NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
Company
Background
Overview
Aditxt,
Inc. (“Aditxt” or the “Company”), formerly 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
August 31, 2021, the Company completed a registered direct offering (“August 2021 Offering”). In connection therewith, the
Company issued 4,583,334 shares of common stock, at a purchase price of $2.40 per share, resulting in gross proceeds of
approximately $11.0 million. In a concurrent private placement, the Company issued warrants to purchase up to 4,583,334 shares. The
warrants have an exercise price of $2.53 per share and are exercisable for a five-year period commencing six months from
the date of issuance. The warrants exercise price was subsequently repriced to $1.50. In addition, the Company issued a warrant
to the placement agent to purchase up to 229,166 shares of common stock at an exercise price of $3.00 per share.
On October 18, 2021, the Company entered into
an underwriting agreement with Revere Securities LLC, relating to the public offering (the “October 2021 Offering”) of 2,833,333 shares
of the Company’s common stock (the “Shares”) by the Company. The Shares were offered, issued, and sold at a price to
the public of $1.50 per share under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective
shelf registration statement filed with the SEC on Form S-3 (File No. 333-257645), which was declared effective by the SEC on July 13,
2021. The October 2021 Offering closed on October 20, 2021 for gross proceeds of $4.25 million. The Company utilized a portion of
the proceeds, net of underwriting discounts of approximately $3.91 million from the October 2021Offering to fund certain obligations
under the Credit Agreement. (See Note 4)
On
December 6, 2021, we completed an offering for net proceeds of $16.0 million. As part of this offering, we issued 8,246,430 units
consisting of shares of the Company’s common stock and warrant to purchase shares of the Company’s common stock and 8,328,570 prefunded
warrants. The warrant issued as part of the units had an exercise price of $1.15 and the prefunded warrants had an exercise price
of $0.001.
Risks
and Uncertainties
The
Company has a limited operating history and is in the very early stages of generating revenue from intended operations. The Company’s
business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state,
and federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions.
Adverse conditions may include: changes in the biotechnology regulatory environment, technological advances that render our technologies
obsolete, availability of resources for clinical trials, acceptance of technologies into the medical community, and competition from
larger, more well-funded companies. These adverse conditions could affect the Company’s financial condition and the results of
its operations.
On
January 30, 2020, the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of
International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the
spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of
public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have
an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates.
While it is unknown how long these conditions will last and what the financial impact will be to the Company, it is reasonably possible
that future capital 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 significant revenues to date. During the three months ended March
31, 2022, the Company had a net loss of $6,059,141 and negative cash flow from operating activities of $5,199,304. As of March 31,
2022 the Company’s cash balance was $2,115,206. The Company has $67.3 million of remaining availability, subject to regulatory
requirements, to raise future funds pursuant to an effective shelf registration statement filed with the SEC on Form S-3 declared effective
on July 13, 2021. However, factors such as stock price, volatility, trading volume, market conditions, demand and regulatory requirements
may adversely affect the Company’s ability to raise capital in an efficient manner.
Because
of these factors, the Company believes that this creates substantial doubt with the Company’s ability to continue as a going concern.
The condensed 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. The Company’s ability to continue
as a going concern is dependent upon the ability to complete clinical studies and implement the business plan, generate sufficient revenues
and to control operating expenses. In addition, the Company is consistently focused on raising capital, strategic acquisitions and alliances,
and other initiatives to strengthen the Company.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim
financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the
Company’s management, the accompanying condensed financial statements reflect all adjustments, consisting of normal, recurring adjustments,
considered necessary for a fair presentation of the results for the interim periods ended March 31, 2022 and March 31, 2021. Although
management believes that the disclosures in these unaudited condensed financial statements are adequate to make the information presented
not misleading, certain information and footnote disclosures normally included in condensed financial statements that have been prepared
in accordance U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
The accompanying unaudited condensed financial
statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022. The interim results for the three
months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any
future interim periods.
Use
of Estimates
The preparation of condensed financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenue
and expense during the reporting period. Actual results could differ from those estimates. Significant estimates underlying the condensed
financial statements include the 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.
Inventory
Inventory
consists of laboratory materials and supplies used in laboratory analysis. We capitalize inventory when purchased. Inventory is valued
at the lower of cost or net realizable value on a first-in, first-out basis. We periodically perform obsolescence assessments and write
off any inventory that is no longer usable.
Fixed
Assets
Fixed
assets are stated at cost less accumulated depreciation. Cost includes expenditures for furniture, office equipment, laboratory equipment,
and other assets. Maintenance and repairs are charged to expense as incurred. When assets are sold, retired, or otherwise disposed of,
the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. The costs
of fixed assets are depreciated using the straight-line method over the estimated useful lives or lease life of the related assets.
Intangible
Assets
Intangible
assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using
the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets
are tested periodically for impairment.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are stated at the amount management expects to collect from outstanding balances. The Company generally does not require collateral
to support customer receivables. The Company determines if receivables are past due based on days outstanding, and amounts are written
off when determined to be uncollectible by management. As of March 31, 2022 and 2021, there was no allowance for doubtful accounts deemed
necessary.
Revenue
Recognition
In
accordance with ASC 606 (Revenue From Contracts with Customers), revenue is recognized when a customer obtains control of promised services.
The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these
services. To achieve this core principle, the Company applies the following five steps:
1) Identify the contract with a customer
2)
Identify the performance obligations in the contract
3)
Determine the transaction price
4)
Allocate the transaction price to performance obligations in the contract
5)
Recognize revenue when or as the Company satisfies a performance obligation
Revenues
reported from services provided by the AditxtScore™ division are recognized when the AditxtScore™ report is delivered to
the customer. The services performed include the analysis of specimens received in Aditxt’s CLIA laboratory and the generation
of results which are then delivered upon completion.
Fees
per test in the client payer channel are determined based on contractual arrangements with our customers. Generally, client revenues
are recorded based on the number of AditxtScore™ reports delivered at the contractual rate per test.
Leases
Under
Topic 842 (Leases), operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases
consisting of office space, laboratory space, and lab equipment.
Leases
with an initial term of twelve months or less are not recorded on the balance sheet. 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, 2022 and March 31,
2021, the Company incurred patent licensing fees for the patents of $225,013 and $69,360, 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 three months ended March 31, 2022 and March 31, 2021, the Company incurred research
and development costs of $1,428,382 and $935,952, 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 March 31, 2022, 2,235,466 stock options, 1,028,650
unvested restricted stock units, and 30,012,614 warrants were excluded from dilutive earnings per share as their effects
were 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.
Recent
Accounting Pronouncements
The FASB issues ASUs to amend the authoritative
literature in ASC. There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes
that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or
(iv) are not expected to have a significant impact on our condensed financial statements.
NOTE
4 – NOTE RECEIVABLE
Cellvera
Global Note Receivable
On
August 25, 2021, the Company entered into a letter of intent (“the LOI”) to acquire AiPharma Global Holdings LLC, a Delaware
limited liability company, which changed its name to Cellvera Global Holdings LLC (“Cellvera Global”) which is commercializing
COVID-19 antiviral oral therapy. Key terms of the proposed transaction as stated in the Letter of Intent included: the completion of
a proposed $6.5 million secured loan from the Company to Cellvera Global by August 31, 2021, as well as the issuance of such number
of shares of the Company’s common stock that yields 50% of the number of the Company’s outstanding shares post-closing
of the transaction. The acquisition is subject to the satisfaction of numerous conditions, including satisfactory due diligence, the
negotiation and execution of definitive agreements and other closing conditions, including board and shareholder approval and approval
by Nasdaq of the listing of shares proposed to be issued in the transaction. The Company and Cellvera Global agreed to an exclusivity
period until September 30, 2021 (the “Exclusivity Period”), with a view to settling the definitive agreement. On September
30, 2021, the parties entered into a letter agreement pursuant to which they agreed to extend the Exclusivity Period until October 4,
2021.
On
December 28, 2021, we entered into a Share Exchange Agreement with Cellvera Global f/k/a AiPharma Global, pursuant to which we (i)
will acquire 9.5% of the issued and outstanding equity interests in Cellvera Global in exchange for the issuance of 4,816,193 shares
of our common stock of Aditxt and a cash payment of $250,000, at an initial closing upon the satisfaction or waiver of certain conditions
to closing; and (ii) acquire the remaining 90.5% of the issued and outstanding equity interests in Cellvera Global in exchange for the
issuance of 39,927,974 shares of our common stock and a cash payment of $250,000 at a secondary closing upon the satisfaction or waiver
of certain conditions to closing. Additionally, we may elect to raise additional capital due to market conditions or strategic considerations.
In connection with the contemplated acquisition
with Cellvera Global, the Company entered into a secured credit agreement dated August 27, 2021 (the “Credit Agreement”)
with Cellvera Global and certain affiliated entities (collectively, the “Borrower”), pursuant to which the Company made a
secured loan to Cellvera Global in the principal amount of $6.5 million (the “Loan”). The Loan was funded on August 31,
2021, following the closing of the Company’s August 2021 Offering. The Loan bears interest at a rate of 8% per annum and matured
on November 30, 2021. The Loan is secured by certain accounts receivable and other assets of Cellvera Global and certain of its affiliates.
The Credit Agreement also contains certain covenants that prohibit Cellvera Global from incurring additional indebtedness, incurring liens
or making any dispositions of its property.
On
October 18, 2021, the Company entered into the first amendment to the Credit Agreement with Cellvera Global and certain affiliated
entities (the “Credit Agreement Amendment”), pursuant to which the Company agreed to increase the amount which Cellvera Global
was permitted to borrow under the Credit Agreement by $8.5 million to an aggregate of $15.0 million, of which $6.5 million was outstanding
prior to entering the Credit Agreement Amendment. The Company agreed to fund such additional borrowings, as requested by Cellvera Global,
by advancing 70% of any amounts received by the Company from the exercise of existing warrants or any other capital raises, including
the October Offering. As of December 31, 2021 an additional $8.0 million was advanced under the Credit Agreement for a total
of $14.5 million.
The
Credit Agreement was amended on multiple occasions, for which the final amendment was signed on December 31, 2021, extending the Loan’s
maturity date to January 31, 2022.
The
Company determined that Cellvera Global may not have the ability to repay the note receivable. Accordingly, the Company recognized a
full impairment of $14.5 million as of December 31, 2021.
Forbearance
Agreement:
On
January 31, 2022, the Company’s $14.5 million loan to Cellvera Global became fully due and payable under the Credit Agreement.
On February 14, 2022, the Company entered into a Forbearance Agreement and Seventh Amendment to Credit Agreement (the “Forbearance
Agreement”) with Cellvera Global.
Pursuant to the Forbearance Agreement, the Company
agreed to forbear from exercising its rights and remedies against Cellvera Global and certain affiliated guarantor parties until the earlier
of (i) June 30, 2022 or (ii) the date of occurrence of any event of default under the Forbearance Agreement (the “Forbearance Period”).
Given that the parties continue to conduct due diligence in connection with the Share Exchange Agreement the Company and Cellvera Global
also agreed that should the initial closing occur under the Share Exchange Agreement, the existing event of default will be waived. Under
the Forbearance Agreement, the Company and Cellvera Global also agreed to certain amendments to the Credit Agreement, including, but not
limited to: (i) the delivery by the Borrower of certain financial statements and forecasts, and (ii) certain regularly scheduled payments
to be made by Cellvera Global to the Company during the Forbearance Period. As of the date these financial statements were available to
be issued; the regularly scheduled payments under the Forbearance Agreement were not made, and the note receivable remains fully impaired.
Target
Company Note Receivable
On
December 10, 2021, the Company entered into a secured credit agreement dated December 10, 2021 (the “Target Company Credit Agreement”)
and signed on December 10, 2021 with the Target Company, pursuant to which the Company made a secured loan to the Target Company in the
principal amount of $500,000 (the “Target Company Loan”) and agreed to make additional secured loans, as requested by the
Target Company and approved by the Company, in an amount not to exceed $4.5 million. The Target Company Loan bears interest at a rate
of 8% per annum and mature on December 8, 2022, provided, that the Letter of Intent currently contemplates that the Target Company Loan
will be forgivable upon the closing of the acquisition contemplated by the letter of intent. The Target Company Credit Agreement also
contains certain covenants that prohibit the Target Company from incurring additional indebtedness, entering into any fundamental transactions,
issuing any equity interests subject to certain limited exceptions, or making any dispositions of its property. In connection with the
Target Company Credit Agreement, the Company entered into a Security Agreement with the Target Company, pursuant to which the Target
Company granted the Company a security interest in all of the Target Company’s assets as security for the Target Company Loan.
As
of March 31, 2022, the outstanding principal of the Target Company Loan is $500,000 and the accrued interest on the Loan is $16,425.
NOTE
5 – FIXED ASSETS
The
Company’s fixed assets include the following on March 31, 2022:
| |
Cost Basis | | |
Accumulated Depreciation | | |
Net | |
Computers | |
$ | 370,607 | | |
$ | (105,150 | ) | |
$ | 265,457 | |
Lab Equipment | |
| 2,366,240 | | |
| (374,182 | ) | |
| 1,992,058 | |
Office Furniture | |
| 56,656 | | |
| (3,951 | ) | |
| 52,705 | |
Other Fixed Assets | |
| 8,605 | | |
| (578 | ) | |
| 8,027 | |
Total Fixed Assets | |
$ | 2,802,108 | | |
$ | (483,861 | ) | |
$ | 2,318,247 | |
The
Company’s fixed assets include the following on December 31, 2021:
| |
Cost Basis | | |
Accumulated Depreciation | | |
Net | |
Computers | |
$ | 312,489 | | |
$ | (75,053 | ) | |
$ | 237,436 | |
Lab Equipment | |
| 2,240,252 | | |
| (306,688 | ) | |
| 1,933,564 | |
Office Furniture | |
| 90,757 | | |
| (4,857 | ) | |
| 85,900 | |
Other Fixed Assets | |
| 10,809 | | |
| (412 | ) | |
| 10,397 | |
Total Fixed Assets | |
$ | 2,654,307 | | |
$ | (387,010 | ) | |
$ | 2,267,297 | |
Depreciation
expense was $96,852 and $66,243, for the three months ended March 31, 2022 and 2021, respectively. None of the Company’s fixed
assets serve as collateral against any loans as of March 31, 2022 and December 31, 2021, other than those subject to the financed asset
liability.
NOTE
6 – INTANGIBLE ASSETS
The
Company’s intangible assets include the following on March 31, 2022:
| |
Cost Basis | | |
Accumulated Amortization | | |
Net | |
Proprietary Technology | |
$ | 321,000 | | |
$ | (133,750 | ) | |
$ | 187,250 | |
Total Intangible Assets | |
$ | 321,000 | | |
$ | (133,750 | ) | |
$ | 187,250 | |
The
Company’s intangible assets include the following on December 31, 2021:
| |
Cost Basis | | |
Accumulated Amortization | | |
Net | |
Proprietary Technology | |
$ | 321,000 | | |
$ | (107,000 | ) | |
$ | 214,000 | |
Total Intangible Assets | |
$ | 321,000 | | |
$ | (107,000 | ) | |
$ | 214,000 | |
Amortization
expense was $26,750 and $26,384 for the three months ended March 31, 2022 and 2021, respectively. None of the Company’s
intangible assets serve as collateral against any loans as of March 31, 2022, and December 31, 2021.
NOTE
7 – RELATED PARTY TRANSACTIONS
On
January 26, 2022, the Company granted 480,000 restricted stock units to an officer of the Company pursuant to the Company’s 2021
Equity Incentive Plan. The Company recognized $87,420 in stock-based compensation for the issuance of these vested and unvested restricted
stock units during the period ended March 31, 2022. (Note 9)
NOTE
8 – 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, 2022 and December 31, 2021 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,
2022 | | |
Three Months Ended March 31,
2021 | |
Components of total lease costs: | |
| | |
| |
Operating lease expense | |
$ | 322,495 | | |
$ | 124,614 | |
Total lease costs | |
$ | 322,495 | | |
$ | 124,614 | |
Lease
Positions as of March 31, 2022 and December 31, 2021
ROU
lease assets and lease liabilities for our operating leases are recorded on the balance sheet as follows:
| |
March 31,
2022 | | |
December 31, 2021 | |
Assets | |
| | |
| |
Right of use asset – long term | |
$ | 3,883,781 | | |
$ | 4,097,117 | |
Total right of use asset | |
$ | 3,883,781 | | |
$ | 4,097,117 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Operating lease liabilities – short term | |
$ | 1,137,980 | | |
$ | 1,145,126 | |
Operating lease liabilities – long term | |
| 2,554,683 | | |
| 2,765,933 | |
Total lease liability | |
$ | 3,692,663 | | |
$ | 3,911,059 | |
Lease
Terms and Discount Rate
Weighted average remaining lease term (in years) – operating leases | |
| 2.30 | |
Weighted average discount rate – operating leases | |
| 8.00 | % |
NOTE
9 – 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 three months ended March 31, 2022,
the Company issued 9,000 shares of common stock and recognized expense of $3,719 in stock-based compensation for consulting
services. The Company also granted 582,200 Restricted Stock Units, of which 287,850 vested and resulted in the issuance
of shares. As a result, the Company recognized expense of $377,671 in stock-based compensation. The stock-based compensation for
shares issued or RSU’s granted during the period were valued based on the fair market value on the date of grant.
During
the 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. The stock-based compensation for the period was valued based on the value of the shares based
on public information.
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 March 31, 2022 and December 31, 2021, 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 three months ended March 31, 2022 and 2021, the Company granted no new options.
The
following is an analysis of the stock option grant activity under the Plan:
Vested and Nonvested
Stock Options | |
Number | | |
Weighted Average Exercise
Price | | |
Weighted Average Remaining
Life | |
Outstanding December 31, 2021 | |
| 2,235,466 | | |
$ | 3.40 | | |
| 6.74 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Expired or forfeited | |
| - | | |
| - | | |
| - | |
Outstanding March 31, 2022 | |
| 2,235,466 | | |
$ | 3.40 | | |
| 6.50 | |
Nonvested Stock Options | |
Number | | |
Weighted- Average Exercise
Price | |
Nonvested on December 31, 2020 | |
| 453,125 | | |
$ | 2.17 | |
Granted | |
| - | | |
| - | |
Vested | |
| (116,875 | ) | |
| 2.17 | |
Forfeited | |
| - | | |
| - | |
Nonvested on March 31, 2022 | |
| 336,250 | | |
$ | 2.18 | |
The
Company recognized stock-based compensation expense related to options granted and vesting expense of $193,624 during the three
months ended March 31, 2022, of which $133,660 is included in general and administrative expenses and $59,964 is included in
research and development expenses in the accompanying statements of operations. The remaining value to be expensed is $777,456 with
a weighted average vesting term of 0.62 years as of March 31, 2022. 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.
Warrants
During
the three months ended March 31, 2022 the Company granted no new warrants. During the three months ended March 31, 2021, the Company
granted 875,000 warrants.
For the three months ended March 31, 2022 there
were no new warrants granted, therefore no fair value was assigned. 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:
Vested and Nonvested
Warrants | |
Number | | |
Weighted Average Exercise
Price | | |
Weighted Average Remaining
Life | |
Outstanding December 31, 2021 | |
| 30,069,964 | | |
$ | 1.67 | | |
| 4.38 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Expired or forfeited | |
| (57,350 | ) | |
| 5.79 | | |
| - | |
Outstanding March 31, 2022 | |
| 30,012,614 | | |
$ | 1.66 | | |
| 4.27 | |
Nonvested Warrants | |
Number | | |
Weighted- Average Exercise Price | |
Nonvested on December 31, 2021 | |
| 4,628,334 | | |
$ | 1.51 | |
Granted | |
| - | | |
| - | |
Vested | |
| (4,598,334 | ) | |
| 1.50 | |
Forfeited | |
| - | | |
| | |
Nonvested on March 31, 2022 | |
| 30,000 | | |
$ | 1.92 | |
The
Company recognized stock-based compensation expense related to warrants granted and vesting expense of $26,262 and $89,883 during
the three months ended March 31, 2022 and March 31, 2021, respectively, which is included in general and administrative in the accompanying
Statements of Operations. The remaining value to be expensed is $78,787 with a weighted average vesting term of 0.50 years
as of March 31, 2022.
Restricted
Stock Units
A
summary of Restricted Stock Units (“RSUs”) issuances are as follows:
Nonvested RSUs | |
Number | | |
Weighted Average Price | |
Nonvested December 31, 2021 | |
| 778,250 | | |
$ | 1.92 | |
Granted | |
| 582,200 | | |
| 0.45 | |
Vested | |
| (287,850 | ) | |
| 1.00 | |
Forfeited | |
| (43,950 | ) | |
| 2.00 | |
Nonvested March 31, 2022 | |
| 1,028,650 | | |
$ | 1.35 | |
The
Company recognized stock-based compensation expense related to RSUs granted and vesting expense of $377,671 and zero during
the three months ended March 31, 2022 and March 31, 2021, respectively, of which, $288,346 is included in general and administrative
and $89,325 is included in research and development in the accompanying Statements of Operations. The remaining value to be expensed
is $1,197,321 with a weighted average vesting term of 0.97 years as of March 31, 2022.
During
the three months ended March 31, 2022, the Company granted a total of 582,200 RSUs. As of March 31, 2022, 287,850 of these
RSUs vested and the Company issued 287,850 shares of common stock for the 287,850 vested RSUs.
NOTE
10 – INCOME TAXES
The
Company has incurred losses since inception. During the nine months ended March 31, 2022, 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, 2022.
As
of March 31, 2022, the Company did not have any amounts recorded pertaining to uncertain tax positions.
NOTE
11 – SUBSEQUENT EVENTS
Cellvera Global:
On April 4, 2022, the Company and Cellvera Global
entered into a Forbearance Agreement and Eighth Amendment to the Credit Agreement (the “April Forbearance Agreement”) pursuant
to which among other things (i) the Company agreed to extend the forbearance period until the earlier of March 31, 2023 or the date of
occurrence of any event of default under the April Forbearance Agreement, (ii) Cellvera Global shall be permitted to factor certain receivables,
and (iii) certain conforming changes were made relating to the Revenue Sharing Agreement (as defined below). In connection with the Forbearance
Agreement, the Company entered into a series of security agreements with Cellvera Global (the “Security Agreements”) and certain
affiliated entities pursuant to which Cellvera Global enhanced the Company’s security interest in connection with the Credit Agreement.
In addition, and as a condition to entering into the April Forbearance Agreement, the Company required that Cellvera Global enter into
a Revenue Sharing Agreement (the “Revenue Sharing Agreement”), pursuant to which, among other things, Cellvera Global agreed
to pay the Company a certain portion of its revenues up to the aggregate amount of $30 million.
Concurrently with the execution of the April Forbearance Agreement
and the Revenue Sharing Agreement, the Company and AiPharma Group, Ltd. entered into an Amendment to the Share Exchange Agreement (the
“Share Exchange Amendment”) which amended the Share Exchange Agreement to, among other things: (i) modify the financial statements
required to be delivered by AiPharma Group, Ltd. at the initial closing to include the unaudited financial statements for the three months
ended March 31, 2022 and 2021, (ii) permit the Company to amend its Certificate of Incorporation without the consent of AiPharma Group,
Ltd. in order to effect a reverse stock split of the Company’s common stock, if necessary, in order to maintain its listing on
the Nasdaq Capital Market, and (iii) make certain other conforming changes related to the March Forbearance Agreement and Revenue Sharing
Agreement.
Common stock offering:
On May 14, 2022, the Company entered into a securities
purchase agreement (the “May 2022 Purchase Agreement”) with an accredited investor, pursuant to which the Company agreed to
issue and sell an aggregate of 8,333,334 shares of the Company’s common stock (the “Shares”) at a per share purchase
price of $0.30 for gross proceeds to the Company of $2.5 million. For each Share purchased, the investor also received a warrant to purchase
one share of the Company’s common stock (the “Warrants”). The Warrants have an exercise price of $0.33 per share and
are exercisable for a term of five years commencing six months from the date of closing. Pursuant to the May 2022 Purchase Agreement,
the Company agreed to file a registration statement registering the Shares and the shares of common stock underlying the Warrants within
sixty days after the closing. The closing is expected to occur on or about May 20, 2022.