UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark
One)
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2023
or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ________________ to ________________
Commission
File Number: 001-39336
Aditxt,
Inc.
(Exact
name of registrant as specified in its charter)
Delaware | | 82-3204328 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
737 N. Fifth Street, Suite 200 Richmond, VA | | 23219 |
(Address of principal executive offices) | | (Zip Code) |
(650) 870-1200
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | | ADTX | | The Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As
of August 11, 2023, the registrant had 7,612,756 and 7,610,739 shares of common stock, $0.001 par value per share, issued and
outstanding, respectively.
Table
of Contents
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This
Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A
of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,”
“should,” “expects,” “intends,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other
comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections
about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually
achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements
involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
| ● | we
have generated no significant revenue from commercial sales to date and our future profitability
is uncertain; |
| ● | if
we fail to obtain the capital necessary to fund our operations, we will be unable to continue
or complete our product development, execute on our strategic M&A initiatives, commence
our planned clinical trials and you will likely lose your entire investment; |
| ● | our
financial situation creates doubt whether we will continue as a going concern; |
| ● | we
may need to raise additional funding, which may not be available on acceptable terms, or
at all; |
| ● | even
if we can raise additional funding, we may be required to do so on terms that are dilutive
to you; |
| ● | the
regulatory approval process is expensive, time-consuming and uncertain and may prevent us
from obtaining approvals for the commercialization of our future product candidates, if any; |
| ● | we
may encounter substantial delays in completing our clinical studies which in turn will require
additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction
of applicable regulatory authorities; |
| ● | if
our future pre-clinical development and future clinical Phase I/II studies are unsuccessful,
we may be unable to obtain regulatory approval of, or commercialize, our product candidates
on a timely basis or at all; |
| ● | even
if we receive regulatory approval for any of our product candidates, we may not be able to
successfully commercialize the product and the revenue that we generate from their sales,
if any, may be limited; |
| ● | adverse
events involving our products may lead the FDA or applicable foreign regulatory agency to
delay or deny clearance for our products or result in product recalls that could harm our
reputation, business and financial results; |
| ● | our
technology is subject to licenses from LLU and Stanford (as defined below), each of which
are revocable in certain circumstances, including in the event we do not achieve certain
payments and milestone deadlines. Without these licenses, we may not be able to continue
to develop our product candidates; |
| ● | if
we were to lose our CLIA certification or state laboratory licenses, whether as a result
of a revocation, suspension or limitation, we would no longer be able to offer our assays
(including our AditxtScore™ platform), which would limit our revenues and harm our
business. If we were to lose, or fail to obtain, a license in any other state where we are
required to hold a license, we would not be able to test specimens from those states; |
| ● | our
results of operations will be affected by the level of royalty and milestone payments that
we are required to pay to third parties; |
| ● | we
face substantial competition, which may result in others discovering, developing or commercializing
products before or more successfully than we do; |
| ● | our
technologies and products under development, and our business, may fail if we are not able
to successfully commercialize them and ultimately generate significant revenues as a result; |
| ● | customers
may not adopt our products quickly, or at all; |
| ● | COVID-19
may impact our business and operations; |
| ● | the
failure to obtain or maintain patents, licensing agreements and other intellectual property
could materially impact our ability to compete effectively; |
| ● | some
of our intellectual property may be subject to “march-in” rights by the U.S.
federal government; |
| ● | we
do not expect to pay dividends in the foreseeable future; |
| ● | we
have issued a significant number of restricted stock awards, restricted stock units, options
and warrants and may continue to do so in the future. The vesting and, if applicable, exercise
of these securities and the sale of the shares of common stock issuable thereunder may dilute
your percentage ownership interest and may also result in downward pressure on the price
of our common stock; |
| ● | future
sales or issuances of substantial amounts of our common stock, including, potentially as
a result of future acquisitions or strategic transactions, could result in significant dilution; |
| ● | while
we have entered into an Asset Purchase Agreement with Cellvera Global, we cannot assure you
that the transaction contemplated by the Asset Purchase Agreement will be consummated or,
that if such transaction is consummated, that it will be accretive to stockholder value; |
| ● | we
have provided loans to Cellvera Global in the principal amount of $14.5 million, if we are
unable to complete the transactions contemplated by the Asset Purchase Agreement, we cannot
provide any assurance that we will be able to timely collect such amounts from Cellvera Global,
if at all; |
| ● | we
may engage in future acquisitions or strategic transactions, including the transaction with
Cellvera Global, which may require us to seek additional financing or financial commitments,
increase our expenses and/or present significant distractions to our management; |
| ● | exclusive
forum provisions in our amended and restated certificate of incorporation and amended and
restated bylaws. |
All
of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ
materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will
prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties
referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other
documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially
and adversely affect our business, prospects, financial condition, and results of operations. Except as required by law, we do not undertake
or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or
projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form
10-Q, even if such results, changes, or circumstances make it clear that any forward-looking information will not be realized. Any public
statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements
contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form
10-Q.
This
Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company
surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications,
articles, and surveys. Industry surveys, publications, consultant surveys, and forecasts generally state that the information contained
therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed.
While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party
sources.
References
to Aditxt, Inc.
Throughout
this Quarterly Report on Form 10-Q, the “Company,” “Aditxt,” “we,” “us,” and “our”
refers to Aditxt, Inc. and “our board of directors” refers to the board of directors of Aditxt, Inc.
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
ADITXT,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| |
June 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
ASSETS | |
| | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash | |
$ | 95,953 | | |
$ | 2,768,640 | |
Accounts
receivable, net | |
| 379,166 | | |
| 527,961 | |
Inventory | |
| 1,018,493 | | |
| 950,093 | |
Prepaid
expenses | |
| 653,954 | | |
| 496,869 | |
TOTAL
CURRENT ASSETS | |
| 2,147,566 | | |
| 4,743,563 | |
| |
| | | |
| | |
Fixed
assets, net | |
| 2,104,114 | | |
| 2,318,863 | |
Intangible
assets, net | |
| 53,500 | | |
| 107,000 | |
Deposits | |
| 287,265 | | |
| 355,366 | |
Right
of use asset - long term | |
| 2,701,338 | | |
| 3,160,457 | |
Deferred
issuance costs | |
| - | | |
| 50,000 | |
TOTAL
ASSETS | |
$ | 7,293,783 | | |
$ | 10,735,249 | |
| |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
CURRENT
LIABILITIES: | |
| | | |
| | |
Accounts
payable and accrued expenses | |
$ | 5,397,931 | | |
$ | 1,958,502 | |
Notes
payable, net of discount | |
| 2,615,946 | | |
| - | |
Notes
payable - related party | |
| 300,000 | | |
| - | |
Financing
on fixed assets | |
| 147,823 | | |
| 409,983 | |
Deferred
rent | |
| 179,302 | | |
| 188,581 | |
Lease
liability - current | |
| 1,102,779 | | |
| 1,086,658 | |
TOTAL
CURRENT LIABILITIES | |
| 9,743,781 | | |
| 3,643,724 | |
| |
| | | |
| | |
Lease
liability - long term | |
| 1,419,257 | | |
| 1,885,218 | |
| |
| | | |
| | |
TOTAL
LIABILITIES | |
| 11,163,038 | | |
| 5,528,942 | |
| |
| | | |
| | |
STOCKHOLDERS’
EQUITY (DEFICIT) | |
| | | |
| | |
Preferred stock, $0.001 par value, 3,000,000 shares authorized, zero shares issued and outstanding, respectively | |
| - | | |
| - | |
Common stock, $0.001 par value, 100,000,000 shares authorized, 6,763,750 and 4,307,487 shares issued and 6,761,733 and 4,305,470 shares outstanding, respectively | |
| 6,764 | | |
| 4,307 | |
Treasury stock, 2,017 and 2,017 shares, respectively | |
| (201,605 | ) | |
| (201,605 | ) |
Additional
paid-in capital | |
| 103,032,672 | | |
| 100,443,967 | |
Accumulated
deficit | |
| (106,707,086 | ) | |
| (95,040,362 | ) |
TOTAL
STOCKHOLDERS’ EQUITY (DEFICIT) | |
| (3,869,255 | ) | |
| 5,206,307 | |
| |
| | | |
| | |
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
$ | 7,293,783 | | |
$ | 10,735,249 | |
See
accompanying notes to the condensed consolidated financial statements.
ADITXT,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months
Ended |
|
|
Three Months
Ended |
|
|
Six Months
Ended |
|
|
Six Months
Ended |
|
|
|
June
30,
2023 |
|
|
June
30,
2022 |
|
|
June
30,
2023 |
|
|
June
30,
2022 |
|
REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
220,978 |
|
|
$ |
214,715 |
|
|
$ |
439,393 |
|
|
$ |
424,994 |
|
Cost of goods sold |
|
|
185,738 |
|
|
|
174,858 |
|
|
|
364,047 |
|
|
|
362,929 |
|
Gross Profit |
|
|
35,240 |
|
|
|
39,857 |
|
|
|
75,346 |
|
|
|
62,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses $107,156, $375,352, $381,471, and $827,337 in stock-based compensation, respectively |
|
|
3,671,083 |
|
|
|
3,788,952 |
|
|
|
8,039,926 |
|
|
|
8,413,110 |
|
Research and development, includes $53,540, $154,237, $116,173, and $303,527 in stock-based compensation, respectively |
|
|
484,835 |
|
|
|
1,187,920 |
|
|
|
1,872,376 |
|
|
|
2,616,302 |
|
Sales and marketing $2,532, $754,699, $5,035, and $754,699 in stock-based compensation, respectively |
|
|
113,759 |
|
|
|
833,942 |
|
|
|
179,376 |
|
|
|
920,541 |
|
Total
operating expenses |
|
|
4,269,677 |
|
|
|
5,810,814 |
|
|
|
10,091,678 |
|
|
|
11,949,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM OPERATIONS |
|
|
(4,234,437 |
) |
|
|
(5,770,957 |
) |
|
|
(10,016,332 |
) |
|
|
(11,887,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
(1,285,031 |
) |
|
|
(82,110 |
) |
|
|
(1,483,523 |
) |
|
|
(97,320 |
) |
Interest
income |
|
|
343 |
|
|
|
6,007 |
|
|
|
9,417 |
|
|
|
20,047 |
|
Other income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
58,960 |
|
Amortization
of debt discount |
|
|
(162,893 |
) |
|
|
(2,946 |
) |
|
|
(176,286 |
) |
|
|
(2,946 |
) |
Total
other expense |
|
|
(1,447,581 |
) |
|
|
(79,049 |
) |
|
|
(1,650,392 |
) |
|
|
(21,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
before income taxes |
|
|
(5,682,018 |
) |
|
|
(5,850,006 |
) |
|
|
(11,666,724 |
) |
|
|
(11,909,147 |
) |
Income
tax provision |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS |
|
$ |
(5,682,018 |
) |
|
$ |
(5,850,006 |
) |
|
$ |
(11,666,724 |
) |
|
$ |
(11,909,147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted |
|
$ |
(0.92 |
) |
|
$ |
(6.42 |
) |
|
$ |
(2.17 |
) |
|
$ |
(13.21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding during the period - basic and diluted |
|
|
6,177,857 |
|
|
|
911,213 |
|
|
|
5,374,826 |
|
|
|
901,468 |
|
See
accompanying notes to the condensed consolidated financial statements.
ADITXT,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
THREE
AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
| |
Preferred
Shares Outstanding | | |
Preferred
Shares Par | | |
Preferred
B Shares Outstanding | | |
Preferred B
Shares Par | | |
Common
Shares Outstanding | | |
Common
Shares Par | | |
Treasury
Stock | | |
Additional
Paid-in Capital | | |
Accumulated
Deficit | | |
Total
Stockholders’ Equity
(Deficit) | |
Balance
December 31, 2022 | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 4,305,470 | | |
$ | 4,307 | | |
$ | (201,605 | ) | |
$ | 100,443,967 | | |
$ | (95,040,362 | ) | |
$ | 5,206,307 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
option and warrant compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 59,964 | | |
| - | | |
| 59,964 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Restricted
stock unit compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 111,187 | | |
| - | | |
| 111,187 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of shares for vested restricted stock units | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,731 | | |
| 2 | | |
| - | | |
| (2 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale
of common stock | |
| | | |
| | | |
| | | |
| | | |
| 338,513 | | |
| 339 | | |
| - | | |
| 506,677 | | |
| - | | |
| 507,016 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of shares for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 187,000 | | |
| 187 | | |
| - | | |
| 168,113 | | |
| - | | |
| 168,300 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,984,706 | ) | |
| (5,984,706 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
March 31, 2023 | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 4,832,714 | | |
$ | 4,835 | | |
$ | (201,605 | ) | |
$ | 101,289,906 | | |
$ | (101,025,068 | ) | |
$ | 68,068 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
option and warrant compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 59,964 | | |
| - | | |
| 59,964 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Restricted
stock unit compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 103,264 | | |
| - | | |
| 103,264 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of shares for vested restricted stock units | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,669 | | |
| 2 | | |
| - | | |
| (2 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrants
issued for cash, net of issuance costs | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,581,467 | | |
| - | | |
| 1,581,467 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exercise
of warrants | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,927,350 | | |
| 1,927 | | |
| - | | |
| (1,927 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,682,018 | ) | |
| (5,682,018 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
June 30, 2023 | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 6,761,733 | | |
$ | 6,764 | | |
$ | (201,605 | ) | |
$ | 103,032,672 | | |
$ | (106,707,086 | ) | |
$ | (3,869,255 | ) |
See
accompanying notes to the condensed consolidated financial statements.
ADITXT,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
THREE
AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
| |
Preferred
Shares Outstanding | | |
Preferred
Shares Par | | |
Preferred
B Shares Outstanding | | |
Preferred B
Shares Par | | |
Common
Shares Outstanding | | |
Common
Shares Par | | |
Treasury
Stock | | |
Additional
Paid-in Capital | | |
Accumulated
Deficit | | |
Total
Stockholders’ Equity
(Deficit) | |
Balance
December 31, 2021 | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 888,597 | | |
$ | 899 | | |
$ | (201,605 | ) | |
$ | 77,734,288 | | |
$ | (67,352,809 | ) | |
$ | 10,180,773 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
option and warrant compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 219,885 | | |
| - | | |
| 219,885 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of shares for vested restricted stock units | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,744 | | |
| 6 | | |
| - | | |
| (6 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Restricted
stock unit compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 377,671 | | |
| - | | |
| 377,671 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of shares for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 180 | | |
| 1 | | |
| - | | |
| 3,718 | | |
| - | | |
| 3,719 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,059,141 | ) | |
| (6,059,141 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
March 31, 2022 | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 894,521 | | |
$ | 906 | | |
$ | (201,605 | ) | |
$ | 78,335,556 | | |
$ | (73,411,950 | ) | |
$ | 4,722,907 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
option and warrant compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 724,584 | | |
| - | | |
| 724,584 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of restricted stock units for compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,751 | | |
| 3 | | |
| - | | |
| (3 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Restricted
stock unit compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 309,704 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exercise
of warrants, modification of warrants, and issuance of warrants | |
| - | | |
| - | | |
| - | | |
| - | | |
| 179,419 | | |
| 180 | | |
| - | | |
| 1,203,589 | | |
| - | | |
| 1,203,769 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of shares for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 30,68 | | |
| 31 | | |
| - | | |
| 249,969 | | |
| - | | |
| 250,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,850,006 | ) | |
| (5,850,006 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
June 30, 2022 | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 1,107,376 | | |
$ | 1,120 | | |
$ | (201,605 | ) | |
$ | 80,823,399 | | |
$ | (79,261,956 | ) | |
$ | 1,360,958 | |
See
accompanying notes to the condensed consolidated financial statements.
ADITXT,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
Six Months
Ended | | |
Six Months
Ended | |
| |
June
30, 2023 | | |
June
30, 2022 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net
loss | |
$ | (11,666,724 | ) | |
$ | (11,909,147 | ) |
Adjustments
to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Stock-based
compensation | |
| 502,679 | | |
| 1,885,563 | |
Depreciation
expense | |
| 219,800 | | |
| 196,704 | |
Amortization
of intangible assets | |
| 53,500 | | |
| 53,500 | |
Amortization
of debt discount | |
| 176,286 | | |
| 2,946 | |
Changes
in operating assets and liabilities: | |
| | | |
| | |
Accounts
receivable | |
| 148,795 | | |
| (320,749 | ) |
Prepaid
expenses | |
| (157,085 | ) | |
| (130,316 | ) |
Deposits | |
| 68,101 | | |
| (31,587 | ) |
Inventory | |
| (68,400 | ) | |
| (838,198 | ) |
Accounts
payable and accrued expenses | |
| 3,489,429 | | |
| 3,237,681 | |
Net
cash used in operating activities | |
| (7,233,619 | ) | |
| (7,853,603 | ) |
| |
| | | |
| | |
CASH
FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchase
of fixed assets | |
| (5,051 | ) | |
| (274,073 | ) |
Tenant
improvement allowance receivable | |
| - | | |
| (215,173 | ) |
Notes
receivable and accrued interest | |
| - | | |
| (19,836 | ) |
Net
cash used in investing activities | |
| (5,051 | ) | |
| (509,082 | ) |
| |
| | | |
| | |
CASH
FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds
from notes - related party | |
| 687,523 | | |
| - | |
Proceeds
from notes, net of offering costs | |
| 3,433,410 | | |
| 550,000 | |
Discount
on note payable from offering costs | |
| - | | |
| (16,500 | ) |
Repayments
of note payable - related party | |
| (387,523 | ) | |
| - | |
Repayments
of note payable | |
| (993,750 | ) | |
| (70,598 | ) |
Warrants
issued for cash, net of issuance costs | |
| 1,581,467 | | |
| - | |
Common
stock issued for cash, net of issuance costs | |
| 507,016 | | |
| - | |
Exercise
of warrants, modification of warrants, and issuance of warrants | |
| - | | |
| 1,203,769 | |
Payments
on financing on fixed asset | |
| (262,160 | ) | |
| (372,076 | ) |
Net
cash provided by financing activities | |
| 4,565,983 | | |
| 1,294,595 | |
| |
| | | |
| | |
NET
DECREASE IN CASH | |
| (2,672,687 | ) | |
| (7,068,090 | ) |
| |
| | | |
| | |
CASH
AT BEGINNING OF YEAR | |
| 2,768,640 | | |
| 7,872,061 | |
| |
| | | |
| | |
CASH
AT END OF PERIOD | |
$ | 95,953 | | |
$ | 803,971 | |
| |
| | | |
| | |
Supplemental
cash flow information: | |
| | | |
| | |
Cash
paid for income taxes | |
$ | - | | |
$ | - | |
Cash
paid for interest expense | |
$ | 1,524,544 | | |
$ | 70,831 | |
See
accompanying notes to the condensed consolidated financial statements.
ADITXT,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
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
April 13, 2023, the Company formed Adivir, Inc., a Delaware wholly owned subsidiary.
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 of the Company.
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 10)
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.
On
April 20, 2023, the Company entered into a securities purchase agreement (the “April Purchase Agreement”) with an institutional
investor, pursuant to which the Company agreed to sell to such investor pre-funded warrants (the “Pre-Funded Warrants”) to
purchase up to 1,585,350 shares of common stock of the Company (the “Common Stock”) at a purchase price of $1.219 per
Pre-Funded Warrant. The Pre-Funded Warrants (and shares of common stock underlying the Pre-Funded Warrants) were offered by the Company
pursuant to its shelf registration statement on Form S-3 (File No. 333-257645), which was declared effective by the Securities and Exchange
Commission on July 13, 2021. Concurrently with the sale of the Pre-Funded Warrants, pursuant to the Purchase Agreement in a concurrent
private placement, for each Pre-Funded Warrant purchased by the investor, such investor received from the Company an unregistered warrant
(the “Warrant”) to purchase two shares of Common Stock. The warrants have an exercise price of $0.86 per share,
and are exercisable for a three year period. In addition, the Company issued a warrant to the placement agent to purchase up
to 95,121 shares of common stock at an exercise price of $1.525 per share. The closing of the sales of these securities under the Purchase
Agreement took place on April 24, 2023. The gross proceeds from the offering were approximately $1.9 million, prior to deducting
placement agent’s fees and other offering expenses payable by the Company. The Company intends to use the net proceeds from the
offering for working capital and other general corporate purposes.
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 six months ended June 30,
2023, the Company had a net loss of $11,666,724 and negative cash flow from operating activities of $7,233,619. As of June 30, 2023,
the Company’s cash balance was $95,953.
As
of June 30, 2023, the Company had zero availability to sell under its shelf registration statement on Form S-3. Upon the filing of the
Company’s annual report on Form 10-K on April 17, 2023, the Company’s aggregate market value of the voting and non-voting
equity held by non-affiliates was below $75.0 million. As a result, the maximum amount that the Company can sell under its shelf
registration statement on Form S-3 during any 12 month period is equal to one-third of the aggregate market value of the voting and non-voting
equity held by non-affiliates of the Company.
On
May 23, 2023, we received written notice from Nasdaq that, based upon the stockholders equity reported by the Company in its Form
10-Q for the period ended March 31, 2023, and as of March 31, 2023, the Company was no longer in compliance with Nasdaq Listing Rule
5550(b)(1), which requires a company to maintain a minimum of $2,500,000 in stockholders’ equity, a market value of listed securities
of at least $35 million, or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of
the three most recently completed fiscal years (the “Continued Listing Requirements”). The May notification letter further
provided that the Company has 45 calendar days, or until July 7, 2023, to submit a plan to regain compliance and if the plan is accepted
by Nasdaq, an extension of up to 180 calendar days, or until November 19, 2023 to evidence compliance. On
June 22, 2023, we received a letter from Nasdaq notifying the Company that it has failed to maintain compliance with the minimum bid
price rule in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”) as the closing price of Company’s common
stock has remained below $1.00 for over 30 consecutive trading days. On June 29, 2023, we submitted an appeal to Nasdaq, which stays
the delisting and suspension of our securities pending the decision of the Nasdaq Hearings Panel (the “Panel”). At the hearing,
which will be held on August 31, 2023, we intend to present its views and its plans to regain compliance with the Equity and Minimum
Bid Price Rules to the Panel. There can be no assurance that we will be able to evidence compliance with the Minimum Bid Price Rule prior
to the hearing. It is our understanding that the Panel typically issues its decision within 30 days after the hearing.
If
we are delisted from Nasdaq, but obtain a substitute listing for our common stock, it will likely be on a market with less liquidity,
and therefore experience potentially more price volatility than experienced on Nasdaq. Stockholders may not be able to sell their shares
of common stock on any such substitute market in the quantities, at the times, or at the prices that could potentially be available on
a more liquid trading market. As a result of these factors, if our common stock is delisted from Nasdaq, the value and liquidity of our
common stock, warrants and pre-funded warrants would likely be significantly adversely affected. A delisting of our common stock from
Nasdaq could also adversely affect our ability to obtain financing for our operations and/or result in a loss of confidence by investors,
employees and/or business partners.
In
addition, 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.
In
addition to the shelf registration, the Company has the ability to raise capital from equity or debt through private placements or public
offerings pursuant to a registration statement on Form S-1. We may also secure loans from related parties.
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
accompanying unaudited condensed consolidated 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
consolidated financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair
presentation of the results for the interim periods ended June 30, 2023 and June 30, 2022. Although management believes that the disclosures
in these unaudited condensed consolidated financial statements are adequate to make the information presented not misleading, certain
information and footnote disclosures normally included in condensed consolidated 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 consolidated 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, 2022, filed with
the SEC on April 17, 2023. The interim results for the six months ended June 30, 2023 are not necessarily indicative of the results to
be expected for the year ended December 31, 2023 or for any future interim periods.
Principles
of Consolidation
The
unaudited consolidated financial statements include the accounts of Aditxt, Inc., and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in the condensed consolidated financial statements.
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 June 30, 2023 and December 31, 2022, there was an allowance for doubtful
accounts of zero and $18,634, 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 six months ended June 30, 2023 and 2022, the Company incurred patent licensing fees for the patents of $74,525 and $248,813,
respectively.
Research
and Development
We
incur research and development costs during the process of researching and developing our technologies and future offerings. We expense
these costs as incurred unless such costs qualify for capitalization under applicable guidance. During the six months ended June 30,
2023 and 2022, the Company incurred research and development costs of $1,872,376 and $2,616,302, 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 June 30,
2023, 44,712 stock options, 2,603 unvested restricted stock units, and 7,903,748 warrants were excluded
from dilutive earnings per share as their effects were anti-dilutive. As of June 30, 2022, 2,235,466 stock options, 865,900 unvested
restricted stock units, and 45,963,691 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 financial statements.
NOTE
4 – FIXED ASSETS
The
Company’s fixed assets include the following on June 30, 2023:
| |
Cost
Basis | | |
Accumulated
Depreciation | | |
Net | |
Computers | |
$ | 378,480 | | |
$ | (260,931 | ) | |
$ | 117,549 | |
Lab Equipment | |
| 2,575,720 | | |
| (719,859 | ) | |
| 1,855,861 | |
Office Furniture | |
| 56,656 | | |
| (11,033 | ) | |
| 45,623 | |
Other Fixed Assets | |
| 8,605 | | |
| (1,654 | ) | |
| 6,951 | |
Leasehold Improvements | |
| 120,440 | | |
| (42,310 | ) | |
| 78,130 | |
Total Fixed Assets | |
$ | 3,139,901 | | |
$ | (1,035,787 | ) | |
$ | 2,104,114 | |
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 | |
Depreciation
expense was $109,904 and $99,852, for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense was $219,800 and
$196,704, for the six months ended June 30, 2023 and 2022, respectively. None of the Company’s fixed assets serve as collateral
against any loans as of June 30, 2023 and December 31, 2022, other than those subject to the financed asset liability. As of June 30,
2023 and December 31, 2022, the fixed assets that serve as collateral subject to the financed asset liability have a carrying value of
$1,316,830 and $1,359,091, 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%. As of June 30, 2023, the Company has one payment in arrears.
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%. As of June 30, 2023, the Company has one payment in arrears.
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%. As of June 30, 2023, the Company has four payments in arrears.
As
of June 30, 2023 all lab equipment financing agreements have matured.
NOTE
5 – INTANGIBLE ASSETS
The
Company’s intangible assets include the following on June 30, 2023:
| |
Cost
Basis | | |
Accumulated
Amortization | | |
Net | |
Proprietary
Technology | |
$ | 321,000 | | |
$ | (267,500 | ) | |
$ | 53,500 | |
Total
Intangible Assets | |
$ | 321,000 | | |
$ | (267,500 | ) | |
$ | 53,500 | |
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 | |
Amortization
expense was $26,750 and $26,750 for the three months ended June 30, 2023 and 2022, respectively. Amortization expense was $53,500 and
$53,500 for the six months ended June 30, 2023 and 2022, respectively. None of the Company’s intangible assets serve as collateral
against any loans as of June 30, 2023 and December 31, 2022. The Company’s proprietary technology is being amortized over its estimated
useful life of three years.
NOTE
6 – RELATED PARTY TRANSACTIONS
On
April 21, 2023, Amro Albanna, the Chief Executive Officer of the Company, and Shahrokh Shabahang, the Chief Innovation Officer of the
Company, loaned $87,523 and $100,000, respectively, to the Company. The loans were evidenced by an unsecured promissory note (the
“Note”). Pursuant to the terms each Note, it will accrue interest at the Prime rate of eight percent (8.00%) per annum and
is due on the earlier of October 21, 2023, or an event of default, as defined therein. As of June 30, 2023, the note was fully paid off.
On
May 25, 2023, Amro Albanna, the Chief Executive Officer of the Company, loaned $200,000 to the Company. The loan was evidenced by an
unsecured promissory note (the “Note”). Pursuant to the terms of the Note, it will accrue interest at a rate of eight and
one-quarter percent (8.25%) per annum, the Prime rate on the date of signing, and is due on the earlier of November 25, 2023 or an event
of default, as defined therein. As of June 30, 2023, the note was fully paid off.
On
June 12, 2023, Amro Albanna, the Chief Executive Officer of the Company, and Shahrokh Shabahang, the Chief Innovation Officer of the
Company, loaned $200,000 and $100,000, respectively, to the Company. The loans were evidenced by an unsecured promissory note (the
“Note”). Pursuant to the terms of the Note, it will accrue interest at the Prime rate of eight and one-quarter percent (8.25%)
per annum and is due on the earlier of December 12, 2023, or an event of default, as defined therein. As of June 30, 2023, the principal
balance of the Notes are $300,000 and accrued interest of $1,221.
NOTE
7 – NOTES PAYABLE
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 Future Receipts 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 May 30, 2023, the Company entered into the May Loan (as defined below) for gross proceeds to the Company of $2,000,000, less
origination fees of $100,000 and less the full outstanding balance under the Future Receipts Agreement of $1,157,143, resulting in net
proceeds to the Company of $742,857.
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; (i) any and all amounts owed to the Company now or
in the future from any merchant processor processing charges made by customers of the Company via credit card or debit card transactions,
and (ii) all other tangible and intangible property. 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 24, 2023 the Company entered into the Loan Agreement (as defined below) for
gross proceeds of $1,000,000, less the full outstanding balance under the April Loan Agreement of $139,500, resulting net proceeds to
the Company of $860,500.
On
April 24, 2023, the Company entered into a Business Loan and Security Agreement (the “Loan Agreement”) with a commercial
funding source (the “Lender”), pursuant to which the Company obtained a loan from the Lender in the principal amount
of $1,060,000, which includes origination fees of $60,000 (the “Loan”). Pursuant to the Loan Agreement, the Company
granted the Lender a continuing secondary security interest in; (i) any and all amounts owed to the Company now or in the future from
any merchant processor processing charges made by customers of the Company via credit card or debit card transactions, and (ii) all other
tangible and intangible property. The total amount of interest and fees payable by the Company to the Lender under the Loan (the “Repayment
Amount”) will be $1,590,000 and will be repaid in 20 weekly installments of $79,500. As of June 30, 2023, there
was a remaining principal balance of $783,294 on the Loan and an unamortized debt discount of $33,000. The Company and the Lender agreed
to a temporary reduction in the amount of the weekly payments.
On
May 30, 2023, the Company entered into a Business Loan and Security Agreement (the “May Loan Agreement”) with a commercial
funding source (the “May Lender”), pursuant to which the Company obtained a loan from the Lender in the principal
amount of $2,000,000, which includes origination fees of $100,000 (the “May Loan”). Pursuant to the May Loan
Agreement, the Company granted the May Lender a continuing secondary security interest in; (i) any and all amounts owed to the Company
now or in the future from any merchant processor processing charges made by customers of the Company via credit card or debit card transactions,
and (ii) all other tangible and intangible property. The total amount of interest and fees payable by the Company to the Lender under
the Loan will be $2,880,000 and will be repaid in 28 weekly installments of $102,857. As of June 30, 2023, there was a
remaining principal balance of $1,951,366 on the May Loan and an unamortized debt discount of $85,714. The Company and the May Lender
have agreed to a temporary reduction in the amount of the weekly payments.
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 June 30, 2023 and December 31, 2022 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.
As
of June 30, 2023, the Company is in arrears on certain lease payments in the aggregate amount of approximately $281,000.
Lease
Costs
| |
Six
Months Ended June 30, 2023 | | |
Six
Months Ended June 30, 2022 | |
Components of total lease costs: | |
| | |
| |
Operating
lease expense | |
$ | 596,560 | | |
$ | 653,408 | |
Total
lease costs | |
$ | 596,560 | | |
$ | 653,408 | |
Lease
Positions as of June 30, 2023 and December 31, 2022
ROU
lease assets and lease liabilities for our operating leases are recorded on the balance sheet as follows:
| |
June
30, 2023 | | |
December 31,
2022 | |
Assets | |
| | |
| |
Right
of use asset – long term | |
$ | 2,701,338 | | |
$ | 3,160,457 | |
Total
right of use asset | |
$ | 2,701,338 | | |
$ | 3,160,457 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Operating
lease liabilities – short term | |
$ | 1,102,779 | | |
$ | 1,086,658 | |
Operating
lease liabilities – long term | |
| 1,419,257 | | |
| 1,885,218 | |
Total
lease liability | |
$ | 2,522,036 | | |
$ | 2,971,876 | |
Lease
Terms and Discount Rate as of June 30, 2023
Weighted average remaining lease
term (in years) – operating leases | |
| 2.29 | |
Weighted average discount rate – operating
leases | |
| 8.00 | % |
Maturities
of leases are as follows:
Six
Months Ended June 30, 2023
2023 (remaining) | |
$ | 570,629 | |
2024 | |
| 1,004,982 | |
2025 | |
| 710,546 | |
2026 | |
| 423,930 | |
Total lease payments | |
$ | 2,710,087 | |
Less imputed interest | |
| (188,051 | ) |
Less current portion | |
| (1,102,779 | ) |
Total maturities, due
beyond one year | |
$ | 1,419,257 | |
NOTE
9 – COMMITMENTS & CONTINGENCIES
License
Agreement with Loma Linda University
On
March 8, 2018, we entered into an Assignment Agreement (the “Assignment Agreement”) with Sekris Biomedical, Inc. (“Sekris”).
Sekris was a party to a License Agreement with Loma Linda University (“LLU”), entered into and made effective on May 25,
2011, and amended on June 24, 2011, July 16, 2012 and December 27, 2012 (the “Original Agreement,” and together with the
Assignment Agreement, the “Sekris Agreements”). Pursuant to the Assignment Agreement, Sekris transferred and assigned all
of its rights and obligations in and to liabilities under the Original Agreement, of whatever kind or nature, to us. In exchange, on
March 8, 2018, we issued a warrant to Sekris to purchase up to 10,000 shares of our common stock (the “Sekris Warrant”).
The warrant was immediately exercisable and had an exercise price of $200.00 per share. The expiration date of the warrant was March
8, 2023. On March 15, 2018, as amended on July 1, 2020, we entered into a LLU License Agreement directly with Loma Linda University,
which amends and restates the Sekris Agreements.
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: $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. 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 due at the end of December 2018, and
a final payment of $60,000 due 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 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 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) submission of an IND/clinical
trial application to initiate first-in-human clinical trials on or before March 31, 2022, which was extended to March 31, 2023 due to
the payment of a $100,000 extension fee paid in March 2022. The Company plans to exercise its right to request the option to extend this
milestone as it continues its ongoing clinical trial programs planned by its subsidiary, Adimune, (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 with
regard to a patent concerning a method for detection and measurement of specific cellular responses. Pursuant to the February 2020 License
Agreement, other than as described below, we received an exclusive worldwide license to Stanford’s patent with regard to 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. 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),
(v) 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) will provide further development and commercialization milestones for specific
fields of use in writing by December 31, 2022 (which has been completed).
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.
Asset
Purchase Agreement
On
April 18, 2023, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Cellvera Global
Holdings LLC (“Cellvera Global”), Cellvera Holdings Ltd. (“BVI Holdco”), Cellvera, Ltd. (“Cellvera Ltd.”),
Cellvera Development LLC (“Cellvera Development” and together with Cellvera Global, BVI Holdco, Cellvera Ltd. and Cellvera
Development (the “Sellers”), AiPharma Group Ltd. (“Seller Owner” and collectively with the Sellers, “Cellvera”),
and the legal representative of Cellvera, pursuant to which, the Company will purchase Cellvera’s 50% ownership interest in
G Response Aid FZE (“GRA”), certain other intellectual property and all goodwill related thereto (the “Acquired Assets”). Unless
expressly stated otherwise herein, capitalized terms used but not defined herein have the meanings ascribed to them in the Asset Purchase
Agreement. Pursuant to the Asset Purchase Agreement, the consideration for the Acquired Assets consists of (A) $24.5 million,
comprised of: (i) the forgiveness of the Company’s $14.5 million loan to Cellvera Global, and (ii) approximately $10 million
in cash, and (B) future revenue sharing payments for a term of seven years. GRA holds an exclusive, worldwide license for the antiviral
medication, Avigan® 200mg, excluding Japan, China and Russia. The other 50% interest in GRA is held by Agility, Inc. (“Agility”).
Additionally, upon the closing, the Share Exchange Agreement previously entered into as of December 28, 2021, between Cellvera Global
Holdings, LLC f/k/a AiPharma Global Holdings, LLC (together with other affiliates and subsidiaries) and the Company, and all other related
agreements will be terminated.
The
obligations of the Company to consummate the closing are subject to the satisfaction or waiver, at or prior to the Closing of certain
conditions, including but not limited to, the following:
|
(i) |
Satisfactory completion
of due diligence; |
|
|
|
|
(ii) |
Completion by the Company
of financing sufficient to consummate the transactions contemplated by the Asset Purchase Agreement; |
|
|
|
|
(iii) |
Receipt by the Company
of all required Consents from Governmental Bodies for the Acquisition, including but not limited to, any consents required to complete
the transfer and assignment of Cellvera’s membership interests in GRA; |
|
(iv) |
Receipt of executed payoff
letters reflecting the amount required to be fully pay all of each of Seller’s and Seller Owner’s Debt to be paid at
Closing; |
|
|
|
|
(v) |
Receipt by the Company
of a release from Agility; |
|
|
|
|
(iv) |
Execution of an agreement
acceptable to the Company with respect to the acquisition by the Company of certain intellectual property presently held by a third
party; |
|
|
|
|
(v) |
Execution of an amendment
to an asset purchase agreement previously entered into by Cellvera with a third party that effectively grants the Company the rights
to acquire the intellectual property from the third party under such agreement; |
|
|
|
|
(vi) |
Receipt of a fairness opinion
by the Company with respect to the transactions contemplated by the Asset Purchase Agreement; and |
|
|
|
|
(vii) |
Receipt by the Company
from the Seller Owner of written consent, whether through its official liquidator or the Board of Directors of Seller Owner, to the
sale and purchase of the Acquired Assets and Assumed Liabilities pursuant to the Assert Purchase Agreement. |
Off
Balance Sheet Arrangements
From
time to time the Company enters short term research and development contracts. These contracts have payment provisions which require
payment once regulatory and completion milestones are met. As of June 30, 2023, the Company has approximately $1.8 million outstanding,
subject to these milestones.
NOTE
10 – STOCKHOLDERS’ EQUITY (DEFICIT)
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 six months ended June 30, 2023, the Company issued 187,000 shares of common stock and recognized expense of $168,300 in
stock-based compensation for consulting services. 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. During the six months ended June 30, 2023, 3,400 Restricted
Stock Units vested which resulted in the issuance of shares. The Company recognized expense of $214,451 in stock-based compensation
related to the RSU’s for the six months ended June 30, 2023. 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 six months ended June 30, 2023, the Company
issued 1,927,350 shares of common stock for the exercise of prefunded warrants.
During
the six months ended June 30, 2022, the Company issued 30,865 shares of common stock and recognized expense of $253,719 in stock-based
compensation for consulting services. The Company also granted 11,644 Restricted Stock Units, 8,508 Restricted Stock Units vested and
resulted in the issuance of shares. As a result, the Company recognized expense of $687,375 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.
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.
For
the six months ended June 30, 2023, 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 $507,016 after paying commissions and related fees.
On
April 20, 2023, the Company entered into an amendment to the ATM, pursuant to which the Company and the Agent agreed to reduce the aggregate
gross sales price of the Shares under the ATM from $50,000,000 to zero.
Preferred
Stock
The
Company is authorized to issue 3,000,000 shares of preferred stock, par value $0.001 per share. There were no shares
of preferred stock outstanding as of June 30, 2023 and December 31, 2022, 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 three and six months ended June 30, 2023 and 2022, 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, 2022 | |
| 44,710 | | |
$ | 170.00 | | |
| 5.74 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Expired or forfeited | |
| - | | |
| - | | |
| - | |
Outstanding June 30, 2023 | |
| 44,710 | | |
$ | 170.00 | | |
| 5.25 | |
Nonvested
Stock Options | |
Number | | |
Weighted-
Average Exercise Price | |
Nonvested on December 31, 2022 | |
| 2,025 | | |
$ | 96.00 | |
Granted | |
| - | | |
| - | |
Vested | |
| (1,350 | ) | |
| 96.00 | |
Forfeited | |
| - | | |
| - | |
Nonvested on June 30, 2023 | |
| 675 | | |
$ | 96.00 | |
As
of June 30, 2023 there were 44,037 exercisable options, these options had a weighted average exercise price $171.13.
The
Company recognized stock-based compensation expense related to options granted and vesting expense of $119,928 during the six months
ended June 30, 2023, of which $48,858 is included in general and administrative expenses and $71,070 is included in research
and development expenses in the accompanying statements of operations. The remaining value to be expensed is $59,964 with a weighted
average vesting term of 0.25 years as of June 30, 2023. The Company recognized stock-based compensation expense related to
options granted and vesting expense of $387,246 during the six months ended June 30, 2022, of which $267,318 is included in
general and administrative expenses and $119,928 is included in research and development expenses in the accompanying statements
of operations.
The
Company recognizes option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeitures
rates.
Warrants
For
the three and six months ended June 30, 2023 and 2022 there were no new warrants granted that required a Black Scholes valuation, therefore
no fair value was assigned.
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, 2022 | |
| 5,090,024 | | |
$ | 12.83 | | |
| 4.54 | |
Granted | |
| 4,851,171 | | |
| 0.59 | | |
| 2.59 | |
Exercised | |
| (1,927,350 | ) | |
| 0.001 | | |
| - | |
Expired or forfeited | |
| (14,976 | ) | |
| 205.05 | | |
| - | |
Outstanding June 30, 2023 | |
| 7,998,869 | | |
$ | 8.18 | | |
| 3.61 | |
Nonvested
Warrants | |
Number | | |
Weighted-
Average Exercise Price | |
Nonvested on December 31, 2022 | |
| 100,000 | | |
$ | 7.50 | |
Granted | |
| 4,851,171 | | |
| 0.59 | |
Vested | |
| (4,951,171 | ) | |
| 0.73 | |
Forfeited | |
| - | | |
| - | |
Nonvested on June 30, 2023 | |
| - | | |
$ | - | |
The
Company recognized stock-based compensation expense related to warrants granted and vesting expense of zero and $557,223 during
the six months ended June 30, 2023 and 2022, respectively, which is included in general and administrative in the accompanying Statements
of Operations. The remaining value to be expensed is zero as of June 30, 2023. The weighted average vesting term is zero years
as of June 30, 2023.
On
April 20, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional
investor, pursuant to which the Company agreed to sell to such investor pre-funded warrants (the “Pre-Funded Warrants”) to
purchase up to 1,585,350 shares of common stock of the Company (the “Common Stock”) at a purchase price of $1.219 per Pre-Funded
Warrant, resulting in proceeds of approximately $1.6 million after deducting approximately $291,000 in commissions and closing fees.
Concurrently with the sale of the Pre-Funded Warrants, pursuant to the Purchase Agreement in a concurrent private placement, for each
Pre-Funded Warrant purchased by the investor, such investor received from the Company an unregistered warrant (the “Warrant”)
to purchase two shares of Common Stock. The warrants have an exercise price of $0.86 per share, and are exercisable for a three year
period. In addition, the Company issued a warrant to the placement agent to purchase up to 95,121 shares of common stock at an exercise
price of $1.525 per share.
Restricted
Stock Units
A
summary of Restricted Stock Units (“RSUs”) issuances are as follows:
Nonvested
RSUs | |
Number | | |
Weighted
Average Price | |
Nonvested December 31, 2022 | |
| 7,197 | | |
$ | 46.72 | |
Granted | |
| - | | |
| - | |
Vested | |
| (3,400 | ) | |
| 56.81 | |
Forfeited | |
| (1,199 | ) | |
| 22.87 | |
Nonvested June 30, 2023 | |
| 2,598 | | |
$ | 44.61 | |
The
Company recognized stock-based compensation expense related to RSUs granted and vesting expense of $214,451 and $687,375 during
the six months ended June 30, 2023 and June 30, 2022, respectively, of which, $164,313 is included in general and administrative,
$45,103 is included in research and development, and $5,035 is included in sales and marketing in the accompanying Statements
of Operations. The remaining value to be expensed is $92,627 with a weighted average vesting term of 0.15 years as of
June 30, 2023.
During
the six months ended June 30, 2023, the Company granted a total of zero RSUs. During the six months ended June 30, 2023, 3,400 RSUs
vested and the Company issued 3,400 shares of common stock for the 3,400 vested RSUs.
NOTE
11 – INCOME TAXES
The
Company has incurred losses since inception. During the six months ended June 30, 2023, the Company did not provide any provision for
income taxes as the Company incurred losses during such period. The Company accounts for income taxes using the asset and liability method
in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets
and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured
using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. In assessing the
need for a valuation allowance, the Company has considered both positive and negative evidence related to the likelihood of realization
of deferred tax assets using a “more likely than not” standard. In making such assessment, more weight was given to evidence
that could be objectively verified, including recent cumulative losses. Based on the Company’s review of this evidence, the Company
has recorded a full valuation allowance for its net deferred tax assets as of June 30, 2023.
As
of June 30, 2023, the Company did not have any amounts recorded pertaining to uncertain tax positions.
NOTE
12 – SUBSEQUENT EVENTS
Securities
Purchase Agreement
On
July 3, 2023, the Company entered into a Securities Purchase Agreement (the “First Tranche Securities Purchase Agreement”)
with an accredited investor pursuant to which the Company issued and sold a secured promissory note in the principal amount of $375,000
(the “First Tranche Note”) resulting in gross proceeds to the Company of $250,000. In connection with the issuance of the
First Tranche Note, the Company issued 156,250 shares of its common stock (the “First Tranche Commitment Shares”) as a commitment
fee to the investor. Pursuant to the First Tranche Securities Purchase Agreement, the Company is obligated to obtain approval of its
shareholders (“First Tranche Shareholder Approval”) with respect to the issuance of any securities in connection with the
First Tranche Securities Purchase Agreement and the First Tranche Note in excess of 19.99% of the Company’s issued and outstanding
shares on the closing date, which is equal to 1,351,670 shares of the Company’s common stock. The Note has a maturity date of December
31, 2023 and is convertible following First Tranche Shareholder Approval and the occurrence of an Event of Default (as defined in the
July Note) at a conversion price of $0.45 per share.
In
connection with the First Tranche Securities Purchase Agreement and the issuance of the First Tranche Note, the Company and certain of
its subsidiaries also entered into a Security Agreement with the investor (the “First Tranche Security Agreement”) pursuant
to which it granted the investor a security interest in certain Collateral (as defined in the First Tranche Security Agreement) to secure
its obligations under the First Tranche Note. In addition, the Company entered into a registration rights agreement with the investor
pursuant to which the Company agreed to prepare and file with the U.S. Securities and Exchange Commission a registration statement covering
the resale of the First Tranche Commitment Shares and any shares of the Company’s common stock issuable upon conversion of the
First Tranche Note within 120 days of the closing date and to have such registration statement declared effective within 150 days of
the closing date.
On July 24, 2023,the Company entered into a Securities
Purchase Agreement (the “Second Tranche Securities Purchase Agreement”) with an accredited investor pursuant to which the
Company issued and sold a secured promissory note in the principal amount of $2,625,000 (the “Second Tranche Note”)
resulting in gross proceeds to the Company of $1,750,000. In connection with the issuance of the Second Tranche Note, the Company agreed
to issue a total of 1,093,750 shares of its common stock (the “Second Tranche Commitment Shares”) as a commitment fee to the
investor. At the request of the investor, the Company issued 691,106 Second Tranche Commitment Shares and will issue the remaining 402,644
Second Tranche Commitment Shares within 120 days, subject to the investor’s discretion. Pursuant to the Second Tranche Securities
Purchase Agreement, the Company is obligated to obtain approval of its shareholders (“Second Tranche Shareholder Approval”)
with respect to the issuance of any securities in connection with the Second Tranche Securities Purchase Agreement and the Second Tranche
Note in excess of 19.99% of the Company’s issued and outstanding shares on the closing date, which is equal to 1,521,056 shares
of the Company’s common stock. The Note has a maturity date of December 31, 2023 and is convertible following Second Tranche Shareholder
Approval and the occurrence of an Event of Default (as defined in the Second Tranche Note) at a conversion price of $0.39 per share.
In connection with the Second Tranche Securities
Purchase Agreement and the issuance of the Second Tranche Note, the Company and certain of its subsidiaries also entered into a Security
Agreement with the investor (the “Second Tranche Security Agreement”) pursuant to which it granted the investor a security
interest in certain Collateral (as defined in the Second Tranche Security Agreement) to secure its obligations under the Second Tranche
Note. In addition, the Company entered into a registration rights agreement with the investor pursuant to which the Company agreed to
prepare and file with the U.S. Securities and Exchange Commission a registration statement covering the resale of the Second Tranche Commitment
Shares and any shares of the Company’s common stock issuable upon conversion of the Second Tranche Note within 90 days of the closing
date and to have such registration statement declared effective within 120 days of the closing date.
Business
Loan and Security Agreement
Also
on July 3, 2023, the Company entered into a Business Loan and Security Agreement (the “July Loan Agreement”) with a commercial
funding source (the “July Lender’’), pursuant to which the Company obtained a loan from the Lender in the principal
amount of $215,000, which includes origination fees of $10,750 (the “July Loan”). Pursuant to the July Loan Agreement, the
Company granted the July Lender a continuing secondary security interest in certain collateral (as defined in the July Loan Agreement).
The total amount of interest and fees payable by the Company to the Lender under the Loan (the “Repayment Amount”) will be
(i) $322,285 and will be repaid in 13 weekly installments of $24,500 with a final payment of $3,785 in the fourteenth week.
Series
C Preferred Stock
On
July 11, 2023, 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
Amended and 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 $1,000 in cash.
On
July 11, 2023, the Company entered into a Subscription and Investment Representation Agreement (the “Subscription Agreement”)
with Amro Albanna, its Chief Executive Officer, who is an accredited investor (the “Purchaser”), pursuant to which the Company
agreed to issue and sell one (1) share of the Company’s Series C Preferred Stock, par value $0.001 per share (the “Preferred
Stock”), to the Purchaser for $1,000 in cash. The sale closed on July 11, 2023. The Subscription Agreement contains customary representations
and warranties and certain indemnification rights and obligations of the parties.
Departure
of Officer
On July 21, 2023, Matthew Shatzkes tendered his
resignation as Chief Legal Officer, General Counsel and Corporate Secretary of the Company. In connection with his resignation, the Company
entered into a Separation Agreement and General Release (the “Separation Agreement”). Pursuant to the Separation Agreement,
Mr. Shatzkes employment with the Company terminated on August 4, 2023 (the “Termination Date”). In addition, the Company agreed
to pay Mr. Shatzkes within seven days after the Termination Date: (i) $122,292, representing all accrued salary and wages (inclusive of
Base Compensation and earned Subsequent Quarterly Bonus amounts, as those terms are defined in Mr. Shatzkes employment agreement), and
(ii) $32,576, representing Mr. Shatzkes accrued, but unused paid time off (collectively, the “Initial Payment”). The Company
also agreed to pay Mr. Shatzkes: (i) $385,000, representing 12 months of Mr. Shatzkes Base Compensation (as that term is defined in Mr.
Shatzkes employment agreement), and (ii) $290,000, representing Mr. Shatzkes Subsequent Year Minimum Bonus (as such term is defined in
Mr. Shatzkes employment agreement), on the 60th day following the Termination Date. In addition, the Company shall reimburse Mr. Shatzkes
COBRA premium for a period of 12 months and shall cause any restricted stock units granted to Mr. Shatzkes to immediately vest as of the
Termination Date. On August 11, 2023 the Company paid $50,000 of the Initial Payment and is currently in negotiations with Mr. Shatzkes
to determine timing of the payment of the remaining balance of the Initial Payment.
Letter
of Intent Termination
On
August 1, 2023, the Company and Natural State Genomics and Natural State Laboratories mutually agreed to terminate the Amended and Restated
Non-Binding Letter of Intent dated June 12, 2023.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed
consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial
statements and related notes for the year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the Securities
and Exchange Commission, or SEC. In addition to historical information, this discussion and analysis contains forward-looking statements
that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and
elsewhere in this Quarterly Report on Form 10-Q, including those factors set forth in the section entitled “Cautionary Note Regarding
Forward-Looking Statements and Industry Data” and in the section entitled “Risk Factors” in Part II, Item 1A.
Overview
and Mission
We
believe the world needs—and deserves—a new approach to innovating that harnesses the power of large groups of stakeholders
who work together to ensure that the most promising innovations make it into the hands of people who need them most.
We
were incorporated in the State of Delaware on September 28, 2017, and our headquarters arein Richmond, Virginia. The company was founded
with a mission of bringing stakeholders together, to transform promising innovations into products and services that could address some
of the most challenging needs. The socialization of innovation through engaging stakeholders in every aspect of it, is key to transforming
more innovations, more rapidly, and more efficiently.
At
inception, the first innovation we took on was an immune modulation technology titled ADI/Adimune with a focus on prolonging life and
enhancing life quality of patients that have undergone organ transplants. Since then, we expanded our portfolio of innovations, and we
continue to evaluate a variety of promising health innovations.
ADIMUNE,
INC.
Formed
in January 2023, Adimune™, Inc. (“Adimune”) is focused on leading our immune modulation therapeutic programs. Adimune’s
proprietary immune modulation product Apoptotic DNA Immunotherapy™, or ADI-100™, utilizes a novel approach that mimics the
way our bodies naturally induce tolerance to our own tissues. It includes two DNA molecules designed to deliver signals to induce tolerance.
ADI-100 has been successfully tested in several preclinical models (e.g., skin grafting, psoriasis, type 1 diabetes, multiple sclerosis).
In
May 2023, Adimune entered into a clinical trial agreement with Mayo Clinic to advance clinical studies targeting autoimmune diseases
of the central nervous system (“CNS”) with the initial focus on the rare, but debilitating, autoimmune disease Stiff Person
Syndrome (“SPS”). According to the National Organization of Rare Diseases, the exact incidence and prevalence of SPS is unknown;
however, one estimate places the incidence at approximately one in one million individuals in the general population.
Pending
approval by the International Review Board, a human trial for SPS is expected get underway in the second half of 2023 or the first half
of 2024 with enrollment of 10-15 patients, some of whom may also have type 1 diabetes. ADI-100 will initially be tested for safety and
efficacy. ADI-100 is designed to tolerize against an antigen known as glutamic acid decarboxylase (“GAD”), which is implicated
in type-1 diabetes, psoriasis, and in many autoimmune diseases of the CNS.
Background
The
discovery of immunosuppressive (anti-rejection and monoclonal) drugs over 40 years ago has made possible life-saving organ transplantation
procedures and blocking of unwanted immune responses in autoimmune diseases. However, immune suppression leads to significant undesirable
side effects, such as increased susceptibility to life-threatening infections and cancers, because it indiscriminately and broadly suppresses
immune function throughout the body. While the use of these drugs has been justifiable because they prevent or delay organ rejection,
their use for treatment of autoimmune diseases and allergies may not be acceptable because of the aforementioned side effects. Furthermore,
often transplanted organs ultimately fail despite the use of immune suppression, and about 40% of transplanted organs survive no more
than five years.
Through
Aditxt, Adimune has the right of use to the exclusive worldwide license for commercializing ADI nucleic acid-based technology (which
is currently at the pre-clinical stage) from Loma Linda University. ADI uses a novel approach that mimics the way the body naturally
induces tolerance to our own tissues (“therapeutically induced immune tolerance”). While immune suppression requires continuous
administration to prevent rejection of a transplanted organ, induction of tolerance has the potential to retrain the immune system to
accept the organ for longer periods of time. ADI may allow patients to live with transplanted organs with significantly reduced immune
suppression. ADI is a technology platform which we believe can be engineered to address a wide variety of indications.
Advantages
ADI™
is a nucleic acid-based technology (e.g., DNA-based), which we believe selectively suppresses only those immune cells involved
in attacking or rejecting self and transplanted tissues and organs. It does so by tapping into the body’s natural process of cell
turnover (i.e., apoptosis) to retrain the immune system to stop unwanted attacks on self or transplanted tissues. Apoptosis is a natural
process used by the body to clear dying cells and to allow recognition and tolerance to self-tissues. ADI triggers this process by enabling
the cells of the immune system to recognize the targeted tissues as “self.” Conceptually, it is designed to retrain the immune
system to accept the tissues, similar to how natural apoptosis reminds our immune system to be tolerant to our own “self”
tissues.
While
various groups have promoted tolerance through cell therapies and ex vivo manipulation of patient cells (i.e., takes
place outside the body), to our knowledge, we will be unique in our approach of using in-body induction of apoptosis to promote tolerance
to specific tissues. In addition, ADI treatment itself will not require additional hospitalization but only an injection of minute
amounts of the therapeutic drug into the skin.
Moreover,
preclinical studies have demonstrated that ADI treatment significantly and substantially prolongs graft survival, in addition to successfully
“reversing” other established immune-mediated inflammatory processes.
License
Agreement with Loma Linda University (“LLU”)
On
March 15, 2018, we entered into a License Agreement with LLU, which was subsequently amended on July 1, 2020. Pursuant to the LLU License
Agreement, we obtained the exclusive royalty-bearing worldwide license 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 25,000 shares of common stock to LLU.
PEARSANTA,
INC.
Formed
in January 2023, our subsidiary Pearsanta™, Inc. (“Pearsanta”) seeks to take personalized medicine to a whole new level
by delivering “Health by the Numbers.” Since its founding, Pearsanta has been building the platform for enabling our vision
of lab quality testing, anytime, anywhere. Our plan for Pearsanta’s platform is for it to be the transactional backbone for sample
collection, sample processing (on- and off-site), and reporting. This will require the development and convergence of multiple components
developed by Pearsanta, or through transactions with third parties, including collection devices, “lab-on-a-chip” technologies,
Lab Developed Test (LDT) assays, a data-driven analysis engine, and telemedicine. According to a comprehensive research report by Market
Research Future, the clinical and consumer diagnostic market is estimated to hit $429.3 billion by 2030.
We
believe that timely and personalized testing enables far more informed treatment decisions. Pearsanta’s platform is being developed
as a seamless digital healthcare solution. This platform will integrate at-location sample collection, Point-of-Care (“POC”)
and LDT assays, and an analytical reporting engine, with telemedicine-enabled visits with licensed physicians to review test results
and, if necessary, order a prescription. Pearsanta’s goal of extending its platform to enable consumers to monitor their health
more proactively as the goal is to provide a more complete picture about someone’s dynamic health status, factoring in genetic
makeup and their response to medication. The POC component of Pearsanta would enable diagnostic testing at-home, at work, in pharmacies,
and more to generate results quickly so that an individual can access necessary treatment faster. With certain infections, prescribing
the most effective treatment according to one’s numbers can prevent hospital emergency room admissions and potentially life-threatening
consequences.
Examples
of indication-focused tests for the Test2Treat platform will include the evaluation for advanced urinary tract infections (“UTIs”),
COVID-19/flu/respiratory syncytial virus, sexually transmitted infections, gut health, pharmacogenomics (i.e., how your genes affect
the way your body responds to certain therapeutics), and sepsis. We believe that these offerings are novel and needed as the current
standard of care using broad spectrum antibiotic treatment can be ineffective and potentially life-threatening. For example, improperly
prescribed antibiotics may approach 50% of outpatient cases. Further, according to an article published in Physician’s Weekly,
only 1% of board-certified critical care medicine physicians are trained in infectious disease.
Licensed
Technologies – AditxtScoreTM
We
intend to sublicense to Pearsanta an exclusive worldwide sub-license for commercializing the AditxtScore™ technology which provides
a personalized comprehensive profile of the immune system. AditxtScore is intended to detect individual immune responses to viruses,
bacteria, peptides, drugs, supplements, bone marrow and solid organ transplants, and cancer. It has broad applicability to many other
agents of clinical interest impacting the immune system, including those not yet identified such as emerging infectious agents.
AditxtScore
is being designed to enable individuals and their healthcare providers to understand, manage and monitor their immune profiles and to
stay informed about attacks on or by their immune system. We believe AditxtScore can also assist the medical community and individuals
by being able to anticipate the immune system’s potential response to viruses, bacteria, allergens, and foreign tissues such as
transplanted organs. This technology may be able to serve as a warning signal, thereby allowing for more time to respond appropriately.
Its advantages include the ability to provide simple, rapid, accurate, high throughput assays that can be multiplexed to determine the
immune status with respect to several factors simultaneously, in approximately 3-16 hours. In addition, it can determine and differentiate
between distinct types of cellular and humoral immune responses (e.g., T and B cells and other cell types). It also provides for simultaneous
monitoring of cell activation and levels of cytokine release (i.e., cytokine storms).
We
are actively involved in the regulatory approval process for AditxtScore assays for clinical use and securing manufacturing, marketing,
and distribution partnerships for application in the various markets. To obtain regulatory approval to use AditxtScore as a clinical
assay, we have conducted validation studies to evaluate its performance in detection of antibodies and plan to continue conducting additional
validation studies for new applications in autoimmune diseases.
Advantages
The
sophistication of the AditxtScore technology includes the following:
|
● |
greater
sensitivity/specificity. |
|
● |
20-fold
higher dynamic range, greatly reducing signal to noise compared to conventional assays. |
|
● |
ability
to customize assays and multiplex a large number of analytes with speed and efficiency. |
|
● |
ability
to test for cellular immune responses (i.e., T and B cells and cytokines). |
|
● |
proprietary
reporting algorithm. |
License
Agreement with Leland Stanford Junior University (“Stanford”)
On
February 3, 2020, we entered into an exclusive license agreement (the “February 2020 License Agreement”) with Stanford with
regard to 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 with regard to 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
not to 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.
ADIVIR,
INC.
Formed
in April of 2023, Adivir™, Inc., is Aditxt’s most recently formed wholly owned subsidiary, dedicated to the clinical and
commercial development efforts of innovative antiviral products, starting with Favipiravir-based monotreatment or combination therapies.
These products have the potential to address a wide range of infectious diseases, including those that currently lack viable treatment
options.
Background
On
April 18, 2023, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Cellvera Global Holdings
LLC (“Cellvera Global”), Cellvera Holdings Ltd. (“BVI Holdco”), Cellvera, Ltd. (“Cellvera Ltd.”),
Cellvera Development LLC (“Cellvera Development” and together with Cellvera Global, BVI Holdco, Cellvera Ltd. and Cellvera
Development (the “Sellers”), AiPharma Group Ltd. (“Seller Owner” and collectively with the Sellers, “Cellvera”),
and the legal representative of Cellvera, pursuant to which, the Company will purchase Cellvera’s 50% ownership interest in G Response
Aid FZE (“GRA”), certain other intellectual property and all goodwill related thereto (the “Acquired Assets”). Unless
expressly stated otherwise herein, capitalized terms used but not defined herein have the meanings ascribed to them in the Asset Purchase
Agreement. Pursuant to the Asset Purchase Agreement, the consideration for the Acquired Assets consists of (A) $24.5 million,
comprised of: (i) the forgiveness of the Company’s $14.5 million loan to Cellvera Global, and (ii) approximately $10 million in
cash, and (B) future revenue sharing payments for a term of seven years. GRA holds an exclusive, worldwide license for the antiviral medication,
Avigan® 200mg, excluding Japan, China and Russia. The other 50% interest in GRA is held by Agility, Inc. (“Agility”).
Additionally,
upon the closing, the Share Exchange Agreement previously entered into as of December 28, 2021, between Cellvera Global Holdings, LLC
f/k/a AiPharma Global Holdings, LLC (together with other affiliates and subsidiaries) and the Company, and all other related agreements
will be terminated.
The
obligations of the Company to consummate the Closing under the Asset Purchase Agreement are subject to the satisfaction or waiver, at
or prior to the Closing of certain conditions, including but not limited to, the following:
|
(i) |
Satisfactory
completion of due diligence; |
|
(ii) |
Completion
by the Company of financing sufficient to consummate the transactions contemplated by the Asset Purchase Agreement; |
|
(iii) |
Receipt
by the Company of all required Consents from Governmental Bodies for the Acquisition, including but not limited to, any consents
required to complete the transfer and assignment of Cellvera’s membership interests in GRA; |
|
(iv) |
Receipt
of executed payoff letters reflecting the amount required to be fully pay all of each of Seller’s and Seller Owner’s
Debt to be paid at Closing; |
|
(v) |
Receipt
by the Company of a release from Agility; |
|
(vi) |
Execution
of an agreement acceptable to the Company with respect to the acquisition by the Company of certain intellectual property presently
held by a third party; |
|
(vii) |
Execution
of an amendment to an asset purchase agreement previously entered into by Cellvera with a third party that effectively grants the
Company the rights to acquire the intellectual property from the third party under such agreement; |
|
(viii) |
Receipt
of a fairness opinion by the Company with respect to the transactions contemplated by the Asset Purchase Agreement; and |
|
(ix) |
Receipt
by the Company from the Seller Owner of written consent, whether through its official liquidator or the Board of Directors of Seller
Owner, to the sale and purchase of the Acquired Assets and Assumed Liabilities pursuant to the Assert Purchase Agreement. |
There
can be no assurance that the conditions to closing will be satisfied or that the proposed acquisition will be completed as proposed or
at all.
Our
commitment to building our antiviral portfolio is strategic and timely. We believe that there has never has there been a more important
time to address the growing global need to uncover new treatments or commercialize existing ones that treat life-threatening global viral
infections.
Our
Team
Aditxt
has assembled an entrepreneurial team of experts from a variety of different business, engineering, and scientific fields, and commercial
backgrounds, with collective experience that ranges from founding startup innovation companies, to developing and marketing biopharmaceutical
and diagnostic products, to designing clinical trials, and management of private and public companies. We have deep experience in identifying
and accessing promising health innovations and developing them into products and services with the ability to scale. We understand the
capital markets, both public and private, as well as M&A and facilitating complex IPOs.
Going
Concern
We
were incorporated on September 28, 2017 and have not generated significant revenues to date. During the six months ended June 30, 2023
we had a net loss of $11,666,724 and cash of $95,953 as of June 30, 2023. The Company will require significant additional capital to
operate in the normal course of business and fund clinical studies in the long-term. As a result of the September 2022 Offering and the
April 2023 Offering, we received net proceeds of approximately $19,000,000 during the last twelve months. We believe that the remaining
funds on hand will not be sufficient to fund our operations for the next 12 months and such creates substantial doubt about our ability
to continue as a going concern beyond one year.
Financial
Results
We
have a limited operating history. Therefore, there is limited historical financial information upon which to base an evaluation of our
performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered
by companies in their early stages of operations. Our condensed consolidated financial statements as of June 30, 2023, show a net loss
of $11,666,724. We expect to incur additional net expenses over the next several years as we continue to maintain and expand our existing
operations. The amount of future losses and when, if ever, we will achieve profitability are uncertain.
Results
of Operations
Results
of operations for the three months ended June 30, 2023 and 2022
We
generated revenue of $220,978 and $214,715 for the three months ended June 30, 2023 and 2022, respectively. Cost of sales for the three
months ended June 30, 2023 and 2022 was $185,738 and $174,858, respectively.
During
the three months ended June 30, 2023, we incurred a loss from operations of $4,234,437. This is due to general and administrative expenses
of $3,671,083, This includes approximately $1,600,000 in payroll expenses, $800,000 in professional fees, and $107,156 in stock-based
compensation. Research and development expenses of $484,835, which includes $53,540 in stock-based compensation, and sales and marketing
expenses of $113,759, which includes $2,532 in stock-based compensation. The $484,835 in research and development is mainly comprised
of $467,664 in consulting expenses.
During
the three months ended June 30, 2022, we incurred a loss from operations of $5,770,957. This is due to general and administrative expenses
of $3,788,952, which includes $375,352 in stock-based compensation, research and development of $1,187,920, which includes $154,237 in
stock-based compensation, and sales and marketing expenses of $833,942, which includes $754,699 in stock-based compensation. The $1,187,920
in research and development is mainly comprised of $602,434 in consulting expenses, and $714,443 in compensation offset by a one-time
adjustment to research and development purchases. During the quarter, the Company transitioned from purchasing certain inventory items
to internally manufacturing these items.
The
decrease in expenses during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was due to decreased
research and development spend and the termination of a sales and marketing vendor.
Results
of operations for the six months ended June 30, 2023 and 2022
We
generated revenue of $439,393 and $424,994 for the six months ended June 30, 2023 and 2022, respectively. Cost of sales for the six months
ended June 30, 2023 and 2022 was $364,047 and $362,929, respectively.
During
the six months ended June 30, 2023, we incurred a loss from operations of $10,016,332. This is due to general and administrative expenses
of $8,039,926. This includes approximately $3,500,000 in payroll expenses, $1,997,000 in professional fees, and $381,471 in stock-based
compensation. Research and development expenses of $1,872,376, which includes $116,173 in stock-based compensation, and sales and marketing
expenses of $179,376, which includes $5,035 in stock-based compensation. The $1,872,376 in research and development is mainly comprised
of $824,303 in consulting expenses.
During
the six months ended June 30, 2022, we incurred a loss from operations of $11,887,888. This is due to general and administrative expenses
of $8,413,110, which includes $827,337 in stock-based compensation, research and development of $2,616,302, which includes $303,527 in
stock-based compensation, and sales and marketing expenses of $920,541, which includes $754,699 in stock-based compensation. The $2,616,302
in research and development is mainly comprised of $1,102,372 in consulting expenses, and $1,542,854 in compensation offset by a one-time
adjustment to research and development purchases. During the quarter, the Company transitioned from purchasing certain inventory items
to internally manufacturing these items.
The
decrease in expenses during the nine months ended June 30, 2023 compared to the three months ended June 30, 2022 was due to decreased
research and development spend and the termination of a sales and marketing vendor.
Liquidity
and Capital Resources
We
have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable
future and may never become profitable. As of June 30, 2023, we had an accumulated deficit of $106,707,086. We had working capital of
$(7,596,215) as of June 30, 2023. During the six months ended June 30, 2023, we purchased $5,051 in fixed assets, for which we made cash
payments of $5,051. Of the $5,051, $3,000 of these purchased fixed assets were lab equipment and $2,051 was for computers.
Our
condensed consolidated financial statements have been prepared assuming that we will continue as a going concern.
We
have funded our operations from proceeds from the sale of equity and debt securities. On July 2, 2020, we completed our IPO and raised
approximately $9.5 million in net proceeds. At the time of the IPO, we believed that these funds would be sufficient to fund our operations
for the foreseeable future.
On
September 10, 2020, we completed a follow-on public offering. In connection therewith, we issued 48,000 units, or Follow-On Units, excluding
the underwriters’ option to cover overallotments, at an offering price of $200.00 per Follow-On Unit, resulting in gross proceeds
of approximately $9.6 million.
On
January 25, 2021, the Company entered into a securities purchase agreement with an institutional accredited investor (the “Investor”)
for the sale of a $6,000,000 senior secured convertible note (the “Convertible Note”). The Convertible Note had a term of
24 months, was originally convertible at a price of $200.00 per share and was issued at an original issuance discount of $1,000,000.
On August 30, 2021, the Company entered into a defeasance and waiver agreement with the Investor, pursuant to which the Noteholder has
agreed in exchange for (a) a cash payment by the Company to the Investor of $1.2 million (the Cash Payment”), (b) a waiver, in
part of the conversion price adjustment provision such that the January 2021 Note shall be convertible into 96,050 shares of common stock
(without giving effect to the conversion notice received by the company form the Noteholder prior to the date hereof totaling (20,115
shares) (the “Shares”), and (c) a voluntary and permanent reduction by the Company of the exercise price of the warrant to
purchase 16,000 shares of the common stock of the Company (the “January 2021 Warrant”) to $126.50 per share. As of December
31, 2022, the outstanding principle of the convertible note had been converted to 96,050 shares of common stock.
On
August 30, 2021, we completed a registered direct offering and raised approximately $10.1 million in net proceeds.
On
October 20, 2021, we completed a public offering for net proceeds of $3.8 million. As part of this offering, we issued 56,667 shares
of the Company’s common stock
On
December 6, 2021, we completed a public offering for net proceeds of $16.0 million. As part of this 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
September 20, 2022, we completed a public offering for net proceeds of $18.1 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 the Company’s 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.
On
April 20, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional
investor, pursuant to which the Company agreed to sell to such investor pre-funded warrants (the “Pre-Funded Warrants”) to
purchase up to 1,585,350 shares of common stock of the Company (the “Common Stock”) at a purchase price of $1.219 per Pre-Funded
Warrant. Concurrently with the sale of the Pre-Funded Warrants, pursuant to the Purchase Agreement in a concurrent private placement,
for each Pre-Funded Warrant purchased by the investor, such investor received from the Company an unregistered warrant (the “Warrant”)
to purchase two shares of Common Stock. The warrants have an exercise price of $0.86 per share, and are exercisable for a three year
period. In addition, the Company issued a warrant to the placement agent to purchase up to 95,121 shares of common stock at an exercise
price of $1.525 per share.
We
will need to raise significant additional capital to continue to fund our operations and the clinical trials for our product candidates.
We may seek to sell common stock, preferred stock or convertible debt securities, enter into a credit facility or another form of third-party
funding or seek other debt financing. In addition, we may seek to raise cash through collaborative agreements or from government grants.
The sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have
rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities,
or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party
funding arrangement could require us to relinquish valuable rights.
The
source, timing, and availability of any future financing will depend principally upon market conditions, and, more specifically, on the
progress of our clinical development program. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of
necessary funds may require us to, among other things, delay, scale back or eliminate expenses including some or all our planned development,
including our clinical trials. While we may need to raise funds in the future, we believe the current cash reserves should be sufficient
to fund our operation for the foreseeable future. Because of these factors, we believe that this creates doubt about our ability to continue
as a going concern.
Contractual
Obligations
The
following table shows our contractual obligations as of June 30, 2023:
| |
Payment Due by Year | |
| |
Total | | |
2023 | | |
2024 | | |
2025 | | |
2026 | |
Lease | |
$ | 2,710,087 | | |
$ | 570,629 | | |
$ | 1,004,982 | | |
$ | 710,546 | | |
$ | 423,930 | |
Critical
Accounting Polices and Estimates
Our
condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States.
The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates, assumptions
and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe
that our critical accounting policies described under the heading “Management’s Discussion and Analysis of Financial Condition
and Plan of Operations—Critical Accounting Policies” in our Prospectus, dated September 1, 2020, filed with the SEC pursuant
to Rule 424(b), are critical to fully understanding and evaluating our financial condition and results of operations. The following involve
the most judgment and complexity:
|
● |
Research and development |
|
● |
Stock-based compensation
expense |
|
● |
Fair value of common stock |
Accordingly,
we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations.
If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our
reported financial condition and results of operations could be materially affected.
Off-Balance
Sheet Arrangements
We
did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules
and regulations of the SEC.
JOBS
Act
On
April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company”
can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new
or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies.
When
favorable, we have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS
Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided
under the JOBS Act.
We
are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject
to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions,
including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial
reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted
by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the
auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion
and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year
in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth
anniversary of the date of the completion of our IPO (December 31, 2025); (iii) the date on which we have issued more than $1 billion
in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer
under the rules of the SEC.
Recently
Issued and Adopted Accounting Pronouncements
See
Note 3 - Summary of Significant Accounting Policies to the accompanying condensed consolidated financial statements for a description
of other accounting policies and recently issued accounting pronouncements.
Recent
Developments
See
Note 12 – Subsequent Event to the accompanying condensed consolidated financial statements for a description of material recent
developments.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
We
are not required to provide the information required by this Item as we are a “smaller reporting company,” as defined in
Rule 229.10(f)(1).
Item
4. Controls and Procedures.
Disclosure
Controls and Procedures
In
accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we,
under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e)
of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were (a) designed to ensure that the information
we are required to disclose in our reports under the Exchange Act is recorded, processed, and reported in an accurate manner and on a
timely basis and the information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management
to permit timely decisions with respect to required disclosure and (b) operating in an effective manner.
Change
in Internal Control Over Financial Reporting
No
change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during
the quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may
harm our business.
Item
1A. Risk Factors
Our
business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond
our control, including those set forth below and in our most recent Annual Report on Form 10-K and in our other filings with the SEC,
the occurrence of any one of which could have a material adverse effect on our actual results.
Our
financial situation creates doubt whether we will continue as a going concern.
The
Company was incorporated on September 28, 2017 and through the date of this report has generated no significant revenues. For the years
ended December 31, 2022 and 2021, the Company had a net loss of $27,649,876 and $46,371,364, respectively. Our condensed consolidated
financial statements as of June 30, 2023, show a net loss of $11,666,724. Our cash and cash equivalents were approximately $96,000 as
of June 30, 2023. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash
flow from operations or additional financing through private placements, public offerings and/or bank financing necessary to support our
working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are
insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available,
or if available, will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern.
If adequate working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire
investment.
If
we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development and
you will likely lose your entire investment.
We
will need to continue to seek capital from time to time to continue development of our lead drug candidate beyond our initial combined
Phase I/IIa clinical trial and to acquire and develop other product candidates. Once approved for commercialization, we cannot provide
any assurances that any revenues it may generate in the future will be sufficient to fund our ongoing operations.
Our
business or operations may change in a manner that would consume available funds more rapidly than anticipated and substantial additional
funding may be required to maintain operations, fund expansion, develop new or enhance products, acquire complementary products, business
or technologies, or otherwise respond to competitive pressures and opportunities, such as a change in the regulatory environment or a
change in preferred treatment modalities. In addition, we may need to accelerate the growth of our sales capabilities and distribution
beyond what is currently envisioned, and this would require additional capital. However, we may not be able to secure funding when we
need it or on favorable terms. We may not be able to raise sufficient funds to commercialize the product candidates we intend to develop.
If
we cannot raise adequate funds to satisfy our capital requirements, we will have to delay, scale back or eliminate our research and development
activities, clinical studies, or future operations. We may also be required to obtain funds through arrangements with collaborators,
which arrangements may require us to relinquish rights to certain technologies or products that we otherwise would not consider relinquishing,
including rights to future product candidates or certain major geographic markets. This could result in sharing revenues which we might
otherwise retain for ourselves. Any of these actions may harm our business, financial condition, and results of operations.
The
amount of capital we may need depends on many factors, including the progress, timing and scope of our product development programs;
the progress, timing and scope of our preclinical studies and clinical trials; the time and cost necessary to obtain regulatory approvals;
the time and cost necessary to further develop manufacturing processes and arrange for contract manufacturing; our ability to enter into
and maintain collaborative, licensing and other commercial relationships; and our partners’ commitment of time and resources to
the development and commercialization of our products.
Our
obligations to certain of our creditors are secured by security interests in our assets, so if we default on those obligations, our creditors
could foreclose on some or all of our assets.
Our
obligations to certain of our creditors are secured by security interests in our assets. As of June 30, 2023, approximately $3.6 million
was owed to such secured creditors. Under such agreements, we are required to pay $182,357 on a weekly basis to such creditors. If we
default on our obligations under these agreements, our secured creditors could foreclose on its security interests and liquidate some
or all of these assets, which would harm our financial condition and results of operations and would require us to reduce or cease operations
and possibly seek Bankruptcy Protection.
In
the event we pursue Bankruptcy Protection, we will be subject to the risks and uncertainties associated with such proceedings.
In
the event we file for relief under the United States Bankruptcy Code, our operations, our ability to develop and execute our business
plan and our continuation as a going concern will be subject to the risks and uncertainties associated with bankruptcy proceedings, including,
among others: our ability to execute, confirm and consummate a plan of reorganization; the additional, significant costs of bankruptcy
proceedings and related fees; our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business
plan post-emergence, and our ability to comply with terms and conditions of that financing; our ability to continue our operations in
the ordinary course; our ability to maintain our relationships with our consumers, business partners, counterparties, employees and other
third parties; our ability to obtain, maintain or renew contracts that are critical to our operations on reasonably acceptable terms
and conditions; our ability to attract, motivate and retain key employees; the ability of third parties to use certain limited safe harbor
provisions of the United States Bankruptcy Code to terminate contracts without first seeking Bankruptcy Court approval; the ability of
third parties to force us to into Chapter 7 proceedings rather than Chapter 11 proceedings and the actions and decisions of our stakeholders
and other third parties who have interests in our bankruptcy proceedings that may be inconsistent with our operational and strategic
plans. Any delays in our bankruptcy proceedings would increase the risks of our being unable to reorganize our business and emerge from
bankruptcy proceedings and may increase our costs associated with the bankruptcy process or result in prolonged operational disruption
for us. Also, we would need the prior approval of the bankruptcy court for transactions outside the ordinary course of business during
the course of any bankruptcy proceedings, which may limit our ability to respond timely to certain events or take advantage of certain
opportunities. Because of the risks and uncertainties associated with any bankruptcy proceedings, we cannot accurately predict or quantify
the ultimate impact of events that could occur during any such proceedings. There can be no guarantees that if we seek Bankruptcy Protection
we will emerge from Bankruptcy Protection as a going concern or that holders of our common stock will receive any recovery from any bankruptcy
proceedings.
In
the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code, or, if pursued, successfully
emerge from such proceedings, it may be necessary to pursue Bankruptcy Protection under Chapter 7 of the United States Bankruptcy Code
for all or a part of our businesses.
In
the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code, or, if pursued, successfully
emerge from such proceedings, it may be necessary for us to pursue Bankruptcy Protection under Chapter 7 of the United States Bankruptcy
Code for all or a part of our businesses. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for
distribution in accordance with the priorities established by the United States Bankruptcy Code. We believe that liquidation under Chapter
7 would result in significantly smaller distributions being made to our stakeholders than those we might obtain under Chapter 11 primarily
because of the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period
of time rather than in a controlled manner and as a going concern.
We
received a written notice from Nasdaq that we have failed to comply with certain listing requirements of the Nasdaq Stock Market, which
could result in our Common Stock being delisted from the Nasdaq Stock Market.
On
May 23, 2023, we received written notice from Nasdaq that, based upon the stockholders equity reported by the Company in its Form
10-Q for the period ended March 31, 2023, and as of March 31, 2023, the Company was no longer in compliance with Nasdaq Listing Rule
5550(b)(1), which requires a company to maintain a minimum of $2,500,000 in stockholders’ equity, a market value of listed securities
of at least $35 million, or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of
the three most recently completed fiscal years (the “Continued Listing Requirements”). The May notification letter further
provided that the Company has 45 calendar days, or until July 7, 2023, to submit a plan to regain compliance and if the plan is accepted
by Nasdaq, an extension of up to 180 calendar days, or until November 19, 2023 to evidence compliance. On
June 22, 2023, we received a letter from Nasdaq notifying the Company that it has failed to maintain compliance with the minimum bid
price rule in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”) as the closing price of Company’s common
stock has remained below $1.00 for over 30 consecutive trading days. On June 29, 2023, we submitted an appeal to Nasdaq, which stays
the delisting and suspension of our securities pending the decision of the Nasdaq Hearings Panel (the “Panel”). At the hearing,
which will be held on August 31, 2023, we intend to present its views and its plans to regain compliance with the Equity and Minimum
Bid Price Rules to the Panel. There can be no assurance that we will be able to evidence compliance with the Minimum Bid Price Rule prior
to the hearing. It is our understanding that the Panel typically issues its decision within 30 days after the hearing.
If
we are delisted from Nasdaq, but obtain a substitute listing for our common stock, it will likely be on a market with less liquidity,
and therefore experience potentially more price volatility than experienced on Nasdaq. Stockholders may not be able to sell their shares
of common stock on any such substitute market in the quantities, at the times, or at the prices that could potentially be available on
a more liquid trading market. As a result of these factors, if our common stock is delisted from Nasdaq, the value and liquidity of our
common stock, warrants and pre-funded warrants would likely be significantly adversely affected. A delisting of our common stock from
Nasdaq could also adversely affect our ability to obtain financing for our operations and/or result in a loss of confidence by investors,
employees and/or business partners.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) |
Sales of Unregistered Securities |
On
March 17, 2023, the Company issued a consultant 187,000 shares of common stock for services rendered.
The
issuances above were made pursuant to an exemption from registration under the Securities Act of 1933, as amended, pursuant to Section
4(a)(2) thereof.
(b) |
Use of Proceeds from Initial
Public Offering |
On
July 2, 2020, the Company completed its initial public offering (“IPO”). In connection therewith, the Company issued 24,534
Units (the “Units”), excluding the underwriters’ option to cover overallotments (the underwriter did not exercise their
overallotment), at an offering price of $450.00 per Unit, resulting in gross proceeds of approximately $11.0 million. The Units issued
in the IPO consisted of one share of common stock, one Series A warrant, and one Series B warrant. The Series A warrants originally had
an exercise price of $450.00 and a term of 5 years. In addition, the Company issued a Unit Purchase Option at an exercise price of $562.50
per unit to the underwriters to purchase up to 1,350 units, with each unit consisting of (i) one share of common stock and (ii) one Series
A Warrant. On August 19, 2020, the Company modified the exercise price of the Series A Warrants from $450.00 per share to $225.00 per
share. The term of the Series A Warrants was not modified. The Series B warrants have an exercise price of $562.50 per share, a term
of 5 years and contain a cashless exercise option upon certain criteria being met. As of June 30, 2023, substantially all of the Series
B warrants issued in the IPO have been exercised pursuant to a cashless provision therein.
We
received net proceeds of $8.5 million in the IPO, after deducting underwriting discounts and commissions and issuance expenses borne
by us. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates,
or to our affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors pursuant
to our director compensation policy. Dawson James Securities, Inc. acted as lead book-running manager of the offering and as representative
of the underwriters for the offering.
There
has been no material change in the planned use of proceeds from our IPO from that described in the final prospectus related to the offering,
dated June 29, 2020 as filed with the SEC.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Mine Safety Disclosures
Not
applicable.
Item
5. Other Information
As previously reported, on
July 27, 2023, the Company entered into a Separation Agreement and General Release (the “Separation Agreement”) with its former
Chief Legal Officer, General Counsel and Secretary, Matthew Shatzkes. Pursuant to the Separation Agreement, the Company agreed to pay
Mr. Shatzkes within seven days after the Termination Date: (i) $122,292, representing all accrued
salary and wages (inclusive of Base Compensation and earned Subsequent Quarterly Bonus amounts, as those terms are defined in Mr. Shatzkes
employment agreement), and (ii) $32,576, representing Mr. Shatzkes accrued, but unused paid time off (collectively, the “Initial
Payment”). On August 11, 2023 the Company paid $50,000 of the Initial Payment and is currently in negotiations with Mr. Shatzkes
to determine timing of the payment of the remaining balance of the Initial Payment.
Item
6. Exhibits
Exhibit |
|
|
|
Incorporated
by Reference |
|
Filed |
Number |
|
Exhibit
Description |
|
Form |
|
File
No. |
|
Exhibit |
|
Filing Date |
|
Herewith |
3.1 |
|
Amended
and Restated Certificate of Incorporation of the Registrant. |
|
S-1 |
|
333-235933 |
|
3.1 |
|
June 25, 2020 |
|
|
3.2 |
|
Certificate
of Amendment, dated June 29, 2020 |
|
10-Q |
|
001-39336 |
|
3.2 |
|
August 13, 2020 |
|
|
3.3 |
|
Amended
and Restated Bylaws of the Registrant |
|
S-1 |
|
333-235933 |
|
3.3 |
|
June
25, 2020 |
|
|
3.4 |
|
Second
Amended and Restated Bylaws of the Registrant |
|
10-Q |
|
001-39336 |
|
3.4 |
|
August 12, 2021 |
|
|
3.5 |
|
Certificate
of Designation of Series B Preferred Stock, dated July 19, 2022 |
|
8-K |
|
001-39336 |
|
3.1 |
|
July
19, 2022 |
|
|
31.1* |
|
Certification
of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
X |
31.2* |
|
Certification
of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
X |
32.1* |
|
Certification
of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
X |
101.INS |
|
Inline
XBRL Instance Document. |
|
|
|
|
|
|
|
|
|
X |
101.SCH |
|
Inline
XBRL Taxonomy Extension Schema Document. |
|
|
|
|
|
|
|
|
|
X |
101.CAL |
|
Inline
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
|
|
|
|
|
X |
101.DEF |
|
Inline
XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
|
|
|
|
|
|
X |
101.LAB |
|
Inline
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
|
|
|
|
|
X |
101.PRE |
|
Inline
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
|
|
|
|
|
|
X |
104 |
|
Cover
Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
|
|
|
|
|
|
|
|
X |
* |
This certification is deemed
not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject
to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933,
as amended, or the Exchange Act. |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
Aditxt, Inc. |
|
|
|
Date: August 14, 2023 |
By: |
/s/ Amro Albanna |
|
|
Amro Albanna |
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
Date: August 14, 2023 |
By: |
/s/ Thomas
J. Farley |
|
|
Thomas J. Farley |
|
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer) |
40
13.21
0.93
2.18
6.42
5374826
6177857
901468
911213
3068
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I, Thomas J. Farley, certify that:
In connection with the Quarterly Report of
Aditxt, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), each of Amro Albanna, Chief Executive Officer of the Company and Thomas J.
Farley, Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as enacted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that: