NOTES
TO FINANCIAL STATEMENTS
(unaudited)
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
Company
Background
Overview
Aditxt, Inc. (“Aditxt” or the “Company”),
formally known as Aditx Therapeutics Inc., was incorporated in the State of Delaware on September 28, 2017 and the Company’s headquarters
are located in Richmond, VA. 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 June 30, 2021, substantially all of the
Series B warrants issued in the IPO have been exercised pursuant to a cashless provision therein.
On
September 10, 2020, the Company completed a follow-on public offering (“September 2020 Offering”). In connection therewith,
the Company issued 2,400,000 Units (the “Follow-On Units”), at an offering price of $4.00 per Follow-On Unit, resulting in
gross proceeds of approximately $9.6 million. The Follow-On Units issued in the September 2020 Offering consisted of one share of common
stock (or Series A Preferred Stock for investors who would own more than 4.99% of the Company if they invested in common stock), one
Series A-1 warrant, and one Series B-1 warrant. The Series A-1 warrants have an exercise price of $3.19 per share and a term of 5 years.
The Series B-1 warrants have an exercise price of $5.00 per share, a term of 5 years and contain a cashless exercise option upon certain
criteria being met. In addition, the Company issued a warrant to the underwriters to purchase up to 60,000 shares of common stock at
an exercise price of $5.00 per share. Subsequent to quarter end, substantially all of the Series B-1 warrants issued in the September
2020 Offering have been exercised pursuant to a cashless provision therein.
Risks
and Uncertainties
The
Company has a limited operating history and has not generated revenue from intended operations. The Company’s business and operations
are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and federal governmental
policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions
may include: changes in the biotechnology regulatory environment, technological advances that render our technologies obsolete, availability
of resources for clinical trials, acceptance of technologies into the medical community, and competition from larger, more well-funded
companies. These adverse conditions could affect the Company’s financial condition and the results of its operations.
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 six months ended June 30, 2021, the
Company had a net loss of $12,558,103 and cash of $8,610,125 at June 30, 2021. The Company will be conducting medical research and development,
and the time at which the Company will begin generating revenue is unknown. These factors indicate substantial doubt about the Company’s
ability to continue as a going concern. The Company believes, however, that the funds raised by 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
June 30, 2021 and June 30, 2020. Although management believes that the disclosures in these unaudited financial statements are adequate
to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements
that have been prepared in accordance U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
The
accompanying unaudited financial statements should be read in conjunction with the Company’s financial statements and notes related
thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March
25, 2021. The interim results for the six months ended June 30, 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 six months ended June 30, 2021 and June 30, 2020,
the Company had a licensing fee for the patents of $72,545 and $126,670, 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. During the six months ended June 30, 2021 and June 30, 2020, the Company incurred research
and development costs of $1,868,703 and $228,665, 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, 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 June 30, 2020, 1,110,000 stock options
and 1,291,503 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 June 30, 2021:
|
|
Cost Basis
|
|
|
Accumulated Depreciation
|
|
|
Net
|
|
Computers
|
|
$
|
208,012
|
|
|
$
|
(27,212
|
)
|
|
$
|
180,800
|
|
Lab Equipment
|
|
|
2,091,384
|
|
|
|
(156,026
|
)
|
|
|
1,935,358
|
|
Office Furniture
|
|
|
56,535
|
|
|
|
(980
|
)
|
|
|
55,555
|
|
Other Fixed Assets
|
|
|
1,048
|
|
|
|
(84
|
)
|
|
|
964
|
|
Total Fixed Assets
|
|
$
|
2,356,979
|
|
|
$
|
(184,302
|
)
|
|
$
|
2,172,677
|
|
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 $100,286 for the three months ended June 30, 2021 and zero for the three months ended for June 30, 2020. Depreciation expense
was $166,529 for the six months ended June 30, 2021 and zero for the six months ended for June 30, 2020. None of the Company’s
fixed assets serve as collateral against any loans as of June 30, 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 June 30, 2021:
|
|
Cost Basis
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
Proprietary Technology
|
|
$
|
321,000
|
|
|
$
|
(53,060
|
)
|
|
$
|
267,940
|
|
Total Intangible Assets
|
|
$
|
321,000
|
|
|
|
(53,060
|
)
|
|
$
|
267,940
|
|
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 $26,676 for the three months ended June 30, 2021 and zero for the three months ended for June 30, 2020. Amortization expense
was $53,060 for the six months ended June 30, 2021 and zero for the six months ended for June 30, 2020. None of the Company’s intangible
assets serve as collateral against any loans as of June 30, 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.
On
June 4, 2021, the Company granted 75,000 shares of restricted stock pursuant to the Company’s 2021 Equity Incentive Plan to the
Company’s Chief Executive Officer. The Company recognized $191,250 in stock-based compensation for the issuance of these shares.
On
June 4, 2021, the Company granted 55,000 shares of restricted stock pursuant to the Company’s 2021 Equity Incentive Plan to the
Company’s Chief Financial Officer. The Company recognized $140,250 in stock-based compensation for the issuance of these shares.
NOTE
7 – AGREEMENTS
In
February 2021, the Company entered into an additional 24-month financing agreement for lab equipment. The aggregate cost of this financing
agreement, net of a $200,000 down payment is $892,094, of which $821,861 represents principal and $70,233 represents interest. The financing
agreement has an interest rate of 8% per year.
NOTE
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 “January 2021 Securities Purchase Agreement, or 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 January 2021 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 June 30, 2021, the outstanding balance of the Convertible Note payable net of unamortized debt discount was $3,573,487. As of June
30, 2021, the outstanding debt discount was $2,426,513.
As
of June 30, 2021 the outstanding balance of the Convertible Note payable was comprised of a short-term principal of $3,789,474 with a
debt discount of $1,532,535, resulting in a $2,256,939 short-term Convertible Note payable net of debt discount. As of June 30, 2021
the outstanding balance of the Convertible Note payable was comprised of a long-term principal of $2,210,526 with a debt discount of
$893,978, resulting in a $1,316,548 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 June 30, 2021 and December
31, 2020 for all leases that commenced prior to that date. In determining this rate, which is used to determine the present value of future
lease payments, we estimate the rate of interest we would pay on a collateralized basis, with similar payment terms as the lease and in
a similar economic environment.
Lease Costs
|
|
Six Months
Ended
June 30,
2021
|
|
|
Six Months
Ended
June 30,
2020
|
|
Components of total lease costs:
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
259,293
|
|
|
$
|
3,125
|
|
Total lease costs
|
|
$
|
259,293
|
|
|
$
|
3,125
|
|
Lease Positions as of June 30, 2021
ROU lease assets and lease liabilities for our
operating leases are recorded on the balance sheet as follows:
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Assets
|
|
|
|
|
|
|
Right of use asset – short term
|
|
$
|
784,031
|
|
|
$
|
384,685
|
|
Right of use asset – long term
|
|
|
3,203,459
|
|
|
|
871,136
|
|
Total right of use asset
|
|
$
|
3,987,490
|
|
|
$
|
1,255,821
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Operating lease liabilities – short term
|
|
$
|
906,664
|
|
|
$
|
391,221
|
|
Operating lease liabilities – long term
|
|
|
2,958,194
|
|
|
|
858,064
|
|
Total lease liability
|
|
$
|
3,864,858
|
|
|
$
|
1,249,285
|
|
Lease Terms and Discount Rate
Weighted average remaining lease term (in years) – operating leases
|
|
|
3.17
|
|
Weighted average discount rate – operating leases
|
|
|
8.00
|
%
|
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.
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Stock
On May 24, 2021, the Company increased 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 Certificate of Amendment (the “Certificate of Amendment”) to its Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of Delaware. In accordance with the General Corporation Law of the
State of Delaware, the Authorized Shares Increase and the Certificate of Amendment were approved by the stockholders of the Company at
the Company’s Annual Meeting of Stockholders on May 19, 2021.
During the 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.
(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 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 upon 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.
Preferred Stock
The Company is authorized to issue 3,000,000 shares
of preferred stock, par value $0.001 per share. There were no shares of preferred stock outstanding as of June 30, 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 directors, 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 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, 2021, the
Company granted no new options.
During the six months ended June 30, 2020, the
Company granted 7,500 stock options to a related party with exercise prices of $11.00 per share vesting on issuance. The total grant date
fair value was determined to be $27,799.
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, 2020
|
|
|
2,143,000
|
|
|
$
|
3.18
|
|
|
|
7.81
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired or forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding June 30, 2021
|
|
|
2,143,000
|
|
|
$
|
3.18
|
|
|
|
7.31
|
|
Nonvested Stock Options
|
|
Number
|
|
|
Weighted-
Average
Exercise
Price
|
|
Nonvested on December 31, 2020
|
|
|
973,000
|
|
|
$
|
2.28
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(97,125
|
)
|
|
|
3.56
|
|
Expired or forfeited
|
|
|
-
|
|
|
|
-
|
|
Nonvested on June 30, 2021
|
|
|
875,875
|
|
|
$
|
2.13
|
|
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. The remaining value to be expensed is $1,358,328 with a weighted
average vesting term of 1.38 years as of June 30, 2021. The Company recognized stock-based 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.
Warrants
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 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:
Vested and Nonvested Warrants
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
Outstanding December 31, 2020
|
|
|
5,799,146
|
|
|
$
|
5.05
|
|
|
|
4.00
|
|
Granted
|
|
|
875,000
|
|
|
|
4.00
|
|
|
|
-
|
|
Exercised
|
|
|
(1,163,556
|
)
|
|
|
3.21
|
|
|
|
-
|
|
Expired or forfeited
|
|
|
(46,875
|
)
|
|
|
4.00
|
|
|
|
-
|
|
Outstanding June 30, 2021
|
|
|
5,463,715
|
|
|
$
|
3.96
|
|
|
|
3.29
|
|
Nonvested Warrants
|
|
Number
|
|
|
Weighted-
Average
Exercise
Price
|
|
Nonvested on December 31, 2020
|
|
|
320,000
|
|
|
$
|
3.69
|
|
Granted
|
|
|
875,000
|
|
|
|
4.00
|
|
Vested
|
|
|
(1,075,000
|
)
|
|
|
4.08
|
|
Expired or forfeited
|
|
|
-
|
|
|
|
-
|
|
Nonvested on June 30, 2021
|
|
|
120,000
|
|
|
$
|
1.92
|
|
The Company recognized stock-based compensation
expense related to warrants issued and vesting of $137,375 and $159,777 during the six months ended June 30, 2021 and June 30, 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 1.5 years as of June 30, 2021.
During the six months ended June 30, 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 January
2021 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 January 2021
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 six months ended June 30, 2021, the Company did not provide any provision for income taxes as the Company incurred losses during
such period. The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting
for Income Taxes”. The asset and liability method provides that 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 June 30, 2021.
As of June 30, 2021, the Company did not have
any amounts recorded pertaining to uncertain tax positions.
NOTE 12 – SUBSEQUENT EVENTS
On July 6, 2021, the Company changed its corporate name from Aditx
Therapeutics, Inc. to Aditxt, Inc. The name change was effective following approval by the Company’s Board of Directors through
the filing of a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation. In accordance with
Section 242(b)(1) of the Delaware General Corporation Law, stockholder approval of the name change was not required.
The name change does not affect the rights of the Company’s security
holders, creditors, customers, or suppliers. The ticker symbol of the Company’s common stock on The Nasdaq Capital Market will remain
“ADTX.”
On July 7, 2021, the Company issued a press release announcing that
it had relocated its corporate headquarters to Richmond, Virginia.