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 June 30, 20202022
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, Suite 200 Richmond, VA | 23219 | |
| (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 August 12, 2020,14, 2022, the registrant had 7,078,81756,947,134 and 6,978,01456,846,331 shares of common stock, $0.001 par value per share, issued and outstanding, respectively.
Table of Contents
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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:
| ● |
| ● | if we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product |
| ● | our financial situation creates doubt whether we will continue as a going concern; |
| ● |
| ● | even if we can raise additional funding, we may be required to do so on terms that are dilutive to you.; |
| ● | the regulatory approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of our future product candidates, if any; |
| ● | we may encounter substantial delays in completing our clinical studies which in turn will require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities; |
| ● | if our future pre-clinical development and future clinical Phase I/II studies are unsuccessful, we may be unable to obtain regulatory approval of, or commercialize, our product candidates on a timely basis or at all; |
| ● |
| ● | adverse events involving our products may lead the FDA or applicable foreign regulatory agency to delay or deny clearance for our products or result in product recalls that could harm our reputation, business and financial results; |
| ● | our technology is subject to licenses from LLU and Stanford (as defined below), each of which are revocable in certain circumstances, including in the event we do not achieve certain payments and milestone deadlines. Without these licenses, we may not be able to continue to develop our product candidates; |
| ● | if we were to lose our CLIA certification or state laboratory licenses, whether as a result of a revocation, suspension or limitation, we would no longer be able to offer our assays (including our AditxtScore™ platform), which would limit our revenues and harm our business. If we were to lose, or fail to obtain, a license in any other state where we are required to hold a license, we would not be able to test specimens from those states; |
| ● | our results of operations will be affected by the level of royalty and milestone payments that we are required to pay to third parties; |
| ● | we face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do; |
| ● | our technologies and products under development, and our business, may fail if we are not able to successfully commercialize them and ultimately generate significant revenues as a result; |
| ● | customers may not adopt our products quickly, or at all; |
| ● | COVID-19 may impact our business and operations; |
ii
| ● | the failure to obtain or maintain patents, licensing agreements and other intellectual property could materially impact our ability to compete effectively; |
| ● | some of our intellectual property may be subject to “march-in” rights by the U.S. federal government; |
| ● | we do not expect to pay dividends in the foreseeable future; |
| ● | we have issued a significant number of restricted stock awards, restricted stock units, options and warrants and may continue to do so in the future. The vesting and, if applicable, exercise of these securities and the sale of the shares of common stock issuable thereunder may dilute your percentage ownership interest and may also result in downward pressure on the price of our common stock; |
| ● | future sales or issuances of substantial amounts of our common stock, including, potentially as a result of the Share Exchange Agreement with Cellvera Global f/k/a AiPharma Global, could result in significant dilution; |
| ● | while we have entered into a Share Exchange Agreement with Cellvera Global, we cannot assure you that the transaction contemplated by the Share Exchange Agreement will be consummated or, that if such transaction is consummated, that it will be accretive to stockholder value; |
| ● | we have provided loans to Cellvera Global in the principal amount of $14.5 million, if we are unable to complete the transactions contemplated by the Share Exchange Agreement, we cannot provide any assurance that we will be able to timely collect such amounts from Cellvera Global, if at all; |
| ● | we may engage in future acquisitions or strategic transactions, including the transaction with Cellvera Global, which may require us to seek additional financing or financial commitments, increase our expenses and/or present significant distractions to our management; |
| ● | we received a written notice from Nasdaq that we have failed to comply with certain listing requirements of the |
| ● |
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.
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iii
PART I - FINANCIAL INFORMATION
ADITXT, INC.
CONDENSED 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 | ||||
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 803,971 | $ | 7,872,061 | ||||
| Accounts receivable, net | 410,593 | 89,844 | ||||||
| Prepaid expenses | 590,418 | 460,102 | ||||||
| Note receivable | 500,000 | 500,000 | ||||||
| Inventory | 1,332,895 | 494,697 | ||||||
| TOTAL CURRENT ASSETS | 3,637,877 | 9,416,704 | ||||||
| Fixed assets, net | 2,344,666 | 2,267,297 | ||||||
| Intangible assets, net | 160,500 | 214,000 | ||||||
| ROU asset - long term | 3,661,247 | 4,097,117 | ||||||
| Deposits | 410,837 | 379,250 | ||||||
| Other assets | 524,548 | 289,539 | ||||||
| TOTAL ASSETS | $ | 10,739,675 | $ | 16,663,907 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 4,813,224 | $ | 1,575,543 | ||||
| Notes payable, net of discount | 465,848 | - | ||||||
| Financing on fixed assets – current | 438,398 | 700,433 | ||||||
| Deferred rent | 192,984 | 186,058 | ||||||
| Lease liability - current | 1,130,611 | 1,145,126 | ||||||
| TOTAL CURRENT LIABILITIES | 7,041,065 | 3,607,160 | ||||||
| Financing on fixed assets - long term | - | 110,041 | ||||||
| Lease liability - long term | 2,337,652 | 2,765,933 | ||||||
| TOTAL LIABILITIES | 9,378,717 | 6,483,134 | ||||||
| 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, 55,469,356 and 44,530,486 shares issued and 55,368,553 and 44,429,683 shares outstanding, respectively | 55,473 | 44,534 | ||||||
| Treasury stock, 100,803 and 100,803 shares, respectively | (201,605 | ) | (201,605 | ) | ||||
| Additional paid-in capital | 80,769,046 | 77,690,653 | ||||||
| Accumulated deficit | (79,261,956 | ) | (67,352,809 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 1,360,958 | 10,180,773 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 10,739,675 | $ | 16,663,907 | ||||
See accompanying notes to the condensed financial statements.
-1-
ADITXT, INC.
CONDENSED 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 | Six Months Ended | Six Months Ended | |||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| REVENUE | ||||||||||||||||
| Sales | $ | 214,715 | $ | - | $ | 424,994 | $ | - | ||||||||
| Cost of goods sold | 174,858 | - | 362,929 | - | ||||||||||||
| Gross Profit | 39,857 | - | 62,065 | - | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses, $375,352, $772,430, $827,337 and $2,237,332 in stock-based compensation, respectively | 3,788,952 | 4,798,313 | 8,413,110 | 9,896,830 | ||||||||||||
| Research and development, includes $154,237, $0, $303,527 and $0 in stock-based compensation, respectively | 1,187,920 | 932,751 | 2,616,302 | 1,868,703 | ||||||||||||
| Sales and marketing $754,699, $0, $754,699, and $0 in stock-based compensation, respectively | 833,942 | 43,943 | 920,541 | 102,506 | ||||||||||||
| Total operating expenses | 5,810,814 | 5,775,007 | 11,949,953 | 11,868,039 | ||||||||||||
| NET LOSS FROM OPERATIONS | (5,770,957 | ) | (5,775,007 | ) | (11,887,888 | ) | (11,868,039 | ) | ||||||||
| OTHER EXPENSE | ||||||||||||||||
| Interest expense | (82,110 | ) | (19,586 | ) | (97,320 | ) | (36,389 | ) | ||||||||
| Interest income | 6,007 | 180 | 20,047 | 429 | ||||||||||||
Other income | - | - | 58,960 | - | ||||||||||||
| Amortization of debt discount | (2,946 | ) | (384,023 | ) | (2,946 | ) | (654,104 | ) | ||||||||
| Total other expense | (79,049 | ) | (403,429 | ) | (21,259 | ) | (690,064 | ) | ||||||||
| Net loss before income taxes | (5,850,006 | ) | (6,178,436 | ) | (11,909,147 | ) | (12,558,103 | ) | ||||||||
| Income tax provision | - | - | - | - | ||||||||||||
| NET LOSS | $ | (5,850,006 | ) | $ | (6,178,436 | ) | $ | (11,909,147 | ) | $ | (12,558,103 | ) | ||||
| Net loss per share - basic and diluted | $ | (0.13 | ) | $ | (0.42 | ) | $ | (0.26 | ) | $ | (0.88 | ) | ||||
| Weighted average number of shares outstanding during the period - basic and diluted | 45,560,639 | 14,563,699 | 45,073,383 | 14,198,485 | ||||||||||||
See accompanying notes to the condensed financial statements.
-2-
ADITXT, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICITSTOCKHOLDERS’ EQUITY
THREE AND SIX MONTHS ENDED JUNE 30, 20202022 AND 20192021
(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 | |||||||||||||||||||||||||
| Balance December 31, 2021 | - | $ | - | 44,429,683 | $ | 44,534 | $ | (201,605 | ) | $ | 77,690,653 | $ | (67,352,809 | ) | $ | 10,180,773 | ||||||||||||||||
| Stock option and warrant compensation | - | - | - | - | - | 219,885 | - | 219,885 | ||||||||||||||||||||||||
| Issuance of restricted stock units for compensation | - | - | 287,155 | 287 | - | (287 | ) | - | - | |||||||||||||||||||||||
| Restricted stock unit compensation | - | - | - | - | - | 377,671 | - | 377,671 | ||||||||||||||||||||||||
| Issuance of shares for services | - | - | 9,000 | 9 | - | 3,710 | - | 3,719 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (6,059,141 | ) | (6,059,141 | ) | ||||||||||||||||||||||
| Balance March 31, 2022 | - | $ | - | 44,725,838 | $ | 44,830 | $ | (201,605 | ) | $ | 78,291,632 | $ | (73,411,950 | ) | $ | 4,722,907 | ||||||||||||||||
| Stock option and warrant compensation | - | - | - | - | - | 724,584 | - | 724,584 | ||||||||||||||||||||||||
| Issuance of restricted stock units for compensation | - | - | 137,525 | 138 | - | (138 | ) | - | - | |||||||||||||||||||||||
| Restricted stock unit compensation | - | - | - | - | - | 309,704 | - | 309,704 | ||||||||||||||||||||||||
| Exercise of warrants, modification of warrants, and issuance of warrants | - | - | 8,970,947 | 8,971 | - | 1,194,798 | - | 1,203,769 | ||||||||||||||||||||||||
| Issuance of shares for services | - | - | 1,534,243 | 1,534 | - | 248,466 | - | 250,000 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (5,850,006 | ) | (5,850,006 | ) | ||||||||||||||||||||||
| Balance June 30, 2022 | - | - | 55,368,553 | 55,473 | (201,605 | ) | 80,769,046 | (79,261,956 | ) | 1,360,958 | ||||||||||||||||||||||
| 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 | ) | ||||||||||
See accompanying notes to the condensed financial statements.
-3-
ADITXT, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Preferred Outstanding | Preferred Shares Par | Common Outstanding | Common Par | Treasury Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||
| 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 | - | $ | - | 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 | - | $ | - | 14,688,248 | $ | 14,793 | $ | (201,605 | ) | $ | 39,587,916 | $ | (33,437,281 | ) | $ | 5,963,823 | ||||||||||||||||
ADITXT, INC.
CONDENSED 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 | $ | - | ||||
| Six Months Ended | Six Months Ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (11,909,147 | ) | $ | (12,558,103 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Stock-based compensation | 1,885,563 | 2,237,332 | ||||||
| Depreciation expense | 196,704 | 166,529 | ||||||
| Amortization of intangible assets | 53,500 | 53,060 | ||||||
| Amortization of debt discount | 2,946 | 654,104 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (320,749 | ) | - | |||||
| Prepaid expenses | (130,316 | ) | (199,536 | ) | ||||
| Inventory | (838,198 | ) | - | |||||
| Deposits | (31,587 | ) | (384,707 | ) | ||||
| Accounts payable and accrued expenses | 3,237,681 | 970,384 | ||||||
| Net cash used in operating activities | (7,853,603 | ) | (9,060,937 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | (274,073 | ) | (718,425 | ) | ||||
| Tenant improvement allowance receivable | (215,173 | ) | (62,393 | ) | ||||
| Notes receivable and accrued interest | (19,836 | ) | - | |||||
| Net cash used in investing activities | (509,082 | ) | (780,818 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from note payable | 550,000 | 5,000,000 | ||||||
| Discount on note payable from offering costs | (16,500 | ) | (526,460 | ) | ||||
| Repayments of note payable | (70,598 | ) | - | |||||
| Exercise of warrants | - | 3,718,956 | ||||||
| Exercise of warrants, modification of warrants, and issuance of warrants | 1,203,769 | - | ||||||
| Payments on financing on fixed asset | (372,076 | ) | (241,442 | ) | ||||
Net cash provided by financing activities | 1,294,595 | 7,951,054 | ||||||
NET DECREASE IN CASH | (7,068,090 | ) | (1,890,701 | ) | ||||
| CASH AT BEGINNING OF PERIOD | 7,872,061 | 10,500,826 | ||||||
| CASH AT END OF PERIOD | $ | 803,971 | $ | 8,610,125 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest expense | $ | 70,831 | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Lease liability recognized from right of use asset | $ | - | $ | 2,806,427 | ||||
| Original offering discount on convertible note payable | $ | - | $ | 1,000,000 | ||||
| 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 | ||||
See accompanying notes to the condensed financial statements.
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ADITXT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Company Background
Aditx Therapeutics,Overview
Aditxt, Inc. (“Aditxt” or the “Company”), formerly 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,August 31, 2021, the Company completed its initial publica registered direct offering (“IPO”August 2021 Offering”). In connection therewith, the Company issued 1,226,668 Units (the “Units”), excluding the underwriters’ option to cover overallotments,4,583,334 shares of common stock, at an offeringa purchase price of $9.00$2.40 per Unit,share, resulting in gross proceeds of approximately $11.0 million. The UnitsIn a concurrent private placement, the Company issued in the IPO consisted of one share of common stock, one Series A warrant, and one Series B warrant.warrants to purchase up to 4,583,334 shares. The Series A warrants have an exercise price of $9.00$2.53 per share and are exercisable for a termfive-year period commencing six months from the date of 5 years.issuance. The Series B warrants haveexercise price was subsequently repriced to $1.50. 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 $11.25, a term$3.00 per share.
On October 18, 2021, the Company entered into an underwriting agreement with Revere Securities LLC, relating to the public offering (the “October 2021 Offering”) of 5 years and contain a cashless exercise option upon certain criteria being met. Subsequent to quarter end, substantially all2,833,333 shares of the Series BCompany’s common 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 2021 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 2021 Offering to fund certain obligations under the Credit Agreement. (See Note 4)
On December 6, 2021, we completed a public offering for net proceeds of $16.0 million (the “December 2021 Offering”). As part of the December 2021 Offering, we issued 8,246,430 units consisting of shares of the Company’s common stock and warrant to purchase shares of the Company’s common stock and 8,328,570 prefunded warrants. The warrant issued as part of the units had an exercise price of $1.15 and the prefunded warrants issuedhad an exercise price of $0.001. On June 15, 2022, the Company entered an agreement with a holder of certain warrants in the IPO have been exercised pursuant to a cashless provision therein.December 2021 Offering. (See Note 10)
Risks and Uncertainties
The Company has a limited operating history and has not generatedis in the very early stages of generating 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.
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 significant revenues to date. During the six months ended June 30, 2020,2022, the Company had a net loss of $1,723,680$11,909,147 and negative cash flow from operating activities of $49,925. However, subsequent to$7,853,603. As of June 30, 2020,2022, the Company’s cash balance was $803,971. The Company has $67.3 million of remaining availability, subject to regulatory requirements, 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. However, SEC regulations limit the amount of funds we can raise during any 12-month period pursuant to our effective shelf registration statement on Form S-3. We are currently subject to General Instruction I.B.6 to Form S-3, or the Baby Shelf Rule, and the amount of funds we can raise through primary public offerings of securities in any 12-month period using our shelf registration statement on Form S-3 is limited to one-third of the aggregate market value of the voting and non-voting common stock held by non-affiliates. We are currently limited by the Baby Shelf Rule as of the filing of this Quarterly Report, until such time as our public float exceeds $75 million. In addition to the shelf registration, the Company received approximately $9.5 million in cashhas the ability to raise capital from equity or debt through private placements or public offerings pursuant to a registration statement on Form S-1. We may also secure loans from related parties. However, factors such as net proceeds from the IPO (See Note 1). The Company will be conducting medical researchstock price, volatility, trading volume, market conditions, demand and development, and the time at which the Company will begin generating revenue is unknown. The Company believes, however, that the funds raised by the IPO will be sufficient to fundregulatory requirements may adversely affect the Company’s operation for at least the next 12 months. ability to raise capital in an efficient manner.
Because of these factors, the Company believes that this alleviates issues in connectioncreates substantial doubt with the Company’s ability to continue as a going concern.
The accompanyingcondensed financial statements have been prepared assuming that the Company will continue as a going concern.
The financial statementsincluded 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. In addition, the Company is consistently focused on raising capital, strategic acquisitions and alliances, and other initiatives to strengthen the Company.
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NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed 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 condensed financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended June 30, 20202022 and 2019.June 30, 2021. Although management believes that the disclosures in these unaudited condensed financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in condensed 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 condensed 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, 2020,2021, filed with the SEC pursuant to Rule 424(b).on March 31, 2022. The interim results for the six months ended June 30, 20202022 are not necessarily indicative of the results to be expected for the year ended December 31, 20202022 or for any future interim periods.
Use of Estimates
The preparation of condensed 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 condensed 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 condensed financial statements include the collectability of notes receivable, collectability and reserve on accounts receivable, the reserve on insurance billing, and 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
Cash and cash equivalents include short-term, liquid investments.
Inventory
Inventory consists of laboratory materials and supplies used in laboratory analysis. We capitalize inventory when purchased. Inventory is valued at the lower of cost or net realizable value on a first-in, first-out basis. We periodically perform obsolescence assessments and write off any inventory that is no longer usable.
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.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company considers all highly liquid investments with an original maturity of three months or lessgenerally does not require collateral to support customer receivables. The Company determines if receivables are past due based on days outstanding, and amounts are written off when purchaseddetermined to be cash equivalents.uncollectible by management. As of June 30, 20202022 and December 31, 2019, the Company did not have any cash equivalents.2021, there was an allowance for doubtful accounts of $50,808 and zero, respectively.
Offering CostsRevenue Recognition
The Company accounts for offering costs inIn accordance with ASC 340, Other Assets and Deferred Costs. Prior606 (Revenue From Contracts with Customers), revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five steps:
| 1) | Identify the contract with a customer |
| 2) | Identify the performance obligations in the contract |
| 3) | Determine the transaction price |
| 4) | Allocate the transaction price to performance obligations in the contract |
| 5) | Recognize revenue when or as the Company satisfies a performance obligation |
Revenues reported from services provided by the AditxtScore™ division are recognized when the AditxtScore™ report is delivered to the completioncustomer. The services performed include the analysis of specimens received in Aditxt’s CLIA laboratory and the generation of results which are then delivered upon completion.
The Company recognizes revenue in the following manner for the following types of customers:
Client Payers:
Client payers include physicians or other entities for which services are billed based on negotiated fee schedules. The Company principally estimates the allowance for credit losses for client payers based on historical collection experience and the period of time the receivable has been outstanding.
Cash Pay:
Customers are billed based on established patient fee schedules or fees negotiated with physicians on behalf of their patients. Collection of billings is subject to credit risk and the ability of the patients to pay.
Insurance:
Reimbursements from healthcare insurers are based on fee for service schedules. Net revenues recognized consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, collection experience, and the terms of the Company’s contractual arrangements.
Leases
Under Topic 842 (Leases), 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 offering, offering costs were capitalized as deferred offering costsinitial term of twelve months or less are not recorded on the balance sheet. The deferred offering costs are netted againstWe combine the proceedslease and non-lease components in determining the lease liabilities and right of the offering in stockholders’ deficit or the related debt, as applicable. Costs related to unsuccessful offerings are expensed.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 basedStock-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 six months ended June 30, 20202022 and 2019,June 30, 2021, the Company had aincurred patent licensing feefees for the patents of $126,670$248,813 and $15,181,$76,245, 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 six months ended June 30, 2022 and June 30, 2021, the Company incurred research and development costs of $2,616,302 and $1,868,703, 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 June 30, 2020, 1,110,0002022, 2,235,466 stock options, 865,900 unvested restricted stock units, and 1,291,50345,963,691 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive. As of June 30, 2019, 1,102,5002021, 2,143,000 stock options and 1,077,1735,463,715 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive.
-7-
Recent Accounting Pronouncements
In February 2016, FASB issued Accounting Standards Update (“ASU”) 2016-02: Leases (Topic 842). The new guidance generally requires an entity to recognize on its balance sheet operating and financing lease liabilities and corresponding right-of-use assets. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2018 and 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 periods beginning after December 15, 2020. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position, results of operations and cash flows once adopted.
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 condensed financial statements.
NOTE 4 – NOTE RECEIVABLE
Cellvera Global Note Receivable
On August 25, 2021, the Company entered into a letter of intent (“the LOI”) to acquire AiPharma Global Holdings LLC, a Delaware limited liability company, which subsequently changed its name to Cellvera Global Holdings LLC (“Cellvera Global”) which is 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 Cellvera Global 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 Cellvera Global 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.
On December 28, 2021, we entered into a Share Exchange Agreement with Cellvera Global f/k/a AiPharma Global, pursuant to which we (i) will acquire 9.5% of the issued and outstanding equity interests in Cellvera Global in exchange for the issuance of 4,816,193 shares of our common stock of Aditxt and a cash payment of $250,000, at an initial closing upon the satisfaction or waiver of certain conditions to closing; and (ii) acquire the remaining 90.5% of the issued and outstanding equity interests in Cellvera Global in exchange for the issuance of 39,927,974 shares of our common stock and a cash payment of $250,000 at a secondary closing upon the satisfaction or waiver of certain conditions to closing. Additionally, we may elect to raise additional capital due to market conditions or strategic considerations.
In connection with the contemplated acquisition with Cellvera Global, the Company entered into a secured credit agreement dated August 27, 2021 (the “Credit Agreement”) with Cellvera Global and certain affiliated entities (collectively, the “Borrower”), pursuant to which the Company made a secured loan to Cellvera Global 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 matured on November 30, 2021. The Loan is secured by certain accounts receivable and other assets of Cellvera Global and certain of its affiliates. The Credit Agreement also contains certain covenants that prohibit Cellvera Global from incurring additional indebtedness, incurring liens or making any dispositions of its property.
On October 18, 2021, the Company entered into the first amendment to the Credit Agreement with Cellvera Global and certain affiliated entities (the “Credit Agreement Amendment”), pursuant to which the Company agreed to increase the amount which Cellvera Global was 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 Cellvera Global, 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. As of December 31, 2021 an additional $8.0 million was advanced under the Credit Agreement for a total of $14.5 million.
The Credit Agreement was amended on multiple occasions, for which the final amendment was signed on December 31, 2021, extending the Loan’s maturity date to January 31, 2022.
The Company determined that Cellvera Global may not have the ability to repay the note receivable. Accordingly, the Company recognized a full impairment of $14.5 million as of December 31, 2021.
Forbearance Agreement:
On January 31, 2022, the Company’s $14.5 million loan to Cellvera Global became fully due and payable under the Credit Agreement. On February 14, 2022, the Company entered into a Forbearance Agreement and Seventh Amendment to Credit Agreement (the “Forbearance Agreement”) with Cellvera Global.
Pursuant to the Forbearance Agreement, the Company agreed to forbear from exercising its rights and remedies against Cellvera Global and certain affiliated guarantor parties until the earlier of (i) June 30, 2022 or (ii) the date of occurrence of any event of default under the Forbearance Agreement (the “Forbearance Period”). Given that the parties continue to conduct due diligence in connection with the Share Exchange Agreement, the Company and Cellvera Global also agreed that should the initial closing occur under the Share Exchange Agreement, the existing event of default will be waived. Under the Forbearance Agreement, the Company and Cellvera Global also agreed to certain amendments to the Credit Agreement, including, but not limited to: (i) the delivery by the Borrower of certain financial statements and forecasts, and (ii) certain regularly scheduled payments to be made by Cellvera Global to the Company during the Forbearance Period. As of the date of filing of this Quarterly Report, the regularly scheduled payments under the Forbearance Agreement have not been made, and the note receivable remains fully impaired.
On April 4, 2022, the Company and Cellvera Global entered into a Forbearance Agreement and Eighth Amendment to the Credit Agreement (the “April Forbearance Agreement”) pursuant to which among other things (i) the Company agreed to extend the forbearance period until the earlier of March 31, 2023 or the date of occurrence of any event of default under the April Forbearance Agreement, (ii) Cellvera Global shall be permitted to factor certain receivables, and (iii) certain conforming changes were made relating to the Revenue Sharing Agreement (as defined below). In connection with the Forbearance Agreement, the Company entered into a series of security agreements with Cellvera Global (the “Security Agreements”) and certain affiliated entities pursuant to which Cellvera Global enhanced the Company’s security interest in connection with the Credit Agreement. In addition, and as a condition to entering into the April Forbearance Agreement, the Company required that Cellvera Global enter into a Revenue Sharing Agreement (the “Revenue Sharing Agreement”), pursuant to which, among other things, Cellvera Global agreed to pay the Company a certain portion of its revenues up to the aggregate amount of $30 million. As of the date of filing of this Quarterly Report, the Company has not received any payments from Cellvera Global pursuant to the Revenue Sharing Agreement.
Concurrently with the execution of the April Forbearance Agreement and the Revenue Sharing Agreement, the Company and AiPharma Group, Ltd. entered into an Amendment to the Share Exchange Agreement (the “Share Exchange Amendment”) which amended the Share Exchange Agreement to, among other things: (i) modify the financial statements required to be delivered by AiPharma Group, Ltd. at the initial closing to include the unaudited financial statements for the three months ended March 31, 2022 and 2021, (ii) permit the Company to amend its Certificate of Incorporation without the consent of AiPharma Group, Ltd. in order to effect a reverse stock split of the Company’s common stock, if necessary, in order to maintain its listing on the Nasdaq Capital Market, and (iii) make certain other conforming changes related to the March Forbearance Agreement and Revenue Sharing Agreement.
Target Company Note Receivable
On December 10, 2021, the Company entered into a secured credit agreement dated December 10, 2021 (the “Target Company Credit Agreement”) and signed on December 10, 2021 with the Target Company, pursuant to which the Company made a secured loan to the Target Company in the principal amount of $500,000 (the “Target Company Loan”) and agreed to make additional secured loans, as requested by the Target Company and approved by the Company, in an amount not to exceed $4.5 million. The Target Company Loan bears interest at a rate of 8% per annum and mature on December 8, 2022, provided, that the Letter of Intent currently contemplates that the Target Company Loan will be forgivable upon the closing of the acquisition contemplated by the letter of intent. The Target Company Credit Agreement also contains certain covenants that prohibit the Target Company from incurring additional indebtedness, entering into any fundamental transactions, issuing any equity interests subject to certain limited exceptions, or making any dispositions of its property. In connection with the Target Company Credit Agreement, the Company entered into a Security Agreement with the Target Company, pursuant to which the Target Company granted the Company a security interest in all of the Target Company’s assets as security for the Target Company Loan.
As of June 30, 2022, the outstanding principal of the Target Company Loan is $500,000 and the accrued interest on the Loan is $22,356.
NOTE 5 – FIXED ASSETS
The Company’s fixed assets include the following on June 30, 2022:
| Cost Basis | Accumulated Depreciation | Net | ||||||||||
| Computers | $ | 370,607 | $ | (136,034 | ) | $ | 234,573 | |||||
| Lab Equipment | 2,492,510 | (441,518 | ) | 2,050,992 | ||||||||
| Office Furniture | 56,656 | (5,367 | ) | 51,289 | ||||||||
| Other Fixed Assets | 8,605 | (793 | ) | 7,812 | ||||||||
| Total Fixed Assets | $ | 2,928,378 | $ | (583,712 | ) | $ | 2,344,666 | |||||
The Company’s fixed assets include the following on December 31, 2021:
| Cost Basis | Accumulated Depreciation | Net | ||||||||||
| Computers | $ | 312,489 | $ | (75,053 | ) | $ | 237,436 | |||||
| Lab Equipment | 2,240,252 | (306,688 | ) | 1,933,564 | ||||||||
| Office Furniture | 90,757 | (4,857 | ) | 85,900 | ||||||||
| Other Fixed Assets | 10,809 | (412 | ) | 10,397 | ||||||||
| Total Fixed Assets | $ | 2,654,307 | $ | (387,010 | ) | $ | 2,267,297 | |||||
Depreciation expense was $99,852 and $100,286, for the three months ended June 30, 2022 and 2021, respectively. Depreciation expense was $196,704 and $166,529, for the six months ended June 30, 2022 and 2021, respectively. None of the Company’s fixed assets serve as collateral against any loans as of June 30, 2022 and December 31, 2021, other than those subject to the financed asset liability.
NOTE 6 – INTANGIBLE ASSETS
The Company’s intangible assets include the following on June 30, 2022:
| Cost Basis | Accumulated Amortization | Net | ||||||||||
| Proprietary Technology | $ | 321,000 | $ | (160,500 | ) | $ | 160,500 | |||||
| Total Intangible Assets | $ | 321,000 | $ | (160,500 | ) | $ | 160,500 | |||||
The Company’s intangible assets include the following on December 31, 2021:
| Cost Basis | Accumulated Amortization | Net | ||||||||||
| Proprietary Technology | $ | 321,000 | $ | (107,000 | ) | $ | 214,000 | |||||
| Total Intangible Assets | $ | 321,000 | $ | (107,000 | ) | $ | 214,000 | |||||
Amortization expense was $26,750 and $26,676 for the three months ended June 30, 2022 and 2021, respectively. Amortization expense was $53,500 and $53,060 for the six months ended June 30, 2022 and 2021, respectively. None of the Company’s intangible assets serve as collateral against any loans as of June 30, 2022, and December 31, 2021.
NOTE 47 – RELATED PARTY TRANSACTIONS
On January 26, 2022, the Company granted 480,000 restricted stock units to an officer of the Company pursuant to the Company’s 2021 Equity Incentive Plan. The Company recognized $106,910 in stock-based compensation for the issuance of these vested and unvested restricted stock units during the period ended June 30, 2022. (Note 10)
NOTE 8 – NOTE PAYABLE
On May 27, 2022, the Company entered into an agreement for the purchase and sale of future receipts (the “Future Receipts Agreement”) with a commercial funding source (the “Funder”) pursuant to which the Company agreed to sell to the Funder certain future trade receipts in the aggregate amount of $792,000 (the “Future Receipts Purchased Amount” for gross proceeds to the Company of $550,000, less origination fees of $16,500 and professional service fees of $13,500. Pursuant to the Future Receipts Agreement, the Company granted the Funder a security interest in all of the Company’s Chief Executive Officer (“CEO”) has provided certain periods of service without payment. present and future accounts receivable in an amount not to exceed the Future Receipts Purchased Amount. The Purchased Amount shall be repaid by the Company in 28 weekly installments with the final payment due on December 7, 2022.
As of June 30, 20202022, the outstanding principal amount is $465,848. During the six months ended June 30, 2022, the Company has made a total of $141,429 in payments to the Funder, which represents principal and interest.
NOTE 9 – 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 June 30, 2022 and December 31, 2019,2021 for all leases that commenced prior to that date. In determining this rate, which is used to determine the CEO is owed $375,500present 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 $309,500, respectively, related to compensation. Subsequent to the period, the Company issued 38,055 Units consisting of 1 share of common stock and 1 Series A warrant and 1 Series B warrant to settle $342,500 in accrued compensation.a similar economic environment.
The Company’s Chief Innovation Officer (“CIO”) has provided certain periods of service without payment. As
Lease Costs
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| Components of total lease costs: | ||||||||
| Operating lease expense | $ | 653,408 | $ | 259,293 | ||||
| Total lease costs | $ | 653,408 | $ | 259,293 | ||||
Lease Positions as of June 30, 20202022 and December 31, 2019, the CIO is owed $476,000 and $377,000, respectively, related to compensation. Subsequent 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 warrant to settle $425,000 in accrued compensation.
Effective July 10, 2020, the Board of Directors appointed the Company’s Chief Operations Officer (“COO”). Prior 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. Subsequent to the period, the Company issued 35,555 Units consisting of 1 share of common stock, 1 Series A warrant, and 1 Series B warrant to settle $320,000 in accrued compensation.2021
-8-ROU lease assets and lease liabilities for our operating leases are recorded on the balance sheet as follows:
| June 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Right of use asset – long term | $ | 3,661,247 | $ | 4,097,117 | ||||
| Total right of use asset | $ | 3,661,247 | $ | 4,097,117 | ||||
| Liabilities | ||||||||
| Operating lease liabilities – short term | $ | 1,130,611 | $ | 1,145,126 | ||||
| Operating lease liabilities – long term | 2,337,652 | 2,765,933 | ||||||
| Total lease liability | $ | 3,468,263 | $ | 3,911,059 | ||||
Lease Terms and Discount Rate
| Weighted average remaining lease term (in years) – operating leases | 2.05 | |||
| Weighted average discount rate – operating leases | 8.00 | % |
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Stock
On March 21, 2019,May 24, 2021, the Company entered intoincreased the number of authorized shares of the Company’s common stock, par value $0.001 per share, from 27,000,000 to 100,000,000 (the “Authorized Shares Increase”) by filing a noteCertificate of Amendment (the “Certificate of Amendment”) to its Amended and Restated Certificate of Incorporation with a related party. The note had a principalthe Secretary of $10,000, a maturity dateState of September 21, 2019,the State of Delaware. In accordance with the General Corporation Law of the State of Delaware, the Authorized Shares Increase and an interest ratethe Certificate of 4% per year. The note remained outstandingAmendment were approved by the stockholders of the Company at the Company’s Annual Meeting of Stockholders on June 30, 2020. This note was paid in full subsequent to June 30, 2020.May 19, 2021.
During the six months ended June 30, 2020,2022, the Company assumed $11,980issued 1,543,243 shares of liabilities fromcommon stock and recognized expense of $253,719 in stock-based compensation for consulting services. The Company also granted 582,200 Restricted Stock Units, 425,375 Restricted Stock Units vested and resulted in the issuance of shares. As a related partyresult, the Company recognized expense of $687,375 in exchangestock-based compensation. 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 six months ended June 30, 2021, the Company issued 86,000 shares of common stock and recognized expense of $233,100 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 stock-based compensation for the return of 5,990 sharesperiod was valued based on the value of the Company’s common stock.shares based on public information.
NOTE 5 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company is authorized to issue 3,000,000 shares of preferred stock, par value $0.001 per share.
Common Stock There were no shares of preferred stock outstanding as of June 30, 2022 and December 31, 2021, respectively.
The Company is authorized to issue 27,000,000 shares of common stock, par value $0.001 per share.
During the six months ended June 30, 2020, the Company issued 122,250 shares of common stock and recognized expense of $502,192 in stock compensation for consulting services. The Company also issued 30,975 shares of commons stock for the exercise of warrants and received $185,850 for the exercise of the warrants. The compensation was valued based on prior private placements or based on management’s estimates of value immediately prior to the IPO.
During six months ended June 30, 2019, the Company issued 20,500 shares of common stock for services and recognized expense of $82,000 in stock compensation, issued 71,500 shares of common stock for $235,464 in cash, net of offering costs, 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.
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 six months ended June 30, 2020,2022 and 2021, the Company granted 7,500no new options.
The following is an analysis of the stock option grant activity under the Plan:
| Vested and Nonvested Stock Options | Number | Weighted Average Exercise Price | Weighted Average Remaining Life | |||||||||
| Outstanding December 31, 2021 | 2,235,466 | $ | 3.40 | 6.74 | ||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Expired or forfeited | - | - | - | |||||||||
| Outstanding June 30, 2022 | 2,235,466 | $ | 3.40 | 6.25 | ||||||||
| Nonvested Stock Options | Number | Weighted- Average Exercise Price | ||||||
| Nonvested on December 31, 2020 | 453,125 | $ | 2.17 | |||||
| Granted | - | - | ||||||
| Vested | (210,625 | ) | 2.19 | |||||
| Forfeited | - | - | ||||||
| Nonvested on June 30, 2022 | 242,500 | $ | 2.16 | |||||
The Company recognized stock-based compensation expense related to options to a related party with exercise pricesgranted and vesting expense of $11.00 per share vesting on issuance.$387,246 during the six months ended June 30, 2022, of which $267,318 is included in general and administrative expenses and $119,928 is included in research and development expenses in the accompanying statements of operations. The total grant date fairremaining value was determined to be $27,799.expensed is $583,832 with a weighted average vesting term of 0.37 years as of June 30, 2022. The Company recognized stock-based compensation expense related to options issued and vesting of $423,157 during the six months ended June 30, 2021, which is included in general and administrative expenses in the accompanying statements of operations.
Warrants
During the six months ended June 30, 2019,2022 the Company granted 550,000 stock options with exercise prices of $4.00 per share vesting on issuance. The total grant date fair value was determined to be $1,960,831. 24,937,774 warrants. During the six months ended June 30, 2021, the Company granted 875,000 warrants.
For all periods presented,the six months ended June 30, 2022, 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 | $ | 0.25-0.40 | ||
| Expected dividend yield | 0 | % | ||
| Risk free interest rate | % | |||
| Expected life in years | ||||
| Expected volatility | % |
-9-
For the six months ended June 30, 2021, the fair value of each warrant granted was estimated using the assumption ranges 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 | % |
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, 2021 | 30,069,964 | $ | 1.67 | 4.38 | ||||||||
| Granted | 24,937,774 | 0.27 | 5.35 | |||||||||
| Exercised | (8,970,947 | ) | 0.15 | - | ||||||||
| Expired or forfeited | (73,100 | ) | 5.84 | - | ||||||||
| Outstanding June 30, 2022 | 45,963,691 | $ | 0.96 | 4.67 | ||||||||
| 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 | |||||
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, 2021 | 4,628,334 | $ | 1.51 | |||||
| Granted | 24,937,774 | 0.27 | ||||||
| Vested | (5,863,334 | ) | 1.27 | |||||
| Forfeited | - | - | ||||||
| Nonvested on June 30, 2022 | 23,702,774 | $ | 0.27 | |||||
The Company recognized stock-based compensation expense related to warrants issuedgranted and vesting expense of $159,777 and $226,541$557,223 during the six months ended June 30, 20202022, of which $52,524 is included in general and 2019,administrative and $504,699 is included in sales and marketing in the accompanying Statements of Operations. The Company recognized stock-based compensation expense related to warrants granted and vesting expense of $137,375 during the six months ended June 30, 2021, respectively, which is included in general and administrative in the accompanying Statements of Operations. The remaining value to be expensed is $212,093$1,196,506 with a weighted average vesting term of 0.972.74 years as of June 30, 2020.2022.
On June 15, 2022, the Company entered an agreement with a holder of certain of the Series C Warrants (the “Holder”). Pursuant to the agreement, the Holder has agreed to exercise in cash 8,970,947 of its Series C Warrants at a reduced exercise price of $0.15 per Share (reduced from $1.15 per share), for gross proceeds to the Company of approximately $1.35 million. As an inducement to such exercise, the Company has agreed to reduce the exercise price of the Holder’s remaining Series C Warrants to purchase up to 2,457,623 Shares from $1.15 to $0.2479 per share, which will be non-exercisable for a period of six months following the closing date. The modification of this exercise price resulted in an increase of $344,158 to the fair value of the Series C Warrants. This modification was an inducement on the transaction and as such was recoded to equity resulting in no net change to additional paid in capital. In addition, the Company issued to the Holder a new warrant to purchase up to 20,399,517 shares of the Company’s common stock at an exercise price of $0.2479 per share, which will be non-exercisable for a period of six months following issuance date and have a term of five and one-half years. This inducement resulted in a total increase of $3,759,044 to the fair value of the warrants.
Restricted Stock Units
A summary of Restricted Stock Units (“RSUs”) issuances are as follows:
| Nonvested RSUs | Number | Weighted Average Price | ||||||
| Nonvested December 31, 2021 | 778,250 | $ | 1.92 | |||||
| Granted | 582,200 | 0.45 | ||||||
| Vested | (425,375 | ) | 1.19 | |||||
| Forfeited | (69,175 | ) | 1.63 | |||||
| Nonvested June 30, 2022 | 865,900 | $ | 1.32 | |||||
The Company recognized stock-based compensation expense related to RSUs granted and vesting expense of $687,375 and zero during the six months ended June 30, 2022 and June 30, 2021, respectively, of which, $503,775 is included in general and administrative and $183,600 is included in research and development in the accompanying Statements of Operations. The remaining value to be expensed is $861,631 with a weighted average vesting term of 0.77 years as of June 30, 2022.
During the six months ended June 30, 2020, 30,975 warrants were exercised for 30,9752022, the Company granted a total of 582,200 RSUs. As of June 30, 2022, 425,375 of these RSUs vested and the Company issued 425,375 shares of common stock. The Company recognized proceeds of $185,850 related tostock for the exercises.425,375 vested RSUs.
NOTE 11 – INCOME TAXES
-11-
The Company has incurred losses since inception. During the threesix months ended June 30, 2020,2022, the Company issued 5,000 warrants with an exercise price of $11.00 and a term of 3 years.
On April 10, 2020,did not provide any provision for income taxes as the Company terminatedincurred 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 deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary 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 consulting agreement dated December 1, 2018. As part of this termination agreement the consultant forfeited 65,000 non-vested. The consultant holds 25,000 warrants which were previously vested.
NOTE 6 – AGREEMENTS
On December 27, 2019,valuation allowance, 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 IPOhas considered both positive 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 required 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 30,000 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 Company is required to pay a fee of $25,000. The Company also issued 18,750 shares of the Company’s common stocknegative evidence related to the patent holder. The Company is requiredlikelihood of realization of deferred tax assets using a “more likely than not” standard. In making such assessment, more weight was given 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 willevidence that could be responsible for paying royalty feesobjectively verified, including recent cumulative losses. Based on the Company’s net sales. These royalty fees are set at a ratereview 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,this evidence, the Company entered intohas recorded a consulting agreementfull valuation allowance for business development services. As partits net deferred tax assets as 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 MarchJune 30, 2020, the Company entered into an employment agreement for a permanent, full-time Chief Financial Officer that is effective upon the closing 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 has an exercise price of $11.00 and expires on October 5, 2027, the subsequent grant 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.2022.
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As of June 30, 2022, the Company did not have any amounts recorded pertaining to uncertain tax positions.
On April 30, 2020, the Company entered into an employment agreement for a Vice President of Preclinical Research and Development that is effective upon the closing of 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 has 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.
On May 16, 2020, 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, 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 has 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.
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.
NOTE 7 – NOTES PAYABLE
On April 12, 2018, the Company issued an unsecured promissory note for $35,000 that accrued interest of 4% annually. The note was due on the earlier of November 12, 2018 or in the event of default, as defined in the agreement. This note was paid in full subsequent to June 30, 2020.
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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 912 – SUBSEQUENT EVENTS
Amendment to the Bylaws:
On July 1, 2020,8, 2022, the Company entered intoboard of directors approved an amendment to patentthe amended and technology licensing agreement with Loma Linda University (“LLU”), dated March 15, 2018. Pursuantrestated bylaws to lower the amendment, the Company was to pay LLU $455,000 within four daysnumber of holders of the signingshares entitled to vote at a meeting of such amendment. The amendment also updated the milestone payment datesstockholders constituting a quorum, in person or by proxy, from a majority 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.one-third.
Effective on
Issuance of Series B Preferred Stock:
On July 1, 2020,19, 2022, the Company entered into a consulting agreementSubscription and Investment Representation Agreement with its Chief Executive Officer (the "Purchaser"), pursuant to which the Company agreed to issue and sell one (1) share of the Company's Series B Preferred Stock (the “Preferred Stock"), par value $0.001 per share, to the Purchaser for investor relations$20,000 in cash.
The Company also filed a certificate of designation (the "Certificate of Designation") with the Secretary of State of Delaware, effective as of the time of filing, designating the rights, preferences, privileges and public relations services. Asrestrictions of the share of Preferred Stock. The Certificate of Designation provides that the share of Preferred Stock will have 250,000,000 votes and will vote together with the outstanding shares of the Company's common stock as a single class exclusively with respect to any proposal to amend the Company's Restated Certificate of Incorporation to effect a reverse stock split of the Company's common stock. The Preferred Stock will be voted, without action by the holder, on any such proposal in the same proportion as shares of common stock are voted. The Preferred Stock otherwise has no voting rights except as otherwise required by the General Corporation Law of the State of Delaware.
The Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Preferred Stock has no rights with respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Preferred Stock will not be entitled to receive dividends of any kind.
The outstanding share of Preferred Stock shall be redeemed in whole, but not in part, at any time (i) if such redemption is ordered by the Board of this agreementDirectors in its sole discretion or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation implementing a reverse stock split. Upon such redemption, the holder of the Preferred Stock will receive consideration of $20,000 in cash.
Notice of Delisting:
On July 19, 2022, the Company received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC ("Nasdaq") notifying the Company that it has not regained compliance with the minimum bid price rule in Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Rule") by July 18, 2022 and is not eligible for a second 180 day extension as the Company does not comply with the stockholders' equity initial listing requirement for The Nasdaq Capital market. The letter also states that, unless the Company requests an appeal, the Company's securities will be delisted from The Nasdaq Capital Market and will be suspended at the opening of business on July 28, 2022.
The Company submitted an appeal to Nasdaq, which stays the delisting and suspension of the Company's securities pending the decision of the Nasdaq Hearings Panel. At the hearing, which is expected to occur 30-45 days after the Company's request for appeal, the Company intends to present its views and its plans to regain compliance with the Minimum Bid Price Rule to the Panel. There can be no assurance that the Company will payobtain an extension period from the Panel within which to regain compliance with the Minimum Bid Price Rule, or, if the Panel grants such an extension period, that the Company will be able to evidence compliance with the Minimum Bid Price Rule before the extension period expires. It is the Company's understanding that the Panel typically issues its decision within 30 days after the hearing.
Promissory Note:
On July 21, 2022, the Chief Executive Officer loaned $80,000 to the Company. The loan was evidenced by an unsecured promissory note (the "Promissory Note"). Pursuant to the terms of the Promissory Note, it will accrue interest at a feerate of $8,000four and three-quarters percent (4.75%) per monthannum, the Prime rate on the date of signing, and issue 20,000is due on the earlier of January 22, 2023, or an event of default.
Convertible Note Financing:
On August 4, 2022, the Company entered into a Securities Purchase Agreement (the "SPA") with certain accredited investors by the Company to the purchasers $1,477,778 in principal amount 10% Senior Secured Promissory Notes (the "August 2022 Notes"), resulting in gross proceeds to the Company of $1,330,000, exclusive of placement agent commission and fees and other offering expenses. In addition, 1,477,778 shares of common stock as commitment fees and warrants (the "August 2022 Warrants") to purchase up to 6,275,065 shares of the Company’sCompany's common stock.stock were issued.
On July 2, 2020,The August 2022 Notes have a maturity date of twelve (12) months from the Company completed its IPO. (See Note 1)date of issuance and are convertible at the option of the Investor at any time prior to maturity in shares of Common Stock (the "Conversion Shares") at an initial conversion price of $0.2355 per share, subject to adjustment under certain circumstances.
The August 2022 Warrants are exercisable for a period of five (5) years from period commencing on the Commencement Date (as defined therein) and ending on 5:00 p.m. eastern standard time on the date that is five (5) years after the date of issuance, at an exercise price of $0.2355, subject to adjustment provided therein (including cashless exercise).
On July 2, 2020,In connection with the Offering, the Company settled outstanding compensationwill issue 312,942 shares to Crito Capital LLC.
The Company estimates that the net proceeds from the transaction will be approximately $1,244,000 after deducting estimated transaction fees and expenses. The net proceeds received by the Company from the transaction will be used for business development, working capital and other general corporate purposes.
Convertible Note Financing Follow On:
On August 11, 2022, the Company entered into a SPA with certain related parties. (See Note 4)accredited investors by the Company to the purchasers $555,556 in principal amount of the August 2022 Notes, resulting in gross proceeds to the Company of $500,000. In addition, 555,556 shares of common stock as commitment fees and August 2022 Warrants to purchase up to 2,359,046 shares of the Company's common stock were issued.
The August 2022 Notes have a maturity date of twelve (12) months from the date of issuance and are convertible at the option of the Investor at any time prior to maturity in shares of Conversion Shares at an initial conversion price of $0.2355 per share, subject to adjustment under certain circumstances.
The August 2022 Warrants are exercisable for a period of five (5) years from period commencing on the Commencement Date (as defined therein) and ending on 5:00 p.m. eastern standard time on the date that is five (5) years after the date of issuance, at an exercise price of $0.2355, subject to adjustment provided therein (including cashless exercise).
See Note 6 for descriptions of agreementsThe Company estimates that required shares tothe net proceeds from the transaction will be issued or options to be granted upon completion of the Company’s IPO. Such shares have been issuedapproximately $500,000 after deducting estimated transaction fees and options granted.
Subsequent to June 30, 2020,expenses. The net proceeds received by the Company repaid or exchangedfrom the transaction will be used for shares all debt agreements described in Note 8. business development, working capital and other general corporate purposes.
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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 condensed 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, 20192021 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™ADI™. We have secured an exclusive worldwide license for commercializing a technology platform named Aditxt Immune Monitor™ (AiM™)AditxtScore™, 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.
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™ADI™ drug administration. We are also evaluating plans to obtain FDA approval for AiM™AditxtScore™’s use as a clinical assay and seeking to secure manufacturing, marketing and distribution partnerships for application in the Infectious Diseases market, by end of 2020. To obtain FDA approval to use AiM™AditxtScore™ as a clinical assay, we plan to conduct validation studies comparing AiM™AditxtScore™ to other immunological tests to demonstrate reproducibility of data and to demonstrate the sensitivity of the assays for use in different indications (e.g., detection of antigens present in infectious agents or antibodies against infectious agents). We believe that these data will show AiM™AditxtScore™’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 the presence of several antibody isotypes against several antigens in a single reaction. Our plan is to submit a 510(K) application to the FDA after successful completion of these studies. We have engaged consultants for our communications and submissions to the FDA. Beyond 2020,2021, we plan to develop AiM™AditxtScore™ for applications in additional markets such as Organ Rejection, Allergies, Drug/Vaccine Response, and Disease Susceptibility.
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The initial application of the platform will be AditxtScore™ for COVID-19 which has been designed to provide a more complete assessment of an individual’s infection and immunity status with respect to the SARS-CoV-2 virus. Infection status will be determined by evaluating the presence or absence of the virus, and immunity status by measuring levels of antibodies against viral antigens and their ability to neutralize the virus. We will soon be expanding the panel to measure other components of the immune response such as cellular immunity. In early 2021, we established our AditxtScore™ Immune Monitoring Center in Richmond, Virginia (the “Center”). The Center operates as a Clinical Laboratory Improvement Amendments (CLIA) certified facility for the processing of our AditxtScore™ for COVID-19 Lab Developed Test (LDT) for our prospective channel partners, including labs and hospitals.
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. In lieu of the $175,000 milestone payment due on March 31, 2022, the Company paid LLU an extension fee of $100,000. Upon payment of this extension fee, an additional year will be added for the March 31, 2022 milestone. 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, which has been extended to March 31, 2023 due to payment of a $100,000 extension fee paid in March 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.
On December 29, 2021, we entered into an amendment to the February 2020 License Agreement which extended our exclusive right to license the technology deployed in AditxtScoreTM and securing worldwide exclusivity in all fields of use of the licensed technology.
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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. The Company paid a milestone fee for a clinical study for regulatory clearance of an in vitro diagnostic product developed and a potential licensed product of $25,000 in March of 2022. 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 (which has been completed), (iii) conduct validation studies by September 30, 2020 (which has been completed), (iv) 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, 2020,2021 (which has been completed), (vi) obtain FDA approvaldevelop a prototype assay for human profiling by December 31, 2021 (which has been completed), (vii) complete a prototype assay kitexecute at least one partnership for use of the technology for transplant, autoimmunity, or infectious disease purposes by DecemberMarch 31, 20212022 and (viii) have a written agreement with Stanford onwill provide further development and commercialization milestones for specific fields of use in writing by December 31, 2021.2022.
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 significant revenues to date. During the six months ended June 30, 2020 the Company2022 we had a net loss of $1,723,680$11,909,147 and cash of $803,971 as of June 30, 2022. 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,January 2021 Securities Purchase Agreement, the CompanyAugust 2021 Offering, the October 2021 Offering, and the December 2021 Offering we received net proceeds of approximately $9.5 million subsequent to$35,000,000 during the period presented. The Company believeslast twelve months. We believe that the remaining funds raised by the IPOon hand will not be sufficient to fund the Company’s operationour operations for at least the next 12 months. As a result, these conditions have alleviated themonths and such creates substantial doubt regardingabout 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 condensed financial statements as of June 30, 2020,2022, show a net loss of $1,723,680.$11,909,147. 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 June 30, 20202022 and 2021
We generated revenue of $214,715 and $0 for the three months ended June 30, 2022 and 2021, respectively. Cost of sales for the three months ended June 30, 2022 and 2021 was $174,858 and $0, respectively.
During the three months ended June 30, 2020,2022, we incurred a loss from operations of $398,479.$5,770,957. This is due to general and administrative expenses of $352,338,$3,788,952, which includes $160,329$375,352 in stock-based compensation, research and development of $28,294,$1,187,920, which includes $154,237 in stock-based compensation, and sales and marketing expenses of $2,848.$833,942, which includes $754,699 in stock-based compensation. The $28,294$1,187,920 in research and development is mainly comprised of $625$602,434 in licensing fees, $13,500consulting expenses, and $714,443 in product development, and $14,169 in othercompensation offset by a one-time adjustment to research and development expense.purchases. During the quarter, the Company transitioned from purchasing certain inventory items to internally manufacturing these items.
During the three months ended June 30, 2019,2021, we incurred a loss from operations of $2,555,525.$5,775,007. This is due to general and administrative expenses of $2,511,438,$4,798,313, which includes $2,098,759$772,430 in stock-based compensation, research and development of $43,978,$932,751, and sales and marketing expenses of $109.$43,943. The $43,978$932,751 in research and development is comprised of $15,181$3,185 in licensing fees, $13,500$470,325 in product development, and $15,297$459,241 in other research and development expense.
The increase in expenses during the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was due to the Company continuing to execute its business plan and incur costs of being a public company.
Results of operations for the six months ended June 30, 20202022 and 2021
We generated revenue of $424,994 and $0 for the six months ended June 30, 2022 and 2021, respectively. Cost of sales for the six months ended June 30, 2022 and 2021 was $362,929 and $0, respectively.
During the six months ended June 30, 2020,2022, we incurred a loss from operations of $1,455,277.$11,887,888. This is due to general and administrative expenses of $1,208,765,$8,413,110, which includes $689,766$827,337 in stock-based compensation, research and development of $228,665,$2,616,302, which includes $303,527 in stock-based compensation, and sales and marketing expenses of $2,848.$920,541, which includes $754,699 in stock-based compensation. The $228,665$2,616,302 in research and development is mainly comprised of $126,670$1,102,372 in licensing fees, $27,000consulting expenses, and $1,542,854 in product development, and $74,995 in othercompensation offset by a one-time adjustment to research and development expense.purchases. During the quarter, the Company transitioned from purchasing certain inventory items to internally manufacturing these items.
During the six months ended June 30, 2019,2021, we incurred a loss from operations of $3,800,214.$11,868,039. This is due to general and administrative expenses of $3,711,221,$9,896,830, which includes $2,822,367$2,237,332 in stock-based compensation, research and development of $88,846,$1,868,703, and sales and marketing expenses of $147.$102,506. The $88,846$1,868,703 in research and development is comprised of $15,181$72,545 in licensing fees, $27,000$975,889 in product development, and $46,665$820,269 in other research and development expense.
LiquidityThe increase in expenses during the six months ended June 30, 2022 compared to the six months ended June 30 2021 was due to the Company continuing to execute its business plan and incur costs of being a public company.
Liquidity and Capital Resources
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. As of June 30, 2020,2022, we had an accumulated deficit of approximately $13.5 million. The Company$79,261,956. We had a working capital deficit of $4,254,802$3,403,188 as of June 30, 2020.2022. During the six months ended June 30, 2022, we purchased $274,073 in fixed assets, for which we made cash payments of $274,073. These fixed assets were purchased to continue the buildout of our operations. Approximately $215,000 of these purchased fixed assets were lab equipment, $54,000 was for computers, and $5,000 was for office furniture.
Our condensed 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 exercise 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 June 30, 2022, 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 raised approximately $10.1 million in net proceeds.
On October 20, 2021, we completed an offering for net proceeds of $3.8 million. As part of this offering, we issued 2,833,333 shares of the Company’s current development plancommon stock
On December 6, 2021, we completed an offering for net proceeds of $16.0 million. As part of this offering, we issued 8,246,430 units consisting of shares of the Company’s common stock and plans for expansionwarrant to purchase shares of its generalthe Company’s common stock and administrative infrastructure may be curtailed.8,328,570 prefunded warrants. The warrant issued as part of the units had an exercise price of $1.15 and the prefunded warrants had an exercise price of $0.001.
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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 issuescreates doubt about the Company’sour ability to continue as a going concern.
Contractual Obligations
The following table shows our contractual obligations as of June 30, 2022:
| Payment Due by Year | ||||||||||||||||||||||||
| Total | 2022 | 2023 | 2024 | 2025 | 2026 | |||||||||||||||||||
| Lease | $ | 3,975,797 | $ | 599,939 | $ | 1,149,247 | $ | 1,034,084 | $ | 708,804 | $ | 483,723 | ||||||||||||
| Financed asset | 451,392 | 339,880 | 111,512 | - | - | - | ||||||||||||||||||
| Total contractual obligations | $ | 4,427,189 | $ | 939,819 | $ | 1,260,759 | $ | 1,034,084 | $ | 708,804 | $ | 483,723 | ||||||||||||
Critical Accounting Polices and Estimates
Our condensed financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our condensed 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.
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 condensed financial statements for a description of other accounting policies and recently issued accounting pronouncements.
Recent Developments
See Note 11 – Subsequent Event to the accompanying condensed 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 June 30, 20202022 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 beenThe Company received a written notice from Nasdaq that it has not regained compliance with the minimum bid price rule in Nasdaq Listing Rule 5550(a)(2) by July 18, 2022 and is not eligible for a second 180 day extension as the Company does not comply with the stockholders’ equity initial listing requirement for The Nasdaq Capital market. Accordingly, the notice indicated that unless the Company requests an appeal of Nasdaq’s determination, the Company’s securities will be delisted from The Nasdaq Capital market and suspended at the opening of business on July 28, 2022. The Company has requested an appeal, however, the Company can provide no material changesassurance as to whether or not it will be successful in its appeal and maintain its listing on The Nasdaq Capital Market.
On July 19, 2022, the Company received a letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC ("Nasdaq") notifying the Company that it has not regained compliance with the minimum bid price rule in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”) by July 18, 2022 and is not eligible for a second 180 day extension as the Company does not comply with the stockholders’ equity initial listing requirement for The Nasdaq Capital market. The letter also states that, unless the Company requests an appeal, the Company’s securities will be delisted from The Nasdaq Capital Market and will be suspended at the opening of business on July 28, 2022.
On July 28, 2022, the Company submitted its request for an appeal to Nasdaq, which stays the delisting and suspension of the Company’s securities pending the decision of the Nasdaq Hearings Panel (the “Panel”). At the hearing, which is scheduled to occur on September 8, 2022, the Company intends to present its views and its plans to regain compliance with the Minimum Bid Price Rule to the Risk Factors previously disclosed in our Prospectus, except as noted below.
Unfavorable global economic, business, or political conditions could adversely affect our business and financial condition.
Our business couldPanel. There can be adversely affected by general conditions inno assurance that the global economy and inCompany will obtain an extension period from the global financial markets, including conditions that are outside of our control, including the impact of health and safety concerns, such as those relatingPanel within which to the current COVID-19 novel coronavirus (“COVID-19”) pandemic. The recent global financial crisis in connectionregain compliance with the COVID-19 pandemic has caused extreme volatility and disruptions inMinimum Bid Price Rule, or, if the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risksPanel grants such an extension period, that the Company will be able to our business, including our ability to raise additional capital when needed on acceptable terms, if at all. Any ofevidence compliance with the foregoing could harm our business and we cannot anticipate allMinimum Bid Price Rule before the ways in whichextension period expires. It is the current economic climate and financial market conditions could adversely impact our business.Company’s understanding that the Panel typically issues its decision within 30 days after the hearing.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Sales of Unregistered Securities
During the three months ended June 30, 2020, 30,975 warrants were exercised for 30,975 shares of common stock. The company recognized proceeds of $185,850 related to the exercise.
During the three months ended June 30, 2020,On January 31, 2022, the Company issued 17,500a consultant 3,000 shares of common stock to two consultants for services.services rendered.
On February 28, 2022, the Company issued a consultant 3,000 shares of common stock for services rendered.
On March 31, 2022, the Company issued a consultant 3,000 shares of common stock for services rendered.
On June 27, 2022, the Company issued a consultant 1,534,243 shares of common stock for services rendered.
The issuances above were made pursuant to Section 4(a)(2) of the Securities Act.
(b) Use of Proceeds from Initial Public Offering
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 June 30, 2022, 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$8.5 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.
None.
| 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: August | By: | /s/ Amro Albanna |
| Amro Albanna | ||
Chief Executive Officer | ||
| Date: August | By: | /s/ |
Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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