See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Company Background
Overview
We are a biotech innovation company with a mission
of prolonging life and enhancing its quality by improving the health of the immune system. We are an innovation company developing and
commercializing technologies with a focus on monitoring and modulating the immune system. Our 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. Our immune monitoring technologies are designed to provide a personalized
comprehensive profile of the immune system and we plan to utilize them in our upcoming reprogramming clinical trials to monitor subjects’
immune response before, during and after drug administration.
Reverse Stock Split
On September 13, 2022, the Company effectuated
a 1 for 50 reverse stock split (the “Reverse Split”). The Company’s stock began trading on a split-adjusted basis effective
on the Nasdaq Stock Market on September 14, 2022. There was no change to the number of authorized shares of the Company’s common
stock. All shares amounts referenced in this report are adjusted to reflect the Reverse Split.
Offerings
On August 31, 2021, the Company completed a registered
direct offering (“August 2021 Offering”). In connection therewith, the Company issued 91,667 shares of common stock,
at a purchase price of $120.00 per share, resulting in gross proceeds of approximately $11.0 million. In a concurrent private
placement, the Company issued warrants to purchase up to 91,667 shares. The warrants have an exercise price of $126.50 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 $75.00. In addition, the Company issued a warrant to the placement agent to purchase up to 4,584 shares
of common stock at an exercise price of $150.00 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 56,667 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 $75.00 per share under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective
shelf registration statement filed with the SEC on Form S-3 (File No. 333-257645), which was declared effective by the SEC on July 13,
2021. The October 2021 Offering closed on October 20, 2021 for gross proceeds of $4.25 million. The Company utilized a portion of
the proceeds, net of underwriting discounts of approximately $3.91 million from the October 2021 Offering to fund certain obligations
under the Credit Agreement. (See Note 4)
On December 6, 2021, the Company completed a public
offering for net proceeds of $16.0 million (the “December 2021 Offering”). As part of the December 2021 Offering, we
issued 164,929 units consisting of shares of the Company’s common stock and warrant to purchase shares of the Company’s
common stock and 166,572 prefunded warrants. The warrant issued as part of the units had an exercise price of $57.50 and
the prefunded warrants had an exercise price of $0.001. On June 15, 2022, the Company entered an agreement with a holder of certain warrants
in the December 2021 Offering. (See Note 11)
On September 20, 2022, the Company completed a
public offering for net proceeds of $17.2 million (the “September 2022 Offering”). As part of the September 2022 Offering,
we issued 1,224,333 of shares of the Company’s common stock, pre-funded warrants to purchase 2,109,000 shares of common stock,
and warrants to purchase 3,333,333 shares of the Company’s common stock. The warrants had an exercise price of $6.00 and the
pre-funded 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 included 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 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 year ended December 31, 2022, the Company had a net loss of $27,649,876 and
negative cash flow from operating activities of $22,049,040. As of December 31, 2022, the Company’s cash balance was $2,768,640.
As of December 31, 2022, the Company had $51.5 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.
In addition to the shelf registration, the Company
has the ability to raise capital from equity of debt through private placements or public offerings pursuant to a registration statement
on Form S-1. We may also secure loans from related parties.
Because of these factors, the Company believes
that this creates substantial doubt with the Company’s ability to 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. 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 Company’s financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and
the rules and regulations of the Securities and Exchange Commission (“SEC”).
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 collectability of notes receivable, collectability and reserve on accounts receivable, the reserve on insurance billing, and the fair
value of stock options and warrants.
Fair Value Measurements and Fair Value of
Financial Instruments
The Company adopted Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements. ASC Topic 820 clarifies
the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs
used in measuring fair value as follows:
Level 1 - |
Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
Level 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
Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
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.
Substantially all the Company’s accounts
receivable are with companies in the healthcare industry, individuals, and the U.S. government. However, concentration of credit risk
is mitigated due to the Company’s number of customers. In addition, for receivables due from U.S government agencies, the Company
does not believe the receivables represent a credit risk as these are related to healthcare programs funded by the U.S. government and
payment is primarily dependent upon submitting the appropriate documentation.
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.
Useful lives assigned to fixed assets are as follows:
Computers |
Three years to five years |
Lab Equipment |
Seven to ten years |
Office Furniture |
Five to ten years |
Other fixed assets |
Five to ten years |
Leasehold Improvements |
Shorter of estimated useful life or remaining lease term |
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 December 31, 2022 and 2021, there was an allowance for doubtful accounts of $18,634 and zero, respectively.
Offering Costs
Offering costs incurred in connection with equity are recorded as a
reduction of equity and offering costs incurred in connection with debt are recorded as a reduction of debt as a debt discount.
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 relating to the
AditxtScore™ are recognized when the AditxtScoreTM report is delivered to the customer. The services performed include
the analysis of specimens received in the Company’s CLIA laboratory and the generation of results which are then delivered upon
completion.
The Company recognizes revenue in the following
manner for the following types of customers:
Client Payers:
Client payers include physicians or other entities
for which services are billed based on negotiated fee schedules. The Company principally estimates the allowance for credit losses for
client payers based on historical collection experience and the period of time the receivable has been outstanding.
Cash Pay:
Customers are billed based on established patient
fee schedules or fees negotiated with physicians on behalf of their patients. Collection of billings is subject to credit risk and the
ability of the patients to pay.
Insurance:
Reimbursements from healthcare insurers are based
on fee for service schedules. Net revenues recognized consist of amounts billed net of contractual allowances for differences between
amounts billed and the estimated consideration the Company expects to receive from such payers, collection experience, and the terms of
the Company’s contractual arrangements.
Leases
Under Topic 842 (Leases), operating lease expense
is generally recognized evenly over the term of the lease. The Company has operating leases consisting of office space, laboratory space,
and lab equipment.
Leases with an 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 is reflected in research and development expenses, and are expensed as incurred. During the years ended December 31, 2022 and 2021,
the Company incurred patent licensing fees for the patents of $263,273 and $76,455, 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 years ended December 31, 2022 and 2021, the Company incurred research
and development costs of $7,268,084 and $5,042,617, 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 attributable of common stockholders 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 December 31, 2022, 44,710 stock options, 7,197 unvested restricted
stock units, and 5,090,024 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive. As of
December 31, 2021, 44,710 stock options, 15,565 unvested restricted stock units and 601,399 warrants were excluded
from dilutive earnings per share as their effects were anti-dilutive.
During the years ended December 31, 2022 and 2021,
the Company recognized an implied dividend from the modification of warrants of $37,667 and $102,267, respectively. Theses implied dividends
resulted in an increase in the net loss attributable to common stockholders.
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 financial statements.
NOTE 4 – NOTE RECEIVABLE
Cellvera Global Note Receivable
On August 25, 2021, the Company entered into a
letter of intent (“the LOI”) to acquire AiPharma Global Holdings LLC, a Delaware limited liability company, which subsequently
changed its name to Cellvera Global Holdings LLC (“Cellvera Global”) which is commercializing COVID-19 antiviral oral therapy.
Key terms of the proposed transaction as stated in the Letter of Intent included: the completion of a proposed $6.5 million secured
loan from the Company to Cellvera Global by August 31, 2021, as well as the issuance of such number of shares of the Company’s common
stock that yields 50% of the number of the Company’s outstanding shares post-closing of the transaction. The acquisition is
subject to the satisfaction of numerous conditions, including satisfactory due diligence, the negotiation and execution of definitive
agreements and other closing conditions, including board and shareholder approval and approval by Nasdaq of the listing of shares proposed
to be issued in the transaction. The Company and Cellvera Global agreed to an exclusivity period until September 30, 2021 (the “Exclusivity
Period”), with a view to settling the definitive agreement. On September 30, 2021, the parties entered into a letter agreement pursuant
to which they agreed to extend the Exclusivity Period until October 4, 2021.
On December 28, 2021, we entered into a Share
Exchange Agreement with Cellvera Global f/k/a AiPharma Global, pursuant to which we (i) will acquire 9.5% of the issued and outstanding
equity interests in Cellvera Global in exchange for the issuance of 96,324 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 798,560 shares of our common stock and
a cash payment of $250,000 at a secondary closing upon the satisfaction or waiver of certain conditions to closing. Additionally,
we may elect to raise additional capital due to market conditions or strategic considerations.
In connection with the contemplated acquisition
with Cellvera Global, the Company entered into a secured credit agreement dated August 27, 2021 (the “Credit Agreement”)
with Cellvera Global and certain affiliated entities (collectively, the “Borrower”), pursuant to which the Company made a
secured loan to Cellvera Global in the principal amount of $6.5 million (the “Loan”). The Loan was funded on August 31,
2021, following the closing of the Company’s August 2021 Offering. The Loan bears interest at a rate of 8% per annum and matured
on November 30, 2021. The Loan is secured by certain accounts receivable and other assets of Cellvera Global and certain of its affiliates.
The Credit Agreement also contains certain covenants that prohibit Cellvera Global from incurring additional indebtedness, incurring liens
or making any dispositions of its property.
On October 18, 2021, the Company entered
into the first amendment to the Credit Agreement with Cellvera Global and certain affiliated entities (the “Credit Agreement Amendment”),
pursuant to which the Company agreed to increase the amount which Cellvera Global was permitted to borrow under the Credit Agreement by
$8.5 million to an aggregate of $15.0 million, of which $6.5 million was outstanding prior to entering the Credit Agreement Amendment.
The Company agreed to fund such additional borrowings, as requested by Cellvera Global, by advancing 70% of any amounts received by the
Company from the exercise of existing warrants or any other capital raises, including the October Offering. As of December 31, 2021,
an additional $8.0 million was advanced under the Credit Agreement for a total of $14.5 million.
The Credit Agreement was amended on multiple occasions,
for which the final amendment was signed on December 31, 2021, extending the Loan’s maturity date to January 31, 2022.
The Company determined that Cellvera Global may
not have the ability to repay the note receivable. Accordingly, the Company recognized a full impairment of $14.5 million as of December
31, 2021.
Forbearance Agreement:
On January 31, 2022, the Company’s $14.5 million
loan to Cellvera Global became fully due and payable under the Credit Agreement. On February 14, 2022, the Company entered into a Forbearance
Agreement and Seventh Amendment to Credit Agreement (the “Forbearance Agreement”) with Cellvera Global.
Pursuant to the Forbearance Agreement, the Company
agreed to forbear from exercising its rights and remedies against Cellvera Global and certain affiliated guarantor parties until the earlier
of (i) June 30, 2022 or (ii) the date of occurrence of any event of default under the Forbearance Agreement (the “Forbearance Period”).
Given that the parties continue to conduct due diligence in connection with the Share Exchange Agreement, the Company and Cellvera Global
also agreed that should the initial closing occur under the Share Exchange Agreement, the existing event of default will be waived. Under
the Forbearance Agreement, the Company and Cellvera Global also agreed to certain amendments to the Credit Agreement, including, but not
limited to: (i) the delivery by the Borrower of certain financial statements and forecasts, and (ii) certain regularly scheduled payments
to be made by Cellvera Global to the Company during the Forbearance Period. As of the date of filing of this Quarterly Report, the regularly
scheduled payments under the Forbearance Agreement have not been made, and the note receivable remains fully impaired.
On April 4, 2022, the Company and Cellvera Global
entered into a Forbearance Agreement and Eighth Amendment to the Credit Agreement (the “April Forbearance Agreement”) pursuant
to which among other things (i) the Company agreed to extend the forbearance period until the earlier of March 31, 2023 or the date of
occurrence of any event of default under the April Forbearance Agreement, (ii) Cellvera Global shall be permitted to factor certain receivables,
and (iii) certain conforming changes were made relating to the Revenue Sharing Agreement (as defined below). In connection with the Forbearance
Agreement, the Company entered into a series of security agreements with Cellvera Global (the “Security Agreements”) and certain
affiliated entities pursuant to which Cellvera Global enhanced the Company’s security interest in connection with the Credit Agreement.
In addition, and as a condition to entering into the April Forbearance Agreement, the Company required that Cellvera Global enter into
a Revenue Sharing Agreement (the “Revenue Sharing Agreement”), pursuant to which, among other things, Cellvera Global agreed
to pay the Company a certain portion of its revenues up to the aggregate amount of $30 million. As of the date of filing of this
Annual Report, the Company has not received any payments from Cellvera Global pursuant to the Revenue Sharing Agreement. Upon termination
of the April Forbearance agreement, the amounts under the Secured Credit agreement (as amended) shall become immediately due and payable.
Concurrently with the execution of the April Forbearance
Agreement and the Revenue Sharing Agreement, the Company and AiPharma Group, Ltd. entered into an Amendment to the Share Exchange Agreement
(the “Share Exchange Amendment”) which amended the Share Exchange Agreement to, among other things: (i) modify the financial
statements required to be delivered by AiPharma Group, Ltd. at the initial closing to include the unaudited financial statements for the
three months ended March 31, 2022 and 2021, (ii) permit the Company to amend its Certificate of Incorporation without the consent of AiPharma
Group, Ltd. in order to effect a reverse stock split of the Company’s common stock, if necessary, in order to maintain its listing
on the Nasdaq Capital Market, and (iii) make certain other conforming changes related to the March Forbearance Agreement and Revenue Sharing
Agreement.
Target Company Note Receivable
On December 10, 2021, the Company entered into
a secured credit agreement dated December 10, 2021 (the “Target Company Credit Agreement”) and signed on December 10, 2021
with the Target Company, pursuant to which the Company made a secured loan to the Target Company in the principal amount of $500,000 (the
“Target Company Loan”) and agreed to make additional secured loans, as requested by the Target Company and approved by the
Company, in an amount not to exceed $4.5 million. The Target Company Loan bears interest at a rate of 8% per annum and mature on December
8, 2022, provided, that the Letter of Intent currently contemplates that the Target Company Loan will be forgivable upon the closing of
the acquisition contemplated by the letter of intent. The Target Company Credit Agreement also contains certain covenants that prohibit
the Target Company from incurring additional indebtedness, entering into any fundamental transactions, issuing any equity interests subject
to certain limited exceptions, or making any dispositions of its property. In connection with the Target Company Credit Agreement, the
Company entered into a Security Agreement with the Target Company, pursuant to which the Target Company granted the Company a security
interest in all of the Target Company’s assets as security for the Target Company Loan.
The Company determined that the Target Company
may not have the ability to repay the note receivable. Accordingly, the Company recognized a full impairment of the principal and accrued
interest of $0.5 million as of December 31, 2022.
NOTE 5 – FIXED ASSETS
The Company’s fixed assets include the following
on December 31, 2022:
| |
Cost Basis | | |
Accumulated Depreciation | | |
Net | |
Computers | |
$ | 376,429 | | |
$ | (197,907 | ) | |
$ | 178,522 | |
Lab Equipment | |
| 2,572,720 | | |
| (579,015 | ) | |
| 1,993,705 | |
Office Furniture | |
| 56,656 | | |
| (8,200 | ) | |
| 48,456 | |
Other Fixed Assets | |
| 8,605 | | |
| (1,224 | ) | |
| 7,381 | |
Leasehold Improvements | |
| 120,440 | | |
| (29,641 | ) | |
| 90,799 | |
Total Fixed Assets | |
$ | 3,134,850 | | |
$ | (815,987 | ) | |
$ | 2,318,863 | |
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 $428,977 and $369,236,
for the years ended December 31, 2022 and 2021, respectively. None of the Company’s fixed assets serve as collateral against any
loans as of December 31, 2022 and December 31, 2021, other than those subject to the financed asset liability. As of December 31, 2022
and 2021, the fixed assets that serve as collateral subject to the financed asset liability have a carrying value of $1,359,091 and $1,690,420,
respectively.
Financed Assets:
In October 2020, the Company purchased two pieces
of lab equipment and financed them for a period of twenty-four months with a monthly payment of $19,487, with an interest rate of 8%.
In January of 2021, the Company purchased one
piece of lab equipment and financed it for a period of twenty-four months with a monthly payment of $9,733, with an interest rate of 8%.
In March of 2021, the Company purchased five pieces
of lab equipment and financed them for a period of twenty-four months with a monthly payment of $37,171, with an interest rate of 8%.
Maturities as follows:
2023 | |
$ | 111,512 | |
2024 | |
| - | |
2025 | |
| - | |
2026 | |
| - | |
2027 | |
| - | |
Thereafter | |
| - | |
Total Payments | |
$ | 111,512 | |
NOTE 6 – INTANGIBLE ASSETS
The Company’s intangible assets include
the following on December 31, 2022:
| |
Cost Basis | | |
Accumulated Amortization | | |
Net | |
Proprietary Technology | |
$ | 321,000 | | |
$ | (214,000 | ) | |
$ | 107,000 | |
Total Intangible Assets | |
$ | 321,000 | | |
$ | (214,000 | ) | |
$ | 107,000 | |
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 $107,000 and $107,000 for
the years ended December 31, 2022 and 2021, respectively. None of the Company’s intangible assets serve as collateral against any
loans as of December 31, 2022 and 2021. The Company’s proprietary technology is being amortized over its estimated useful life of
three years.
NOTE 7 – RELATED PARTY TRANSACTIONS
On January 28, 2022, the Company granted 9,600 restricted
stock units to an officer of the Company pursuant to the Company’s 2021 Equity Incentive Plan. The Company recognized $146,613 in
stock-based compensation for the issuance of these vested and unvested restricted stock units during the year ended December 31, 2022.
(Note 11)
On July 19, 2022, the Company entered into a Subscription
and Investment Representation Agreement with its Chief Executive Officer (the “Purchaser”), pursuant to which the Company
agreed to issue and sell one (1) share of the Company’s Series B Preferred Stock (the “Preferred Stock”), par value
$0.001 per share, to the Purchaser for $20,000 in cash.
On July 19, 2022, the Company filed a certificate
of designation (the “Certificate of Designation”) with the Secretary of State of Delaware, effective as of the time of filing,
designating the rights, preferences, privileges and restrictions of the share of Preferred Stock. The Certificate of Designation provides
that the share of Preferred Stock will have 250,000,000 votes and will vote together with the outstanding shares of the Company’s
common stock as a single class exclusively with respect to any proposal to amend the Company’s Restated Certificate of Incorporation
to effect a reverse stock split of the Company’s common stock. The Preferred Stock will be voted, without action by the holder,
on any such proposal in the same proportion as shares of common stock are voted. The Preferred Stock otherwise has no voting rights except
as otherwise required by the General Corporation Law of the State of Delaware.
The Preferred Stock is not convertible into, or
exchangeable for, shares of any other class or series of stock or other securities of the Company. The Preferred Stock has no rights with
respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale,
dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Preferred Stock will not be entitled
to receive dividends of any kind.
The outstanding share of Preferred Stock shall
be redeemed in whole, but not in part, at any time (i) if such redemption is ordered by the Board of Directors in its sole discretion
or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation implementing a reverse stock split.
Upon such redemption, the holder of the Preferred Stock will receive consideration of $20,000 in cash. On September 13, 2022, the
share was redeemed.
On July 21, 2022, the Chief Executive Officer
loaned $80,000 to the Company. The loan was evidenced by an unsecured promissory note (the “Promissory Note”). Pursuant
to the terms of the Promissory Note, it will accrue interest at a rate of four and three-quarters percent (4.75%) per annum, the Prime
rate on the date of signing, and is due on the earlier of January 22, 2023, or an event of default. On October 7, 2022, the Company fully
repaid the $80,000 Promissory Note and $812 of accrued interest to its Chief Executive Officer. The Chief Executive Officer and the Company
entered the Promissory Note on July 21, 2022.
NOTE 8 – NOTES PAYABLE
On May 27, 2022, the Company entered into an agreement
for the purchase and sale of future receipts (the “Future Receipts Agreement”) with a commercial funding source pursuant to
which the Company agreed to sell to the funder certain future trade receipts in the aggregate amount of $792,000 (the “Future
Receipts Purchased Amount” for gross proceeds to the Company of $550,000, less origination fees of $16,500 and professional
service fees of $13,500. Pursuant to the Future Receipts Agreement, the Company granted the funder a security interest in all of the Company’s
present and future accounts receivable in an amount not to exceed the Future Receipts Purchased Amount. The Purchased Amount shall be
repaid by the Company in 28 weekly installments of approximately $28,000 with the final payment due on December 7, 2022.
On September 30, 2022, the principal balance and
accrued interest was paid off in full.
On August 31, 2022, the Company entered into an
Agreement for the Purchase and Sale of Future Receipts (the “Agreement”) with a commercial funding source pursuant to which
the Company agreed to sell to the funder certain future trade receipts in the aggregate amount $288,000 (the “Purchased Amount”)
for gross proceeds to the Company of $200,000, less origination fees of $20,000. Pursuant to the Agreement, the Company granted the funder
a security interest in all of the Company’s present and future accounts receivable in an amount not to exceed the Purchased Amount.
The Purchased Amount shall be repaid by the Company in 20 weekly installments of approximately $14,400 with the final payment due on January
18, 2023. In connection with the Agreement, the Company also issued a warrant to purchase 26,667 shares of the Company’s common
stock with an exercise price of $7.50 and an expiration of five years from the issuance date.
On September 30, 2022, the principal balance and
accrued interest was paid off in full.
Convertible Note Financing:
On August 4, 2022, the Company entered into a
Securities Purchase Agreement (the “SPA”) with certain accredited investors to purchase $1,277,778 in principal amount 10%
Senior Secured Promissory Notes (the “August 2022 Notes”), resulting in gross proceeds to the Company of $1,150,000, exclusive
of placement agent commission and fees and other offering expenses. In connection therewith, the Company issued, 25,556 shares
of common stock as commitment fees and warrants (the “August 2022 Warrants”) to purchase up to 108,517 shares of
the Company’s common stock.
On August 11, 2022, the Company entered into a
SPA with certain accredited investors to purchase $555,556 in principal amount of August 2022 Notes, resulting in gross proceeds to the
Company of $500,000. In connection therewith, the Company issued 11,112 shares of common stock as commitment fees and August 2022 Warrants
to purchase up to 47,182 shares of the Company’s common stock.
The August 2022 Notes have a maturity date of
twelve (12) months from the date of issuance and are convertible at the option of the Investor at any time prior to maturity in shares
of Common Stock (the “Conversion Shares”) at an initial conversion price of $11.78 per share, subject to adjustments.
The August 2022 Warrants are exercisable for a period of five (5) years
from the period commencing on the commencement date (as defined in the August 2022 Warrant) and ending on 5:00 p.m. eastern standard time
on the date that is five (5) years after the date of issuance, at an initial exercise price of $11.78, subject to adjustment provided
therein (including cashless exercise). These warrants were valued using a Black-Scholes Model and the resulting relative fair value was
recorded as a debt discount.
On August 25, 2022, the Company entered into a
First Amendment and Waiver with the holders of the August 2022 Warrants, pursuant to which the exercise price of the August 2022 Warrants
was reduced to $7.50 per share and the August 2022 Warrants were modified such that they are not exercisable unless and until the Company
obtains stockholder approval of the issuance of any shares of common stock upon exercise of the August 2022 Warrants. On September 16,
2022, the exercise price of the August 2022 Warrants was further adjusted to $6.00 per share. These warrants were valued using a Black-Scholes
Model and the resulting valuation was recorded as an implied dividend.
Convertible Note Financing Follow On:
On September 12, 2022, the Company entered into
a SPA with a certain accredited investor to purchase $555,555 in principal amount of August 2022 Notes, resulting in gross proceeds to
the Company of $500,000. In connection therewith, the Company issued 11,112 shares of common stock as commitment fees and warrants (the
“August 2022 Follow On Warrants”) to purchase up to 74,074 shares of the Company’s common stock.
The August 2022 Follow On Warrants are exercisable for a period of
five (5) years from the period commencing on the commencement date (as defined in the August 2022 Follow On Warrant) and ending on 5:00
p.m. eastern standard time on the date that is five (5) years after the date of issuance, at an initial exercise price of $7.50, subject
to adjustments. These warrants were valued using a Black-Scholes Model and the resulting relative fair value was recorded as a debt discount.
On September 16, 2022, the exercise price of the
August 2022 Follow On Warrants was adjusted to $6.00 per share. These warrants were valued using a Black-Scholes Model and the resulting
valuation was recorded as an implied dividend.
As of December 31, 2022, the principal balance
of $2,388,888, a prepayment penalty of $238,889 and all accrued interest of $119,444 relating to the August 2022 Notes was paid off in
full.
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 December 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.
Our corporate headquarters is located in Richmond,
Virginia, where we lease approximately 25,000 square feet. The lease expires in August 2026, subject to extension.
We also lease approximately 5,810 square feet
of laboratory and office space in Mountain View, California. The lease expires in August 2024, subject to extension.
Additionally, we lease approximately 3,150 square
feet of office space in Melville, New York. The lease expires in December 2024, subject to extension.
Subsequent to December 31, 2022 the Company is
in arrears on certain lease payments.
Lease Costs
|
|
Year
Ended
December 31,
2022 |
|
|
Year
Ended
December 31,
2021 |
|
Components of total lease costs: |
|
|
|
|
|
|
Operating lease expense |
|
$ |
1,396,875 |
|
|
$ |
819,587 |
|
Total lease costs |
|
$ |
1,396,875 |
|
|
$ |
819,587 |
|
Lease Positions as of December 31, 2022 and
December 31, 2021
ROU lease assets and lease liabilities for our
operating leases are recorded on the balance sheet as follows:
| |
December 31, 2022 | | |
December 31, 2021 | |
Assets | |
| | |
| |
Right of use asset – long term | |
$ | 3,160,457 | | |
$ | 4,097,117 | |
Total right of use asset | |
$ | 3,160,457 | | |
$ | 4,097,117 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Operating lease liabilities – short term | |
$ | 1,086,658 | | |
$ | 1,145,126 | |
Operating lease liabilities – long term | |
| 1,885,218 | | |
| 2,765,933 | |
Total lease liability | |
$ | 2,971,876 | | |
$ | 3,911,059 | |
Lease Terms and Discount Rate as of December
31, 2022
Weighted average remaining lease term (in years) – operating leases | |
| 2.70 | |
Weighted average discount rate – operating leases | |
| 8.00 | % |
Maturities of leases are as follows:
Year Ended December 31, 2022
2023 | |
$ | 1,129,853 | |
2024 | |
| 1,004,982 | |
2025 | |
| 710,546 | |
2026 | |
| 423,930 | |
2027 | |
| - | |
Thereafter | |
| - | |
Total lease payments | |
$ | 3,269,311 | |
Less imputed interest | |
| (297,436 | ) |
Less current portion | |
| (1,086,657 | ) |
Total maturities, due beyond one year | |
$ | 1,885,218 | |
NOTE 10 – COMMITMENTS & CONTIGENCIES
License Agreement with Loma Linda University
On March 15, 2018, as amended
on July 1, 2020, we entered into a LLU License Agreement directly with Loma Linda University.
Pursuant to the LLU License
Agreement, we obtained the exclusive royalty-bearing worldwide license in and to all intellectual property, including patents, technical
information, trade secrets, proprietary rights, technology, know-how, data, formulas, drawings, and specifications, owned or controlled
by LLU and/or any of its affiliates (the “LLU Patent and Technology Rights”) and related to therapy for immune-mediated inflammatory
diseases (the ADI™ technology). In consideration for the LLU License Agreement, we issued 500 shares of common stock to LLU.
Pursuant to the LLU License
Agreement, we are required to pay an annual license fee to LLU. Also, we paid LLU $455,000 in July 2020 for outstanding milestone payments
and license fees. We are also required to pay to LLU milestone payments in connection with certain development milestones. Specifically,
we are required to make the following milestone payments to LLU: $175,000 on March 31, 2022; $100,000 on March 31, 2024; $500,000 on March
31, 2026; and $500,000 on March 31, 2027. In lieu of the $175,000 milestone payment due on March 31, 2022, the Company paid LLU an extension
fee of $100,000. Upon payment of this extension fee, an additional year will be added for the March 31, 2022 milestone. Additionally,
as consideration for prior expenses incurred by LLU to prosecute, maintain and defend the LLU Patent and Technology Rights, we made the
following payments to LLU: $70,000 at the end of December 2018, and a final payment of $60,000 at the end of March 2019. We are required
to defend the LLU Patent and Technology Rights during the term of the LLU License Agreement. Additionally, we will owe royalty payments
of (i) 1.5% of Net Product Sales (as such terms are defined under the LLU License Agreement) and Net Service Sales on any Licensed Products
(defined as any finished pharmaceutical products which utilizes the LLU Patent and Technology Rights in its development, manufacture or
supply), and (ii) 0.75% of Net Product Sales and Net Service Sales for Licensed Products and Licensed Services (as such terms are defined
under the LLU License Agreement) not covered by a valid patent claim for technology rights and know-how for a three (3) year period beyond
the expiration of all valid patent claims. We also are required to produce a written progress report to LLU, discussing our development
and commercialization efforts, within 45 days following the end of each year. All intellectual property rights in and to LLU Patent and
Technology Rights shall remain with LLU (other than improvements developed by or on our behalf).
The LLU License Agreement
shall terminate on the last day that a patent granted to us by LLU is valid and enforceable or the day that the last patent application
licensed to us is abandoned. The LLU License Agreement may be terminated by mutual agreement or by us upon 90 days written notice to LLU.
LLU may terminate the LLU License Agreement in the event of (i) non-payments or late payments of royalty, milestone and license maintenance
fees not cured within 90 days after delivery of written notice by LLU, (ii) a breach of any non-payment provision (including the provision
that requires us to meet certain deadlines for milestone events (each, a “Milestone Deadline”)) not cured within 90 days after
delivery of written notice by LLU and (iii) LLU delivers notice to us of three or more actual breaches of the LLU License Agreement by
us in any 12-month period. Additional Milestone Deadlines include: (i) the requirement to have regulatory approval of an IND application
to initiate first-in-human clinical trials on or before March 31, 2022, which has been extended to March 31, 2023 due to payment of a
$100,000 extension fee paid in March 2022, (ii) the completion of first-in-human (phase I/II) clinical trials by March 31, 2024, (iii)
the completion of Phase III clinical trials by March 31, 2026 and (iv) biologic licensing approval by the FDA by March 31, 2027.
License Agreement with Leland Stanford Junior
University
On February 3, 2020, we entered
into an exclusive license agreement (the “February 2020 License Agreement”) with Stanford regarding a patent concerning a
method for detection and measurement of specific cellular responses. Pursuant to the February 2020 License Agreement, we received an exclusive
worldwide license to Stanford’s patent regarding use, import, offer, and sale of Licensed Products (as defined in the agreement).
The license to the patented technology is exclusive, including the right to sublicense, beginning on the effective date of the agreement,
and ending when the patent expires. Under the exclusivity agreement, we acknowledged that Stanford had already granted a non-exclusive
license in the Nonexclusive Field of Use, under the Licensed Patents in the Licensed Field of Use in the Licensed Territory (as those
terms are defined in the February 2020 License Agreement”). However, Stanford agreed to not grant further licenses under the Licensed
Patents in the Licensed Field of Use in the Licensed Territory. On December 29, 2021, we entered into an amendment to the February 2020
License Agreement which extended our exclusive right to license the technology deployed in AditxtScoreTM and securing
worldwide exclusivity in all fields of use of the licensed technology.
We were obligated to pay and
paid a fee of $25,000 to Stanford within 60 days of February 3, 2020. We also issued 375 shares of the Company’s common stock to
Stanford. An annual licensing maintenance fee is payable by us on the first anniversary of the February 2020 License Agreement in the
amount of $40,000 for 2021 through 2024 and $60,000 starting in 2025 until the license expires upon the expiration of the patent. The
Company is required to pay and has paid $25,000 for the issuances of certain patents. The Company will pay milestone fees of $50,000 on
the first commercial sales of a licensed product and $25,000 at the beginning of any clinical study for regulatory clearance of an in
vitro diagnostic product developed and a potential licensed product. The Company paid a milestone fee for a clinical study for regulatory
clearance of an in vitro diagnostic product developed and a potential licensed product of $25,000 in March of 2022. We are also required
to: (i) provide a listing of the management team or a schedule for the recruitment of key management positions by March 31, 2020 (which
has been completed), (ii) provide a business plan covering projected product development, markets and sales forecasts, manufacturing and
operations, and financial forecasts until at least $10,000,000 in revenue by June 30, 2020 (which has been completed), (iii) conduct validation
studies by September 30, 2020 (which has been completed), (iv) hold a pre-submission meeting with the FDA by September 30, 2020 (which
has been completed), (iv) submit a 510(k) application to the FDA, Emergency Use Authorization (“EUA”), or a Laboratory Developed
Test (“LDT”) by March 31, 2021 (which has been completed), (vi) develop a prototype assay for human profiling by December
31, 2021 (which has been completed), (vii) execute at least one partnership for use of the technology for transplant, autoimmunity, or
infectious disease purposes by March 31, 2022 (which has been completed) and (viii) provided further development and commercialization
milestones for specific fields of use in writing prior to December 31, 2022.
In addition to the annual
license maintenance fees outlined above, we will pay Stanford royalties on Net Sales (as such term is defined in the February 2020 License
Agreement) during the of the term of the agreement as follows: 4% when Net Sales are below or equal to $5 million annually or 6% when
Net Sales are above $5 million annually. The February 2020 License Agreement may be terminated upon our election on at least 30 days advance
notice to Stanford, or by Stanford if we: (i) are delinquent on any report or payment; (ii) are not diligently developing and commercializing
Licensed Product; (iii) miss certain performance milestones; (iv) are in breach of any provision of the February 2020 License Agreement;
or (v) provide any false report to Stanford. Should any events in the preceding sentence occur, we have a thirty (30) day cure period
to remedy such violation.
NOTE 11 – 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. On September 13, 2022, the Company effectuated a 1
for 50 reverse stock split (the “Reverse Split”). The Company’s stock began trading at the Reverse Split price effective
on the Nasdaq Stock Market on September 14, 2022. There was no change to the number of authorized shares of the Company’s common
stock.
During the year ended December 31, 2022, the Company
issued 148,227 shares of common stock and recognized expense of $507,558 in stock-based compensation for consulting services,
consisting of capital markets and investor relations. The stock-based compensation for consulting services is calculated by the number
shares multiplied by the closing price on the effective date of the contract. The Company also granted 11,644 Restricted Stock
Units and, 18,469 Restricted Stock Units vested which resulted in the issuance of shares. As a result, the Company recognized
expense of $1,209,906 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. The Company issued 58,256 shares in relation to the issuance of
notes (See Note 8). The Company issued 1,224,333 shares of common stock as part of the September 2022 Offering (See Note 1). The Company
also issued 1,766,917 shares of common stock as a result of the exercise of prefunded warrants from the September 2022 Offering (See Note
1). The Company issued 179,419 shares of common stock from the exercise of warrant, modification of warrant, and the issuance of warrant.
The Company issued 9,237 shares of common stock for the settlement of accounts payable.
During the year ended December 31, 2021, the Company
issued 2,031 shares of common stock and recognized expense of $254,242 in stock-based compensation for consulting services. The Company
also issued 1,602 shares of common stock to Stanford University and two employees and recognized expense of $64,875 relating to the agreement
with Stanford University. The Company also issued 189,843 shares of common stock upon the exercise of warrants and received $3,727,285
in cash proceeds. The Company granted 9,300 Restricted Stock Awards, as a result the Company recognized expense of $1,443,700 in stock-based
compensation. The Company granted 500 Restricted Stock Awards of which 500 vested, as a result, the Company recognized expense of $17,000
in stock-based compensation for consulting services. The Company also granted 36,456 Restricted Stock Units, of which 16,519 vested and
resulted in the issuance of shares, as a result, the Company recognized expense of $1,843,902 in stock-based compensation. (See Note 7)
The Company issued 96,050 shares of common stock for the conversion of a convertible note. (See Note 9) The Company issued 91,667 shares
of common stock as part of the August 2021 Offering. The Company issued 56,667 shares of common stock as part of the October 2021 Offering.
The Company issued 164,929 shares of common stock as part of the December 2021 Offering. 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.
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 December 31, 2022 and December
31, 2021, respectively.
Issuance of Series B Preferred Stock:
On July 19, 2022, the Company entered into a Subscription
and Investment Representation Agreement with its Chief Executive Officer (the “Purchaser”), pursuant to which the Company
agreed to issue and sell one (1) share of the Company’s Series B Preferred Stock (the “Preferred Stock”), par value
$0.001 per share, to the Purchaser for $20,000 in cash.
On July 19, 2022, the Company filed a certificate
of designation (the “Certificate of Designation”) with the Secretary of State of Delaware, effective as of the time of filing,
designating the rights, preferences, privileges and restrictions of the share of Preferred Stock. The Certificate of Designation provides
that the share of Preferred Stock will have 250,000,000 votes and will vote together with the outstanding shares of the Company’s
common stock as a single class exclusively with respect to any proposal to amend the Company’s Restated Certificate of Incorporation
to effect a reverse stock split of the Company’s common stock. The Preferred Stock will be voted, without action by the holder,
on any such proposal in the same proportion as shares of common stock are voted. The Preferred Stock otherwise has no voting rights except
as otherwise required by the General Corporation Law of the State of Delaware.
The Preferred Stock is not convertible into, or
exchangeable for, shares of any other class or series of stock or other securities of the Company. The Preferred Stock has no rights with
respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale,
dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Preferred Stock will not be entitled
to receive dividends of any kind.
The outstanding share of Preferred Stock shall
be redeemed in whole, but not in part, at any time (i) if such redemption is ordered by the Board of Directors in its sole discretion
or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation implementing a reverse stock split.
Upon such redemption, the holder of the Preferred Stock will receive consideration of $20,000 in cash. On September 13, 2022, the
share was redeemed.
Redemption of Series B Preferred Stock
On October 7, 2022, the Company paid $20,000 in
consideration for the one share of Preferred Stock which was redeemed on September 13, 2022.
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. All shares of our common stock pursuant to awards under the 2017 Plan
have been awarded.
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 60,000 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 year ended December 31, 2022, the Company
granted no new options.
During the year ended December 31, 2021, the Company
granted 1,850 stock option grants, with a weighted average grant date fair value $8.39. The fair value of each option granted was estimated
using the assumption and/or factors in the Black-Scholes Model.
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 | |
| 44,710 | | |
$ | 170.00 | | |
| 6.74 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Expired or forfeited | |
| - | | |
| - | | |
| - | |
Outstanding December 31, 2022 | |
| 44,710 | | |
$ | 170.00 | | |
| 5.74 | |
Nonvested Stock Options | |
Number | | |
Weighted- Average Exercise Price | |
Nonvested on December 31, 2021 | |
| 9,063 | | |
$ | 108.50 | |
Granted | |
| - | | |
| - | |
Vested | |
| (7,038 | ) | |
| 112.41 | |
Forfeited | |
| - | | |
| - | |
Nonvested on December 31, 2022 | |
| 2,025 | | |
$ | 96.00 | |
As of December 31, 2022 there were 42,685 exercisable
options, these options had a weighted average exercise price $173.50.
The Company recognized stock-based compensation
expense related to options granted and vesting expense of $791,187 during the year ended December 31, 2022, of which $555,772 is
included in general and administrative expenses and $235,415 is included in research and development expenses in the accompanying
statements of operations. The remaining value to be expensed is $179,892 with a weighted average vesting term of 0.75 years
as of December 31, 2022. The Company recognized stock-based compensation expense related to options issued and vesting of $826,795 during
the year ended December 31, 2021, of which $587,209 is included in general and administrative expenses and $239,586 is included in research
and development expenses in the accompanying statements of operations.
The Company recognizes warrant forfeitures
as they occur as there is insufficient historical data to accurately determine future forfeitures rates.
Warrants
During the year ended December 31, 2022, the Company
issued 6,497,530 warrants. During the year ended December 31, 2021, the Company issued 678,242 warrants.
For the year ended December 31, 2022, the fair
value of each warrant granted was estimated using the assumption and/or factors in the Black-Scholes Model as follows:
Exercise price | |
$7.50-20.00 | |
Expected dividend yield | |
| 0 | % |
Risk free interest rate | |
| 2.55%-3.47 | % |
Expected life in years | |
| 5.00-5.50 | |
Expected volatility | |
| 147%-165 | % |
For the year ended December 31, 2021, the fair
value of each warrant issued was estimated using the assumption ranges and/or factors in the Black-Scholes Model as follows:
Exercise price | |
$ | 200.00 | |
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 | |
| 601,400 | | |
$ | 83.50 | | |
| 4.38 | |
Granted | |
| 6,497,530 | | |
| 4.71 | | |
| 4.66 | |
Exercised | |
| (1,946,419 | ) | |
| 0.69 | | |
| - | |
Expired or forfeited | |
| (62,512 | ) | |
| 45.62 | | |
| - | |
Rounding for Reverse Split | |
| 25 | | |
| - | | |
| - | |
Outstanding December 31, 2022 | |
| 5,090,024 | | |
$ | 12.83 | | |
| 4.54 | |
Nonvested Warrants | |
Number | | |
Weighted- Average Exercise Price | |
Nonvested on December 31, 2021 | |
| 92,567 | | |
$ | 75.50 | |
Granted | |
| 6,497,530 | | |
| 4.71 | |
Vested | |
| (6,435,097 | ) | |
| 5.55 | |
Forfeited | |
| (55,000 | ) | |
| 20.00 | |
Nonvested on December 31, 2022 | |
| 100,000 | | |
$ | 7.50 | |
The Company recognized stock-based compensation
expense related to warrants granted and vesting expense of $609,748 during the year ended December 31, 2022, of which $105,049 is
included in general and administrative and $504,699 is included in sales and marketing in the accompanying Statements of Operations. The
Company recognized stock-based compensation expense related to warrants granted and vesting expense of $189,899 during the year ended
December 31, 2021, which is included in general and administrative in the accompanying Statements of Operations. The remaining value to
be expensed is zero as of December 31, 2022. The weighted average vesting term is 0.22 years as of December 31, 2022.
On June 15, 2022, the Company entered an agreement
with a holder of certain of the Series C Warrants (the “Holder”). Pursuant to the agreement, the Holder has agreed to
exercise in cash 179,419 of its Series C Warrants at a reduced exercise price of $7.50 per Share (reduced from $57.50 per share), for
gross proceeds to the Company of approximately $1.35 million. As an inducement to such exercise, the Company has agreed to reduce the
exercise price of the Holder’s remaining Series C Warrants to purchase up to 49,153 Shares from $57.50 to $12.395 per share, which
will be non-exercisable for a period of six months following the closing date. The modification of this exercise price resulted in an
increase of $344,158 to the fair value of the Series C Warrants. This modification was an inducement on the transaction and as such was
recorded to equity resulting in no net change to additional paid in capital. In addition, the Company issued to the Holder a new warrant
to purchase up to 407,991 shares of the Company’s common stock at an exercise price of $12.395 per share, which will be non-exercisable
for a period of six months following issuance date and have a term of five and one-half years. This inducement resulted in a total
increase of $3,759,044 to the fair value of the warrants.
On December 20, 2022, the Company and the Warrant
Agent entered into Amendment No. 2 to the Series C Warrant Agent Agreement, pursuant to which the exercise price of the Series C Warrants
was reduced from $57.50 per share to $12.395 per share. In addition, on December 21, 2022, the Company issued an Amended and Restated
Unit Purchase Option to the agent in the Offering reflecting a reduced exercise price of $12.395 per Unit. This modification of these
warrants resulted in a $29,058 increase to the fair value of the warrants (See Note 1).
Restricted Stock Units
A summary of Restricted Stock Units (“RSUs”)
issuances are as follows:
Nonvested RSUs | |
Number | | |
Weighted Average Price | |
Nonvested December 31, 2021 | |
| 15,565 | | |
$ | 96.00 | |
Granted | |
| 11,644 | | |
| 22.74 | |
Vested | |
| (18,506 | ) | |
| 70.65 | |
Forfeited | |
| (1,506 | ) | |
| 77.50 | |
Nonvested December 31, 2022 | |
| 7,197 | | |
$ | 46.72 | |
The Company recognized stock-based compensation
expense related to RSUs granted and vesting expense of $1,222,875 and $1,843,902 during the years ended December 31, 2022 and
December 31, 2021, respectively, of which, $848,597 is included in general and administrative, $356,105 is included in research
and development, and $18,346 is included in sales and marketing in the accompanying Statements of Operations. The remaining value to be
expensed is $321,603 with a weighted average vesting term of 0.40 years as of December 31, 2022.
During the year ended December 31, 2022, the Company
granted a total of 11,644 RSUs. As of December 31, 2022, 18,506 RSUs vested and the Company issued 18,469 shares
of common stock for the 18,469 vested RSUs.
NOTE 12 – INCOME TAXES
For the years ended December 31, 2022 and
2021, the Company did not record a current or deferred income tax expense or benefit due to current and historical losses incurred by
the Company. The Company’s losses before income taxes consist solely of losses from domestic operations.
A reconciliation of income tax expense (benefit)
computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:
| |
2022 | | |
2021 | |
Income taxes at U.S. statutory rate | |
| 21 | % | |
| 21 | % |
State income taxes | |
| 1.6 | | |
| 6.9 | |
Tax Credits | |
| 1.0 | | |
| 0.1 | |
Permanent Differences/Others | |
| (10.5 | ) | |
| (5.0 | ) |
Change in valuation allowance | |
| (13.1 | ) | |
| (23.0 | ) |
Total provision for income taxes | |
| 0 | % | |
| 0 | % |
Deferred taxes are recognized for temporary differences
between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s
deferred tax assets and liabilities as of December 31, 2022 and 2021 are comprised of the following:
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
Deferred tax assets | |
| | |
| |
Net operating loss carryforwards | |
$ | 13,499,811 | | |
$ | 10,896,410 | |
Tax credits carryforwards | |
| 430,468 | | |
| 161,943 | |
Stock-based compensation | |
| 1,511,849 | | |
| 1,541,936 | |
Lease liability | |
| 722,126 | | |
| 1,169,887 | |
Section 174 Capitalization | |
| 1,547,343 | | |
| - | |
Loss on impairment of debt | |
| 3,288,363 | | |
| 4,140,318 | |
Other | |
| 114,973 | | |
| 23,933 | |
Total deferred tax assets | |
| 21,114,933 | | |
| 17,934,427 | |
Valuation allowance | |
| (20,217,401 | ) | |
| (16,670,590 | ) |
Net deferred tax assets | |
| 897,533 | | |
| 1,263,837 | |
Deferred tax liabilities | |
| | | |
| | |
Right of use assets | |
| (722,127 | ) | |
| (1,169,887 | ) |
Fixed assets | |
| (175,406 | ) | |
| (93,950 | ) |
Total deferred tax liabilities | |
| (897,533 | ) | |
| (1,263,837 | ) |
Net deferred taxes | |
$ | — | | |
$ | — | |
The Company has evaluated the positive and negative
evidence bearing upon its ability to realize its deferred tax assets, which are comprised primarily of net operating loss carryforwards
and tax credits. Management has considered the Company’s history of cumulative net losses in the United States, estimated future
taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will
not realize the benefits of its U.S. federal and state deferred tax assets. Accordingly, a full valuation allowance has been established
against these net deferred tax assets as of December 31, 2022 and 2021, respectively. The Company reevaluates the positive and negative
evidence at each reporting period. The Company’s valuation allowance increased during 2022 by approximately $3.5 million primarily
due to the generation of net operating loss and tax credit carryforwards and the capitalization of research and experimental expenditures.
As of December 31, 2022 and 2021, the Company
had U.S. federal net operating loss carryforwards of $56.6 million and $38.0 million, respectively, which may be available to
offset future income tax liabilities. The 2017 Tax Cuts and Jobs Act (” TCJA”) will generally allow losses incurred after
2017 to be carried over indefinitely, but will generally limit the net operating loss deduction to the lesser of the net operating loss
carryover or 80% of a corporation’s taxable income (subject to Section 382 of the Internal Revenue Code of 1986, as amended).
Also, there will be no carryback for losses incurred after 2017. Losses incurred prior to 2018 will generally be deductible to the extent
of the lesser of a corporation’s net operating loss carryover or 100% of a corporation’s taxable income and be available
for twenty years from the period the loss was generated. The Company has federal net operating losses generated following 2017
of $56.5 million, which do not expire. The federal net operating losses generated prior to 2018 of $0.1 million will expire
at various dates through 2037. The CARES Act temporarily allows the Company to carryback net operating losses arising in 2018, 2019
and 2020 to the five prior tax years. In addition, net operating losses generated in these years could fully offset prior year taxable
income without the 80% of the taxable income limitation under the TCJA which was enacted on December 22, 2017. The Company has been
generating losses since its inception, as such the net operating loss carryback provision under the CARES Act is not applicable to the
Company.
As of December 31, 2022 and 2021, the Company
also had U.S. state net operating loss carryforwards (post-apportioned) of $26.2 million and $44.8 million, respectively, which
may be available to offset future income tax liabilities and expire at various dates through 2042.
As of December 31, 2022, the Company had
$0.1 million federal tax credit carryforwards available to reduce future tax liabilities which expire at various dates through 2042. As
of December 31, 2021, the Company had no federal tax credit carryforwards. As of December 31, 2022 and 2021, the Company had
state research and development tax credit carryforwards of approximately $0.4 million and $0.2 million, respectively, which
may be available to reduce future tax liabilities and can be carried over indefinitely.
Utilization of the U.S. federal and state net
operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382
and Section 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, due to ownership changes
that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and
research and development credit carryforwards that can be utilized annually to offset future taxable income and tax liabilities, respectively.
The Company has not completed a study to assess whether a change of ownership has occurred, or whether there have been multiple ownership
changes since its formation. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research
and development tax credit carryforwards before utilization.
The Company has not, as of yet, conducted a study
of research and development tax credit carryforwards. Such a study, once undertaken by the Company, may result in an adjustment to the
research and development tax credit carryforwards; however, a full valuation allowance has been provided against the Company’s research
and development tax credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance.
Thus, there would be no impact to the balance sheet or statement of operations if an adjustment is required.
The Company files tax returns in the United States,
California, Virginia, and New York. The Company is subject to U.S. federal and state tax examinations by tax authorities for the tax years
ended December 31, 2019 through present. As of December 31, 2022 and 2021, the Company has recorded no liability for unrecognized
tax benefits, interest, or penalties related to federal and state income tax matters and there currently no pending tax examinations.
The Company will recognize interest and penalties related to uncertain tax positions in income tax expense.
NOTE 13 – SUBSEQUENT EVENTS
On December 20, 2022, the Company entered into
an At The Market Offering Agreement (the “ATM”) with H.C. Wainwright & Co., LLC as agent (the “Agent”), pursuant
to which the Company may offer and sell, from time to time through the Agent, shares of the Company’s common stock having an aggregate
offering price of up to $50,000,000 (the “Shares”).
The offer and sale of
the Shares was made pursuant to a shelf registration statement on Form S-3 and the related prospectus (File No. 333-257645) filed by the
Company with the SEC on July 2, 2021, amended on July 6, 2021 and declared effective by the SEC on July 13, 2021, under the Securities
Act of 1933, as amended.
No sales of Shares were
made during the year ended December 31, 2022 under the ATM.
For the period beginning
January 1, 2023 through the date of this report, the Company sold 338,513 Shares at an average price of $1.55 per share under the ATM.
The sale of Shares generated net proceeds of approximately $507,000 after paying commissions and related fees.
On January 1, 2023, the Company formed Adimune,
Inc. a Delaware, wholly owned subsidiary.
On January 1, 2023, the Company formed Pearsanta,
Inc. a Delaware, wholly owned subsidiary.
On February 21, 2023, the Company entered into
an agreement for the purchase and sale of future receipts (the “Future Receipts Agreement”) with a commercial funding source
pursuant to which the Company agreed to sell to the funder certain future trade receipts in the aggregate amount of $2,160,000 (the
“Future Receipts Purchased Amount” for gross proceeds to the Company of $1,500,000, less origination fees of $75,000. Pursuant
to the Future Receipts Agreement, the Company granted the funder a security interest in all of the Company’s present and future
accounts receivable in an amount not to exceed the Future Receipts Purchased Amount. The Purchased Amount shall be repaid by the Company
in 28 weekly installments of approximately $77,000 with the final payment due on September 5, 2023.
On March 17, 2023, the Company entered into a consulting
agreement (the "Independent Consulting Agreement") with an independent consultant for a term of thirty days. Pursuant to the
Independent Consulting Agreement, the independent consultant agreed to provide the Company with business advisory services, guidance on
growth strategies and networking with its clients on a non-exclusive basis for general business purposes (the "Independent Consulting
Services”). In consideration for the Independent Consulting Services, the Company issued to the independent consultant 187,000 shares
of the Company's common stock (the "Independent Consulting Shares"). The issuance of the Independent Consulting Shares will
not be registered under the Securities Act.
On April 4, 2023, the Company entered into a Business
Loan and Security Agreement (the "April Loan Agreement") with a commercial funding source (the "April Lender"), pursuant
to which the Company obtained a loan from the April Lender in the principal amount of $1,060,000, which includes origination fees of $60,000
(the "April Loan"). Pursuant to the April Loan Agreement, the Company granted the April Lender a continuing secondary security
interest in certain collateral (as defined in the April Loan Agreement). The total amount of interest and fees payable by the Company
to the April Lender under the April Loan (the "April Repayment Amount") will be (i) $1,000,000 if paid prior to April 6, 2023,
(ii) $1,219,000 if paid prior to April 10, 2023, or (iii) $1,590,000 if paid after April 10, 2023 and will be repaid in 20 weekly installments
of $79,500 commencing on April 10, 2023 and ending on August 21, 2023.
On April 13, 2023, the Company formed Adivir, Inc.
a Delaware, wholly owned subsidiary.
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