Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Description of Business and Recent Developments
Organization and Description of Business
AIkido Pharma Inc. (the “Company”
and “We”), formerly known as Spherix Incorporated, was initially formed in 1967. Since 2017, the Company has operated
as a biotechnology company with a diverse portfolio of small-molecule anticancer and antiviral therapeutics in development. The Company’s
pipeline consists of patented technology from leading universities and researchers. The Company is currently in the process of developing
its innovative therapeutic drug pipeline through strong partnerships with world renowned educational institutions, including the University
of Texas at Austin, the University of Maryland, Baltimore and Wake Forest University. The Company’s oncology therapeutics include
prospective treatments for pancreatic cancer, acute myeloid leukemia (AML) and acute lymphoblastic leukemia (ALL). The Company is also
developing a broad-spectrum antiviral platform, in which the lead compounds have activity in cell-based assays against multiple viruses
including Influenza virus, Ebolavirus and Marburg virus, SARS-CoV, MERS-CoV, and SARS-CoV-2, the cause of COVID-19.
As a result of the Company’s biotechnology
research and development and associated investments and acquisitions, its business portfolio now focuses on the treatment of three different
cancers and multiple types of viral infections. The Company’s pancreatic drug candidate, DHA-dFdC, developed at and licensed from
the University of Texas at Austin, is a new compound that it hopes will become the next generation of chemotherapy treatment for advanced
pancreatic cancer. DHA-dFdC overcomes tumor cell resistance to current chemotherapeutic drugs and is well tolerated in preclinical toxicity
tests. Preclinical studies have also indicated that DHA-dFdC inhibits pancreatic cancer cell growth (up to 100,000-fold more potent that
gemcitabine, a current standard therapy), targets pancreatic tumors and has demonstrated activities against other cancers. The Company
has also executed a Sponsored Research Agreement with UMB to support the development of the technology under the direction of these inventors
at UMB.
Note 2. Liquidity and Capital Resources
The Company continues to incur ongoing administrative
and other expenses, including public company expenses, in excess of corresponding (non-financing related) revenue. While the Company continues
to implement its business strategy, it intends to finance its activities through managing current cash on hand from the Company’s
past debt and equity offerings.
During the first quarter of 2021, the Company
consummated a public offering of 53,905,927 shares of common stock (including the underwriter overallotment). The Company received net
proceeds of approximately $78.0 million after deducting underwriting discounts and commissions and estimated offering expenses payable
by the Company. Based upon projected cash flow requirements, the Company has adequate cash to fund its operations for at least the next
twelve months from the date of the issuance of these consolidated financial statements.
Note 3. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated
interim financial statements include the accounts of the Company and its wholly-owned subsidiaries, Nuta Technology Corp. (“Nuta”),
Spherix Portfolio Acquisition II, Inc. (“SPAII”), Guidance IP, LLC (“Guidance”), Directional IP, LLC (“Directional”),
Spherix Management Services, LLC (“SMS”), Spherix Delaware Merger Sub Inc. (“Merger Sub”), Spherix Merger Subsidiary,
Inc (“SMSI”) and NNPT, LLC (“NNPT”). All significant intercompany balances and transactions have been eliminated
in consolidation.
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States
of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of
Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual
audited consolidated financial statements. The condensed consolidated balance sheet as of June 30, 2021, condensed consolidated statements
of operations for the three and six months ended June 30, 2021 and 2020, condensed consolidated statements of stockholders’ equity
for the three and six months ended June 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the six months
ended June 30, 2021 and 2020 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The
results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending
December 31, 2021 or for any future interim period. The condensed consolidated balance sheet at December 31, 2020 has been derived from
audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial
statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated
financial statements for the year ended December 31, 2020 and notes thereto included in the Company’s annual report on Form 10-K,
which was filed with the SEC on March 25, 2021.
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Use of Estimates
The accompanying condensed consolidated financial
statements have been prepared in conformity with US GAAP. This requires management to make estimates and assumptions that affect certain
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and assumptions
include stock-based compensation, the valuation of investments, the valuation of convertible note and the valuation allowance related
to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external conditions, including
those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect
on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.
Significant Accounting Policies
Other than as described below, there have been
no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s annual
report on Form 10-K, which was filed with the SEC on March 25, 2021.
Fair Value Option - Convertible Note
The guidance in ASC 825, Financial Instruments,
provides a fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent
measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument
basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant
to this guidance are required to be reported separately in our condensed consolidated balance sheets from those instruments using another
accounting method.
Deposits
During the three months ended June 30, 2021, the Company deposited
$5 million with a fund to identify opportunities to expand the Company’s core business strategies in Asia. The cash are held in
bank accounts on behalf of the Company until the fund manager identifies investments. During the three months ended June 30, 2021, the
Company incurred fees of approximately $0.5 million advisory fees and the balance held in cash in this fund was $4.5 million as of June
30, 2021.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards
Board (“FASB”) issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions
to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.
The Company adopted ASU No. 2019-12 effective January 1, 2021, and the adoption did not have a material impact on its consolidated financial
statements.
Note 4. License agreement with Silo Pharma
Inc.
Effective January 5, 2021, the Company entered
into an exclusive patent license agreement (the “License Agreement”) with Silo Pharma Inc., a Delaware corporation and Silo
Pharma Inc., a Florida corporation, and their affiliates/subsidiaries (collectively, “Silo Pharma”). On April 12, 2021, the
Company entered into an amendment to the License Agreement (“Amendment”). The Amendment amended a portion of the license fees
included in the original License Agreement and exchange 500 shares of the Company’s Series M Convertible Preferred Stock to an
aggregate of 625,000 restricted shares of the Company’s common stock, par value $0.001 per share, effective as of January 5, 2021.
The Company paid a one-time nonrefundable cash payment of $0.5 million to Silo Pharma. The Company shall also pay Silo Pharma a running
royalty equal to 2% of “net sales” (as such term is defined in the License Agreement).
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5. Investments in Marketable Securities
The realized gain or loss, unrealized gain or
loss, and dividend income related to marketable securities for the three and six months ended June 30, 2021 and 2020, which are recorded
as a component of gains and (losses) on marketable securities on the consolidated statements of operations, are as follows ($ in thousands):
|
|
For the Three
Months Ended
June 30,
|
|
|
For the Six
Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Realized gain (loss)
|
|
$
|
661
|
|
|
$
|
597
|
|
|
$
|
1,084
|
|
|
$
|
544
|
|
Unrealized gain (loss)
|
|
|
653
|
|
|
|
212
|
|
|
|
(1,395
|
)
|
|
|
(614
|
)
|
Dividend income
|
|
|
484
|
|
|
|
246
|
|
|
|
770
|
|
|
|
259
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
$
|
1,798
|
|
|
$
|
1,055
|
|
|
$
|
459
|
|
|
$
|
193
|
|
Note 6. Investment in Hoth Therapeutics, Inc.
The following summarizes the Company investment
in Hoth as of June 30, 2021:
Security Name
|
|
Shares Owned
as of
June 30,
2021
|
|
|
Fair value per Share
as of
June 30,
2021
|
|
|
Fair value
as of
June 30,
2021
(in thousands)
|
|
HOTH
|
|
|
1,166,415
|
|
|
$
|
1.60
|
|
|
$
|
1,866
|
|
Note 7. Fair Value of Financial Assets and
Liabilities
Financial instruments, including cash and cash
equivalents, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the
short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use
of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
The Company uses three levels of inputs that may
be used to measure fair value:
Level 1 - quoted prices in active markets for
identical assets or liabilities
Level 2 - quoted prices for similar assets and
liabilities in active markets or inputs that are observable
Level 3 - inputs that are unobservable (for example,
cash flow modeling inputs based on assumptions)
The following table presents the Company’s
assets and liabilities that are measured at fair value at June 30, 2021 and December 31, 2020 ($ in thousands):
|
|
Fair value measured at June 30, 2021
|
|
|
|
|
|
|
Total at June 30,
|
|
|
Quoted prices in active markets
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
2021
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
62,306
|
|
|
$
|
62,306
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mutual fund securities
|
|
$
|
25,013
|
|
|
$
|
25,013
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Unit Investments Trust
|
|
$
|
513
|
|
|
$
|
513
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
87,832
|
|
|
$
|
87,832
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investment
|
|
$
|
1,866
|
|
|
$
|
1,866
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Convertible note receivable
|
|
$
|
2,067
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,067
|
|
AIKIDO
PHARMA INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
|
|
Fair value measured at December 31, 2020
|
|
|
|
Total at
December 31,
|
|
|
Quoted prices in active markets
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
24,801
|
|
|
$
|
24,801
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investments
|
|
$
|
2,764
|
|
|
$
|
2,764
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Level 3 Valuation Techniques
The following table sets forth a summary of the
changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis:
|
|
Fair Value of Level 3
investment
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Beginning balance
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchase of convertible note
|
|
|
2,000
|
|
|
|
-
|
|
Accrued interest receivable
|
|
|
67
|
|
|
|
-
|
|
Ending balance
|
|
$
|
2,067
|
|
|
$
|
-
|
|
Convergent Investment
On January 29, 2021, the Company purchased an
8% convertible promissory note (“Convertible Note”) issued by Convergent Therapeutics, Inc. (“Convergent”) with
a principal amount of $2 million pursuant to a Note Purchase Agreement with Convergent. The Company paid a purchase price for the Convertible
Note of $2 million. The Company will receive interest on the Convertible Note at the rate of 8% per annum payable upon conversion or maturity
of the Convertible Note. The Convertible Note shall mature on January 29, 2023.
The Company has elected to measure the purchase
of the Convertible Note from Convergent using the fair value option at each reporting date. Under the fair value option, bifurcation of
an embedded derivative is not necessary, and all related gains and losses on the host contract and derivative due to change in the fair
value will be reflected in interest income and other, net in the condensed consolidated statements of operations.
The Convertible Note is disclosed as a noncurrent
Convertible Note investment in the condensed consolidated balance sheets. As of June 30, 2021, the fair value of the Convertible Note
was measured at $2.0 million, taking into consideration cost of the investment, market participant inputs, market conditions, liquidity,
operating results and other qualitative and quantitative factors. The value at which the Company’s Convertible Note is carried on
its books is adjusted to estimated fair value at the end of each quarter, taking into account general economic and stock market conditions
and those characteristics specific to the underlying investments. No change in fair value was recorded during the six months ended June
30, 2021.
Interest accrues on the unpaid principal balance
on a quarterly basis and is recognized in interest income in the condensed consolidated statements of operations. The Company recorded
an interest income receivable of approximately $67,000 on the
Convertible Note as of June 30, 2021.
Note 8. Net Loss per Share
Basic loss per common share is computed by dividing
the net loss allocable to common stockholders by the weighted-average number of shares of common stock or common stock equivalents outstanding.
Diluted loss per common share is computed similar to basic loss per share except that it reflects the potential dilution that could occur
if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Securities that could
potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at June 30, 2021 and
2020 are as follows:
|
|
As of June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Convertible preferred stock
|
|
|
688
|
|
|
|
688
|
|
Warrants to purchase common stock
|
|
|
5,801,701
|
|
|
|
734,501
|
|
Options to purchase common stock
|
|
|
479,654
|
|
|
|
88,950
|
|
Total
|
|
|
6,282,043
|
|
|
|
824,139
|
|
AIKIDO
PHARMA INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 9. Stockholders’ Equity and Convertible
Preferred Stock
Public Offering
On February 19, 2021, the Company consummated
the public offering pursuant to an amended and restated underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright
& Co., LLC, as representative to the underwriters named therein (the “Underwriter”), pursuant to which the Company agreed
to issue and sell to the Underwriter in an underwritten public offering (the “Offering”) an aggregate of 46,875,000 shares
(the “Shares”) of common stock, $0.0001 par value per share, of the Company (the “Common Stock”). The Company
received gross proceeds of approximately $75 million before deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company. On February 23, 2021, the Underwriter partially exercised its over-allotment option and purchased an additional
7,030,927 Shares, resulting in aggregate proceeds of approximately $86.2 million, before deducting underwriting discounts and commissions
and other expenses. The total net proceeds received from these two offerings were approximately $78.0 million.
In connection with the Offering, the Company issued
the Underwriter warrants (the “Underwriter’s Warrants”) to purchase up to 4,312,473 shares of Common Stock, or 8% of
the Shares sold in the Offering. The Underwriter’s Warrants will be exercisable for a period of five years from February 19, 2021
at an exercise price of $2.00 per share, subject to adjustment.
Warrants
A summary of warrant activity for the six months
ended June 30, 2021 is presented below:
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Total Intrinsic Value
|
|
|
Weighted Average Remaining Contractual Life
(in years)
|
|
Outstanding as of December 31, 2020
|
|
|
1,723,020
|
|
|
$
|
3.07
|
|
|
|
57,333
|
|
|
|
1.11
|
|
Issued
|
|
|
4,312,473
|
|
|
|
2.00
|
|
|
|
-
|
|
|
|
4.64
|
|
Exercised
|
|
|
(80,000
|
)
|
|
|
1.05
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(153,789
|
)
|
|
|
19.67
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(3
|
)
|
|
|
16.15
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of June 30, 2021
|
|
|
5,801,701
|
|
|
$
|
1.86
|
|
|
|
63,333
|
|
|
|
4.37
|
|
Stock Options
A summary of stock option activity for the six
months ended June 30, 2021 is presented below:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Total Intrinsic Value
|
|
|
Weighted Average Remaining
Contractual Life
(in years)
|
|
Outstanding as of December 31, 2020
|
|
|
384,304
|
|
|
$
|
40.15
|
|
|
$
|
69,000
|
|
|
|
8.9
|
|
Employee options granted
|
|
|
100,000
|
|
|
|
1.24
|
|
|
|
-
|
|
|
|
9.6
|
|
Employee options expired
|
|
|
(4,650
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of June 30, 2021
|
|
|
479,654
|
|
|
$
|
32.35
|
|
|
$
|
96,000
|
|
|
|
8.7
|
|
Options vested and exercisable
|
|
|
429,654
|
|
|
$
|
35.97
|
|
|
$
|
96,000
|
|
|
|
8.6
|
|
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock-based compensation associated with the amortization
of stock option expense was approximately $63,000 and $0 for the three months ended June 30, 2021 and 2020, respectively. Stock-based
compensation associated with the amortization of stock option expense was approximately $0.2 million and $0 for the six months ended June
30, 2021 and 2020, respectively. All stock compensation was recorded as a component of general and administrative expenses.
Estimated future stock-based compensation expense
relating to unvested stock options is approximately $6,000 and will be recorded through July 2021.
Restricted Stock Awards
Pursuant to the patent license agreement effective
January 5, 2021 with Silo Parma Inc., the Company issued and delivered to Silo Pharma 625,000 shares of the Company’s restricted
stock as consideration for the license of the licensed patents. This restricted stock award vested immediately. The Company recorded approximately
$0.5 million in research and development expense related with license acquired during the six months ended June 30, 2021 related to this
arrangement.
Note 10. Commitments and Contingencies
Legal Proceedings
In the past, in the ordinary course of business,
the Company actively pursued legal remedies to enforce its intellectual property rights and to stop unauthorized use of our technology.
Other than ordinary routine litigation incidental to the business, we know of no material, active or pending legal proceedings against
us.
Risks and Uncertainties – COVID-19
Management continues to valuate the impact of
the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect
on the Company’s financial position, results of its operations and/or search for drug candidates, the specific impact is not readily
determinable as of the date of these consolidated financial statements. The COVID-19 pandemic has slowed down some drug
development efforts and has slowed the acquisition of new drugs. However, the impact of the pandemic and ensuing lockdowns are easing.
The process of drug development and further acquisitions is now continuing. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Note 11. Subsequent Events
The Company evaluated events that have occurred
after the balance sheet date through the date the consolidated financial statements were issued. Based upon the evaluation and transactions,
the Company did not identify any other subsequent events that would have required adjustment or disclosure in the consolidated financial
statements.