Form 10-Q AIkido Pharma Inc. For: Jun 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
For
the quarterly period ended
For the transition period from ____________ to ____________
Commission
file number
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| Not Applicable |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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.
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 such files.)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition 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 | ☐ | |
| ☒ | 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
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
As of August 12, 2022, there were
AIKIDO PHARMA INC.
Form 10-Q
For the Quarter Ended June 30, 2022
Index
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AIKIDO PHARMA INC.
Condensed Consolidated Balance Sheets
($ in thousands except share and per share amounts)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Prepaid expenses and other assets | ||||||||
| Short-term investments at fair value | ||||||||
| Notes receivable at fair value | ||||||||
| Deposits | ||||||||
| Total current assets | ||||||||
| Convertible note receivable at fair value | ||||||||
| Notes receivable at fair value | ||||||||
| Investments | ||||||||
| Security deposit | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued salaries and benefits | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ | ||||||||
| Series D: | ||||||||
| Series D-1: | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost, | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
1
AIKIDO PHARMA INC.
Condensed Consolidated Statements of Operations
($ in thousands except share and per share amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating costs and expenses | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Research and development - license acquired | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest income | ||||||||||||||||
| (Loss) gain on marketable securities | ( | ) | ( | ) | ||||||||||||
| Change in fair value of investment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock | ( | ) | ( | ) | ||||||||||||
| Net Loss Attributable to Common Shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share, basic and diluted | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of shares outstanding, basic and diluted | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
AIKIDO PHARMA INC.
Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity
($ in thousands except share and per share amounts)
(Unaudited)
For the Three Months Ended June 30, 2022
| Redeemable
Convertible Preferred Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series O | Series P | Common Stock | Preferred Stock | Paid-in | Treasury Stock | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | - | $ | - | $ | - | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||
| Redemption of Series O Redeemable Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Redemption of Series P Redeemable Convertible Preferred Stock | - | - | ( | ) | ( | ) | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock | - | - | - | - | - | - | - | - | ( | ) | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Repurchase of treasury stock | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Fractional shares adjusted for reverse split | - | - | - | - | ( | ) | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | - | $ | - | - | $ | - | $ | - | $ | - | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
For the Three Months Ended June 30, 2021
| Common Stock | Preferred Stock | Additional Paid-in | Treasury Stock | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | - | $ | - | $ | - | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | - | $ | - | $ | - | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
For the Six Months Ended June 30, 2022
| Redeemable
Convertible Preferred Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series O | Series P | Common Stock | Preferred Stock | Paid-in | Treasury Stock | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | - | $ | - | $ | - | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Series O redeemable convertible preferred stock for cash | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series P redeemable convertible preferred stock for cash | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost on issuance of Series O and Series P Redeemable Convertible Preferred Stock | - | ( | ) | - | ( | ) | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Deemed dividends related to Series O and Series P Redeemable Convertible Preferred Stock | - | - | - | - | - | - | ( | ) | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Redemption of Series O Redeemable Convertible Preferred Stock | ( | ) | ( | ) | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Redemption of Series P Redeemable Convertible Preferred Stock | - | - | ( | ) | ( | ) | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Repurchase of treasury stock | - | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Cancellation of common stock related to investment in CBM | - | - | ( | ) | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Fractional shares adjusted for reverse split | - | - | - | - | ( | ) | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | - | $ | - | - | $ | - | $ | - | $ | - | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2021
| 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, 2020 | $ | - | $ | - | $ | - | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Issuance of common stock and warrants (net of offering costs of $ | - | - | - | - | ||||||||||||||||||||||||||||||||
| Exercise of warrants | - | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance of common stock for research and development license acquired | - | - | - | - | ||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | - | $ | - | $ | - | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
AIKIDO PHARMA INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in fair value of short-term investment | ||||||||
| Change in fair value of long-term investment | ( | ) | ||||||
| Research and development-acquired license, expensed | ||||||||
| Stock-based compensation | ||||||||
| Realized loss (gain) on marketable securities | ( | ) | ||||||
| Unrealized loss on marketable securities | ||||||||
| Realized gain on sale of digital currencies | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Accrued salaries and benefits | ||||||||
| Interest receivable on convertible note | ( | ) | ( | ) | ||||
| Deposits | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Sale of marketable securities | ||||||||
| Proceeds from sale of digital currencies | ||||||||
| Proceeds from promissory note receivable interest received | ||||||||
| Funds to deposit accounts, net | ( | ) | ||||||
| Purchase of short-term and long-term investments | ( | ) | ||||||
| Purchase of research and development licenses | ( | ) | ||||||
| Purchase of short-term and long-term promissory notes | ( | ) | ||||||
| Purchase of convertible note | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of common stock and warrants, net of offering cost | ||||||||
| Proceeds from issuance of Series O and Series P Redeemable Convertible Preferred Stock, net of discount and offering cost | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Payment for fractional shares | ( | ) | ||||||
| Redemption of Series O and Series P Redeemable Convertible Preferred Stock | ( | ) | ||||||
| Purchase of treasury stock | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Transfer from short-term investment to marketable securities | $ | $ | ||||||
| Reclassify from convertible note receivable to notes receivable at fair value | $ | $ | ||||||
| Promissory convertible note receivable conversion into common shares | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
5
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Description of Business and Recent Developments
Organization and Description of Business
AIkido Pharma Inc. (the “Company”), 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’s innovative therapeutic drug pipeline is currently being advanced through strong collaborations with 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.
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
June 7, 2022, the Company effected a seventeen-for-one (17-for-1) reverse stock split of its class of common stock (the “Reverse
Stock Split”). The Reverse Stock Split, which was approved by stockholders at an annual stockholder meeting on May 20, 2022, was
consummated pursuant to a Certificate of Amendment filed with the Secretary of State of Delaware on June 2, 2022 (the “Certificate
of Amendment”). The Reverse Stock Split was effective on June 7, 2022 (the “Effective Date”). All references to common
stock, convertible preferred stock, warrants to purchase common stock, options to purchase common stock, restricted stock units, restricted
stock awards, share data, per share data and related information contained in the condensed consolidated financial statements have been
retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. Payment for fractional shares resulting
from the reverse stock split amounted to $
Note 2. Liquidity and Capital Resources
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 its business strategy, it intends to finance its activities through managing current cash on hand from the Company’s past debt and equity offerings.
Based upon projected cash flow requirements, the Company has adequate cash to fund its operations for at least the next twelve months from the date of the issuance of these consolidated financial statements.
6
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned subsidiary, AIkido Labs LLC. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of June 30, 2022, condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021, condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022 or for any future interim period. The condensed consolidated balance sheet at December 31, 2021 has been derived from audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on March 28, 2022.
Use of Estimates
The accompanying condensed consolidated financial statements have been prepared in conformity with 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 consolidated 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, the valuation of convertible note 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.
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s annual report on Form 10-K, which was filed with the SEC on March 28, 2022.
Treasury Stock
Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity.
Recent accounting pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if currently adopted, would have an effect on the Company’s condensed consolidated financial statements.
7
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4. Investments in Marketable Securities
The realized gain or loss, unrealized gain or loss, and dividend income related to marketable securities for the three and six months ended June 30, 2022 and 2021, which are recorded as a component of gains and (losses) on marketable securities on the consolidated statements of operations, are as follows ($ in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Realized (loss) gain | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Unrealized (loss) gain | ( | ) | ( | ) | ( | ) | ||||||||||
| Dividend income | ||||||||||||||||
| $ | ( | ) | $ | $ | ( | ) | $ | |||||||||
Note 5. Short-term investments
The following table presents the Company’s short-term investments at June 30, 2022 and December 31, 2021 ($ in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Investment in Hoth Therapeutics, Inc. | ||||||||
| Investment in DatChat, Inc. | ||||||||
| Investment in Vicinity Motor Corp. | ||||||||
| Total | ||||||||
The change in the fair value of the short-term investments for the six months ended June 30, 2022 is summarized as follows: ($ in thousands):
| Beginning balance | $ | |||
| Transfer to marketable securities | ( | ) | ||
| Change in fair value of investment | ( | ) | ||
| Realized gain recognized through sale of marketable securities | ||||
| Ending balance | $ |
8
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Investment in Hoth Therapeutics, Inc.
On
March 11, 2022,
The following summarizes the Company investment in Hoth as of June 30, 2022 and December 31, 2021:
| Security Name | Shares Owned as of June 30, 2022 | Fair value per Share as of June 30, 2022 | Fair value as of June 30, 2022 (in thousands) | |||||||||
| HOTH | $ | $ | ||||||||||
| Security Name | Shares Owned as of December 31, 2021 | Fair value per Share as of December 31, 2021 | Fair value as of December 31, 2021 (in thousands) | |||||||||
| HOTH | $ | $ | ||||||||||
Investment in DatChat, Inc.
On
February 14, 2022,
Investment in Vicinity Motor Corp.
On
October 25, 2021, the Company entered into a warrant agreement with Vicinity Motor Corp. (“Vicinity”) that entitles the
Company to purchase up to
The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:
| June 30, 2022 | December 31, 2021 | |||||||
| Option term (in years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividends | % | % | ||||||
| Stock price | $ | $ | ||||||
Note 6. Long-Term Investments
Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 and related ASU 2018-03 concerning recognition and measurement of financial assets and financial liabilities. In adopting this guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for investments in equity securities without readily determinable fair values.
9
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For equity investments that are accounted for using the measurement alternative, the Company initially records equity investments at cost but is required to adjust the carrying value of such equity investments through earnings when there is an observable transaction involving the same or a similar investment with the same issuer or upon an impairment.
The following table presents the Company’s other investments at June 30, 2022 and December 31, 2021 ($ in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Investment in Kerna Health Inc | $ | $ | ||||||
| Investment in Kaya Holding Corp | ||||||||
| Investment in Tevva Motors | ||||||||
| Investment in ASP Isotopes | ||||||||
| Investment in AerocarveUS Corporation | ||||||||
| Investment in Qxpress | ||||||||
| Investment in Masterclass | ||||||||
| Investment in Kraken | ||||||||
| Investment in Epic Games | ||||||||
| Investment in Tesspay | ||||||||
| Investment in SpaceX | ||||||||
| Investment in Databricks | ||||||||
| Investment in Discord | ||||||||
| Investment in Thrasio | ||||||||
| Investment in Automation Anywhere | ||||||||
| Investment in Anduril | ||||||||
| Total | $ | $ | ||||||
The change in the value of the long-term investments for the six months ended June 30, 2022 is summarized as follows: ($ in thousands):
| Beginning balance | $ | |||
| Purchase of investments | ||||
| Change in fair value of long-term investments | ||||
| Ending balance | $ |
Investment in Kerna Health Inc
In May 2022, the Company purchased additional
Investment in Kaya Holding Corp
On
March 2, 2022, the Company purchased additional
Investment in Tevva Motors
Tevva
Motors (“Tevva”), a private company, raised capital during the first quarter of 2022, increasing its share price value to
$
Investment in ASP Isotopes
The
investment in ASP Isotopes Inc. was valued at $
10
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Investment in AerocarveUS Corporation
The
investment in AerocarveUS Corporation was valued at $
Investment in Qxpress
On
January 27, 2022, the Company entered into a securities purchase agreement (the “Qxpress Securities Purchase Agreement”)
with Qxpress. Under the Qxpress Securities Purchase Agreement, the Company agreed to purchase
Investment in Masterclass
In March of 2022, the Company entered into a securities
purchase agreement (the “Masterclass Securities Purchase Agreement”) with Masterclass. Under the Masterclass Securities Purchase
Agreement, the Company agreed to purchase
Investment in Kraken
In March of 2022, the Company entered into a securities
purchase agreement (the “Kraken Securities Purchase Agreement”) with Kraken. Under the Kraken Securities Purchase Agreement,
the Company agreed to purchase a total of
Investment in Epic Games
On March 22, 2022, the Company entered into a securities purchase agreement
(the “Epic Games Securities Purchase Agreement”) with Epic Games. Under the Epic Games Securities Purchase Agreement, the
Company agreed to purchase an aggregate of
Investment in Tesspay
On
March 23, 2022, the Company entered into a securities purchase agreement (the “Tesspay Securities Purchase Agreement”) with
Tesspay. Under the Tesspay Securities Purchase Agreement, the Company agreed to purchase
Investment in SpaceX
On March 30, 2022,
11
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Investment in Databricks
On
March 25, 2022, the Company entered into a securities purchase agreement (the “Databricks Securities Purchase Agreement”)
with Databricks. Under the Databricks Securities Purchase Agreement, the Company agreed to purchase an aggregate of
Investment in Discord, Inc.
In
May 2022, the Company entered into a securities purchase agreement (the “Discord Securities Purchase Agreement”) with privately-held
company Discord, Inc., a social communications platform provider that is particularly popular with gamers, as one of the Company’s
pursuits of potentially high growth interests with near term monetization events. Under the Discord Securities Purchase Agreement, the
Company agreed to purchase a total of
Investment in Thrasio, LLC
In
April 2022, the Company entered into a securities purchase agreement (the “Thrasio Securities Purchase Agreement”) with privately-held
company Thrasio, LLC, an aggregator of private brands of top Amazon businesses and direct-to-consumer brands, as one of the Company’s
pursuits of potentially high growth interests with near term monetization events. Under the Thrasio Securities Purchase Agreement, the
Company agreed to purchase a total of
Investment in Automation Anywhere, Inc.
In
April 2022, the Company entered into a securities purchase agreement (the “Automation Anywhere Securities Purchase Agreement”)
with privately-held company Automation Anywhere, Inc., a provider of business automation solutions, as one of the Company’s pursuits
of potentially high growth interests with near term monetization events. Under the Automation Anywhere Securities Purchase Agreement,
the Company agreed to purchase a total of
Investment in Anduril Industries, Inc.
In
April 2022, the Company entered into a securities purchase agreement (the “Anduril Securities Purchase Agreement”) with privately-held
company Anduril Industries, Inc., a defense products company, as one of the Company’s pursuits of potentially high growth interests
with near term monetization events. Under the Anduril Securities Purchase Agreement, the Company agreed to purchase a total of
Note 7. Notes Receivable
The following table presents the Company’s notes receivable at June 30, 2022 ($ in thousands):
| Maturity Date | Stated Interest Rate | Principal Amount | Interest Receivable | Fair Value | ||||||||||||||
| Shor-term convertible notes receivable | ||||||||||||||||||
| Convergent Investment | | % | $ | $ | $ | |||||||||||||
| Nano Innovations Inc Investment | | % | $ | $ | $ | |||||||||||||
| Short-term notes receivable | ||||||||||||||||||
| Mr. Jeffrey Cooper Investment | | % | $ | $ | $ | |||||||||||||
| Raefan Industries LLC Investment | | % | $ | $ | $ | |||||||||||||
| Kaya Now Investment | % | $ | $ | $ | ||||||||||||||
| Total | $ | |||||||||||||||||
| Long-term notes receivable | ||||||||||||||||||
| American Innovative Robotics Investment | | % | $ | $ | $ | |||||||||||||
12
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Convergent Investment
The
Company recorded an interest income receivable of approximately $
Mr. Jeffrey Cooper Investment
Raefan
Group LLC promissory note was satisfied and replaced with a personal note issued to Mr. Jeffrey Cooper, of Raefan Industries. The Company
recorded an interest income receivable of approximately $
Raefan Industries LLC Investment
The
Company recorded an interest income receivable of approximately $
Slinger Bag Inc Investment
The
Company recorded an interest income receivable of approximately $
Kaya Now Investment
On April 5, 2022, the Company purchased an
The
Company recorded an interest income receivable of approximately $
American Innovative Robotics Investment
On
April 1, 2022, the Company purchased an
The
Company recorded an interest income receivable of approximately $
Note 8. Fair Value of Financial Assets and Liabilities
Financial instruments, including cash and cash equivalents, 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.
13
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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)
Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.
The following table presents the Company’s assets and liabilities that are measured at fair value at June 30, 2022 and December 31, 2021 ($ in thousands):
| Fair value measured at June 30, 2022 | ||||||||||||||||
| Total at June 30, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities: | ||||||||||||||||
| Equities | $ | $ | $ | $ | ||||||||||||
| Total marketable securities | $ | $ | $ | $ | ||||||||||||
| Short-term investment | $ | $ | $ | $ | ||||||||||||
| Short-term notes receivable at fair value | $ | $ | $ | $ | ||||||||||||
| Long-term notes receivable at fair value | $ | $ | $ | $ | ||||||||||||
| Fair value measured at December 31, 2021 | ||||||||||||||||
| Total at December 31, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2021 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities: | ||||||||||||||||
| Equities | $ | $ | $ | $ | ||||||||||||
| Total marketable securities | $ | $ | $ | $ | ||||||||||||
| Short-term investment | $ | $ | $ | $ | ||||||||||||
| Notes receivable at fair value | $ | $ | $ | $ | ||||||||||||
| Convertible note receivable | $ | $ | $ | $ | ||||||||||||
14
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Level 3 Measurement
The following tables set forth a summary of the changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis ($ in thousands):
| Short-term notes receivable at fair value at December 31, 2021 | $ | |||
| Accrued interest receivable | ||||
| Reclassify from convertible note receivable to notes receivable at fair value | ||||
| Purchase of notes receivable | ||||
| Change in fair value of note receivable | ||||
| Conversion of note receivable to marketable securities | ( | ) | ||
| Short-term notes receivable at fair value at June 30, 2022 | $ |
| Long-term notes receivable at fair value at December 31, 2021 | $ | |||
| Purchase of notes receivable | ||||
| Long-term notes receivable at fair value at June 30, 2022 | $ | |||
| Short-term investment at December 31, 2021 | $ | |||
| Change in fair value of investment | ( | ) | ||
| Short-term investment at June 30, 2022 | $ |
Long term and Short-term Note Receivable and Convertible Notes Receivable
The Company has elected to measure the purchases of the notes using the fair value option at each reporting date. Under the fair value option, bifurcation of an embedded derivative is not necessary, and all related gains and losses on the host contract and derivative due to change in the fair value will be reflected in interest income and other, net in the consolidated statements of operations.
The value at which the Company’s convertible note is carried on its books is adjusted to estimated fair value at the end of each quarter, taking into account general economic and stock market conditions and those characteristics specific to the underlying investments.
Interest accrues on the unpaid principal balance on a quarterly basis and is recognized in interest income in the consolidated statements of operations.
Convergent Investment
As of June 30, 2022, the fair value of the Convergent
Convertible Note was measured at $
Mr. Jeffrey Cooper Investment
As of June 30, 2022, the fair value of the Mr.
Jeffrey Cooper Promissory Note was measured at approximately $
Raefan Industries LLC Investment
As of June 30, 2022, the fair value of the Raefan
Industries Promissory Note was measured at approximately $
Nano Innovations Inc Investment
As of June 30, 2022, the fair value of the Nano
Convertible Note was measured at approximately $
The Company believes that the fair value of the warrant of Nano is immaterial.
15
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Kaya Now Investment
As of June 30, 2022, the fair value of the Kaya
Now Promissory Note was measured at $
The Company believes that the fair value of the warrant of Kaya Now is immaterial.
American Innovative Robotics Investment
As of June 30, 2022, the fair value of the Slinger
Bag Convertible Note was measured at $
Note 9. Net Loss per Share Attributable to Common Stockholders
Basic loss per common share is computed by dividing the net loss allocable to common stockholders by the weighted-average number of shares of common stock or common stock equivalents outstanding. Diluted loss per common share is computed similar to basic loss per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at June 30, 2022 and 2021 are as follows:
| As of June 30, | ||||||||
| 2022 | 2021 | |||||||
| Convertible preferred stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Options to purchase common stock | ||||||||
| Total | ||||||||
Note 10. Redeemable Convertible Preferred Stock
Series O and Series P Redeemable Convertible Preferred Stock
On February 24, 2022, the Company entered into a Securities
Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant
to which the Company agreed to issue and sell, in concurrent registered direct offerings (the “Offerings”), (i)
In connection with the Offerings, the Company
has entered into an engagement agreement (the “Engagement Agreement Agreement”) with H.C Wainwright & Company, LLC, as
placement agent (“HCW”), pursuant to which the Company agreed to pay HCW an aggregate cash fee equal to
16
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Redemption Rights
After (i) the earlier of (1) the receipt of stockholder
approval and (2) the date that is 90 days following the Original Issue Date (the date of the first issuance of any shares of the Preferred
Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which
may be issued to evidence such Preferred Stock) and (ii) before the date that is 120 days after the Original Issue Date (the “Redemption
Period”), each Holder shall have the right to cause the Company to redeem all or part of such Holder’s shares of Preferred
Stock at a price per share equal to
As a result, the Preferred Stock were recorded separately from stockholders’ equity because they are redeemable upon the occurrence of redemption events that are considered not solely within the Company’s control.
During the second quarter of 2022,
During the six months ended June 30, 2022, the
Company recognized approximately $
Note 11. Stockholders’ Equity
Common Stock
One June 5, 2020, CBM Biopharma, Inc. (“CBM”)
approved a distribution to its stockholders of
Treasury Stock
On January 21, 2022, the Company’s board
of directors authorized a share buyback program (the “Share Buyback Program”), pursuant to which the Company authorized the
Repurchase Program in an amount of up to three million dollars. During the second quarter of 2022, the Company repurchased
Warrants
A summary of warrant activity for the six months ended June 30, 2022 is presented below:
| Warrants | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2021 | $ | | | |||||||||||||
| Issued | ||||||||||||||||
| Outstanding as of June 30, 2022 | $ | |||||||||||||||
17
AIKIDO PHARMA INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock Options
A summary of stock option activity for the six months ended June 30, 2022 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, 2021 | $ | | $ | | ||||||||||||
| Employee options granted | ||||||||||||||||
| Outstanding as of June 30, 2022 | $ | $ | ||||||||||||||
| Options vested and exercisable | $ | $ | ||||||||||||||
Stock-based compensation associated with the amortization
of stock option expense was approximately $
Estimated future stock-based compensation expense
relating to unvested stock options is approximately $
Note 12. 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 continues to evaluate 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 consolidated financial statements. The COVID-19 pandemic has slowed down some drug development efforts and has slowed the acquisition of new drugs. However, the impact of the pandemic and ensuing lockdowns are easing. The process of drug development and further acquisitions is now continuing. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 13. Subsequent Events
As of August 1, 2022 Anthony Hayes divested all shares of common stock that he owed in Revere Securities LLC.
On July 22, 2022, Carlos Aldavero entered into an employment agreement with the Company
(the “Employment Agreement”). The Employment Agreement provides for payment of an annual base salary of $
On July 21, 2022,
On August 10, 2022 we agreed to extend the term of our employment agreement with our chief executive officer, Anthony Hayes, for an additional five years, renewable thereafter for one year increments on 6 months notice.
18
Item 2. 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-Q. 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. All references to “we,” “us,” “our” and the “Company” refer to Aikido Pharma Inc., a Delaware corporation and its consolidated subsidiaries unless the context requires otherwise.
Overview
AIkido Pharma Inc. 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 our innovative therapeutic drug platform is currently being advanced through strong collaborations 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 broad-spectrum antiviral compounds with the potential to 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 mainly on biotechnology research and development.
Outside of the biotechnology space, the Company has put capital into a series of small investments in private companies that are expected to go public in next 24 months. These investments include, but are not limited to, an investment in Tevva Motors, an electric truck producer, a space with recent Rivian Automotive (NASDAQ: RIVN) IPO. Additionally, the Company has invested in Kerna Health, a growing tele-health business with recurring revenue and large contract backlog, as well an investment in Kaya Holding Corp., a holding company with a portfolio of wholly-owned subsidiaries focused on emerging technologies and social networking for cannabis enthusiasts. The Company’s investments now also include interests in privately-held companies Discord, Inc., a social communications platform provider that is particularly popular with gamers; Thrasio, LLC, an aggregator of private brands of top Amazon businesses and direct-to-consumer brands; Automation Anywhere, Inc. a provider of business automation solutions, and Anduril Industries, Inc., a defense products company.
19
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. 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 is designed to overcome tumor cell resistance to current chemotherapeutic drugs and is well tolerated in preclinical toxicity tests. Preliminary studies have also indicated that DHA-dFdC inhibits pancreatic cancer cell growth in culture (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. Ultimately, we plan to develop DHA-dFdC for oral and intravenous 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 an agreement with Parimer Scientific, which is working with other third parties, to assist in researching, developing and optimizing the manufacturing process of the active ingredient, formulating the dosage formulation and performing drug stability tests. 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 two issued U.S. Patents, several filed U.S. patent applications and an application filed under the Patent Cooperation Treaty (“PCT”) that is currently being prosecuted to secure rights in foreign countries. So far, two patents have issued, U.S. Patent No. 10,463,684 (the “684 Patent”) and U.S. Patent No. 11,219,633 (the “633 Patent”), which contain claims covering the compound DHA-dFdC. Assuming all maintenance fees are timely paid, the 684 Patent is expected to expire on October 27, 2035 and the 633 Patent is expected to expire on May 28, 2035. The Company’s license with UTA also covers a U.S. provisional patent application relating to the solid 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 claiming the June 6, 2019 priority date of the provisional application. The PCT application has now entered the national phase in Europe, China and India. Patent prosecution on all pending patent applications is currently underway. The Company is currently engaged in research and development activities related to the manufacture of DHA-dFdC, which have thus far 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. Further delay resulted from the inherent difficulty in producing scalable quantities of the key intermediate compound in the process. Despite these delays, we now have successfully replicated the synthesis as reported in the literature, have developed a new procedure for the production of the key intermediate on a large scale, and are currently optimizing the procedure to ensure that incorporation of our new procedure into the overall manufacturing process will result in levels of DHA-dFdC on an acceptably large scale. In tandem, the Company will also develop the solid lipid nanoparticle delivery system containing DHA-dFdC to optimize the manufacturing process for size and consistency of the particles. We plan to then develop the drug formulation for oral and intravenous delivery via the solid lipid nanoparticles for use in future animal testing. We do not currently have FDA approval, which will eventually be required to begin administering DHA-dFdC to patients as part of any clinical trials. Animal studies will be a necessary prerequisite to filing an Investigational New Drug Application (“IND”) with the FDA. Depending upon the success of the animal studies, the Company’s development activities 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, which we believe enables 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. 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. In addition, we are constantly seeking to grow our pipeline to treat unmet medical needs in oncology.
20
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. provisional 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. The PCT application describing the technology to which the Company is licensed was published on December 12, 2020 by the World Intellectual Property Organization under International Publication Number WO 2020/247860 A1. The PCT application has now entered the national phase in the USPTO (U.S. Application Serial No. 17/616,586) and is currently under active prosecution. The Company’s license has been amended to cover a second PCT application, which was published on June 9, 2022 by the World Intellectual Property Organization under International Publication Number WO 2022/120207 A1. 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.
Effective March 23, 2020, and as amended and restated on November 24, 2020, the Company and Continental Stock Transfer & Trust Co. entered into a rights agreement (the “Rights Agreement”) The Rights Agreement provides each stockholder of record a dividend distribution of one “right” for each outstanding share of common stock. Rights become exercisable at the earlier of ten days following: (1) a public announcement that an acquirer has purchased or has the right to acquire 4.99% or more of our common stock, in connection with, (x) the Company consolidating, or merging into any other person, (y) any person consolidates or merges with or into the Company or (z) the Company sells or otherwise transfers to any person or persons, in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company, or (2) the commencement of a tender offer which would result in an offer or beneficially owning 10% or more of our outstanding common stock. All rights held by an acquirer or offer or expire on the announced acquisition date, and all rights expire at the close of business on March 23, 2023, subject to further extension. Each right entitles a stockholder to acquire, at a price of $5.00 per one one-thousandth of a share of our Series A preferred stock, subject to adjustments, which carries voting and dividend rights similar to one share of our common stock. The purchase price of the preferred stock fractional amount is subject to adjustment for certain events as described in the Rights Agreement. At the discretion of a majority of the Board and within a specified time period, we may redeem all of the rights at a price of $0.0001 per right. The Board may also amend any provisions of the Rights Agreement prior to exercise.
Critical Accounting Policies
Our critical accounting policies are disclosed in our annual report on Form 10K for the year ended December 31, 2021 and there have been no material changes to such policy or estimates during the six months ended June 30, 2022.
Critical Accounting Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:
| ● | it requires assumptions to be made that were uncertain at the time the estimate was made, and |
| ● | changes in the estimate or different estimates that could have been selected could have material impact in our results of operations or financial condition. |
While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those estimates and the differences could be material.
See Note 2 to our condensed consolidated financial statements for a discussion of our significant accounting policies.
Recently Issued Accounting Pronouncements
See Note 3 to the condensed consolidated financial statements for a discussion of recent accounting standards.
21
Results of Operations
Three months ended June 30, 2022 compared to three months ended June 30, 2021
During the three months ended June 30, 2022, we incurred a loss from operations of approximately $2.3 million, as compared to $2.8 million during the comparable prior year period. The decrease in loss was primarily attributed to $81,000 decrease in in general and administrative expenses, $0.3 million decrease research and development expense, and $91,000 decrease in research and development expense related to development of our license technology.
During the three months ended June 30, 2022, other expense was approximately $2.8 million as compared to other income of approximately $1.4 million during the comparable prior year period. The increase in other expense was primarily attributed to a $0.3 million decrease in the change in fair value of investment and $4.0 million increase in loss on marketable securities.
Six months ended June 30, 2022 compared to six months ended June 30, 2021
During the six months ended June 30, 2022, we incurred a loss from operations of approximately $6.1 million, as compared to $5.1 million during the comparable prior year period. The increase in loss was primarily attributed to $0.5 million increase in in general and administrative expenses and $1.7 million increase research and development expense, and was partially offset by $1.1 million decrease in research and development expense related with license acquisition.
During the six months ended June 30, 2022, other expense was approximately $2.5 million as compared to other expense of approximately $0.2 million during the comparable prior year period. The increase in other expense was primarily attributed to a $3.2 million decrease in loss on marketable securities, and was partially offset by $0.7 million increase in the change in fair value of investment.
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.
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 and cash equivalents 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. |
Our ultimate success is dependent on our ability to obtain additional financing and generate sufficient cash flow to meet our obligations on a timely basis. Our business will require significant amounts of capital to sustain operations and make the investments it needs to execute its longer-term business plan to support new technologies and help advance innovation. Our working capital amounted to approximately $60.7 million at June 30, 2022. We will need to obtain additional debt or equity financing, especially if we experience downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels resulting from being a publicly-traded company or operations. If we attempt to obtain additional debt or equity financing, we cannot assume that such financing will be available to the Company on favorable terms, or at all.
The Company plans to pursue its plans regarding research and development of our two pre-clinical products which will require resources beyond those currently, ultimately requiring third party capital. During this time, the Company does not expect to generate revenue and there is substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this filing. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, and 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 outcome of this uncertainty.
22
Cash Flows from Operating Activities - For the six months ended June 30, 2022 and 2021, net cash used in operations was approximately $5.9 million and $2.7 million, respectively. The cash used in operating activities for the three months ended June 30, 2022 primarily resulted from a net loss of $8.6 million and change in fair value of long-term investment of $1.4 million and is partially offset by change in fair value of short-term investment of $1.6 million and unrealized loss on marketable securities of $2.3 million. The cash used in operating activities for the six months ended June 30, 2021 primarily resulted from a net loss of $5.3 million and $1.1 million realized gain on marketable securities, and partially offset by $1.4 million unrealized loss on marketable securities and $1.1 million research and development expense related with license acquired.
Cash Flows from Investing Activities - For the six months ended June 30, 2022 and 2021, net cash used in investing activities was approximately $15.3 million and $70.4 million, respectively. The cash used in investing activities for the six months ended June 30, 2022 primarily resulted from our purchase of marketable securities of $27.5 million, purchase of promissory notes of $1.6 million and purchase of investments of $14.6 million, partially offset by our sale of marketable securities of $28.3 million since we invest excess cash into marketable securities until additional cash is needed. The cash used in investing activities for the six months ended June 30, 2021 primarily resulted from our purchase of marketable securities of $86.5 million, funds to deposit accounts of $4.5 million (net of fee) and purchase of convertible note of $2.0 million, partially offset by our sale of marketable securities of $23.2 million since we invest excess cash into marketable securities until additional cash is needed.
Cash Flows from Financing Activities - Cash used in financing activities for the six months ended June 30, 2022 was $15.3 million, which reflects the cost for redemption of Series O and Series P Redeemable Convertible Preferred Stock of $23.1 million and cost for purchase of treasury stock of $1.5 million, partially offset by net proceeds of $19.0 million from investors in exchange of issuance of issuance of Series O and Series P Redeemable Convertible Preferred Stock. Cash provided by financing activities for the six months ended June 30, 2021 was $78.1 million, which reflects the net proceeds of $78.0 million from investors in exchange of issuance of common stock and warrants and net proceeds of $84,000 from the exercise of common warrants.
Off-balance sheet arrangements.
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect to the quarter ended June 30, 2022, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures were not effective as of June 30, 2022 due to the material weaknesses in our internal controls over financial reporting. We have a lack of segregation of duties, and a lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected. The Company is working to change internal controls to address material weaknesses and adding additional employees as part of a plan to discuss with FINRA.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2022 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
23
Part II. Other Information
Item 1. Legal Proceedings
In the past, in the ordinary course of business, we actively pursued legal remedies to enforce our 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.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2022 and June 30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer of AIkido Pharma Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Principal Executive Officer and Principal Financial Officer of AIkido Pharma Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
24
Signatures
Pursuant to the requirements of the Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Aikido Pharma Inc. | ||
| (Registrant) | ||
| Date: August 12, 2022 | By: | /s/ Anthony Hayes |
| Anthony Hayes | ||
| Chief Executive Officer | ||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
25
Exhibit 31.1
Certification of Principal
Executive, Financial
and Accounting Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
I, Anthony Hayes, certify that:
| 1. | I have reviewed this report on Form 10-Q of AIkido Pharma Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Anthony Hayes | |
| Anthony Hayes | |
| Chief Executive Officer | |
| (Principal Executive Officer, | |
| Principal Financial Officer and Principal Accounting Officer) | |
| August 12, 2022 |
Exhibit 32.1
Certification of Principal
Executive, Financial
and Accounting Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
I, Anthony Hayes, Director, Chief Executive Officer, Principal Financial and Accounting Officer of AIkido Pharma Inc. (the “Company”), in compliance with Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, to the best of my knowledge, the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 (the “Report”) filed with the Securities and Exchange Commission:
| ● | Fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| ● | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Anthony Hayes | |
| Anthony Hayes | |
| Chief Executive Officer | |
| (Principal Executive Officer, | |
| Principal Financial Officer and Principal Accounting Officer) | |
| August 12, 2022 |
A signed copy of this written statement required by Section 906 has been provided to AIkido Pharma Inc. and will be retained by AIkido Pharma Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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