Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forward-Looking
Statements
You
should read this discussion together with the Financial Statements, related Notes and other financial information included elsewhere
in this Form 10-K. The following discussion contains assumptions, estimates and other forward-looking statements that involve
a number of risks and uncertainties. These risks could cause our actual results to differ materially from those anticipated in
these forward-looking statements.
Overview
AIkido
Pharma Inc. (the “Company”), was initially formed in 1967 and is currently a biotechnology company with a diverse
portfolio of small-molecule anti-cancer therapeutics in development. The Company’s platform consists of patented technology
from leading universities and researchers and we are currently in the process of developing an innovative therapeutic drug platform
through strong partnerships with world-renowned educational institutions, including the University of Texas at Austin, the University
of Maryland, Baltimore and Wake Forest University. Our diverse pipeline of therapeutics includes therapies for pancreatic cancer,
acute myeloid leukemia (“AML”) and acute lymphoblastic leukemia (“ALL”). The Company is also developing
a broad-spectrum antiviral platform that may potentially inhibit replication of multiple viruses including Influenza virus, SARS-CoV
(coronavirus), MERS-CoV, Ebolavirus and Marburg virus.
The
Company previously focused its efforts on owning, developing, acquiring and monetizing intellectual property assets. Since May
2016, the Company has received limited funds from its intellectual property monetization. In addition to its patent monetization
efforts, since the fourth quarter of 2017, the Company has been transitioning to focus its efforts as a technology and biotechnology
development company. These efforts have focused on biotechnology research and blockchain technology research. The Company’s
investment in biotechnology research development includes: (i) an investment in Hoth Therapeutics, Inc. (“Hoth”),
a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications
such as atopic dermatitis, also known as eczema, (ii) an investment in DatChat, Inc. (“DatChat”), a privately held
personal privacy platform focused on encrypted communication, internet security and digital rights management, and (iii) the acquisition
of assets of CBM BioPharma, Inc. (“CBM”), a pharmaceutical company focusing on the development of cancer treatments.
As
a result of the Company’s biotechnology research development and associated investments and acquisitions, our business portfolio
now focuses on the treatment of three different cancers, including pancreatic cancer, AML and ALL. Our AML and ALL compounds,
developed at Wake Forest University, are targeted therapeutics designed to overcome multiple resistance mechanisms observed with
the current standard of care. DHA-dFdC, our pancreatic drug candidate developed at the University of Texas at Austin (“UTA”),
is a new compound that we hope will become the next generation of chemotherapy treatment for advanced pancreatic cancer. DHA-dFdC
overcomes tumor cell resistance to current chemotherapeutic drugs and is well tolerated in preclinical toxicity tests. Preclinical
studies have also indicated that DHA-dFdC inhibits pancreatic cancer cell growth (up to 100,000-fold more potent that gemcitabine,
a current standard therapy), has documented efficacy against pancreatic tumors in a clinically relevant transgenic mouse model
and has demonstrated activities against other cancers, including leukemia, lung and melanoma. DHA-dFdC is being developed by certain
third parties for oral administration in a solid lipid nanoparticle carrier matrix, which has also been licensed from UTA, and
is intended to be a second-line treatment for advanced pancreatic cancer. The Company has entered into agreements with a number
of third parties to assist in optimizing the manufacturing process of the active ingredient, formulate the dosage form and do
other tests, like drug stability, pre-clinical animal studies, and assistance with potential FDA clearance. The Company’s
license with UTA (the “License”) is a royalty-bearing exclusive license that, unless terminated earlier, continues
until the last date of expiration or termination of the patent rights granted under the License (the “Patent Rights”).
With regard to DHA-dFdC, the Patent Rights include several filed U.S. patent applications (a “U.S. Patent Application”)
and an application filed under the Patent Cooperation Treaty (“PCT”) that is currently being prosecuted to secure
rights in foreign countries. From these applications, one patent, U.S. Patent No. 10,463,684 (the “684 Patent”), contains
items covering the compound DHA-dFdC. Assuming all maintenance fees are timely paid, the 684 Patent is expected to expire on October
27, 2035. The Company’s license with UTA also covers a non-provisional U.S. Patent Application filed with respect to the
lipid nanoparticle carrier matrix for the drug, which was filed on June 6, 2019. In June of 2020, at the request of the Company,
UTA filed both a U.S. non-provisional utility patent application as well as a PCT application relating to the lipid nanoparticle
carrier matrix. Patent prosecution on all pending patent applications is currently underway. The Company is currently engaged
in Chemistry, Manufacturing and Controls (“CMC”) activities related to DHA-dFdC. Manufacturing activities thus far
have confirmed the critical chemical steps required for the manufacturing and scalability of the process. In collaboration with
our contract manufacturing organization, Parimer Scientific, we are currently optimizing the manufacturing procedure for DHA-dFdC.
Our manufacturing activities were initially delayed several months due to COVID-19 because Parimer was recruited by the U.S. and
South Carolina governments to manufacture hand sanitizer for use in hospitals. For that reason, our manufacturing activities did
not begin in earnest until the beginning of the third quarter of 2020. Once manufacturing began, shipping delays due to the pandemic
further slowed progress. Despite these delays, we have now successfully replicated the synthesis as reported in the literature
with satisfactory yield and purity and are currently optimizing the procedure to ensure batch-to-batch consistency. In tandem,
the Company is developing the solid lipid nanoparticle delivery system and is currently optimizing the manufacturing process for
size and consistency of the particles. We plan to begin formulation development in the second quarter of 2021, which will require
limited animal testing to determine proper dosage. We expect to have manufactured 20,000 mg of purified DHA-dFdC during the second
quarter of 2021 to use for such purposes. We plan to engage a contract research organization for the purpose of such animal testing
during the second quarter of 2021. Our goal is to have acceptable intravenous and oral formulations developed in the fourth quarter
of 2021. The Company expects these activities, as well as the development of the final formulation to comprise most of the CMC
activities through the end of the year. Optimization of the formulation will require in vitro studies as well as some preliminary
animal studies. During the second half of 2021 and into 2022, optimization of the formulation and biological studies, including
animal toxicology testing and pharmacology testing, are scheduled to occur. To the extent costs are incurred relating to governmental
regulations, including under the FDA and environmental regulations, those costs will be borne by our Contract Manufacturing Organizations
and Contract Research Organizations and will be passed on to the Company as part of their fees. FDA approval will eventually be
required to begin administering DHA-dFdC to patients as part of any clinical trials. The animal studies performed next year will
be a necessary prerequisite to filing an Investigational New Drug Application (“IND”) with the FDA. The Company’s
development activities in the first half of 2021 will also include preparing the IND for submission to the FDA. The Company’s
formulation is a new chemotherapy oral dosage form “repurposing” the chemotherapeutic agent gemcitabine, enabling
it to be developed for use in patients following a special regulatory pathway codified in Section 505(b)(2) of the FDA rules.
Section 505(b)(2) was enacted to enable sponsors to seek New Drug Application (“NDA”) approval for novel repurposed
drugs without the need for such sponsors to undertake certain time consuming and expensive safety studies. Proceeding under this
regulatory pathway, we hope to be able to rely upon all of the publicly available safety and toxicology data with respect to gemcitabine
in our FDA submissions. We believe that this path will dramatically reduce the required clinical development efforts, costs and
risks as compared to what would be required of us if we were required to conduct the entire scope of trials required for new chemical
entities that are not eligible to be reviewed pursuant to the Section 505(b)(2) regulatory pathway. We estimate that by using
the Section 505(b)(2) regulatory pathway, the clinical development process may be several years shorter than is required for a
new chemical entity, and the FDA approval process may be six to nine months shorter than the typical eighteen-month period, which
we believe may result in lower development costs and shorter development time. As of the date hereof, we have not submitted an
IND or an NDA to the FDA. During the latter half of 2021, we hope to schedule and attend the first of a series of meetings with
the FDA to review the requirements for submission and activation of an IND with respect to the DHA/dFdC formulated in SLNs for
second-line treatment of advanced pancreatic cancer. At that meeting, we will present to the FDA our proposed clinical trial plan
for the treatment of advanced pancreatic cancer. As part the meeting, as is standard, the FDA will provide us with general guidance
with respect to specific animal studies, dosing schedules and suggested human safety studies before we commence clinical trials
in patients. In addition, we are constantly seeking to grow our pipeline to treat unmet medical needs in oncology.
In
addition, the Company owns an exclusive world-wide license to patented technology from the University of Maryland Baltimore (“UMB”).
Our license is for a broad-spectrum antiviral drug platform. The licensed technology is a broadly acting pan-viral inhibitory
compound with efficacy against multiple viral pathogens. The technology works to inhibit replication of multiple viruses including
Influenza virus, SARS-CoV (coronavirus), MERS-CoV, Ebolavirus and Marburg virus. The technology is covered by two patent applications
already on file with the United States Patent and Trademark Office. The Company’s license covers two U.S. Nonprovisional
Applications, which were consolidated and timely filed as a PCT application on June 5, 2020, commencing patent prosecution. Any
patents issued from this application are expected to expire 20 years later, on June 5, 2040, unless the term is extended by the
patent office. Publication of the results of the work to which the Company is licensed is expected later this year. Currently,
the Company and UMB are collaborating to identify chemical structures that are as effective as, or more effective than, the lead
compounds covered in the PCT application. The UMB inventors are Drs. Matthew Frieman, Alexander MacKerell and Stuart Watson. The
Company has also executed a Sponsored Research Agreement with UMB to support the development of the technology.
Critical
Accounting Policies
Our
critical accounting policies are disclosed in Note 3 to the condensed consolidated financial statements.
Recently
Issued Accounting Pronouncements
See
Note 3 to the consolidated financial statements for a discussion of recent accounting standards.
Results
of Operations
Fiscal
Year Ended December 31, 2020 Compared to Fiscal Year Ended December 31, 2019
The
Company experienced very little or no revenue in the last two years and we don’t expect any revenue until a biotechnology
product is fully developed which may not occur for many years.
For
the year ended December 31, 2020 and 2019, we incurred a loss from operations of $6.5 million and $5.7 million, respectively.
The increase in loss was primarily attributed to $1.0 million increase in other research and development expense, and $0.9 million
increase in general and administrative expenses, partially offset by $1.0 million decrease in research and development expense
incurred in connection with the license acquired.
For
the year ended December 31, 2020 and 2019, other (expense) income was approximately $(5.8) million and $1.5 million, respectively.
The increase in other expense was primarily attributed to a $8.2 million decrease in change in fair value of investment in Hoth,
due to the decrease in Hoth’s common stock price for the year ended December 31, 2020, and partially offset by $1.0 million
increase in gains on marketable securities.
Liquidity
and Capital Resources
We
continue to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding (non-financing
related) revenue. While we continue to implement our business strategy, we intend to finance our activities through:
|
●
|
managing
current cash on hand from our past debt and equity offerings;
|
|
|
|
|
●
|
seeking
additional funds raised through the sale of additional securities in the future;
|
|
|
|
|
●
|
seeking
additional liquidity through credit facilities or other debt arrangements; and
|
|
|
|
|
●
|
increasing
revenue from its patent portfolios, license fees and new business ventures.
|
During
the first quarter of 2021, the Company consummated a public offering of 53,905,927 shares of common stock (including the underwriter
overallotment). The Company received gross proceeds of approximately $86.2 million before deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. Therefore, the Company has adequate cash to fund its operations
for at least the next twelve months.
Management
is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible
that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search
for drug candidates, the specific impact is not readily determinable as of the date of these financial statements. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Cash
Flows from Operating Activities - For the year ended December 31, 2020 and 2019, net cash used in operations was $4.0 million
and $3.0 million, respectively. The cash used in operating activities for the year ended December 31, 2020 primarily resulted
from a net loss of $12.3 million, and partially offset by reduction in fair value of investment of $6.8 million and $1.5 million
research and development expense related with license acquired. The cash used in operating activities for the year ended December
31, 2019 primarily resulted from a net loss of $4.2 million, reduced by $1.4 million change in fair value of our investment, $0.1
million unrealized loss on marketable securities and $0.2 million change in assets and liabilities, and partially offset by $2.5
million research and development expense related with license acquisition.
Cash
Flows from Investing Activities - For the year ended December 31, 2020, net cash used in investing activities was approximately
$25.0 million as compared to net cash provided by investing activities of approximately $1.3 million for the year ended December
31, 2019. The cash used in investing activities for the year ended December 31, 2020 primarily resulted from our purchase of marketable
securities of $98.8 million and research and development expense related with license acquired of $1.5 million, partially offset
by our sale of marketable securities of $74.9 million since we invest excess cash into marketable securities until additional
cash is needed. The cash provided by investing activities for the year ended December 31, 2019 of $10.3 million primarily resulted
from our sale of marketable securities, partially offset by our purchase of marketable securities of $8.5 million.
Cash
Flows from Financing Activities – For the year ended December 31, 2020, cash provided by financing activities for the
year ended December 31, 2020 was $31.6 million, which reflects the net proceeds of $6.6 million from investors in exchange of
issuance of common stock, common warrants and prefunded warrants, net proceeds of $17.8 million from investors in exchange of
issuance of common stock, and net proceeds of $7.2 million from the exercise of common warrants and prefunded warrants. Cash provided
by financing activities for the year ended December 31, 2019 was $1.8 million, which reflects the net proceeds of $0.8 million
from investors in exchange of issuance of common stock and prefunded common stock warrants, and net proceeds of $1.0 million from
the issuance of common stock as part of our ATM offering.
We
have filed a shelf registration statement on Form S-3 with the SEC. Whether we sell securities under the registration statement
will depend on a number of factors, including the market conditions at that time, our cash position at that time and the availability
and terms of alternative sources of capital.
Contractual
obligations
None.
Item
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Financial
statements and supplementary data required by this Item 8 follow.
Index
to Financial Statements Page
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and Board of Directors of
AIkido
Pharma Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of AIkido Pharma Inc. (the “Company”) as
of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for
each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical Audit Matters are matters arising from the current
period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:
(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
Marcum llp
Marcum
llp
We
have served as the Company’s auditor since 2013.
New
York, NY
March
25, 2021
AIKIDO
PHARMA INC.
Consolidated
Balance Sheets
($
in thousands except per share amounts)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,715
|
|
|
$
|
91
|
|
Marketable securities
|
|
|
24,801
|
|
|
|
857
|
|
Prepaid expenses and other assets
|
|
|
215
|
|
|
|
181
|
|
Total current assets
|
|
|
27,731
|
|
|
|
1,129
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
2,764
|
|
|
|
10,153
|
|
|
|
$
|
30,495
|
|
|
$
|
11,282
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
567
|
|
|
$
|
68
|
|
Accrued salaries and benefits
|
|
|
310
|
|
|
|
682
|
|
Total current liabilities
|
|
|
877
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
877
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value, 50,000,000 Authorized
|
|
|
|
|
|
|
|
|
Series D: 5,000,000 shares designated; 4,725 shares issued and
outstanding at December 31, 2020 and 2019; liquidation value of $0.0001 per share
|
|
|
-
|
|
|
|
-
|
|
Series D-1: 5,000,000 shares designated; 834 shares issued and
outstanding at December 31, 2020 and 2019; liquidation value of $0.0001 per share
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 34,920,222 and 4,825,552 shares issued at December 31, 2020 and 2019, respectively; 34,920,219 and 4,825,549 shares outstanding at December 31, 2020 and 2019, respectively
|
|
|
3
|
|
|
|
-
|
|
Additional paid-in-capital
|
|
|
186,482
|
|
|
|
155,062
|
|
Treasury stock, at cost, 3 shares at December 31, 2020 and 2019
|
|
|
(264
|
)
|
|
|
(264
|
)
|
Accumulated deficit
|
|
|
(156,603
|
)
|
|
|
(144,266
|
)
|
Total stockholders’ equity
|
|
|
29,618
|
|
|
|
10,532
|
|
Total liabilities and stockholders’ equity
|
|
$
|
30,495
|
|
|
$
|
11,282
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AIKIDO
PHARMA INC.
Consolidated
Statements of Operations
($
in thousands)
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
4,057
|
|
|
$
|
3,172
|
|
Research and development
|
|
|
1,020
|
|
|
|
10
|
|
Research and development - license acquired
|
|
|
1,469
|
|
|
|
2,512
|
|
Total operating expenses
|
|
|
6,546
|
|
|
|
5,694
|
|
Loss from operations
|
|
|
(6,546
|
)
|
|
|
(5,685
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Other income
|
|
|
19
|
|
|
|
-
|
|
Gains on marketable securities
|
|
|
1,001
|
|
|
|
14
|
|
Change in fair value of investment
|
|
|
(6,811
|
)
|
|
|
1,406
|
|
Change in fair value of warrant liabilities
|
|
|
-
|
|
|
|
82
|
|
Total other (expenses) income
|
|
|
(5,791
|
)
|
|
|
1,502
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,337
|
)
|
|
$
|
(4,183
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.44
|
)
|
|
$
|
(1.67
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, basic and diluted
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
28,074,116
|
|
|
|
2,511,566
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AIKIDO
PHARMA INC.
Consolidated
Statements of Changes in Stockholders’ Equity
($
in thousands)
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
Additional
Paid-in
|
|
|
Treasury
Stock
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Equity
|
|
Balance
at December 31, 2018
|
|
|
2,010,025
|
|
|
$
|
-
|
|
|
|
5,559
|
|
|
$
|
-
|
|
|
$
|
152,445
|
|
|
|
3
|
|
|
$
|
(264
|
)
|
|
$
|
(140,083
|
)
|
|
$
|
12,098
|
|
Issuance of common stock
and prefunded common stock warrants, net of offering cost
|
|
|
221,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
787
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
787
|
|
Issuance of common stock,
net of offering cost / At-the-market offering
|
|
|
532,070
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,047
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,047
|
|
Issuance of common stock
for research and development - license acquired
|
|
|
1,939,058
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,152
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,152
|
|
Exercise of prefunded
common stock warrants
|
|
|
201,961
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrant exercise
|
|
|
33,333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exchange of common shares
for prefunded warrants
|
|
|
(115,269
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Distribution of Hoth
common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,698
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,698
|
)
|
Fractional shares adjusted
for reverse split
|
|
|
3,371
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
329
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
329
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,183
|
)
|
|
|
(4,183
|
)
|
Balance at December
31, 2019
|
|
|
4,825,549
|
|
|
$
|
-
|
|
|
|
5,559
|
|
|
$
|
-
|
|
|
$
|
155,062
|
|
|
|
3
|
|
|
$
|
(264
|
)
|
|
$
|
(144,266
|
)
|
|
$
|
10,532
|
|
Issuance
of common stock, common warrants and prefunded warrants, net of offering cost (net of offering costs of $941)
|
|
|
3,245,745
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,559
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,559
|
|
Issuance
of common stock, net of offering cost (net of offering costs of $1,905)
|
|
|
16,090,909
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,843
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,845
|
|
Common warrant and prefunded
warrant exercise
|
|
|
10,758,016
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,203
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,204
|
|
Distribution of Hoth
common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(269
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(269
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,337
|
)
|
|
|
(12,337
|
)
|
Balance
at December 31, 2020
|
|
|
34,920,219
|
|
|
$
|
3
|
|
|
|
5,559
|
|
|
$
|
-
|
|
|
$
|
186,482
|
|
|
|
3
|
|
|
$
|
(264
|
)
|
|
$
|
(156,603
|
)
|
|
$
|
29,618
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
AIKIDO
PHARMA INC.
Consolidated
Statements of Cash Flows
($
in thousands)
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,337
|
)
|
|
$
|
(4,183
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Change in fair value of investment
|
|
|
6,811
|
|
|
|
(1,406
|
)
|
Change in fair value of warrant liabilities
|
|
|
-
|
|
|
|
(82
|
)
|
Research and development-acquired license, expensed
|
|
|
1,469
|
|
|
|
2,512
|
|
Stock-based compensation
|
|
|
84
|
|
|
|
329
|
|
Realized (gain) loss on marketable securities
|
|
|
(509
|
)
|
|
|
172
|
|
Unrealized loss (gain) on marketable securities
|
|
|
218
|
|
|
|
(145
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(34
|
)
|
|
|
7
|
|
Accounts payable and accrued expenses
|
|
|
499
|
|
|
|
(64
|
)
|
Accrued salaries and benefits
|
|
|
(372
|
)
|
|
|
(50
|
)
|
Payable to DatChat
|
|
|
150
|
|
|
|
(107
|
)
|
Net cash used in operating activities
|
|
|
(4,021
|
)
|
|
|
(3,017
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
(98,827
|
)
|
|
|
(8,461
|
)
|
Sale of marketable securities
|
|
|
74,873
|
|
|
|
10,277
|
|
Sale of Hoth common shares
|
|
|
460
|
|
|
|
-
|
|
Purchase of investments at fair value
|
|
|
-
|
|
|
|
(200
|
)
|
Purchase of research and development licenses
|
|
|
(1,469
|
)
|
|
|
(360
|
)
|
Net cash (used in) provided by investing activities
|
|
|
(24,963
|
)
|
|
|
1,256
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance common stock, common warrants and prefunded warrants, net of offering cost
|
|
|
6,559
|
|
|
|
-
|
|
Proceeds from issuance common stock, net of offering cost
|
|
|
17,845
|
|
|
|
787
|
|
Proceeds from issuance common stock/ At-the-market offering
|
|
|
-
|
|
|
|
1,154
|
|
Offering costs from the issuance of common stock / At-the-market offering
|
|
|
-
|
|
|
|
(106
|
)
|
Proceeds from exercise of warrants
|
|
|
7,204
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
31,608
|
|
|
|
1,835
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
2,624
|
|
|
|
74
|
|
Cash, beginning of period
|
|
|
91
|
|
|
|
17
|
|
Cash, end of period
|
|
$
|
2,715
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Distribution of Hoth common stock
|
|
$
|
269
|
|
|
$
|
1,698
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Note
1. Organization and Description of Business
Organization
and Description of Business
AIkido Pharma Inc., formerly known as Spherix
Incorporated, was initially formed in 1967. Since 2017, the Company has operated as a biotechnology company with a diverse portfolio of
small-molecule anticancer and antiviral therapeutics in development. The Company’s pipeline consists of patented technology from
leading universities and researchers. The Company is currently in the process of developing its innovative therapeutic drug pipeline through
strong partnerships with world renowned educational institutions, including the University of Texas at Austin, the University of Maryland,
Baltimore and Wake Forest University. The Company’s oncology therapeutics include prospective treatments for pancreatic cancer,
acute myeloid leukemia (AML) and acute lymphoblastic leukemia (ALL). The Company is also developing a broad-spectrum antiviral platform,
in which the lead compounds have activity in cell-based assays against multiple viruses including Influenza virus, Ebolavirus and Marburg
virus, SARS-CoV, MERS-CoV, and SARS-CoV-2, the cause of COVID-19.
As a result of the Company’s biotechnology
research and development and associated investments and acquisitions, its business portfolio now focuses on the treatment of three different
cancers and multiple types of viral infections. The Company’s pancreatic drug candidate, DHA-dFdC, developed at and licensed from
the University of Texas at Austin, is a new compound that it hopes will become the next generation of chemotherapy treatment for advanced
pancreatic cancer. DHA-dFdC overcomes tumor cell resistance to current chemotherapeutic drugs and is well tolerated in preclinical toxicity
tests. Preclinical studies have also indicated that DHA-dFdC inhibits pancreatic cancer cell growth (up to 100,000-fold more potent that
gemcitabine, a current standard therapy), targets pancreatic tumors and has demonstrated activities against other cancers, including leukemia,
lung and melanoma. The Company’s AML and ALL compound, developed at the Wake Forest University, is a targeted therapeutic designed
to overcome multiple resistance mechanisms observed with the current standard of care.
The Company’s broad-spectrum antiviral platform
was developed at the University of Maryland Baltimore (“UMB”), which granted the Company an exclusive worldwide Master License
Agreement (MLA”) to technology covered by three separate patent applications. The licensed technology comprises broadly acting pan-viral
inhibitory compounds targeting multiple viral pathogens. The technology was invented by UMB scientists Drs. Matthew Frieman, Alexander
MacKerell and Stuart Watson. The Company has also executed a Sponsored Research Agreement with UMB to support the development of the technology
under the direction of these inventors at UMB.
Reverse
Stock Split
On
May 10, 2019, the Company effected a reverse stock split of its outstanding shares of common stock at a ratio of one-for-4.25
(the “Reverse Stock Split”). The Reverse Stock Split, which was approved by the Company’s Board of Directors
under authority granted by the Company’s stockholders at the Company’s 2019 Annual Meeting of Stockholders held on
April 15, 2019, was consummated pursuant to a Certificate of Amendment filed with the Secretary of State of Delaware on May 9,
2019 (the “Certificate of Amendment”). Unless the context otherwise requires, all references in this report to shares of the Company’s common stock,
including prices per share of its common stock, reflect the Reverse Stock Split. Fractional shares were not issued, and the final
number of shares were rounded up to the next whole share.
Note 2. Liquidity
and Financial Condition
The Company continues to incur ongoing administrative
and other expenses, including public company expenses, in excess of corresponding (non-financing related) revenue. While the Company continues
to implement our business strategy, it intends to finance our activities through:
|
●
|
managing current cash on hand from our past debt and equity offerings;
|
|
|
|
|
●
|
seeking additional funds
raised through the sale of additional securities in the future;
|
|
|
|
|
●
|
seeking additional liquidity
through credit facilities or other debt arrangements; and
|
|
|
|
|
●
|
increasing revenue from
its patent portfolios, license fees and new business ventures.
|
During the first quarter of 2021, the Company consummated a
public offering of 53,905,927 shares of common stock (including the underwriter overallotment). The Company received net proceeds
of approximately $78.2 million after deducting underwriting discounts and commissions and estimated offering expenses payable by
the Company. Therefore, the Company has adequate cash to fund its operations for at least the next twelve months.
Management
is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible
that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search
for drug candidates, the specific impact is not readily determinable as of the date of these financial statements. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Note
3. Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Nuta Technology
Corp. (“Nuta”), Spherix Portfolio Acquisition II, Inc. (“SPAII”), Guidance IP, LLC (“Guidance”),
Directional IP, LLC (“Directional”), Spherix Management Services, LLC (“SMS”), Spherix Delaware Merger
Sub Inc. (“Merger Sub”), Spherix Merger Subsidiary, Inc (“SMSI”) and NNPT, LLC (“NNPT”). All
significant intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (“US GAAP”). This requires management to make estimates and assumptions that affect
certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and
assumptions include stock-based compensation, the valuation of investments and the valuation
allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates could be affected by external
conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external
factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and
assumptions.
Segments
The
Company operates in one operating segment and, accordingly, no segment disclosures have been presented herein.
Concentration
of Cash
The Company maintains cash balances at two financial
institutions in checking accounts and money market accounts. The Company considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents. The Company has not experienced any losses in such accounts. There were
no cash equivalents as of December 31, 2020 and 2019.
Marketable
Securities
Marketable
securities are classified as trading and are carried at fair value. The Company’s marketable securities consist of corporate
bonds and highly liquid mutual funds and exchange-traded & closed-end funds which are valued at quoted market prices.
Research
and Development
Research
and development costs, including acquired in-process research and development expenses for which there is no alternative future
use, are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities
are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Accounting
for Warrants
The
Company accounts for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance
with the provisions of ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies as equity any contracts
that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement
in its own shares (physical settlement or net-share settlement).
Stock-based
Compensation
The
Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock
options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the
market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options
generally vest over a one- to five-year period.
The
Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used
in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties
and the application of management’s judgment.
Expected
Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding
based on the simplified method, which is the half-life from vesting to the end of its contractual term.
Expected
Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading
prices.
Risk-Free
Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon
issues with an equivalent remaining term.
Expected
Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends
in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.
The
Company accounts for forfeitures as they occur.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740, “Income Taxes”
(“ASC 740”). Under this method, income tax expense is recognized as the amount of: (i) taxes payable or refundable
for the current year and (ii) deferred tax consequences of temporary difference resulting from matters that have been recognized
in the Company’s financial statement or tax returns. Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities measured at the enacted tax rates in effect for the year
in which these items are expected to reverse. Deferred tax assets are reduced by valuation allowances if, based on the consideration
of all available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Recently
Adopted Accounting Standards
In
August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, “Fair Value Measurement
(Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which makes
a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy
associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update.
The Company adopted this ASU on January 1, 2020 and the adoption of this ASU did not have a material impact on its consolidated
financial statements or related disclosures.
In December 2019, the Financial Accounting Standards Board (“FASB”)
issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”),
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to
the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption
permitted. The Company adopted ASU No. 2019-12 effective January 1, 2021, and the adoption did not have a material impact on its
consolidated financial statements.
Note
4. Investments in Marketable Securities
The
realized gain or loss, unrealized gain or loss, and dividend income related to marketable securities for the year ended December
31, 2020 and 2019, which are recorded as a component of other (expenses) income on the consolidated statements of operations (excluding
a $70,000 distribution to CBM shareholders during the year ended December 31, 2020), are as follows ($ in thousands):
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Realized gain (loss)
|
|
$
|
509
|
|
|
$
|
(172
|
)
|
Unrealized gain (loss)
|
|
|
(218
|
)
|
|
|
145
|
|
Dividend income
|
|
|
636
|
|
|
|
38
|
|
Interest income
|
|
|
4
|
|
|
|
4
|
|
|
|
$
|
931
|
|
|
$
|
14
|
|
Note
5. Investment in Hoth Therapeutics, Inc.
Hoth
is a clinical stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications
such as atopic dermatitis, also known as eczema, skin toxicities associated with cancer therapy, chronic wounds, psoriasis, asthma,
acne, and pneumonia.
On
February 20, 2019, Hoth closed its initial public offering (the “IPO”) at an initial offering price to the public
of $5.60 per share. The Company records this investment at fair value and records any change in fair value in the statements of
operations (see Note 8).
On
October 2, 2019, the Board of Directors approved a distribution to the Company’s stockholders of 100,000 Hoth Shares held
by the Company. Accordingly, each of the Company’s stockholders received one (1) share of Hoth common stock for every twenty-nine
(29) shares of Company common stock held as of 5 p.m. Eastern Time on October 21, 2019, the dividend record date. The Company
did not distribute fractional shares of Hoth common stock, and any fractional shares were rounded down to the nearest whole share.
On
February 23, 2020, the Board of Directors approved a distribution to the Company’s stockholders of up to 70,000 Hoth Shares
held by the Company. Accordingly, each of the Company’s stockholders received one (1) share of Hoth common stock for every
five hundred (500) shares of Company common stock held as of 5 p.m. Eastern Time on April 30, 2020, the dividend record date.
The Company did not distribute fractional shares of Hoth common stock, and any fractional shares were rounded down to the nearest
whole share. The final distribution amount of Hoth Shares is 69,815. The fair value of this distribution is approximately $0.3
million on the dividend record date.
On
May 6, 2020, the Company entered into that certain Stock Transfer Agreement, by and between the Company and a purchaser, and sold
400,000 shares of Hoth common stock for net proceeds of approximately $0.5 million.
The
following summarizes the Company investment in Hoth:
Security Name
|
|
Shares
Owned as of
December 31,
2020
|
|
|
Fair value
per Share as of
December 31,
2020
|
|
|
Fair value
as of
December 31,
2020
(in thousands)
|
|
HOTH
|
|
|
1,166,415
|
|
|
$
|
2.37
|
|
|
$
|
2,764
|
|
Security Name
|
|
Shares
Owned as of
December 31,
2019
|
|
|
Fair value
per Share as of
December 31,
2019
|
|
|
Fair value
as of
December 31,
2019
(in thousands)
|
|
HOTH
|
|
|
1,636,230
|
|
|
$
|
6.19
|
|
|
$
|
10,128
|
|
The
fair value of Hoth common shares as of December 31, 2020 and 2019 was based on the closing price of $2.37 and $6.19, respectively,
reported on The NASDAQ Capital Market as of December 31, 2020 and 2019.
Note
6. Investment in Others
In
May 2019, the Company purchased (a) a senior convertible note issued by DatChat with outstanding principal of $300,000, with an
initial conversion rate of $0.20 per share, (b) a warrant to purchase 2,250,000 shares of DatChat common stock at an initial exercise
price of $0.20 per share, (c) an option to acquire an additional $300,000 senior convertible note and a warrant to purchase 1,500,000
shares of DatChat common stock, (d) a contingent option to purchase 500,000 shares of DatChat common stock from an existing DatChat
stockholder, (e) a contingent option to put 200,000 shares of DatChat common stock and (f) 50,000 shares of common stock of CBM
which represents a 20% interest in CBM. The Company allocated all the fair value of this investment to CBM. As a result of the
nominal purchase price allocated to DatChat, the Company reviewed its existing holdings in DatChat and reduced its existing carrying
amount from $1.0 million to $0. The Company recorded its initial investment in DatChat on adjusted cost method measurement alternative
in accordance with ASU 2016-01.
On
December 5, 2019, in connection with the acquisition of the assets of CBM, the Company wrote-off its investment to research and
development expense as the original purchase of 50,000 CBM shares was a component of the transaction contemplated with CBM.
During
the year ended 2020, the Company wrote-off its investment of $25,000 in The BitDaily.
The
balance of Company’s other investments was $0 and $25,000 as of December 31, 2020 and 2019, respectively.
Note
7. CBM Asset Acquisition
On
October 10, 2018, the Company entered into that certain Agreement and Plan of Merger, dated as of October 10, 2018, by and among
the Company, Spherix Delaware Merger Sub Inc., a Delaware corporation, Scott Wilfong, as the CBM stockholder representative, and
CBM, a Delaware corporation and a pharmaceutical company focused on the development of cancer treatments, pursuant to which all
shares of capital stock of CBM were be converted into the right to receive an aggregate of 15,000,000 shares of the Company’s
common stock, with CBM continuing as the surviving corporation in the merger.
On
May 15, 2019, the Company restructured the terms of the CBM merger and chose to proceed with purchasing substantially all of the
assets, properties and rights (the “Acquisition”) of CBM. On December 5, 2019, the Company completed the Acquisition
of CBM, pursuant to that certain Asset Purchase Agreement, dated as of May 15, 2019, by and between the Company and CBM, as amended
by that certain Amendment No. 1 to Asset Purchase Agreement, dated as of May 30, 2019, and Amendment No. 2 to Asset Purchase Agreement,
dated as of December 5, 2019 (collectively, the “CBM Purchase Agreement”). As consideration for the Acquisition, the
Company agreed to pay to CBM consideration consisting of (i) $1,000,000 in cash (the “Cash Consideration”) and (ii)
an aggregate of 1,939,058 shares (the “Stock Consideration”) of the Company’s common stock valued at a price
per share of $3.61. The Cash Consideration will become payable to CBM upon the consummation by the Company of the first sale of
the Company’s common stock or any other equity or equity-linked financing of the Company to investors in or more transactions,
after the date of the CBM Purchase Agreement, for which the Company receives aggregate gross proceeds of greater than $2,000,000
(a “Qualified Financing”).
Upon
the consummation of the Qualified Financing, the Company shall retain the first $2,000,000 of the gross proceeds from the Qualified
Financing and CBM shall receive 100% of the gross proceeds of such Qualified Financing received by the Company in excess of $2,000,000
as well as the gross proceeds of any subsequent equity financings by the Company until the Cash Consideration amount is satisfied
in full. Additionally, at closing, 7% or 135,734 shares of common stock of the Stock Consideration was deposited with VStock (the
“Escrow Shares”), the Company’s transfer agent, to be held in escrow for six months post-closing to satisfy
certain indemnification obligations pursuant to the terms and conditions of the CBM Purchase Agreement, and 93% or 1,803,324 shares
of the Stock Consideration was issued and delivered to CBM.
On December 5, 2019, the Company recorded the
issuance of Stock Consideration at fair value, based upon the closing stock price per share of $1.11 as of December 5, 2019. The issuance
of Escrow Shares was considered probable as of December 31, 2019. The Cash Consideration was not considered probable as of December 31,
2019 as such consideration is payable on a Qualified Financing. Because acquisition of CBM’s intellectual property had not received
regulatory approval, the $2.5 million purchase price paid for CBM was immediately expensed in the Company’s statement of operations
as research and development – intellectual property acquired.
On March 9, 2020, the Company raised over $2.0 million of proceeds (see Note 10), therefore a payment of $1.0 million was due
to CBM under the CBM Purchase Agreement. The Company recorded this Cash Consideration as a component of research and development
license acquired during the year ended December 31, 2020 the consolidated statements of operations.
Note
8. Fair Value of Financial Assets and Liabilities
Financial instruments, including cash, accounts
payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of
these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes
the use of unobservable inputs when measuring fair value.
The
Company uses three levels of inputs that may be used to measure fair value:
Level
1 - quoted prices in active markets for identical assets or liabilities
Level
2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The
following table presents the Company’s assets and liabilities that are measured at fair value at December 31, 2020 and 2019
($ in thousands):
|
|
Fair value measured at December 31, 2020
|
|
|
|
Total at
December 31,
|
|
|
Quoted prices in
active markets
|
|
|
Significant other
observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities - mutual and exchange traded funds
|
|
$
|
24,801
|
|
|
$
|
24,801
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investments in Hoth
|
|
$
|
2,764
|
|
|
$
|
2,764
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Fair value measured at December 31, 2019
|
|
|
|
Total at
December 31,
|
|
|
Quoted prices in
active markets
|
|
|
Significant other
observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities - mutual and exchange traded funds
|
|
$
|
857
|
|
|
$
|
857
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investments in Hoth
|
|
$
|
10,128
|
|
|
$
|
10,128
|
|
|
$
|
-
|
|
|
$
|
-
|
|
While
the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate
of fair value at the reporting date.
Note
9. Net Earnings (Loss) per Share Applicable to Common Stockholders
Securities
that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share
at December 31, 2020 and 2019 are as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Convertible preferred stock
|
|
|
688
|
|
|
|
688
|
|
Warrants to purchase common stock
|
|
|
1,656,354
|
|
|
|
285,273
|
|
Options to purchase common stock
|
|
|
384,304
|
|
|
|
88,950
|
|
Total
|
|
|
2,041,346
|
|
|
|
374,911
|
|
Note 10. Stockholders’
Equity and Convertible Preferred Stock
Common
Stock
On
March 3, 2020, the Company entered into that certain Securities Purchase Agreement, by and among the Company and certain purchasers,
pursuant to which the Company agreed to issue and sell to the purchasers 3,245,745 shares of the Company’s common stock,
and common warrants (“Common Warrants”) to purchase up to 7,142,858 shares of common stock at a price of $1.05 per
share of common stock and Common Warrant. The Company also offered 3,897,113 pre-funded warrants (“Pre-Funded Warrants”)
to purchase shares of common stock with a purchase price of $1.0499 each Pre-Funded Warrant. The exercise price of each Pre-Funded
Warrant was $0.0001 per share.
This
offering resulted in gross proceeds of approximately $7.5 million before deducting the placement agent’s fee and related
offering expenses of $1.0 million.
On
March 9, 2020, the Company entered into that certain Securities Purchase Agreement, by and among the Company and certain purchasers,
pursuant to which the Company agreed to issue and sell, in a registered direct offering, 2,090,909 shares of the Company’s
common stock at an offering price of $2.75 per share. This offering resulted in gross proceeds to the Company of $5.8 million,
before deducting the placement agent’s fee and other related offering expenses.
The
Company also issued placement agent warrants to the placement agent (the “Placement Agent Warrant”) to purchase 167,273
shares of common stock with an exercise price of $3.4375 per share.
The
Company has determined that the Placement Agent Warrant should be accounted as a component of stockholders’ equity. On the
issuance date, the Company estimated the aggregate fair value of Placement Agent Warrant at $0.2 million using the Black-Scholes
option pricing model using the following primary assumptions: fair value of common stock underlying the warrants is $1.83, expected
life of 5 years, volatility rate of 122.29%, risk-free interest rate of 0.63% and expected dividend rate of 0%.
On
April 14, 2020, the Company, entered into that certain Securities Purchase Agreement, by and among the Company and certain purchasers,
pursuant to which the Company agreed to issue and sell 14,000,000 shares of the Company’s common stock at an offering price
of $1.00 per share. The registered offering resulted in gross proceeds to the Company of $14.0 million, before deducting the placement
agent’s fee and other related offering expenses.
The
Company also issued placement agent warrants to the placement agent (the “Placement Agent Warrant”) to purchase 1,120,000
shares of common stock with an exercise price of $1.25 per share.
At
The Market Offering Agreement
On
August 9, 2019, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright
& Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may offer and sell, from time to time
through H.C. Wainwright, shares of the Company’s common stock having an aggregate offering price of up to $1.2 million (the
“Shares”). The Company will pay H.C. Wainwright a commission rate equal to 3.0% of the aggregate gross proceeds from
each sale of Shares.
During
the year ended December 31, 2019, the Company sold a total of 532,070 shares of common stock under the ATM for aggregate total
gross proceeds of approximately $1.2 million at an average selling price of $2.17 per share, resulting in net proceeds of approximately
$1.1 million after deducting commissions and other transaction costs.
Registered
Common Stock and Warrant Financing
On
May 29, 2019, the Company entered into a Securities Purchase Agreement (the “Common Stock Purchase Agreement”) for
the sale by the Company of 221,000 shares of the Company’s common stock, at a purchase price of $2.60 per share, and pre-funded
common stock purchase warrants to purchase up to 86,692 shares of common stock at a purchase price of $2.5999 per Warrant, which
represents the per share purchase price, less a $0.0001 per share exercise price for each of the warrants (“Penny Warrants”).
The Company sold the shares and warrants for net proceeds of approximately $0.8 million which transaction closed on May 31, 2019.
Common
Stock Warrant Exchange
On
June 6, 2019, the Company entered into an amendment to the Common Stock Purchase Agreement, pursuant to which the Purchaser surrendered
an aggregate of 115,269 shares to the Company and the Company issued 115,269 Penny Warrants to the Purchaser in order to limit
the Purchaser’s beneficial ownership.
The
exchange of 115,269 Penny Warrants do not meet the definition of a derivative under ASC 815 because their fair value at issuance
is equal to the fair value of the shares underlying the warrant. As such, they have the characteristics of a prepaid forward sale
of equity. Since the shares underlying the Penny Warrants are issuable for little or no consideration, they are considered outstanding
in the context of earnings per share, as discussed in ASC 260-10-45-13.
Preferred Stock
Series D Convertible Preferred Stock
In connection with the acquisition of North South’s
patent portfolio in September 2013, the Company issued 1,379,685 shares of its Series D Convertible Preferred Stock (“Series D Preferred
Stock”) to the stockholders of North South. Each share of Series D Preferred Stock has a stated value of $0.0001 per share and is
convertible into ten-nineteenths of a share of Common Stock. Upon the liquidation, dissolution or winding up of the Company’s business,
each holder of Series D Preferred Stock shall be entitled to receive, for each share of Series D Preferred Stock held, a preferential
amount in cash equal to the greater of (i) the stated value or (ii) the amount the holder would receive as a holder of Common Stock on
an “as converted” basis. Each holder of Series D Preferred Stock shall be entitled to vote on all matters submitted to its
stockholders and shall be entitled to such number of votes equal to the number of shares of Common Stock such shares of Series D Preferred
Stock are convertible into at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate
of Designation and the conversion limitations described below. The conversion ratio of the Series D Preferred Stock is subject to adjustment
in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions.
As of December 31, 2020 and 2019, 5,000,000
Series D Preferred Stock designated; 4,725 shares remained issued and outstanding.
Series D-1 Convertible Preferred Stock
The Company’s Series D-1 Convertible Preferred
Stock (“Series D-1 Preferred Stock”) was established on November 22, 2013. Each share of Series D-1 Preferred Stock has a
stated value of $0.0001 per share and is convertible into ten-nineteenths of a share of Common Stock. Upon the liquidation, dissolution
or winding up of the Company’s business, each holder of Series D-1 Preferred Stock shall be entitled to receive, for each share
of Series D-1 Preferred Stock held, a preferential amount in cash equal to the greater of (i) the stated value or (ii) the amount the
holder would receive as a holder of Common Stock on an “as converted” basis. Each holder of Series D-1 Preferred Stock shall
be entitled to vote on all matters submitted to the Company’s stockholders and shall be entitled to such number of votes equal to
the number of shares of Common Stock such shares of Series D-1 Preferred Stock are convertible into at such time, taking into account
the beneficial ownership limitations set forth in the governing Certificate of Designation. The conversion ratio of the Series D-1 Preferred
Stock is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions.
The Company commenced an exchange with holders of Series D Convertible Preferred Stock pursuant to which the holders of the Company’s
outstanding shares of Series D Preferred Stock acquired in the Merger could exchange such shares for shares of the Company’s Series
D-1 Preferred Stock on a one-for-one basis.
As of December 31, 2020 and 2019, 5,000,000
Series D-1 Preferred Stock designated; 834 shares remained issued and outstanding.
Warrants
A
summary of warrant activity for year ended December 31, 2020 and 2019 is presented below:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Total
Intrinsic
Value
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
Outstanding as of December 31, 2018
|
|
|
294,072
|
|
|
$
|
38.15
|
|
|
$
|
-
|
|
|
|
1.92
|
|
Issued
|
|
|
301,960
|
|
|
|
-
|
|
|
|
506,273
|
|
|
|
-
|
|
Exercised
|
|
|
(235,294
|
)
|
|
|
-
|
|
|
|
394,940
|
|
|
|
-
|
|
Expired
|
|
|
(8,799
|
)
|
|
|
476.66
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2019
|
|
|
351,939
|
|
|
$
|
19.96
|
|
|
$
|
111,332
|
|
|
|
0.94
|
|
Issued
|
|
|
12,327,244
|
|
|
|
0.77
|
|
|
|
-
|
|
|
|
0.17
|
|
Exercised
|
|
|
(10,758,016
|
)
|
|
|
0.67
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(198,147
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2020
|
|
|
1,723,020
|
|
|
$
|
3.07
|
|
|
|
57,333
|
|
|
|
1.11
|
|
On
May 29, 2019, the Company entered into the Master Service Agreement (“MSA”) with a consultant, World Wide Holdings,
LLC (“Consultant”). In consideration for services provided by Consultant, the Company paid to Consultant three warrants
(the “Consultant Warrants”), with each warrant immediately exercisable for 33,333 shares of common stock with a $0.01
strike price. The Company issued each of the three warrants on June 28, July 28 and August 27, 2019, respectively. The Company
recorded $0.3 million in stock-based compensation during the year ended December 31, 2019 related to this arrangement. On July
12, 2019, the Company issued 33,333 shares of common stock upon exercise of one Consultant Warrant which resulted in gross proceeds
of approximately $333.
Stock
Options
2014
Plan and Option Grants
On
November 17, 2020, the Board approved to amend 2014 Equity Incentive Plan to increase the number of shares of common stock authorized
to be issued pursuant to the 2014 Plan from 243,344 to 5,000,000 shares.
At
December 31, 2020, there were 359,464 options outstanding and 4,640,536 shares available for grant under the AIkido Pharma Inc.
2014 Equity Incentive Plan.
The
fair value of options granted in 2020 and 2019 was estimated using the following assumptions:
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Exercise price
|
|
$0.64
|
|
|
-
|
|
Term (years)
|
|
9.98
|
|
|
-
|
|
Expected stock price volatility
|
|
124.0%
|
|
|
-
|
|
Risk-free rate of interest
|
|
0.37%
|
|
|
-
|
|
A
summary of option activity under the Company’s stock option plan for year ended December 31, 2020 and 2019 is presented
below:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Total
Intrinsic
Value
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
Outstanding as of December 31, 2018
|
|
|
124,381
|
|
|
$
|
209.22
|
|
|
$
|
-
|
|
|
|
4.8
|
|
Employee options expired
|
|
|
(35,121
|
)
|
|
|
302.29
|
|
|
|
-
|
|
|
|
-
|
|
Non-employee options expired
|
|
|
(310
|
)
|
|
|
571.71
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2019
|
|
|
88,950
|
|
|
$
|
172.39
|
|
|
$
|
-
|
|
|
|
5.7
|
|
Employee options granted
|
|
|
300,000
|
|
|
|
0.64
|
|
|
|
69,000
|
|
|
|
10.0
|
|
Employee options expired
|
|
|
(4,646
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2020
|
|
|
384,304
|
|
|
$
|
40.15
|
|
|
$
|
69,000
|
|
|
|
8.9
|
|
Options vested and exercisable
|
|
|
234,304
|
|
|
$
|
65.45
|
|
|
$
|
34,500
|
|
|
|
8.2
|
|
Stock-based
compensation associated with the amortization of stock option expense was $84,000 and $8,000 for the years ended December 31,
2020 and 2019, respectively. All stock compensation was recorded as a component of general and administrative expenses.
Estimated
future stock-based compensation expense relating to unvested stock options is approximately $77,000 and will be recorded
through June 2021.
Note
11. Commitments and Contingencies
Legal
Proceedings
In
the past, in the ordinary course of business, the Company actively pursued legal remedies to enforce its intellectual property
rights and to stop unauthorized use of our technology. Other than ordinary routine litigation incidental to the business, we know
of no material, active or pending legal proceedings against us.
Risks
and Uncertainties – COVID-19
Management
is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible
that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search
for drug candidates, the specific impact is not readily determinable as of the date of these financial statements. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Note
12. Income Taxes
The
income tax provision consists of the following ($ in thousands):
|
|
For the years ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Federal
|
|
|
|
|
|
|
Current
|
|
$
|
(85
|
)
|
|
$
|
-
|
|
Deferred
|
|
|
(1,821
|
)
|
|
|
3,862
|
|
Increase in valuation allowance
|
|
|
1,821
|
|
|
|
(3,862
|
)
|
|
|
|
|
|
|
|
|
|
State and local
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
(3,739
|
)
|
|
|
(12,115
|
)
|
Increase in valuation allowance
|
|
|
3,739
|
|
|
|
12,115
|
|
|
|
|
|
|
|
|
|
|
Income Tax Provision (Benefit)
|
|
$
|
(85
|
)
|
|
$
|
-
|
|
The
following is a reconciliation of the U.S. federal statutory rate to the effective income tax rates for the years ended December
31, 2020 and 2019:
|
|
For the years ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
U.S. Statutory Federal Rate
|
|
|
21
|
%
|
|
|
21
|
%
|
State Taxes, Net of Federal Tax Benefit
|
|
|
|
%
|
|
|
13.62
|
%
|
Other Permanent Differences
|
|
|
0.04
|
%
|
|
|
0.01
|
%
|
State rate change in effect
|
|
|
40.36
|
%
|
|
|
216.40
|
%
|
AMT credit benefit
|
|
|
0.68
|
%
|
|
|
|
%
|
|
|
Decrease due to true up of State NOL
|
|
|
(10.36
|
)%
|
|
|
(19.10
|
)%
|
Decrease due to change in Federal NOL and other true ups
|
|
|
(6.34
|
)%
|
|
|
(34.64
|
)%
|
Change in Valuation Allowance
|
|
|
(44.7
|
)%
|
|
|
(197.29
|
)%
|
Income Tax Benefit
|
|
|
0.68
|
%
|
|
|
-
|
%
|
At
December 31, 2020 and 2019, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences
attributable to the following ($ in thousands):
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net-operating loss carryforward
|
|
$
|
19,000
|
|
|
$
|
15,443
|
|
Stock based compensation
|
|
|
8,290
|
|
|
|
8,104
|
|
Patent portfolio and other
|
|
|
14,917
|
|
|
|
15,004
|
|
Total Deferred Tax assets
|
|
|
42,207
|
|
|
|
38,551
|
|
Valuation allowance
|
|
|
(40,670
|
)
|
|
|
(35,084
|
)
|
Deferred Tax Asset, Net of Allowance
|
|
$
|
1,537
|
|
|
$
|
3,467
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Fair value adjustment of investment
|
|
|
(1,537
|
)
|
|
|
(3,467
|
)
|
|
|
|
-
|
|
|
|
-
|
|
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The
Company has determined that, based on objective evidence currently available, it is more likely than not, the deferred tax assets
will not be realized in future periods. Accordingly, the Company has provided a full allowance for the deferred tax assets at
December 31, 2020 and 2019. As of December 31, 2020, the change in valuation allowance is approximately $5.56 million.
On
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic.
The CARES Act, among other things, makes any Alternative Minimum Tax Credit carry forward fully refundable in tax years beginning
on or after January 1, 2018. The Company filed Form 1139 in 2020 and received a cash refund for its $85k AMT credit carry forward
before December 31, 2020.
On
December 27, 2020 the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA includes the COVID-related
Tax Relief Act of 2020 (“COVID TRA”). The Company is continuing to assess the effect of the CAA and does not believe
it will result in a material impact to the Company’s income tax provision.
As
of December 31, 2020, the Company has approximately $41 million federal net operating loss carryovers (“NOLs”), which
expire from 2033 through 2037, and $22 million of federal NOLs with indefinite utilization. The Company has approximately $85
million of state and city NOLs, which expire from 2024 through 2040.
The
NOL carryover may be subject to limitation under Internal Revenue Code section 382, should there be a greater than 50% ownership
change as determined under the regulations. No study has been performed since the last known ownership change of September 10,
2013.
As
required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining
that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting
the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that
has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences
between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the
interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of NOL or amount of
tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation
to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If
applicable, interest costs and penalties related to unrecognized tax benefits are required to be calculated and would be classified
as interest and penalties in general and administrative expense in the statement of operations. As of December 31, 2020 and 2019,
no liability for unrecognized tax benefit was required to be reported. No interest or penalties were recorded during the years
ended December 31, 2020 and 2019. The Company does not expect any significant changes in its unrecognized tax benefits in the
next year. The Company files U.S. federal and state income tax returns. As of December 31, 2020, the Company’s U.S. and
state tax returns (Delaware, New York, New York City, Pennsylvania, Virginia, and Texas) remain subject to examination by tax
authorities beginning with the tax return filed for the year ended December 31, 2017, however, there were no audits pending in
any of the above-mentioned jurisdictions during 2020 and 2019. The Company believes that its income tax positions would be sustained
upon an audit and does not anticipate any adjustments that would result in material changes to its consolidated financial position.
Note
13. Subsequent Events
Silo
License Agreement
Effective
January 5, 2021, the Company entered into an exclusive patent license agreement (the “License Agreement”) with Silo
Pharma Inc., a Delaware corporation and Silo Pharma Inc., a Florida corporation, and their affiliates/subsidiaries (collectively,
“Silo Pharma”).
As
consideration for the license of the Licensed Patents, the Company will issue and deliver to Silo Pharma 500 shares of the Company’s
Series M Convertible Preferred Stock. The Company paid a one-time nonrefundable cash payment of five-hundred thousand US Dollars
($500,000.00) to Silo Pharma. The Company shall also pay Silo Pharma a running royalty equal to two percent (2%) of “net
sales” (as such term is defined in the License Agreement).
Convergent
Investment
On
January 29, 2021, the Company purchased an 8% convertible promissory note (“Convertible Note”) issued by Convergent
Therapeutics, Inc. (“Convergent”) with a principal amount of $2 million pursuant to a Note Purchase Agreement with
Convergent. The Company paid a purchase price for the Convertible Note of $2 million. The Company will receive interest on the
Convertible Note at the rate of 8% per annum payable upon conversion or maturity of the Convertible Note. The Convertible Note shall mature on January 29, 2023.
Public
Offering
On
February 19, 2021, the Company consummated the public offering pursuant to an amended and restated underwriting agreement (the
“Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative to the underwriters named therein
(the “Underwriter”), pursuant to which the Company agreed to issue and sell to the Underwriter in an underwritten
public offering (the “Offering”) an aggregate of 46,875,000 shares (the “Shares”) of common stock, $0.0001
par value per share, of the Company (the “Common Stock”). The Company received gross proceeds of approximately $75
million before deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. On February
23, 2021, the Underwriter partially exercised its over-allotment option and purchased an additional 7,030,927 Shares, resulting
in aggregate proceeds of approximately $86.2 million., before deducting underwriting discounts and commissions and other expenses.
In
connection with the Offering, the Company issued the Underwriter warrants (the “Underwriter’s Warrants”) to
purchase up to 4,312,475 shares of Common Stock, or 8% of the Shares sold in the Offering. The Underwriter’s Warrants will
be exercisable for a period of five years from February 19, 2021 at an exercise price of $2.00 per share, subject to adjustment.