748 shares) (the “Shares”), and (c) a voluntary and permanent reduction by the Company of the Company’s current development planexercise price of the warrant to purchase 800,000 shares of the common stock of the Company (the “January 2021 Warrant”) to $2.53 per share. As of September 30, 2021, the outstanding principle of the convertible note had been converted to 4,802,497 shares of common stock.
On August 30, 2021, we completed a registered direct; offering and plans for expansion of its general and administrative infrastructure may be curtailed.
raised approximately $10.1 million in net proceeds.
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We may need to raise significant additional capital to continue to fund our operations and the clinical trials.trials for our product candidates. We may seek to sell common stock, preferred stock or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. In addition, we may seek to raise cash through collaborative agreements or from government grants. The sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities, or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights.
The source, timing, and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our clinical development program. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us to, among other things, delay, scale back or eliminate expenses including some or all of our planned development, including our clinical trials. While the Companywe may need to raise funds in the future, we believe the Company believed its current cash reserves should be sufficient to fund the Company’sour operation for the foreseeable future. Because of these factors, the Company believeswe believe that this alleviates the issues about the Company’sour ability to continue as a going concern.
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Contractual Obligations
The following table shows our contractual obligations as of September 30, 2021:
| Payment Due by Year | ||||||||||||||||||||||||||||
| Total | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | ||||||||||||||||||||||
| Lease | $ | 4,485,132 | $ | 262,560 | $ | 1,064,882 | $ | 1,030,660 | $ | 934,503 | $ | 708,804 | $ | 483,723 | ||||||||||||||
| Financed asset | 1,048,904 | 199,171 | 738,221 | 111,512 | - | - | - | |||||||||||||||||||||
| Total contractual obligations | $ | 5,534,036 | $ | 461,731 | $ | 1,803,103 | $ | 1,142,172 | $ | 934,503 | $ | 708,804 | $ | 483,723 | ||||||||||||||
Critical Accounting Polices and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that of our critical accounting policies described under the heading “Management’s Discussion and Analysis of Financial Condition and Plan of Operations—Critical Accounting Policies” in the Company’sour Prospectus, dated June 29,September 1, 2020, filed with the SEC pursuant to Rule 424(b), theare critical to fully understanding and evaluating our financial condition and results of operations. The following involve the most judgment and complexity:
| ● | Research and development |
| ● | Stock-based compensation expense |
| ● | Fair value of common stock |
Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
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JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
WeWhen favorable, we have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act.
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We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering;our IPO (December 31, 2025); (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.SEC.
Recently Issued and Adopted Accounting Pronouncements
See Note 3 - Summary of Significant Accounting Policies to the accompanying financial statements for a description of other accounting policies and recently issued accounting pronouncements.
Recent Developments
See Note 12 – Subsequent Event to the accompanying financial statements for a description of material recent developments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company isWe are not required to provide the information required by this Item as it iswe are a “smaller reporting company,” as defined in Rule 229.10(f)(1).
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were (a) designed to ensure that the information we are required to disclose in our reports under the Exchange Act is recorded, processed, and reported in an accurate manner and on a timely basis and the information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management to permit timely decisions with respect to required disclosure and (b) operating in an effective manner.
Change in Internal Control Over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended JuneSeptember 30, 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
The Company, Amro Albanna, our President and Chief Executive Officer, and Dr. Shahrokh Shabahang, our Chief Innovation Officer, have been named as cross-defendants in a counterclaim filed by Christopher Sechrist in an action entitled Shahrokh Shabahang v. Christopher Sechrist, San Bernardino County Superior Court Case No. CIVDS1831323. In a cross-complaint, Mr. Sechrist contends that he was a partner in a dental practice with Dr. Shabahang, and that disputes arose as between those partners. Neither the Company nor Mr. Albanna were partners in, or otherwise have an interest in, the dental practice. Notwithstanding, and seemingly based solely on the fact that Dr. Shabahang became the Chief Innovation Officer for the Company, Mr. Sechrist has brought claims against the Company and Mr. Albanna. Both the Company and Mr. Albanna believe that the Counterclaims filed by Mr. Sechrist have no factual or legal merit, and they intend to vigorously defend themselves in the action and to seek a dismissal of the case as against them as soon as possible. On May 26, 2020, Mr. Sechrist filed a request for dismissal as to the Company and Mr. Albanna with the Superior Court of California, County of San Bernardino, San Bernardino District. The clerk of the court entered the dismissal with prejudice on May 26, 2020.
Our CEO, Amro Albanna, is a party to litigation matters unrelated to the Company or any of its properties. Such litigations relate to Innovation Economy Corporation (IEC), a company in which Mr. Albanna served as the CEO and a Director from 2010 until 2017, and its wholly-owned subsidiaries (Innovation Economy Corporation d/b/a ieCrowd). The first litigation (ieCrowd v. Kim, et. al, Superior Court, Riverside County) was originally commenced by IEC and its subsidiary after Mr. Albanna was no longer affiliated with IEC, against certain third-party defendants based upon claims related to their misconduct and mismanagement. Such defendants subsequently brought a countersuit against IEC and its subsidiary, in which they named Mr. Albanna and others as defendants, alleging that they were misled to invest in IEC and its subsidiary based upon misrepresentations by, among others, Mr. Albanna. The cases have now been consolidated. Mr. Albanna believes that the counteraction commenced by the third parties against him is without merit and intends to defend himself. The second matter (Calabria v. ieCrowd) was commenced by Calabria Ventures more than 2 years after Mr. Albanna was no longer affiliated with IEC, related to uncollected rent. Mr. Albanna believes that the action commenced against him is without merit and intends to defend himself. IEC (either directly or through its Director and officer insurance policy) has covered all related legal costs to date.
Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our Prospectus,most recent Annual Report on Form 10-K and in our other filings with the SEC, the occurrence of any one of which could have a material adverse effect on our actual results.
There have been no material changes to the Risk Factors previously disclosed in our Prospectus, except as noted below.
Unfavorable global economic, business, or political conditions could adversely affectAnnual Report on Form 10-K and our business and financial condition.
Our business could be adversely affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our control, including the impact of health and safety concerns, such as those relating to the current COVID-19 novel coronavirus (“COVID-19”) pandemic. The recent global financial crisis in connectionother filings with the COVID-19 pandemic has caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including our ability to raise additional capital when needed on acceptable terms, if at all. Any of the foregoing could harm our business and we cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact our business.SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Sales of Unregistered Securities
During
On January 1, 2021, the three months endedCompany issued a consultant 6,000 shares of common stock for services rendered.
On March 1, 2021, the Company issued a consultant 12,000 shares of common stock for services rendered.
On April 1, 2021, the Company issued a consultant 6,000 shares of common stock for services rendered.
On May 11, 2021, the Company issued a consultant 50,000 shares of common stock for services rendered.
On June 30, 2020, 30,9758, 2021, the Company issued a consultant 12,000 shares of common stock for services rendered.
On September 29, 2021, the Company issued a consultant 2,934 shares of common stock for services rendered.
On August 25, 2021, in connection with our registered direct offering, in a concurrent private placement, we issued warrants were exercised for 30,975to purchase an aggregate of 4,583,334 shares of common stock. The company recognized proceedswarrants have an exercise price of $185,850 related$2.53 per share and are exercisable for a five-year period commencing six months from the date of issuance.
The issuances above were made pursuant to Section 4(a)(2) of the exercise.Securities Act.
During the three months ended June 30, 2020, the Company issued 17,500 shares(b) Use of common stock to two consultants for services.Proceeds
On July 2, 2020, the Company completed its initial public offering (“IPO”). In connection therewith, the Company issued 1,226,668 Units (the “Units”), excluding the underwriters’ option to cover overallotments (the underwriter did not exercise their overallotment), at an offering price of $9.00 per Unit, resulting in gross proceeds of approximately $11.0 million. The Units issued in the IPO consisted of one share of common stock, one Series A warrant, and one Series B warrant. The Series A warrants haveoriginally had an exercise price of $9.00 and a term of 5 years. In addition, the Company issued a Unit Purchase Option at an exercise price of $11.25 per unit to the underwriters to purchase up to 67,466 units, with each unit consisting of (i) one share of common stock and (ii) one Series A Warrant. On August 19, 2020, the Company modified the exercise price of the Series A Warrants from $9.00 per share to $4.50 per share. The term of the Series A Warrants was not modified. The Series B warrants have an exercise price of $11.25 andper share, a term of 5 years. Substantiallyyears and contain a cashless exercise option upon certain criteria being met. As of September 30, 2020, substantially all of the Series B warrants issued in the IPO have been exercised pursuant to a cashless provision therein.
We received net proceeds of $5.8$9.5 million in the IPO, after deducting underwriting discounts and commissions and offeringissuance expenses borne by us. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors pursuant to our director compensation policy. Dawson James Securities, Inc. acted as lead book-running manager of the offering and as representative of the underwriters for the offering.
There has been no material change in the planned use of proceeds from our IPO from that described in the final prospectus related to the offering, dated June 29, 2020 as filed with the SEC.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
On August 12, 2021, the Board of Directors of the Company approved the Company’s Second Amended and Restated Bylaws to reflect the change in the Company’s corporate name from Aditx Therapeutics, Inc. to Aditxt, Inc. The Amended and Restated Bylaws contain no other changes other than the change in name.
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None.
Amended and Restated Employment Agreement
On November 14, 2021, the Company entered into an Amended and Restated Employment Agreement with Mr. Amro Albanna, the Chief Executive Officer of the Company (the “Amro Employment Agreement”). Pursuant to the Amro Employment Agreement, Mr. Albanna will receive (i) a base salary at the annual rate of $280,000 for the remainder of calendar year 2021, and effective January 1, 2022, $500,000 (prorated for any partial year) payable in bimonthly installments (ii) the opportunity to earn an annual bonus of 2% of the Company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) with respect to an applicable year for which the bonus is payable, provided that such bonus will not exceed two (2) times Mr. Albanna’s base salary, and (iii) eligible to earn an annual discretionary bonus as determined by the Board or its Compensation Committee in their sole discretion. In addition, for calendar year 2021, Mr. Albanna will be eligible to earn an additional discretionary bonus as determined by the Company.
The term of Mr. Albanna’s engagement under the Amro Employment Agreement commences as of the Effective Date (as defined in the Amro Employment Agreement) and continues until November 14,2023, unless earlier terminated in accordance with the terms of the Amro Employment Agreement. The term of Mr. Albanna’s Employment Agreement is automatically renewed for successive one (1) year periods until terminated by Mr. Albanna or the Company.
Under the Amro Employment Agreement, termination of Mr. Albanna by the Company for “Cause,” “Death,” or “Disability,” (as such terms are defined in the Amro Employment Agreement), or resignation by Mr. Albanna without “Good Reason” (as defined in the Amro Employment Agreement), will not require the Company to pay severance to Mr. Albanna. Upon any such termination, Mr. Albanna will be entitled to receive any Accrued Compensation (as defined in the Amro Employment Agreement), which in the case of termination by the Company for Cause or resignation by Mr. Albanna for Good Reason will not include payment of pro rata bonus; provided, however, if termination of Mr. Albanna by the Company without “Cause” or resignation by Mr. Albanna for “Good Reason,” then under the Amro Employment Agreement will require the Company to pay severance to Mr. Albanna. Upon any such termination, Mr. Albanna will be entitled to receive any Accrued Compensation and, subject to Mr. Albanna’s execution of an irrevocable release, receive (i) on the sixtieth day (60th) day following termination, a lump sum amount equal to twelve (12) months base salary then in effect as of the date of termination, less applicable taxes and withholdings; (ii) provide reimbursement to Mr. Albanna’s medical insurance premiums for a period of twelve (12) months following the date of termination; and (iii) cause any equity awards granted prior to the Effective Date (as defined in the Amro Employment Agreement), that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable.
Notwithstanding the foregoing, under the Amro Employment Agreement, termination of Mr. Albanna by the Company without Cause or resignation by Mr. Albanna for Good Reason and a Change of Control (as defined in the Amro Employment Agreement) of the Company occurs within six (6) months after such termination, or within twenty-four (24) months prior to such termination, the Company will pay severance to Mr. Albanna in connection to such termination. Upon such termination, Mr. Albanna will be entitled to receive any Accrued Compensation, and subject to Mr. Albanna’s execution of an irrevocable release, receive (i) on the sixtieth (60th) day of termination, a lump sum cash-payment equal to the product of three times Mr. Albanna’s salary then in effect as of the date of termination, less applicable taxes and withholdings; (ii) provide reimbursement to Mr. Albanna’s medical insurance premiums for a period of twenty-four (24) months following the date of termination; and (iii) notwithstanding any provision of any stock incentive plan, stock option agreement, realization bonus, restricted stock agreement or other agreement relating to capital stock of the Company, cause any equity awards granted prior to the that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable for twenty-four (24) months (but not later than when the award would otherwise expire).
The Amro Employment Agreement also contains customary non-solicitation and non-competition covenants, which covenants remain in effect for twelve (12) months following any cessation of employment with respect to Mr. Albanna. To the extent any of the payments or benefits provided for under the Amro Employment Agreement or any other agreement or arrangement between Mr. Albanna and the Company (collectively, the “Payments”), (a) constitute an “excess parachute payment” within the meaning of Section 280G (“Section 280G”) of the Internal Revenue Code of 1986, as amended and restated (the “Code”), and (b) would otherwise be subject to the excise tax imposed by Section 4999 of the Code (“Section 4999”), then the Company will pay or provide the greater (whichever gives Mr. Albanna the highest net after-tax amount) of (i) all of the Payments or (ii) the portion of Payments not in excess of the greatest amount of Payments that can be paid that would not result in the imposition of the excise tax under Section 4999.
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The foregoing description of the terms of the Amro Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the provisions of the Amro Employment Agreement, which is filed as Exhibit 10.12 to this Current Report on Form 10-Q.
Pankovcin Employment Agreement
On November 14, 2021, Aditxt, Inc. (the “Company”) entered into a new employment agreement (the “Pankovcin Employment Agreement”) with the Company’s President, Corinne Pankovcin, pursuant to which Ms. Pankovcin will continue to serve as the Company’s President and Secretary until the date upon which Ms. Pankovcin’s employment may be terminated in accordance with the terms of the Pankovcin Employment Agreement.
The term of Ms. Pankovcin’s engagement under the Pankovcin Employment Agreement commences as of the Effective Date (as defined in the Pankovcin Employment Agreement) and continues until November 14,2023, unless earlier terminated in accordance with the terms of the Pankovcin Employment Agreement. The term of Ms. Pankovcin’s Employment Agreement is automatically renewed for successive one (1) year periods until terminated by Ms. Pankovcin or the Company.
Pursuant to the Pankovcin Employment Agreement, Ms. Pankovcin will receive: (i) a base salary at the annual rate of $250,000 for the remainder of calendar year 2021, and effective January 1, 2022, $385,000 (prorated for any partial year) payable in bimonthly installments and (ii) eligible to earn an annual discretionary bonus with a target amount of 45% of Base Compensation, which is based on the achievement of performance objectives, which will be determined by the Board and Compensation Committee. In addition, for calendar year 2021, Ms. Pankovcin shall be eligible to earn an additional discretionary bonus as determined by the Company.
Under the Pankovcin Employment Agreement, termination of Ms. Pankovcin by the Company for “Cause,” “Death,” or “Disability,” (as such terms are defined in the Pankovcin Employment Agreement), or resignation by Ms. Pankovcin for “Good Reason” (as defined in the Pankovcin Employment Agreement), will not require the Company to pay severance to Ms. Pankovcin. Upon any such termination, Ms. Pankovcin will be entitled to receive any Accrued Compensation (as defined in the Pankovcin Employment Agreement), which in the case of termination by the Company for Cause or resignation by Ms. Pankovcin for Good Reason will not include payment of pro rata bonus; provided, however, if termination of Ms. Pankovcin by the Company without “Cause” or resignation by Ms. Pankovcin for “Good Reason,” then under the Pankovcin Employment Agreement will require the Company to pay severance to Ms. Pankovcin. Upon any such termination, Ms. Pankovcin will be entitled to receive any Accrued Compensation and, subject to Ms. Pankovcin’s execution of an irrevocable release, receive: (i) on the sixtieth day (60th) day following termination, a lump sum amount equal to twelve (12) months base salary then in effect as of the date of termination, less applicable taxes and withholdings; (ii) provide reimbursement to Ms. Pankovcin’s medical insurance premiums for a period of twelve (12) months following the date of termination; and (iii) cause any equity awards granted prior to the Effective Date (as defined in the Pankovcin Employment Agreement), that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable.
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Notwithstanding the foregoing, under the Pankovcin Employment Agreement, termination of Ms. Pankovcin by the Company without Cause or resignation by Ms. Pankovcin for Good Reason and a Change of Control (as defined in the Pankovcin Employment Agreement) of the Company occurs within six (6) months after such termination, or within twenty-four (24) months prior to such termination, the Company will pay severance to Ms. Pankovcin in connection to such termination. Upon such termination, Ms. Pankovcin will be entitled to receive any Accrued Compensation, and subject to Ms. Pankovcin’s execution of an irrevocable release, receive (i) on the sixtieth (60th) day of termination, a lump sum cash-payment equal to the sum of (A) the product of two times Ms. Pankovcin’s salary then in effect as of the date of termination, less applicable taxes and withholdings, and (B) the product of two times Ms. Pankovcin’s Target Bonus; (ii) provide reimbursement to Ms. Pankovcin’s medical insurance premiums for a period of twenty-four (24) months following the date of termination; and (iii) notwithstanding any provision of any stock incentive plan, stock option agreement, realization bonus, restricted stock agreement or other agreement relating to capital stock of the Company, cause any equity awards granted prior to the that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable for twenty-four (24) months (but not later than when the award would otherwise expire).
The Pankovcin Employment Agreement also contains customary non-solicitation and non-competition covenants, which covenants remain in effect for twelve (12) months following any cessation of employment with respect to Ms. Pankovcin. To the extent any of the payments or benefits provided for under the Pankovcin Employment Agreement or any other agreement or arrangement between Ms. Pankovcin and the Company (collectively, the “Payments”), (a) constitute an “excess parachute payment” within the meaning of Section 280G (“Section 280G”) of the Internal Revenue Code of 1986, as amended and restated (the “Code”), and (b) would otherwise be subject to the excise tax imposed by Section 4999 of the Code (“Section 4999”), then the Company will pay or provide the greater (whichever gives Ms. Pankovcin the highest net after-tax amount) of (i) all of the Payments or (ii) the portion of Payments not in excess of the greatest amount of Payments that can be paid that would not result in the imposition of the excise tax under Section 4999.
A copy of the Pankovcin Employment Agreement is filed as Exhibit 10.13 to this report and incorporated herein by reference.
Farley Employment Agreement
On November 14, 2021, Aditxt, Inc. (the “Company”) entered into a new employment agreement (the “Farley Employment Agreement”) with the Company’s Chief Financial Officer, Thomas Farley, pursuant to which Mr. Farley will continue to serve as the Company’s Chief Financial Officer until the date upon which Mr. Farley’s employment may be terminated in accordance with the terms of the Farley Employment Agreement.
The term of Mr. Farley’s engagement under the Farley Employment Agreement commences as of the Effective Date (as defined in the Farley Employment Agreement) and continues until November 14,2023, unless earlier terminated in accordance with the terms of the Farley Employment Agreement. The term of Mr. Farley’s Employment Agreement is automatically renewed for successive one (1) year periods until terminated by Mr. Farley or the Company.
Pursuant to the Farley Employment Agreement, Mr. Farley will receive: (i) a base salary at the annual rate of $225,000 for the remainder of calendar year 2021, and effective January 1, 2022, $355,000 (prorated for any partial year) payable in bimonthly installments and, (ii) eligible to earn an annual discretionary bonus with a target amount of 40% of Base Compensation, which is based on the achievement of performance objectives, which will be determined by the Board and Compensation Committee. In addition, for calendar year 2021, Mr. Farley will be eligible to earn an additional discretionary bonus as determined by the Company.
Under the Farley Employment Agreement, termination of Mr. Farley by the Company for “Cause,” “Death,” or “Disability,” (as such terms are defined in the Farley Employment Agreement), or resignation by Mr. Farley without “Good Reason” (as defined in the Farley Employment Agreement), will not require the Company to pay severance to Mr. Farley. Upon any such termination, Mr. Farley will be entitled to receive any Accrued Compensation (as defined in the Farley Employment Agreement which in the case of termination by the Company for Cause or resignation by Mr. Farley for Good Reason will not include payment of pro rata bonus; provided, however, if termination of Mr. Farley by the Company without “Cause” or resignation by Mr. Farley for “Good Reason,” then under the Farley Employment Agreement will require the Company to pay severance to Mr. Farley. Upon any such termination, Mr. Farley will be entitled to receive any Accrued Compensation and, subject to Mr. Farley’s execution of an irrevocable release, receive (i) on the sixtieth day (60th) day following termination, a lump sum cash-payment equal to the sum of (A) the product of two times Mr. Farley’s salary then in effect as of the date of termination, less applicable taxes and withholdings, and (B) the product of two times Mr. Farley’s Target Bonus (as defined in the Farley Employment Agreement); (ii) provide reimbursement to Mr. Farley’s medical insurance premiums for a period of twelve (12) months following the date of termination; and (iii) cause any equity awards granted prior to the Effective Date (as defined in the Farley Employment Agreement), that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable.
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Notwithstanding the foregoing, under the Farley Employment Agreement, termination of Mr. Farley by the Company without Cause or resignation by Mr. Farley for Good Reason and a Change of Control (as defined in the Farley Employment Agreement) of the Company occurs within six (6) months after such termination, or within twenty-four (24) months prior to such termination, the Company will pay severance to Mr. Farley in connection to such termination. Upon such termination, Mr. Farley will be entitled to receive any Accrued Compensation, and subject to Mr. Farley’s execution of an irrevocable release, receive (i) on the sixtieth (60th) day of termination, a lump sum cash-payment equal to the product of two times Mr. Farley’s salary then in effect as of the date of termination, less applicable taxes and withholdings; (ii) provide reimbursement to Mr. Farley’s medical insurance premiums for a period of twelve (12) months following the date of termination; and (iii) notwithstanding any provision of any stock incentive plan, stock option agreement, realization bonus, restricted stock agreement or other agreement relating to capital stock of the Company, cause any equity awards granted prior to the that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable (but not later than when the award would otherwise expire).
The Farley Employment Agreement also contains customary non-solicitation and non-competition covenants, which covenants remain in effect for twelve (12) months following any cessation of employment with respect to Mr. Farley. To the extent any of the payments or benefits provided for under the Farley Employment Agreement or any other agreement or arrangement between Mr. Farley and the Company (collectively, the “Payments”), (a) constitute an “excess parachute payment” within the meaning of Section 280G (“Section 280G”) of the Internal Revenue Code of 1986, as amended and restated (the “Code”), and (b) would otherwise be subject to the excise tax imposed by Section 4999 of the Code (“Section 4999”), then the Company will pay or provide the greater (whichever gives Mr. Farley the highest net after-tax amount) of (i) all of the Payments or (ii) the portion of Payments not in excess of the greatest amount of Payments that can be paid that would not result in the imposition of the excise tax under Section 4999.
A copy of the Farley Employment Agreement is filed as Exhibit 10.14 to this report and incorporated herein by reference.
Shabahang Employment Agreement
On November 14, 2021, Aditxt, Inc. (the “Company”) entered into a new employment agreement (the “Shabahang Employment Agreement”) with the Company’s Chief Innovation Officer, Shahrokh Shabahang, pursuant to which Mr. Shabahang will continue to serve as the Company’s Chief Innovation Officer until the date upon which Mr. Shabahang’s employment may be terminated in accordance with the terms of the Shabahang Employment Agreement.
The term of Mr. Shabahang’s engagement under the Shabahang Employment Agreement commences as of the Effective Date (as defined in the Shabahang Employment Agreement) and continues until November 14,2023, unless earlier terminated in accordance with the terms of the Shabahang Employment Agreement. The term of Mr. Shabahang’s Employment Agreement is automatically renewed for successive one (1) year periods until terminated by Mr. Shabahang or the Company.
Pursuant to the Shabahang Employment Agreement, Mr. Shabahang will receive: (i) a base salary at the annual rate of $210,000 for the remainder of calendar year 2021, and effective January 1, 2022, $325,000 (prorated for any partial year) payable in bimonthly installments, and (ii) eligible to earn an annual discretionary bonus with a target amount of 40% of Base Compensation, which is based on the achievement of performance objectives, which will be determined by the Board and Compensation Committee. In addition, for calendar year 2021, Mr. Shabahang will be eligible to earn an additional discretionary bonus as determined by the Company.
Under the Shabahang Employment Agreement, termination of Mr. Shabahang by the Company for “Cause,” “Death,” or “Disability,” (as such terms are defined in the Shabahang Employment Agreement), or resignation by Mr. Shabahang without “Good Reason” (as defined in the Shabahang Employment Agreement), will not require the Company to pay severance to Mr. Shabahang. Upon any such termination, Mr. Shabahang will be entitled to receive any Accrued Compensation (as defined in the Shabahang Employment Agreement), which in the case of termination by the Company for Cause or resignation by Mr. Shabahang for Good Reason will not include payment of pro rata bonus; provided, however, if termination of Mr. Shabahang by the Company without “Cause” or resignation by Mr. Shabahang for “Good Reason,” then under the Shabahang Employment Agreement will require the Company to pay severance to Mr. Shabahang. Upon any such termination, Mr. Shabahang will be entitled to receive any Accrued Compensation and, subject to Mr. Shabahang’s execution of an irrevocable release, receive: (i) on the sixtieth day (60th) day following termination, a lump sum cash-payment equal to the sum of (A) the product of two times Mr. Shabahangs’s salary then in effect as of the date of termination, less applicable taxes and withholdings, and (B) the product of two times Mr. Shabahang’s Target Bonus (as defined in the Shabahang Employment Agreement); (ii) provide reimbursement to Mr. Shabahang’s medical insurance premiums for a period of twelve (12) months following the date of termination; and (iii) cause any equity awards granted prior to the Effective Date (as defined in the Shabahang Employment Agreement), that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable.
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Notwithstanding the foregoing, under the Shabahang Employment Agreement, termination of Mr. Shabahang by the Company for without Cause or resignation by Mr. Shabahang for Good Reason and a Change of Control (as defined in the Shabahang Employment Agreement) of the Company occurs within six (6) months after such termination, or within twenty-four (24) months prior to such termination, the Company will pay severance to Mr. Shabahang in connection to such termination. Upon such termination, Mr. Shabahang will be entitled to receive any Accrued Compensation, and subject to Mr. Shabahang’s execution of an irrevocable release, receive: (i) on the sixtieth (60th) day of termination, a lump sum cash-payment equal to the product of two times Mr. Shabahang’s salary then in effect as of the date of termination, less applicable taxes and withholdings; (ii) provide reimbursement to Mr. Shabahang’s medical insurance premiums for a period of twenty-four (24) months following the date of termination; and (iii) notwithstanding any provision of any stock incentive plan, stock option agreement, realization bonus, restricted stock agreement or other agreement relating to capital stock of the Company, cause any equity awards granted prior to the that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable for twenty-four (24) months (but not later than when the award would otherwise expire).
The Shabahang Employment Agreement also contains customary non-solicitation and non-competition covenants, which covenants remain in effect for twelve (12) months following any cessation of employment with respect to Mr. Shabahang. To the extent any of the payments or benefits provided for under the Shabahang Employment Agreement or any other agreement or arrangement between Mr. Shabahang and the Company (collectively, the “Payments”), (a) constitute an “excess parachute payment” within the meaning of Section 280G (“Section 280G”) of the Internal Revenue Code of 1986, as amended and restated (the “Code”), and (b) would otherwise be subject to the excise tax imposed by Section 4999 of the Code (“Section 4999”), then the Company will pay or provide the greater (whichever gives Mr. Shabahang the highest net after-tax amount) of (i) all of the Payments or (ii) the portion of Payments not in excess of the greatest amount of Payments that can be paid that would not result in the imposition of the excise tax under Section 4999.
A copy of the Shabahang Employment Agreement is filed as Exhibit 10.15 to this report and incorporated herein by reference.
Rowena Employment Agreement
On November 14, 2021, Aditxt, Inc. (the “Company”) entered into a new employment agreement (the “Rowena Employment Agreement”) with the Company’s Chief Operating Officer, Rowena Albanna, pursuant to which Ms. Albanna will continue to serve as the Company’s Chief Operating Officer until the date upon which Ms. Albanna’s employment may be terminated in accordance with the terms of the Rowena Employment Agreement.
The term of Ms. Albanna’s engagement under the Rowena Employment Agreement commences as of the Effective Date (as defined in the Rowena Employment Agreement) and continues until November 14,2023, unless earlier terminated in accordance with the terms of the Rowena Employment Agreement. The term of Ms. Albanna’s Employment Agreement is automatically renewed for successive one (1) year periods until terminated by Ms. Albanna or the Company.
Pursuant to the Rowena Employment Agreement, Ms. Albanna will receive: (i) a base salary at the annual rate of $210,000 for the remainder of calendar year 2021 and effective January 1, 2022, $325,000 (prorated for any partial year) payable in bimonthly installments, and (ii) eligible to earn an annual discretionary bonus with a target amount of 40% of Base Compensation, which is based on the achievement of performance objectives, which will be determined by the Board and Compensation Committee. In addition, for calendar year 2021, Ms. Albanna will be eligible to earn an additional discretionary bonus as determined by the Company.
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Under the Rowena Employment Agreement, termination of Ms. Albanna by the Company for “Cause,” “Death,” or “Disability,” (as such terms are defined in the Rowena Employment Agreement), or resignation by by Ms. Albanna for “Good Reason” (as defined in the Rowena Employment Agreement), will not require the Company to pay severance to Ms. Albanna. Upon any such termination, Ms. Albanna will be entitled to receive any Accrued Compensation (as defined in the Rowena Employment Agreement), which in the case of termination by the Company for Cause or resignation by Ms. Albanna for Good Reason will not include payment of pro rata bonus; provided, however, if termination of Ms. Albanna by the Company without “Cause” or resignation by Ms. Albanna for “Good Reason” (as such terms are defined in the Rowena Employment Agreement), then under the Rowena Employment Agreement will require the Company to pay severance to Ms. Albanna. Upon any such termination, Ms. Albanna will be entitled to receive any Accrued Compensation and, subject to Ms. Albanna’s execution of an irrevocable release, receive: (i) on the sixtieth day (60th) day following termination, a lump sum amount equal to twelve (12) months base salary then in effect as of the date of termination, less applicable taxes and withholdings; (ii) provide reimbursement to Ms. Albanna’s medical insurance premiums for a period of twelve (12) months following the date of termination; and (iii) cause any equity awards granted prior to the Effective Date (as defined in the Rowena Employment Agreement), that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable.
Notwithstanding the foregoing, under the Rowena Employment Agreement, termination of Ms. Albanna by the Company without Cause or resignation by Ms. Albanna for Good Reason and a Change of Control (as defined in the Rowena Employment Agreement) of the Company occurs within six (6) months after such termination, or within twenty-four (24) months prior to such termination, the Company will pay severance to Ms. Albanna in connection to such termination. Upon such termination, Ms. Albanna will be entitled to receive any Accrued Compensation, and subject to Ms. Albanna’s execution of an irrevocable release, receive: (i) on the sixtieth (60th) day of termination, a lump sum cash-payment equal to the sum of (A) the product of two times Ms. Albanna’s salary then in effect as of the date of termination, less applicable taxes and withholdings, and (B) the product of two times Ms. Albanna’s Target Bonus; (ii) provide reimbursement to Ms. Albanna’s medical insurance premiums for a period of twenty-four (24) months following the date of termination; and (iii) notwithstanding any provision of any stock incentive plan, stock option agreement, realization bonus, restricted stock agreement or other agreement relating to capital stock of the Company, cause any equity awards granted prior to the that are then outstanding and unvested to immediately vest and, with respect to all options and stock appreciation rights, to become fully exercisable for twenty-four (24) months (but not later than when the award would otherwise expire).
The Rowena Employment Agreement also contains customary non-solicitation and non-competition covenants, which covenants remain in effect for twelve (12) months following any cessation of employment with respect to Ms. Albanna. To the extent any of the payments or benefits provided for under the Rowena Employment Agreement or any other agreement or arrangement between Ms. Albanna and the Company (collectively, the “Payments”), (a) constitute an “excess parachute payment” within the meaning of Section 280G (“Section 280G”) of the Internal Revenue Code of 1986, as amended and restated (the “Code”), and (b) would otherwise be subject to the excise tax imposed by Section 4999 of the Code (“Section 4999”), then the Company will pay or provide the greater (whichever gives Ms. Albanna the highest net after-tax amount) of (i) all of the Payments or (ii) the portion of Payments not in excess of the greatest amount of Payments that can be paid that would not result in the imposition of the excise tax under Section 4999.
A copy of the Rowena Employment Agreement is filed as Exhibit 10.16 to this report and incorporated herein by reference.
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| This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: | By: | /s/ Amro Albanna |
| Amro Albanna | ||
Chief Executive Officer | ||
| Date: November 15, 2021 | By: | /s/ Thomas J. Farley |
Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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