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 September 30, 2021

☐ 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 November 12, 2021, the registrant had 27,027,149 and 26,926,346 shares of common stock, $0.001 par value per share, issued and outstanding, respectively.

Table of Contents

INDEX		Page No.
Cautionary Note Regarding Forward-Looking Statements and Industry Data		ii

PART I FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Balance Sheets as of September 30, 2021 and December 31, 2020	1
	Statements of Operations for the three and nine months ended September 30, 2021 and 2020	2
	Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2021 and 2020	3
	Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	5
	Notes to Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	34

Signatures		35

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:

●

Our plans to initiate clinical trials for our product candidates;

●

Our plans to research, develop and commercialize our product candidates;

●

Our ability to comply with the provisions of our license agreements with Loma Linda University and Leland Stanford Junior University;

●

The results of clinical testing and trial activities of our product candidates;

●

Our ability to obtain regulatory approval and market acceptance of, and reimbursement for our products;

●

Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand;

●

Our ability to compete and succeed in a highly competitive and evolving industry;

●

Our lack of operating history on which to judge our business prospects and management;

●

Our ability to raise capital and the availability of future financing;

●

Our ability to manage our research, development, expansion, growth, and operating expenses;

●

Our reliance on third parties to conduct our research, preclinical studies and expected clinical trials;

●

Our ability to complete the transactions contemplated under our Transaction Agreement with AiPharma Global;

●

the impacts of COVID-19, or other future pandemics on our business; and

●

the impact of government laws and regulation.

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.

BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2021			2020
ASSETS
CURRENT ASSETS:
Cash	$	5,469,435		$	10,500,826
Prepaid expenses		416,072			147,642
ROU asset - short term		-			384,685
Note receivable		6,500,000			-
TOTAL CURRENT ASSETS		12,385,507			11,033,153

Fixed assets, net		2,255,089			798,919
Intangible assets, net		240,970			321,000
ROU asset - long term		3,967,338			871,136
Deposits		315,655			72,296
Other assets		422,108			-
TOTAL ASSETS	$	19,586,667		$	13,096,504

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,655,976		$	241,613
Financing of fixed asset – short term		744,299			587,588
Deferred rent		180,940			6,536
Lease liability - short term		1,019,613			391,221
TOTAL CURRENT LIABILITIES		3,600,828			1,226,958

Financing of fixed asset - long term		246,723			-
Lease liability - long term		2,766,785			858,064

TOTAL LIABILITIES		6,614,336			2,085,022

STOCKHOLDERS’ EQUITY
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, 24,193,816 and 13,074,495 shares issued and 24,093,013 and 12,973,692 shares outstanding, respectively		24,198			13,078
Treasury stock, 100,803 and 100,803 shares, respectively		(201,605	)		(201,605	)
Additional paid-in capital		56,450,015			32,079,187
Accumulated deficit		(43,300,277	)		(20,879,178	)
TOTAL STOCKHOLDERS’ EQUITY		12,972,331			11,011,482

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	19,586,667		$	13,096,504

See accompanying notes to the financial statements.

ADITXT, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
OPERATING EXPENSES
General and administrative expenses, including $650,325, $874,363, $2,887,657 and $1,564,129, in stock-based compensation, respectively	$	4,451,545		$	2,453,725		$	14,348,375		$	3,677,490
Research and development expenses, including $248,989, $0, $248,989, and $0 in stock-based compensation, respectively		1,471,544			285,813			3,340,247			514,478
Sales and marketing expenses, including $0, $0, $0, and $0 in stock-based compensation, respectively		150,056			5,000			252,562			7,848
Total operating expenses		6,073,145			2,744,538			17,941,184			4,199,816

NET LOSS FROM OPERATIONS		(6,073,145	)		(2,744,538	)		(17,941,184	)		(4,199,816	)

OTHER EXPENSE
Interest expense		(38,198	)		-			(74,587	)		(902	)
Interest income		42,838			116			43,267			116
Gain on forgiveness of debt		-			-			-			32,500
Loss on extinguishment of debt		(2,500,970	)		-			(2,500,970	)		-
Amortization of debt discount		(1,191,254	)		-			(1,845,358	)		(300,000	)
Total other expense		(3,687,584	)		116			(4,377,648	)		(268,286	)

Net loss before income taxes		(9,760,729	)		(2,744,422	)		(22,318,832	)		(4,468,102	)
Income tax provision		-			-			-			-

NET LOSS	$	(9,760,729	)	$	(2,744,422	)	$	(22,318,832	)	$	(4,468,102	)

Net loss per share - basic and diluted	$	(0.56	)	$	(0.37	)	$	(1.46	)	$	(0.88	)

Weighted average number of shares outstanding during the period - basic and diluted		17,380,505			7,439,225			15,270,814			5,091,584

See accompanying notes to the financial statements.

ADITXT, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

	Preferred Shares Outstanding		Preferred Shares Par		Common Shares Outstanding		Common Shares Par		Treasury Stock			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balance December 31, 2020		-	$	-		12,973,692	$	13,078	$	(201,605	)	$	32,079,187		$	(20,879,178	)	$	11,011,482

Exercise of warrants		-		-		1,163,556		1,164		-			3,717,792			-			3,718,956

Issuance of shares for services		-		-		18,000		18		-			51,222			-			51,240

Issuance of shares for employee compensation		-		-		335,000		335		-			1,111,865			-			1,112,200

Stock option and warrant compensation		-		-		-		-		-			301,462			-			301,462

Fair value of warrants issued with convertible note payable		-		-		-		-		-			1,322,840			-			1,322,840

Warrant consideration for convertible note offering costs		-		-		-		-		-			231,316			-			231,316

Net loss		-		-		-		-		-			-			(6,379,667	)		(6,379,667	)

Balance March 31, 2021 (unaudited)		-	$	-		14,490,248	$	14,595	$	(201,605	)	$	38,815,684		$	(27,258,845	)	$	11,369,829

Issuance of shares for services		-		-		68,000		68		-			181,792			-			181,860

Issuance of shares for employee compensation		-		-		130,000		130		-			331,370			-			331,500

Stock option and warrant compensation		-		-		-		-		-			259,070			-			259,070

Net loss		-		-		-		-		-			-			(6,178,436	)		(6,178,436	)

Balance June 30, 2021 (unaudited)		-	$	-		14,688,248	$	14,793	$	(201,605	)	$	39,587,916		$	(33,437,281	)	$	5,963,823

Stock option and warrant compensation		-		-		-		-		-			219,885			-			219,885

Issuance of shares for the conversion of debt		-		-		4,802,497		4,803		-			5,745,119			-			5,749,922

Issuance of shares and warrants for offering, net of issuance costs		-		-		4,583,334		4,583		-			10,115,418			-			10,120,001

Restricted stock unit compensation		-		-						-			674,265			-			674,265

Issuance of shares for vested restricted stock units		-		-		16,000		16		-			(16	)		-			-

Issuance of shares for services		-		-		2,934		3		-			5,161			-			5,164

Reduction in exercise price of warrants		-		-		-		-		-			102,267			(102,267	)		-

Net loss		-		-		-		-		-			-			(9,760,729	)		(9,760,729	)

Balance September 30, 2021 (unaudited)		-		-		24,093,013		24,198		(201,605	)		56,450,015			(43,300,277	)		12,972,331

	Preferred Shares			Preferred Shares			Common Shares			Common Shares			Treasury			Additional Paid-in		Accumulated			Total Stockholders’
	Outstanding			Par			Outstanding			Par			Stock			Capital		Deficit			Equity (Deficit)

Balance December 31, 2019		-		$	-			3,821,087		$	3,916		$	(189,625	)	$	9,063,483	$	(11,729,951	)	$	(2,852,177	)

Issuance of shares for services		-			-			104,750			105			-			418,895		-			419,000

Stock option and warrant compensation		-			-			-			-			-			110,437		-			110,437

Treasury stock		-			-			(5,990	)		-			(11,980	)		-		-			(11,980	)

Net loss		-			-			-			-			-			-		(1,189,363	)		(1,189,363	)

Balance March 31, 2020 (unaudited)		-		$	-			3,919,847		$	4,021		$	(201,605	)	$	9,592,815	$	(12,919,314	)	$	(3,524,083	)

Exercise of warrants		-			-			30,975			31			-			185,819		-			185,850

Stock option and warrant compensation		-			-			-			-			-			77,138		-			77,138

Issuance of shares for services		-			-			17,500			18			-			83,174		-			83,192

Adjustment to Common Shares due to reverse stock split		-			-			(10	)		(1	)		-			-		-			(1	)

Net loss		-			-			-			-			-			-		(534,317	)		(534,317	)

Balance June 30, 2020 (unaudited)		-		$	-			3,968,312		$	4,069		$	(201,605	)	$	9,938,946	$	(13,453,631	)	$	(3,712,221	)

Exercise of warrants		-			-			3,709,778			3,712			-			20,982		-			24,694

Stock option and warrant compensation		-			-			-			-			-			63,621		-			63,621

Issuance of shares for services		-			-			208,666			209			-			810,533		-			810,742

Issuance of shares for the settlement of accrued compensation and accounts payable		-			-			146,818			147			-			1,221,878		-			1,222,025

Issuance of shares and warrants for IPO, net of issuance costs		-			-			1,226,668			1,227			-			9,429,455		-			9,430,682

Issuance of shares and warrants for offering, net of issuance costs		1,250,000			1,250			1,150,000			1,150			-			8,524,376		-			8,526,776

Issuance of shares for the settlement of debt		-			-			62,500			63			-			124,937		-			125,000

Exercise conversion of preferred shares		(1,250,000	)		(1,250	)		1,250,000			1,250			-			-		-			-

Net loss		-			-			-			-			-			-		(2,744,422	)		(2,744,422	)

Balance September 30, 2020 (unaudited)		-			-			11,722,742			11,827			(201,605	)		30,134,728		(16,198,053	)		13,746,897

See accompanying notes to the financial statements.

ADITXT, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended			Nine Months Ended
	September 30, 2021			September 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(22,318,832	)	$	(4,468,102	)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation		3,136,646			1,564,129
Depreciation expense		266,385			2,796
Amortization of intangible assets		80,030			-
Amortization of debt discount		1,845,358			300,000
Loss on extinguishment of debt		2,500,970			-
Changes in operating assets and liabilities:
Prepaid expenses		(268,430	)		(238,308	)
Deposits		(243,359	)		(61,586	)
Accounts payable and accrued expenses		1,414,363			(1,302,193	)
Accrued compensation to related parties		-			128,396
Net cash used in operating activities		(13,586,869	)		(4,074,868	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(900,693	)		(160,534	)
TI allowance receivable		(226,738	)		-
Deferred acquisition costs		(152,630	)		-
Note receivable and accrued interest		(6,542,740	)		-
Net cash used in investing activities		(7,822,801	)		(160,534	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible note payable		5,000,000			375,000
Discount on convertible note payable from offering costs		(526,460	)		-
Repayments of note payable		(315,790	)		(715,600	)
Common stock and warrants issued for cash, net of issuance costs		10,120,001			18,500,039
Offering costs		-			(423,139	)
Proceeds from exercise of warrants		3,718,956			210,546
Payments on financing of fixed asset		(418,428	)		-
Cash paid on extinguishment of note payable		(1,200,000	)		-
Net cash provided by financing activities		16,378,279			17,946,846

NET (DECREASE) INCREASE IN CASH		(5,031,391	)		13,711,444

CASH AT BEGINNING OF PERIOD		10,500,826			4,090

CASH AT END OF PERIOD	$	5,469,435		$	13,715,534

Supplemental cash flow information:
Cash paid for income taxes	$	-		$	-
Cash paid for interest expense	$	15,789		$	5,842

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Liabilities assumed for common stock	$	-		$	11,980
Issuance of shares for the conversion of notes payable	$	5,749,922		$	125,000
Lease liability recognized from right of use asset	$	2,806,427		$	-
Issuance of shares for the settlement of accounts payable	$	-		$	1,222,025
Original offering discount on note payable	$	1,000,000		$	300,000
Debt Discount from warrants issued with convertible note payable	$	1,322,840		$	-
Debt Discount from warrant consideration for convertible debt offering costs	$	231,316		$	-
Liability recognized for financed assets	$	821,862		$	1,191,985
Reduction in exercise price of warrants	$	102,267		$

See accompanying notes to the financial statements.

ADITXT, INC.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

Company Background

Overview

Aditxt, Inc. (“Aditxt” or the “Company”), formally known as Aditx Therapeutics, Inc., was incorporated in the State of Delaware on September 28, 2017 and the Company’s headquarters are located in Richmond, VA. The Company is a biotech innovation company with a mission of prolonging life and enhancing its quality by improving the health of the immune system.

The Company is developing biotechnologies specifically focused on improving the health of the immune system through immune reprogramming and monitoring. The Company’s immune reprogramming technologies are currently at the pre-clinical stage and are designed to retrain the immune system to induce tolerance with an objective of addressing rejection of transplanted organs, autoimmune diseases, and allergies. The Company’s immune monitoring technologies are designed to provide a personalized comprehensive profile of the immune system and the Company plans to utilize them in its upcoming reprogramming clinical trials to monitor subjects’ immune response before, during and after drug administration.

Offerings

On July 2, 2020, the Company completed its initial public offering (“IPO”). In connection therewith, the Company issued 1,226,668 Units (the “Units”), at an offering price of $9.00 per Unit, resulting in gross proceeds of approximately $11.0 million. The Units issued in the IPO consisted of one share of common stock, one Series A warrant, and one Series B warrant. The Series A warrants originally had an exercise price of $9.00 and a term of 5 years. In addition, the Company issued a Unit Purchase Option at an exercise price of $11.25 per unit to the underwriters to purchase up to 67,466 units, with each unit consisting of (i) one share of common stock and (ii) one Series A warrant. On August 19, 2020, the Company modified the exercise price of the Series A warrants from $9.00 per share to $4.50 per share. The term of the Series A warrants was not modified. The Series B warrants have an exercise price of $11.25 per share, a term of 5 years and contain a cashless exercise option upon certain criteria being met. As of September 30, 2021, substantially all of the Series B warrants issued in the IPO have been exercised pursuant to a cashless provision therein.

On September 10, 2020, the Company completed a follow-on public offering (“September 2020 Offering”). In connection therewith, the Company issued 2,400,000 Units (the “Follow-On Units”), at an offering price of $4.00 per Follow-On Unit, resulting in gross proceeds of approximately $9.6 million. The Follow-On Units issued in the September 2020 Offering consisted of one share of common stock (or Series A Preferred Stock for investors who would own more than 4.99% of the Company if they invested in common stock), one Series A-1 warrant, and one Series B-1 warrant. The Series A-1 warrants have an exercise price of $3.19 per share and a term of 5 years. The Series B-1 warrants have an exercise price of $5.00 per share, a term of 5 years and contain a cashless exercise option upon certain criteria being met. In addition, the Company issued a warrant to the underwriters to purchase up to 60,000 shares of common stock at an exercise price of $5.00 per share. Subsequent to quarter end, substantially all of the Series B-1 warrants issued in the September 2020 Offering have been exercised pursuant to a cashless provision therein.

On August 31, 2021, the Company completed a registered direct offering (“August 2021 Offering”). In connection therewith, the Company issued 4,583,334 shares of common stock, at a purchase price of $2.40 per share, resulting in gross proceeds of approximately $11.0 million. In a concurrent private placement, the Company issued warrants to purchase up to 4,583,334 shares. The warrants have an exercise price of $2.53 per share and are exercisable for a five-year period commencing six months from the date of issuance. In addition, the Company issued a warrant to the placement agent to purchase up to 229,166 shares of common stock at an exercise price of $3.00 per share.

Risks and Uncertainties

The Company has a limited operating history and has not generated revenue from intended operations. The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include: changes in the biotechnology regulatory environment, technological advances that render our technologies obsolete, availability of resources for clinical trials, acceptance of technologies into the medical community, and competition from larger, more well-funded companies. These adverse conditions could affect the Company’s financial condition and the results of its operations.

On January 30, 2020, the World Health Organization declared the COVID-19 novel coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the financial impact will be to the Company, it is reasonably possible that future capital raising efforts and additional development of our technologies may be negatively affected.

NOTE 2 – GOING CONCERN ANALYSIS

Management Plans

The Company was incorporated on September 28, 2017 and has not generated revenues to date. During the nine months ended September 30, 2021, the Company had a net loss of $22,318,832 and cash of $5,469,435 at September 30, 2021. The Company will be conducting medical research and development, and the time at which the Company will begin generating revenue is unknown. These factors indicate substantial doubt about the Company’s ability to continue as a going concern. The Company believes, however, that the funds raised by August 2021 Offering as well as its remaining availability of approximately $89.0 million to raise future funds pursuant to an effective shelf registration statement filed with the SEC on Form S-3 declared effective on July 13, 2021 will be sufficient to fund the Company’s operations for at least the next 12 months. Because of these factors, the Company believes that this alleviates substantial doubt in connection with the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

The financial statements included in this report do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein. While we believe in the viability of our strategy to generate sufficient revenue, control costs, and raise additional funds, when necessary, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the ability to complete clinical studies and implement the business plan, generate sufficient revenues and to control operating expenses.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended September 30, 2021 and September 30, 2020. Although management believes that the disclosures in these unaudited financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.

The accompanying unaudited financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 25, 2021. The interim results for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ended December 31, 2021 or for any future interim periods.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Significant estimates underlying the financial statements include the fair value of stock options and warrants.

Fair Value Measurements and Fair Value of Financial Instruments

The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 -

Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 -

Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 -

Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820.

Due to the short-term nature of all financial assets and liabilities, their carrying value approximates their fair value as of the balance sheet dates.

Concentrations of Credit Risk

The Company maintains its cash accounts at financial institutions which are insured by the Federal Deposit Insurance Corporation. At times, the Company may have deposits in excess of federally insured limits.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments.

Fixed Assets

Fixed assets are stated at cost less accumulated depreciation. Cost includes expenditures for furniture, office equipment, laboratory equipment, and other assets. Maintenance and repairs are charged to expense as incurred. When assets are sold, retired, or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. The costs of fixed assets are depreciated using the straight-line method over the estimated useful lives or lease life of the related assets.

Intangible Assets

Intangible assets are stated at cost less accumulated amortization. For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives of the related assets. For intangible assets with indefinite lives, the assets are tested periodically for impairment.

Offering Costs

The Company accounts for offering costs in accordance with ASC 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs were capitalized as deferred offering costs on the balance sheet. The deferred offering costs are netted against the proceeds of the offering in stockholders’ equity (deficit) or the related debt, as applicable. Costs related to unsuccessful offerings are expensed.

Leases

Under Topic 842, adopted in 2020 with no impact related to adoption, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases consisting of office space, laboratory space, and lab equipment.

Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered or reassessed after the adoption of Topic 842, we combine the lease and non-lease components in determining the lease liabilities and right of use (“ROU”) assets.

Stock-Based Compensation

The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services.

Patents

The Company incurs fees from patent licenses, which are expensed as incurred. During the nine months ended September 30, 2021 and September 30, 2020, the Company incurred patent licensing fees for the patents of $76,245 and $258,635, 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 nine months ended September 30, 2021 and September 30, 2020, the Company incurred research and development costs of $3,340,247 and $514,478, respectively.

Basic and Diluted Net Loss per Common Share

Basic loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for each period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of September 30, 2021, 2,143,000 stock options, 1,428,800 restricted stock units, and 10,263,964 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive. As of September 30, 2020, 1,110,000 stock options and 6,237,296 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company has elected to early adopt this ASU and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.

The FASB issues ASUs to amend the authoritative literature in ASC. There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact on our financial statements.

NOTE 4 – NOTE RECEIVABLE

On August 25, 2021, the Company entered into a letter of intent ("the LOI") to acquire a biopharmaceutical company, the (“Target Company”), commercializing COVID-19 antiviral oral therapy. Key terms of the proposed transaction as stated in the Letter of Intent included: the completion of a proposed $6.5 million secured loan from the Company to the Target Company by August 31, 2021, as well as the issuance of such number of shares of the Company’s common stock that yields 50% of the number of the Company’s outstanding shares post-closing of the transaction. The acquisition is subject to the satisfaction of numerous conditions, including satisfactory due diligence, the negotiation and execution of definitive agreements and other closing conditions, including board and shareholder approval and approval by Nasdaq of the listing of shares proposed to be issued in the transaction. The Company and the Target Company have agreed to an exclusivity period until September 30, 2021 (the “Exclusivity Period”), with a view to settling the definitive agreement. On September 30, 2021, the parties entered into a letter agreement pursuant to which they agreed to extend the Exclusivity Period until October 4, 2021.

As contemplated by the Letter of Intent, on August 30, 2021, the Company entered into a secured credit agreement dated August 27, 2021 (the “Credit Agreement”) with the Target Company and certain affiliated entities, pursuant to which the Company made a secured loan to the Target Company in the principal amount of $6.5 million (the “Loan”). The Loan was funded on August 31, 2021, following the closing of the Company’s August 2021 Offering. The Loan bears interest at a rate of 8% per annum and matures on November 30, 2021 or upon such earlier date as the Letter of Intent or Exclusivity Period is terminated in accordance with the terms thereof. The Loan is secured by certain accounts receivable and other assets of the Target Company and certain of its affiliates. The Credit Agreement also contains certain covenants that prohibit the Target Company from incurring additional indebtedness, incurring liens or making any dispositions of its property.

NOTE 5 – FIXED ASSETS

The Company’s fixed assets include the following on September 30, 2021:

	Cost Basis		Accumulated Depreciation			Net
Computers	$	312,489	$	(48,798	)	$	263,691
Lab Equipment		2,134,809		(232,590	)		1,902,219
Office Furniture		83,345		(2,625	)		80,720
Other Fixed Assets		8,605		(146	)		8,459
Total Fixed Assets	$	2,539,248	$	(284,159	)	$	2,255,089

The Company’s fixed assets include the following on December 31, 2020:

	Cost Basis		Accumulated Depreciation			Net
Computers	$	54,579	$	(3,079	)	$	51,500
Lab Equipment		750,658		(14,350	)		736,308
Office Furniture		10,407		(312	)		10,095
Other Fixed Assets		1,048		(32	)		1,016
Total Fixed Assets	$	816,692	$	(17,773	)	$	798,919

Depreciation expense was $99,857 for the three months ended September 30, 2021 and $2,796 for the three months ended for September 30, 2020. Depreciation expense was $266,385 for the nine months ended September 30, 2021 and $2,796 for the nine months ended for September 30, 2020. None of the Company’s fixed assets serve as collateral against any loans as of September 30, 2021 and December 31, 2020, other than those subject to the financed asset liability.

NOTE 6 – INTANGIBLE ASSETS

The Company’s intangible assets include the following on September 30, 2021:

	Cost Basis		Accumulated Amortization			Net
Proprietary Technology	$	321,000	$	(80,030	)	$	240,970
Total Intangible Assets	$	321,000		(80,030	)	$	240,970

The Company’s intangible assets include the following on December 31, 2020:

	Cost Basis		Accumulated Amortization		Net
Proprietary Technology	$	321,000	$	-	$	321,000
Total Intangible Assets	$	321,000		-	$	321,000

Amortization expense was $26,970 for the three months ended September 30, 2021 and zero for the three months ended for September 30, 2020. Amortization expense was $80,030 for the nine months ended September 30, 2021 and zero for the nine months ended for September 30, 2020. None of the Company’s intangible assets serve as collateral against any loans as of September 30, 2021 and December 31, 2020.

NOTE 7 – RELATED PARTY TRANSACTIONS

On February 24, 2021, the Company granted 225,000 shares of restricted stock pursuant to the Company’s 2017 Equity Incentive Plan to the Company’s Chief Executive Officer. The Company recognized $747,000 in stock-based compensation for the issuance of these shares. The grant vests in equal annual installments over the course of (3) three years, beginning on March 31, 2021.

On February 24, 2021, the Company granted 110,000 shares of restricted stock pursuant to the Company’s 2017 Equity Incentive Plan to the Company’s current President and former Chief Financial Officer. The Company recognized $365,200 in stock-based compensation for the issuance of these shares. The grant vests in equal annual installments over the course of (3) three years, beginning on March 31, 2021.

SEC Form 10-Q filed by ADiTx Therapeutics, Inc.