NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF
BUSINESS
Company Background
Overview
Aditx Therapeutics, Inc. (“Aditxt” or
the “Company”) was incorporated in the State of Delaware on September 28, 2017 and the Company’s headquarters are located
in Mountain View, CA. The Company is a biotech innovation company with a mission of prolonging life and enhancing its quality by improving
the health of the immune system.
The Company is developing biotechnologies specifically
focused on improving the health of the immune system through immune reprogramming and monitoring. The Company’s immune reprogramming
technologies 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. The Company’s immune monitoring technologies
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.
Offerings
On July 2, 2020, the Company completed its initial
public offering (“IPO”). In connection therewith, the Company issued 1,226,668 Units (the “Units”), 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 originally had an exercise price of $9.00 and a
term of 5 years. In addition, the Company issued a Unit Purchase Option at an exercise price of $11.25 per unit to the underwriters to
purchase up to 67,466 units, with each unit consisting of (i) one share of common stock and (ii) one Series A warrant. On August 19, 2020,
the Company modified the exercise price of the Series A warrants from $9.00 per share to $4.50 per share. The term of the Series A warrants
was not modified. The Series B warrants have an exercise price of $11.25 per share, a term of 5 years and contain a cashless exercise
option upon certain criteria being met. As of March 31, 2021, substantially all of the Series B warrants issued in the IPO have been exercised
pursuant to a cashless provision therein.
On September 10, 2020, the Company completed a follow-on public offering
(“September 2020 Offering”). In connection therewith, the Company issued 2,400,000 Units (the “Follow-On Units”),
at an offering price of $4.00 per Follow-On Unit, resulting in gross proceeds of approximately $9.6 million. The Follow-On Units issued
in the September 2020 Offering consisted of one share of common stock (or Series A Preferred Stock for investors who would own more than
4.99% of the Company if they invested in common stock), one Series A-1 warrant, and one Series B-1 warrant. The Series A-1 warrants have
an exercise price of $3.19 per share and a term of 5 years. The Series B-1 warrants have an exercise price of $5.00 per share, a term
of 5 years and contain a cashless exercise option upon certain criteria being met. In addition, the Company issued a warrant to the underwriters
to purchase up to 60,000 shares of common stock at an exercise price of $5.00 per share. Subsequent to quarter end, substantially all
of the Series B-1 warrants issued in the September 2020 Offering have been exercised pursuant to a cashless provision therein.
Risks and Uncertainties
The Company has a limited operating history and
has not generated revenue from intended operations. The Company’s business and operations are sensitive to general business and
economic conditions in the U.S. and worldwide along with local, state, and federal governmental policy decisions. A host of factors beyond
the Company’s control could cause fluctuations in these conditions. Adverse conditions may include: changes in 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 raising efforts and additional development
of our technologies may be negatively affected.
NOTE 2 – GOING CONCERN ANALYSIS
Management Plans
The Company was incorporated on September 28,
2017 and has not generated revenues to date. During the three months ended March 31, 2021, the Company had a net loss of $6,379,667 and
cash of $14,045,036. The Company will be conducting medical research and development, and the time at which the Company will begin generating
revenue is unknown. These factors indicate substantial doubt about the Company’s ability to continue as a going concern. The Company
believes, however, that the funds raised by the IPO, the September 2020 Offering, and the offering, sale, and issuance by the Company
of a Senior Secured Convertible Promissory Note pursuant to a Securities Purchase Agreement (the “January 2021 Securities Purchase
Agreement”) will be sufficient to fund the Company’s operation for at least the next 12 months. Because of these factors,
the Company believes that this alleviates substantial doubt in connection with the Company’s ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
The financial statements included in this report
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the matters discussed herein. While we believe in the viability of our strategy
to generate sufficient revenue, control costs, and raise additional funds when necessary, there can be no assurances to that effect.
The Company’s ability to continue as a going concern is dependent upon the ability to complete clinical studies and implement the
business plan, generate sufficient revenues and to control operating expenses.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the
opinion of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring
adjustments, considered necessary for a fair presentation of the results for the interim periods ended March 31, 2021 and March 31, 2020.
Although management believes that the disclosures in these unaudited financial statements are adequate to make the information presented
not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance
U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
The accompanying unaudited financial statements
should be read in conjunction with the Company’s financial statements for the years ended December 31, 2020 and 2019, which contain
the audited financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K, filed with the SEC on
March 25, 2021. The interim results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected
for the year ended December 31, 2021 or for any future interim periods.
Use of Estimates
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates. Significant estimates underlying the financial statements include
the fair value of stock options and warrants.
Fair Value Measurements and Fair Value
of Financial Instruments
The Company adopted Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements. ASC Topic 820 clarifies
the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs
used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices
in active markets for identical assets or liabilities available at the measurement date.
Level 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.
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.
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.
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.
Offering Costs
The Company accounts for offering costs in accordance
with ASC 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs were capitalized as deferred offering
costs on the balance sheet. The deferred offering costs are netted against the proceeds of the offering in stockholders’ equity
(deficit) or the related debt, as applicable. Costs related to unsuccessful offerings are expensed.
Leases
Under Topic 842, adopted in 2020 with no impact
related to adoption, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases
consisting of office space, laboratory space, and lab equipment.
Leases with an initial term of twelve months
or less are not recorded on the balance sheet. For lease agreements entered or reassessed after the adoption of Topic 842, we combine
the lease and non-lease components in determining the lease liabilities and right of use (“ROU”) assets.
Stock-Based Compensation
The Company accounts for stock-based compensation
costs under the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation
expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense
recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant
date fair value estimated in accordance with the provisions of ASC 718. ASC 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,
which are expensed as incurred. During the three months ended March 31, 2021 and March 31, 2020, the Company had a licensing fee for
the patents of $69,360 and $126,045, respectively.
Research and Development
We incur research and development costs during
the process of researching and developing our technologies and future offerings. We expense these costs as incurred unless such costs
qualify for capitalization under applicable guidance.
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 March 31, 2021, 2,143,000 stock options and 5,463,715 warrants were excluded from dilutive
earnings per share as their effects were anti-dilutive. As of March 31, 2020, 1,110,000 stock options and 1,382,475 warrants were excluded
from dilutive earnings per share as their effects were anti-dilutive.
Recent Accounting Pronouncements
In December 2019, the FASB issued Accounting
Standards Update, or ASU, No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or 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 adoption
of ASU 2019-12 did not have a material effect on the Company’s financial statements.
In August 2020, the
FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing
the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature.
As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible
debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest
expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06.
ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years
beginning after December 15, 2020. The Company has elected to early adopt this ASU and the adoption of this ASU did not have a material
impact on the Company's consolidated financial statements and related disclosures.
The FASB issues ASUs to amend the authoritative
literature in ASC. There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes
that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or
(iv) are not expected to have a significant impact on our financial statements.
NOTE 4 – FIXED ASSETS
The Company’s fixed assets include the
following on March 31, 2021:
|
|
Cost Basis
|
|
|
Accumulated Depreciation
|
|
|
Net
|
|
Computers
|
|
$
|
104,805
|
|
|
$
|
(12,138
|
)
|
|
$
|
92,667
|
|
Lab Equipment
|
|
|
2,008,744
|
|
|
|
(71,251
|
)
|
|
|
1,937,493
|
|
Office Furniture
|
|
|
10,407
|
|
|
|
(569
|
)
|
|
|
9,838
|
|
Other Fixed Assets
|
|
|
1,048
|
|
|
|
(58
|
)
|
|
|
990
|
|
Total Fixed Assets
|
|
$
|
2,125,004
|
|
|
$
|
(84,016
|
)
|
|
$
|
2,040,988
|
|
The Company’s fixed assets include the
following on December 31, 2020:
|
|
Cost Basis
|
|
|
Accumulated
Depreciation
|
|
|
Net
|
|
Computers
|
|
$
|
54,579
|
|
|
$
|
(3,079
|
)
|
|
$
|
51,500
|
|
Lab Equipment
|
|
|
750,658
|
|
|
|
(14,350
|
)
|
|
|
736,308
|
|
Office Furniture
|
|
|
10,407
|
|
|
|
(312
|
)
|
|
|
10,095
|
|
Other Fixed Assets
|
|
|
1,048
|
|
|
|
(32
|
)
|
|
|
1,016
|
|
Total Fixed Assets
|
|
$
|
816,692
|
|
|
$
|
(17,773
|
)
|
|
$
|
798,919
|
|
Depreciation expense was $66,243 for the three
months ended March 31, 2021 and zero for the three months ended for March 31, 2020. None of the Company’s fixed assets serve as
collateral against any loans as of March 31, 2021 and December 31, 2020, other than those subject to the financed asset liability.
NOTE 5 – INTANGIBLE ASSETS
The Company’s intangible assets include
the following on March 31, 2021:
|
|
Cost Basis
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
Proprietary Technology
|
|
$
|
321,000
|
|
|
$
|
(26,384
|
)
|
|
$
|
294,616
|
|
Total Intangible Assets
|
|
$
|
321,000
|
|
|
|
(26,384
|
)
|
|
$
|
294,616
|
|
The Company’s intangible assets include
the following on December 31, 2020:
|
|
Cost Basis
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Proprietary Technology
|
|
$
|
321,000
|
|
|
$
|
-
|
|
|
$
|
321,000
|
|
Total Intangible Assets
|
|
$
|
321,000
|
|
|
|
-
|
|
|
$
|
321,000
|
|
Amortization expense was $26,384 for the three
months ended March 31, 2021 and zero for the three months ended for March 31, 2020. None of the Company’s intangible assets serve
as collateral against any loans as of March 31, 2021 and December 31, 2020.
NOTE 6 – RELATED PARTY TRANSACTIONS
On February 24, 2021, the Company granted 225,000
shares of restricted stock pursuant to the Company’s 2017 Equity Incentive Plan to the Company’s Chief Executive Officer.
The Company recognized $747,000 in stock-based compensation for the issuance of these shares. The grant vests in equal annual installments
over the course of (3) three years, beginning on March 31, 2021.
On February 24, 2021, the Company granted 110,000
shares of restricted stock pursuant to the Company’s 2017 Equity Incentive Plan to the Company’s Chief Financial Officer.
The Company recognized $365,200 in stock-based compensation for the issuance of these shares. The grant vests in equal annual installments
over the course of (3) three years, beginning on March 31, 2021.
NOTE 7 – AGREEMENTS
On July 1, 2020, the Company entered into an
amendment to the patent and technology licensing agreement with Loma Linda University (“LLU”), dated March 15, 2018. Pursuant
to the amendment, the Company paid LLU $455,000 within four days of the signing of such amendment. The amendment also updated the milestone
payment dates to be $175,000 on March 31, 2022; $100,000 on March 31, 2024; $500,000 on March 31, 2026; and $500,000 on March 31, 2027.
In October 2020, the Company entered into a 24-month
financing agreement for lab equipment. The aggregate cost of this financing agreement will be $467,691, of which $430,871 represents
principal and $36,820 represents interest. The financing agreement has an interest rate of 8% per year.
On November 18, 2020, the Company entered into
a Consulting Agreement (the “Salveo Consulting Agreement”) with Salveo Diagnostics, Inc., a Delaware corporation (“Salveo”).
Pursuant to the Salveo Consulting Agreement, Salveo agreed to establish, setup, and commence commercial operations of a licensed, College
of American Pathologists accredited, and Clinical Laboratory Improvement Amendments (CLIA) certified, independent clinical and diagnostic
laboratory for us and our AditxtScore™ immune monitoring technology (the “Salveo Services”).
In consideration for the Salveo Services, and
upon the successful completion of certain milestones (the “Milestones”) described below, we issued Salveo an aggregate of
650,000 shares of our common stock (the “Salveo Shares”). The Salveo Shares were issued to Salveo upon the completion of
the following Milestones: (i) 150,000 shares upon the sale and transfer to the Company of certain code and interpretive commenting algorithms
(the “Algorithms”) along with related testing protocols and all proprietary technology, codes and spreadsheets, know-how,
any necessary information or tools to implement, use, and/or continue to improve or further refine the Algorithms, and other associated
intellectual property; (ii) 250,000 shares upon securing temporary laboratory space and other related tasks in connection with the launch
of the AditxtScore™ platform; and (iii) 250,000 shares upon satisfaction of tasks related to the establishment of a long-term AditxtScore™
center in Richmond, VA. We also pay Salveo at cost for Salveo’s reasonable and documented purchases, general operating costs and
expenses incurred in connection with the Salveo Services. As of December 31, 2020, all milestones have been met and all shares have been
issued under the Salveo Consulting Agreement.
In November 2020, the Company entered into an
additional 24-month financing agreement for lab equipment. The aggregate cost of this financing agreement will be $233,581, of which
$215,192 represents principal and $18,389 represents interest. The financing agreement has an interest rate of 8% per year.
In February 2021, the Company entered into an
additional 24-month financing agreement for lab equipment. The aggregate cost of this financing agreement, net of a $200,000 down payment
will be $892,094, of which $821,861 represents principal and $70,233 represents interest. The financing agreement has an interest rate
of 8% per year.
NOTE 8 – CONVERTIBLE NOTE PAYABLE
On January 25, 2021, the Company entered into
a Securities Purchase Agreement with an institutional accredited investor (the “Investor”) for the offering, sale, and issuance
of a $6,000,000 Senior Convertible Promissory Note (the “Convertible Note”). The Convertible Note has a twenty-four-month
term and is convertible at the option of the Investor at any time prior to maturity in shares of Common Stock at an initial conversion
price of $4.00 per share. Pursuant to the Securities Purchase Agreement, the Company also issued a warrant to the Investor to purchase
up to 800,000 shares of the Company’s common stock. The warrant is immediately exercisable for a period of three (3) years at an
exercise price of $4.00 per share, subject to adjustment. An additional 75,000 warrants to purchase shares of the Company’s common
stock was also issued to the underwriters. These underwriter warrants are immediately exercisable for a period of five (5) years at an
exercise price of $4.00 per share, subject to adjustment. The Convertible Note has an original issuance discount of $1,000,000. The Company
also recognized an additional discount of $526,460 from the issuance costs of the debt, $1,322,840 from the fair value of the warrants
issued to the Investor, and $231,316 from the fair value of warrants issued to the underwriters. The total debt discount from these items
was $3,080,616 which will be amortized over the life of the Convertible Note. Repayment of the Convertible Note’s principal amount
will occur in nineteen monthly cash or common stock payments beginning in July 2021. The Convertible Note may be prepaid by the Company
at any time without penalty at 105% of the then outstanding principal amount due under the Convertible Note.
As of March 31, 2021, the outstanding balance of the
Convertible Note payable net of unamortized debt discount was $3,189,465. As of March 31, 2021, the outstanding debt discount was $2,810,535.
As of March 31, 2021 the outstanding balance of the Convertible Note payable
was comprised of a short-term principal of $2,842,105 with a debt discount of $1,533,019, resulting in a $1,309,086 short-term Convertible
Note payable net of debt discount. As of March 31, 2021 the outstanding balance of the Convertible Note payable was comprised of a long-term
principal of $3,157,895 with a debt discount of $1,277,516, resulting in a $1,880,379 long-term Convertible Note payable net of debt discount.
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 March 31, 2021 and December
31, 2020 for all leases that commenced prior to that date. In determining this rate, which is used to determine the present value of
future lease payments, we estimate the rate of interest we would pay on a collateralized basis, with similar payment terms as the lease
and in a similar economic environment.
Lease Costs
|
|
Three Months Ended
March 31,
2021
|
|
|
Three Months Ended
March 31,
2020
|
|
Components of total lease costs:
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
124,614
|
|
|
$
|
7,720
|
|
Total lease costs
|
|
$
|
124,614
|
|
|
$
|
7,720
|
|
Lease Positions as of March 31, 2021
ROU lease assets and lease liabilities for our
operating leases are recorded on the balance sheet as follows:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Assets
|
|
|
|
|
|
|
Right of use asset – short term
|
|
$
|
383,275
|
|
|
$
|
384,685
|
|
Right of use asset – long term
|
|
|
799,703
|
|
|
|
871,136
|
|
Total right of use asset
|
|
$
|
1,182,978
|
|
|
$
|
1,255,821
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Operating lease liabilities – short term
|
|
$
|
393,733
|
|
|
$
|
391,221
|
|
Operating lease liabilities –
long term
|
|
|
778,787
|
|
|
|
858,064
|
|
Total lease liability
|
|
$
|
1,172,520
|
|
|
$
|
1,249,285
|
|
Lease Terms and Discount Rate
Weighted average remaining lease term (in years) –
operating leases
|
|
|
2.46
|
|
Weighted average discount rate – operating leases
|
|
|
8.00
|
%
|
The future annual minimum lease payments as of
March 31, 2021 are as follows:
2021
|
|
$
|
305,198
|
|
2022
|
|
|
416,226
|
|
2023
|
|
|
362,544
|
|
2024
|
|
|
246,344
|
|
Total future minimum lease payments
|
|
|
1,330,312
|
|
Less: Lease imputed interest
|
|
|
157,792
|
|
Total
|
|
$
|
1,172,520
|
|
NOTE 10 – STOCKHOLDERS’ EQUITY
(DEFICIT)
Common Stock
The Company is authorized to issue 27,000,000
shares of common stock, par value $0.001 per share.
During the three months ended March 31, 2021,
the Company issued 18,000 shares of common stock and recognized expense of $51,240 in stock-based compensation for consulting services.
The Company also issued 1,163,556 shares of common stock for the exercise of warrants and received $3,718,956 in cash proceeds. The Company
granted 335,000 shares of restricted common stock for compensation and recognized expense of $1,112,200 in stock-based compensation.
(See Note 6) The stock-based compensation for the period was valued based on the value of the shares based on public information.
During the three months ended March 31, 2020,
the Company issued 104,750 shares of common stock for services and recognized expense of $419,000 in stock-based compensation and license
fees. The stock-based compensation for the period was valued based on prior private placements or based on management’s estimates
of value prior to the IPO.
Preferred Stock
The Company is authorized to issue 3,000,000
shares of preferred stock, par value $0.001 per share. There were zero and zero preferred stock shares outstanding as of March 31, 2021
and December 31, 2020, respectively.
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 employees, and consultants. The Company is authorized to issue up to 2,500,000 shares of our common stock 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 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 will be submitted to the stockholders of the Company at the Company’s 2021 annual meeting
of stockholders, to be held on May 19, 2021, for their approval and adoption, and a proposal regarding approval of the 2021 Plan has
been included in the Company’s proxy statement for that annual meeting.
During the three months ended March 31, 2021,
the Company granted no new options.
During the three months ended March 31, 2020,
the Company granted 7,500 stock options to related parties with an exercise price of $11.00 per share, which vested on issuance. The
total grant date fair value was determined to be $28,642.
The following is an analysis of the stock option
grant activity under the Plan:
Stock Options
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
Outstanding December 31, 2020
|
|
|
2,143,000
|
|
|
$
|
3.18
|
|
|
|
7.81
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired or forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding March 31, 2021
|
|
|
2,143,000
|
|
|
$
|
3.18
|
|
|
|
7.56
|
|
Nonvested Options
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
Nonvested on December 31, 2020
|
|
|
973,000
|
|
|
$
|
2.28
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(66,500
|
)
|
|
|
3.66
|
|
Expired or forfeited
|
|
|
-
|
|
|
|
-
|
|
Nonvested on March 31, 2021
|
|
|
906,500
|
|
|
$
|
2.18
|
|
The Company recognized stock-based compensation
expense related to options issued and vesting of $211,579 during the three months ended March 31, 2021, which is included in general
and administrative expenses in the accompanying statements of operations. The remaining value to be expensed is $1,569,906 with a weighted
average vesting term of 1.61 years as of March 31, 2021. The Company recognized stock-based compensation expense related to options issued
and vesting of $27,799 during the three months ended March 31, 2020, which is included in general and administrative expenses in the
accompanying statements of operations.
Warrants
For the three months ended March 31, 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 warrants
granted is based upon observed interest rates on the United States Government Bond Equivalent Yield appropriate for the expected term
of warrants.
The Company determined the expected volatility
assumption for warrants 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 warrant grants, until such
time that the Company’s common stock has enough market history to use historical volatility.
The dividend yield assumption for warrants granted
is based on the Company’s history and expectation of dividend payouts. The Company has never declared nor paid any cash dividends
on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.
The Company recognizes warrant forfeitures as
they occur as there is insufficient historical data to accurately determine future forfeitures rates.
A summary of warrant issuances are as follows:
Warrants
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
Outstanding December 31, 2020
|
|
|
5,799,146
|
|
|
$
|
5.05
|
|
|
|
4.00
|
|
Granted
|
|
|
875,000
|
|
|
|
4.00
|
|
|
|
3.00
|
|
Exercised
|
|
|
(1,163,556
|
)
|
|
|
3.21
|
|
|
|
-
|
|
Expired or forfeited
|
|
|
(46,875
|
)
|
|
|
4.00
|
|
|
|
-
|
|
Outstanding March 31, 2021
|
|
|
5,463,715
|
|
|
$
|
3.96
|
|
|
|
3.54
|
|
Nonvested
Warrants
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
Nonvested
on December 31, 2020
|
|
|
320,000
|
|
|
$
|
3.69
|
|
Granted
|
|
|
875,000
|
|
|
|
4.00
|
|
Vested
|
|
|
(935,000
|
)
|
|
|
4.06
|
|
Expired
or forfeited
|
|
|
-
|
|
|
|
-
|
|
Nonvested
on March 31, 2021
|
|
|
260,000
|
|
|
$
|
3.04
|
|
The Company recognized stock-based
compensation expense related to warrants issued and vesting of $89,883 and $82,638 during the three months ended March 31, 2021 and
March 31, 2020, respectively, which is included in general and administrative in the accompanying Statements of Operations. The
remaining value to be expensed is $105,049 with a weighted average vesting term of 0.82 years as of March 31, 2021.
During the three months ended March 31, 2021,
1,163,556 warrants were exercised for 1,163,556 shares of common stock. The Company recognized proceeds of $3,718,956 related to the
exercises.
On January 25, 2021, pursuant to the Securities
Purchase Agreement the Company issued a warrant to the Investor to purchase up to 800,000 shares of the Company’s common stock.
The warrant is immediately exercisable for a period of three years at an exercise price of $4.00 per share, subject to adjustment. In
addition, the Company issued 75,000 warrants to the underwriters related to the Securities Purchase Agreement. These warrants have an
exercise price of $4.00 and a term of five years. All the 75,000 warrants are exercisable on issuance. (See Note 8)
NOTE 11 – INCOME TAXES
The Company has incurred losses since inception.
During the three months ended March 31, 2021, the Company did not provide any provision for income taxes as the Company incurred losses
during such period. The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting
for Income Taxes”. The asset and liability method provides that 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 valuation allowance, the Company has considered
both positive and negative evidence related to the likelihood of realization of deferred tax assets using a “more likely than not”
standard. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative
losses. Based on the Company’s review of this evidence, the Company has recorded a full valuation allowance for its net deferred
tax assets as of March 31, 2021.
As of March 31, 2021, the Company did not have
any amounts recorded pertaining to uncertain tax positions.
NOTE 12 – SUBSEQUENT EVENT
On May 4, 2021, the Company entered a triple
net lease (the “Lease”) for approximately 25,000 square feet of laboratory and office space in Richmond, Virginia. The Lease
has a term of sixty-three months. The monthly base rent is approximately $53,000, plus applicable pro-rata common area charges, taxes,
and maintenance. The lease contains a base rent escalation clause of 3% per lease calendar year as well as a tenant improvement allowance
of $375,000 in aggregate. The Company anticipates moving into the space during Q2 2021.