Dominari Holdings Inc 10-Q for FY2020 Q2
Dominari Holdings Inc. (DOMH)
About this 10-Q
Dominari Holdings Inc filed this 10-Q on August 6, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $2.31M
- compared with a net loss of $644K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
☐ 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 000-05576
| AIKIDO PHARMA INC. |
| (Exact name of registrant as specified in its charter) |
| Delaware | 52-0849320 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| One Rockefeller Plaza, 11th Floor, New York, NY 10020 |
| (Address of Principal Executive Offices, including zip code) |
| (703) 992-9325 |
| (Registrant’s telephone number, including area code) |
| 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. 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 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 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 | ☐ | |
| 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 ☒
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, $0.0001 par value | AIKI | The Nasdaq Capital Market LLC |
As of August 5, 2020, there were 34,920,219 shares of the Company’s common stock issued and outstanding.
AIKIDO PHARMA INC.
(Formerly SPHERIX INCORPORATED)
Form 10-Q
For the Quarter Ended June 30, 2020
Index
i
PART I - FINANCIAL INFORMATION
(Formerly SPHERIX INCORPORATED)
Condensed Consolidated Balance Sheets
($ in thousands except share and per share amounts)
(Unaudited)
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 2,831 | $ | 91 | ||||
| Marketable securities | 26,313 | 857 | ||||||
| Prepaid expenses and other assets | 105 | 181 | ||||||
| Total current assets | 29,249 | 1,129 | ||||||
| Investments | 3,214 | 10,153 | ||||||
| $ | 32,463 | $ | 11,282 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 676 | $ | 68 | ||||
| Accrued salaries and benefits | 293 | 682 | ||||||
| Total current liabilities | 969 | 750 | ||||||
| Total liabilities | 969 | 750 | ||||||
| Stockholders’ equity | ||||||||
| Series D: 4,725 shares issued and outstanding at June 30, 2020 and December 31, 2019; liquidation value of $0.0001 per share | - | - | ||||||
| Series D-1: 834 shares issued and outstanding at June 30, 2020 and December 31, 2019; liquidation value of $0.0001 per share | - | - | ||||||
| Common stock, $0.0001 par value, 100,000,000 shares authorized; 34,920,222 and 4,825,552 shares issued at June 30, 2020 and December 31, 2019, respectively; 34,920,219 and 4,825,549 shares outstanding at June 30, 2020 and December 31, 2019, respectively | 3 | - | ||||||
| Additional paid-in-capital | 186,667 | 155,062 | ||||||
| Treasury stock, at cost, 3 shares at June 30, 2020 and December 31, 2019 | (264 | ) | (264 | ) | ||||
| Accumulated deficit | (154,912 | ) | (144,266 | ) | ||||
| Total stockholders’ equity | 31,494 | 10,532 | ||||||
| Total liabilities and stockholders’ equity | $ | 32,463 | $ | 11,282 | ||||
See accompanying notes to condensed consolidated financial statements
1
(Formerly SPHERIX INCORPORATED)
Condensed Consolidated Statements of Operations
($ in thousands except share and per share amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Operating costs and expenses | ||||||||||||||||
| General and administrative | $ | 1,017 | $ | 888 | $ | 2,320 | $ | 1,601 | ||||||||
| Research and development | 675 | - | 760 | - | ||||||||||||
| Research and development - license acquired | 102 | - | 1,113 | - | ||||||||||||
| Total operating expenses | 1,794 | 888 | 4,193 | 1,601 | ||||||||||||
| Loss from operations | (1,794 | ) | (888 | ) | (4,193 | ) | (1,601 | ) | ||||||||
| Other (expenses) income | ||||||||||||||||
| Other income | 15 | - | 15 | - | ||||||||||||
| Gains and (losses) on marketable securities | 1,125 | (28 | ) | 262 | 64 | |||||||||||
| Change in fair value of investment | (1,659 | ) | 145 | (6,730 | ) | (330 | ) | |||||||||
| Change in fair value of warrant liabilities | - | 127 | - | 74 | ||||||||||||
| Total other (expenses) income | (519 | ) | 244 | (6,453 | ) | (192 | ) | |||||||||
| Net loss | $ | (2,313 | ) | $ | (644 | ) | $ | (10,646 | ) | $ | (1,793 | ) | ||||
| Net loss per share, basic and diluted | ||||||||||||||||
| Basic and Diluted | $ | (0.07 | ) | $ | (0.30 | ) | $ | (0.50 | ) | $ | (0.87 | ) | ||||
| Weighted average number of shares outstanding, basic and diluted | ||||||||||||||||
| Basic and Diluted | 32,975,170 | 2,124,631 | 21,085,382 | 2,067,645 | ||||||||||||
See accompanying notes to condensed consolidated financial statements
2
(Formerly SPHERIX INCORPORATED)
Consolidated Statements of Changes in Stockholders’ Equity
($ in thousands except share and per share amounts)
(Unaudited)
For the Three Months Ended June 30, 2020
| Common Stock | Preferred Stock | Additional | Treasury Stock | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-in | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 20,857,909 | $ | 2 | 5,559 | $ | - | $ | 173,836 | 3 | $ | (264 | ) | $ | (152,599 | ) | $ | 20,975 | |||||||||||||||||||
| Issuance of common stock, net of offering cost | 14,000,000 | 1 | - | - | 12,766 | - | - | - | 12,768 | |||||||||||||||||||||||||||
| Common warrant and prefunded warrant exercise | 62,310 | - | - | - | 65 | 65 | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (2,313 | ) | (2,313 | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2020 | 34,920,219 | $ | 3 | 5,559 | $ | - | $ | 186,667 | 3 | $ | (264 | ) | $ | (154,912 | ) | $ | 31,494 | |||||||||||||||||||
For the Three Months Ended June 30, 2019
| Total | ||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional | Treasury Stock | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-in | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance at March 31, 2019 | 2,010,025 | $ | - | 5,559 | $ | - | $ | 152,451 | 3 | $ | (264 | ) | $ | (141,232 | ) | $ | 10,955 | |||||||||||||||||||
| Issuance of common stock and prefunded common stock warrants, net of offering cost | 221,000 | - | - | - | 787 | - | - | - | 787 | |||||||||||||||||||||||||||
| Exercise of prefunded common stock warrants | 201,961 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Exchange of common shares for prefunded warrants | (115,269 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Fractional shares adjusted for reverse split | 3,371 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 109 | - | - | - | 109 | |||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | (644 | ) | (644 | ) | |||||||||||||||||||||||||
| Balance at June 30, 2019 | 2,321,088 | $ | - | 5,559 | $ | - | $ | 153,347 | 3 | $ | (264 | ) | $ | (141,876 | ) | $ | 11,207 | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
3
AIKIDO PHARMA INC.
(Formerly SPHERIX INCORPORATED)
Consolidated Statements of Changes in Stockholders’ Equity
($ in thousands except share and per share amounts)
(Unaudited)
For the Six Months Ended June 30, 2020
| Common Stock | Preferred Stock | Additional | Treasury Stock | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-in | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 4,825,549 | $ | - | 5,559 | $ | - | $ | 155,062 | 3 | $ | (264 | ) | $ | (144,266 | ) | $ | 10,532 | |||||||||||||||||||
| Issuance of common stock, common warrants and prefunded warrants, net of offering cost | 3,245,745 | - | - | - | 6,559 | - | - | - | 6,559 | |||||||||||||||||||||||||||
| Issuance of common stock, net of offering cost | 16,090,909 | 2 | - | - | 17,843 | - | - | - | 17,845 | |||||||||||||||||||||||||||
| Common warrant and prefunded warrant exercise | 10,758,016 | 1 | - | - | 7,203 | - | - | - | 7,204 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (10,646 | ) | (10,646 | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2020 | 34,920,219 | $ | 3 | 5,559 | $ | - | $ | 186,667 | 3 | $ | (264 | ) | $ | (154,912 | ) | $ | 31,494 | |||||||||||||||||||
For the Six Months Ended June 30, 2019
| Total | ||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional | Treasury Stock | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-in | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance at December 31, 2018 | 2,010,025 | $ | - | 5,559 | $ | - | $ | 152,445 | 3 | $ | (264 | ) | $ | (140,083 | ) | $ | 12,098 | |||||||||||||||||||
| Issuance of common stock and prefunded common stock warrants, net of offering cost | 221,000 | - | - | - | 787 | - | - | - | 787 | |||||||||||||||||||||||||||
| Exercise of prefunded common stock warrants | 201,961 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Exchange of common shares for prefunded warrants | (115,269 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Fractional shares adjusted for reverse split | 3,371 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 115 | - | - | - | 115 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (1,793 | ) | (1,793 | ) | |||||||||||||||||||||||||
| Balance at June 30, 2019 | 2,321,088 | $ | - | 5,559 | $ | - | $ | 153,347 | 3 | $ | (264 | ) | $ | (141,876 | ) | $ | 11,207 | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
4
(Formerly SPHERIX INCORPORATED)
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (10,646 | ) | $ | (1,793 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in fair value of investment | 6,730 | 330 | ||||||
| Change in fair value of warrant liabilities | - | (74 | ) | |||||
| Research and development-acquired license, expensed | 1,113 | - | ||||||
| Stock-based compensation | - | 115 | ||||||
| Realized (gain) loss on marketable securities | (544 | ) | 98 | |||||
| Unrealized loss (gain) on marketable securities | 614 | (138 | ) | |||||
| Changes in assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 76 | 82 | ||||||
| Accounts payable and accrued expenses | 608 | 100 | ||||||
| Accrued salaries and benefits | (389 | ) | (127 | ) | ||||
| Payable to DatChat | 50 | (207 | ) | |||||
| Net cash used in operating activities | (2,388 | ) | (1,614 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of marketable securities | (78,042 | ) | (4,954 | ) | ||||
| Sale of marketable securities | 52,215 | 6,878 | ||||||
| Sale of Hoth common shares | 460 | - | ||||||
| Purchase of investments at fair value | - | (550 | ) | |||||
| Purchase of research and development licenses | (1,113 | ) | - | |||||
| Net cash (used in) provided by investing activities | (26,480 | ) | 1,374 | |||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance common stock, common warrants and prefunded warrants, net of offering cost | 6,559 | - | ||||||
| Proceeds from issuance common stock, net of offering cost | 17,845 | 787 | ||||||
| Proceeds from exercise of warrants | 7,204 | - | ||||||
| Net cash provided by financing activities | 31,608 | 787 | ||||||
| Net increase in cash and cash equivalents | 2,740 | 547 | ||||||
| Cash and cash equivalents, beginning of period | 91 | 17 | ||||||
| Cash and cash equivalents, end of period | $ | 2,831 | $ | 564 | ||||
See accompanying notes to condensed consolidated financial statements
5
(Formerly SPHERIX INCORPORATED)
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., formerly known as Spherix Incorporated (the “Company”), was initially formed in 1967 and is currently a biotechnology company with a diverse portfolio of small-molecule anti-cancer therapeutics in development. The Company’s platform consists of patented technology from leading universities and researchers and we are currently in the process of developing an innovative therapeutic drug platform through partnerships with educational institutions, including the University of Texas at Austin, the University of Maryland, Baltimore and Wake Forest University. The Company’s diverse pipeline of therapeutics includes therapies for pancreatic cancer, acute myeloid leukemia (“AML”) and acute lymphoblastic leukemia (“ALL”). The Company is also developing a broad-spectrum antiviral platform that may potentially inhibit replication of multiple viruses including Influenza virus, SARS-CoV (coronavirus), MERS-CoV, Ebolavirus and Marburg virus.
The Company previously focused its efforts on owning, developing, acquiring and monetizing intellectual property assets. Since May 2016, the Company has received limited funds from its intellectual property monetization. In addition to its patent monetization efforts, since the fourth quarter of 2017, the Company has been transitioning to focus its efforts as a technology and biotechnology development company. These efforts have focused on biotechnology research and blockchain technology research. The Company’s investment in biotechnology research development includes: (i) an investment in Hoth Therapeutics, Inc. (“Hoth”), a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications such as atopic dermatitis, also known as eczema, (ii) an investment in DatChat, Inc. (“DatChat”), a privately held personal privacy platform focused on encrypted communication, internet security and digital rights management, and (iii) the acquisition of assets of CBM BioPharma, Inc. (“CBM”), a pharmaceutical company focusing on the development of cancer treatments.
During the six months ended June 30, 2020, the Company raised over $2.0 million of proceeds (see Note 8), therefore, a payment of $1.0 million was due to CBM pursuant to that certain Asset Purchase Agreement, dated as of May 15, 2019, by and between the Company and CBM, as amended (the “CBM Purchase Agreement”). The Company recorded this payment to CBM as a component of research and development license acquired during the six months ended June 30, 2020 the condensed consolidated statements of operations.
As a result of the Company’s biotechnology research development and associated investments and acquisitions, the Company’s business portfolio now focuses on the treatment of three different cancers, including pancreatic cancer, AML and ALL. The Company’s AML and ALL compounds, developed at Wake Forest University, are targeted therapeutics designed to overcome multiple resistance mechanisms observed with the current standard of care. DHA-dFdC, the Company’s pancreatic drug candidate developed at the University of Texas at Austin, is a new compound that the Company hopes will become the next generation of chemotherapy treatment for advanced pancreatic cancer. DHA-dFdC overcomes tumor cell resistance to current chemotherapeutic drugs and is well tolerated in preclinical toxicity tests. Preclinical studies have also indicated that DHA-dFdC inhibits pancreatic cancer cell growth (up to 100,000-fold more potent that gemcitabine, a current standard therapy), 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. In addition, the Company is constantly seeking to grow its pipe to treat unmet medical needs in oncology.
In addition, the Company owns an exclusive world-wide license to patented technology from the University of Maryland Baltimore (“UMB”). The Company’s 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 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.
The Nasdaq Stock Market Deficiency Notice
On April 28, 2020, the Company, received a staff deficiency notice from Nasdaq informing the Company that its common stock failed to comply with the $1.00 minimum bid price required for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). Nasdaq’s letter advised the Company that, based upon the closing bid price during the period from March 16, 2020 to April 27, 2020, the Company no longer met this requirement.
6
AIKIDO PHARMA INC.
(Formerly SPHERIX INCORPORATED)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Given the current extraordinary market conditions, Nasdaq had determined to toll the compliance periods for the bid price and market value of publicly held shares requirements through June 30, 2020. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company had been provided with a compliance period of 180 calendar days from June 30, 2020, or until December 28, 2020, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive business days prior to December 28, 2020. As of the close of trading on July 30, 2020, the closing bid price of our common stock was at least $1.00 per share for 10 consecutive trading days and, accordingly, we regained compliance with NASDAQ’s continued listing requirements.
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, cash equivalents and marketable securities on hand from the Company’s 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. |
The Company has funded its operations from proceeds from the sale of equity and debt securities, including pre-funded warrants. The Company will require significant additional capital to make the investments it needs to execute its longer-term business plan. The Company’s ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, even if it were successful, future equity issuances would result in dilution to its existing stockholders and future debt securities may contain covenants that limit the Company’s operations or ability to enter into certain transactions.
The Company’s current cash is sufficient to fund operations for at least the next 12 months; however, the Company will need to raise additional funding through strategic relationships, public or private equity or debt financings, grants or other arrangements to develop and seek regulatory approvals for the Company’s existing and new product candidates. If such funding is not available, or not available on terms acceptable to the Company, the Company’s current development plan and plans for expansion of its general and administrative infrastructure may be curtailed.
In addition to the foregoing, based on the Company’s current assessment, the Company does not expect any material impact on its long-term development timeline and its liquidity due to the worldwide spread of the COVID-19 virus. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world.
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 subsidiaries. All material intercompany balances and transactions have been eliminated. Certain immaterial reclassifications have been made to prior period amounts to conform to the current period presentation.
7
AIKIDO PHARMA INC.
(Formerly SPHERIX INCORPORATED)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, 2020, condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, condensed consolidated statement of stockholders’ equity for the three and six months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 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, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020 or for any future interim period. The condensed consolidated balance sheet at December 31, 2019 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, 2019 and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on February 3, 2020.
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 financial statements, and the reported expenses during the period. The Company’s significant estimates and assumptions include the valuation of investments and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount of its investments, 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
Other than as described below, 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 February 3, 2020.
Net Income Loss per Share
Basic loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Net loss attributable to common stockholders includes the effect of the deemed capital contribution on extinguishment of preferred stock and the deemed dividend related to the immediate accretion of beneficial conversion feature of convertible preferred stock. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s convertible preferred stock and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the conversion of preferred stock and the exercise of stock options and warrants from the calculation of net loss per share if their effect would be anti-dilutive.
Recently Adopted Accounting Standards
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, “Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The Company adopted this ASU on January 1, 2020 and the adoption of this ASU did not have a material impact on its consolidated financial statements or related disclosures.
8
AIKIDO PHARMA INC.
(Formerly SPHERIX INCORPORATED)
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, 2020 and 2019, which are recorded as a component of gains and (losses) on marketable securities on the consolidated statements of operations (excluding a $70,000 distribution to CBM shareholders during the three and six months ended June 30, 2020), are as follows ($ in thousands):
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Realized gain (loss) | $ | 597 | $ | (25 | ) | $ | 544 | $ | (275 | ) | ||||||
| Unrealized gain (loss) | 212 | (10 | ) | (614 | ) | (17 | ) | |||||||||
| Dividend income | 246 | 7 | 259 | 78 | ||||||||||||
| Interest income | - | - | 4 | - | ||||||||||||
| $ | 1,055 | $ | (28 | ) | $ | 192 | $ | (214 | ) | |||||||
Note 5. Investment in Hoth Therapeutics, Inc.
The following summarizes the Company investment in Hoth as of June 30, 2020:
| Security Name |
|
Shares Owned as of June 30, 2020 |
|
|
Fair value per Share as of June 30, 2020 |
|
|
Fair value as of June 30, 2020 (in thousands) |
|
|||
| HOTH | 1,236,230 | $ | 2.58 | $ | 3,189 | |||||||
On May 6, 2020, the Company entered into that certain Stock Transfer Agreement, by and between the Company and a purchaser, and sold 400,000 shares of Hoth common stock for net proceeds of approximately $0.5 million.
The fair value of shares of Hoth common stock as of June 30, 2020 was based on the closing price of $2.58 reported on The Nasdaq Capital Market as of June 30, 2020.
Note 6. Fair Value of Financial Assets and Liabilities
Financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
The Company uses three levels of inputs that may be used to measure fair value:
Level 1 - quoted prices in active markets for identical assets or liabilities
Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
9
AIKIDO PHARMA INC.
(Formerly SPHERIX INCORPORATED)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents the Company’s assets and liabilities that are measured at fair value at June 30, 2020 and December 31, 2019 ($ in thousands):
Fair value measured at June 30, 2020 | ||||||||||||||||
Quoted | Significant | |||||||||||||||
| Total
at June 30, | prices
in active markets | other observable
| Significant unobservable inputs | |||||||||||||
| 2020 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities - mutual and exchange traded funds | $ | 26,313 | $ | 26,313 | $ | - | $ | - | ||||||||
| Investments in Hoth | $ | 3,189 | $ | 3,189 | $ | - | $ | - | ||||||||
| Fair value measured at December 31, 2019 | ||||||||||||||||
| Total at December 31, | Quoted prices in active markets | Significant other observable inputs | Significant inputs | |||||||||||||
| 2019 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities - mutual and exchange traded funds | $ | 857 | $ | 857 | $ | - | $ | - | ||||||||
| Investments in Hoth | $ | 10,128 | $ | 10,128 | $ | - | $ | - | ||||||||
Note 7. Net Loss per Share
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, 2020 and 2019 are as follows:
| As of As of June 30, | ||||||||
| 2020 | 2019 | |||||||
| Convertible preferred stock | 688 | 688 | ||||||
| Warrants to purchase common stock | 734,501 | 285,273 | ||||||
| Options to purchase common stock | 88,950 | 100,407 | ||||||
| Total | 824,139 | 386,368 | ||||||
Note 8. Stockholders’ Equity and Convertible Preferred Stock
Preferred Stock
Effective March 23, 2020, the Company declared a dividend of one right (“Right”) for each of the Company’s issued and outstanding shares of common stock. Each Right entitles a holder of record, as of the close of business on March 30, 2020, to purchase from the Company one one-thousandth of a share of the Company’s Series L preferred stock at a price of $5.00, subject to certain adjustments and subject to the terms of that certain Rights Agreement, dated as of March 23, 2020, by and between the Company and VStock Transfer, LLC, as rights agent (the “Rights Agreement”). The purpose of the Rights Agreement is to diminish the risk that the Company’s ability to use its net operating losses and certain other tax assets (collectively, “Tax Benefits”) to reduce potential future federal income tax obligations would become subject to limitations by reason of the Company experiencing an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Tax Code”). A company generally experiences such an ownership change if the percentage of its stock owned by its “5-percent shareholders,” as defined in Section 382 of the Tax Code, increases by more than 50 percentage points over a rolling three-year period. The Rights Agreement is designed to reduce the likelihood that the Company will experience an ownership change under Section 382 of the Tax Code by (i) discouraging any person or group from becoming a shareholder of 4.99% or more of Common Stock and (ii) discouraging any existing 4.99% shareholder from acquiring any additional shares of the Company’s stock. On March 24, 2020, the Company filed a Certificate of Designation of Series L Preferred Stock with the Secretary of State of the State of Delaware to designate a new Series L preferred stock of the Company. As of June 30, 2020, no Rights have been exercised.
10
AIKIDO PHARMA INC.
(Formerly SPHERIX INCORPORATED)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Common Stock
On March 3, 2020, the Company entered into that certain Securities Purchase Agreement, by and among the Company and certain purchasers, pursuant to which the Company agreed to issue and sell to the purchasers 3,245,745 shares of the Company’s common stock, and common warrants (“Common Warrants”) to purchase up to 7,142,858 shares of common stock at a price of $1.05 per share of common stock and Common Warrant. The Company also offered 3,897,113 pre-funded warrants (“Pre-Funded Warrants”) to purchase shares of common stock with a purchase price of $1.0499 each Pre-Funded Warrant. The exercise price of each Pre-Funded Warrant was $0.0001 per share and each Common Warrant was $1.05 per share.
This offering resulted in gross proceeds of approximately $7.5 million before deducting the placement agent’s fee and related offering expenses of $1.0 million.
On March 9, 2020, the Company entered into that certain Securities Purchase Agreement, by and among the Company and certain purchasers, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 2,090,909 shares of the Company’s common stock at an offering price of $2.75 per share.
The Company also issued placement agent warrants to the placement agent (the “Placement Agent Warrant”) to purchase 167,273 shares of common stock with an exercise price of $3.4375 per share.
The Company has determined that the Placement Agent Warrant should be accounted as a component of stockholders’ equity. On the issuance date, the Company estimated the aggregate fair value of Placement Agent Warrant at $0.2 million using the Black-Scholes option pricing model using the following primary assumptions: fair value of common stock underlying the warrants is $1.83, expected life of 5 years, volatility rate of 122.29%, risk-free interest rate of 0.63% and expected dividend rate of 0%.
On April 14, 2020, the Company, entered into that certain Securities Purchase Agreement, by and among the Company and certain purchasers, pursuant to which the Company agreed to issue and sell 14,000,000 shares of the Company’s common stock at an offering price of $1.00 per share.
The registered offering resulted in gross proceeds to the Company of $14.0 million, before deducting the placement agent’s fee and other related offering expenses.
Warrants
A summary of warrant activity for the six months ended June 30, 2020 is presented below:
| Warrants | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2019 | 351,939 | $ | 19.96 | $ | 111,332 | 0.94 | ||||||||||
| Issued | 11,207,244 | 0.72 | - | 0.12 | ||||||||||||
| Exercised | (10,758,016 | ) | 0.67 | - | - | |||||||||||
| Outstanding as of June 30, 2020 | 801,167 | $ | 9.86 | 53,999 | 0.46 | |||||||||||
During the six months ended June 30, 2020, the Company issued 3,897,113 and 6,860,903 shares of common stock upon exercise of the Pre-Funded Warrant and Common Warrants, respectively, which resulted in gross proceeds of approximately $7.2 million.
11
AIKIDO PHARMA INC.
(Formerly SPHERIX INCORPORATED)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9. Commitments and Contingencies
Legal Proceedings
In the past, in the ordinary course of business, the Company actively pursued legal remedies to enforce its intellectual property rights and to stop unauthorized use of our technology. Other than ordinary routine litigation incidental to the business, we know of no material, active or pending legal proceedings against us.
Risks and Uncertainties – COVID-19
Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for drug candidates, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 10. Subsequent Events
On June 22, 2020, certain owners (the “Sellers”) of 1,512,465 shares of common stock (the “Shares”), of the Company sold the Shares to a healthcare-dedicated investment fund (the “Fund”), pursuant to that certain Stock Purchase Agreement, by and among the Fund and the Sellers (the “Sale”). The Shares sold in the Sale were subject to restrictions (the “Restrictions”) pursuant to that certain Leak-Out Agreement, dated as of December 5, 2019, by and between the Company and CBM. The Restrictions were lifted pursuant to that certain Termination Agreement, dated as of June 24, 2020, by and between the Company and the Fund.
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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. (formerly Spherix Incorporated), a Delaware corporation and its consolidated subsidiaries unless the context requires otherwise.
Overview
AIkido Pharma Inc., formerly known as Spherix Incorporated (the “Company”), was initially formed in 1967 and is currently a biotechnology company with a diverse portfolio of small-molecule anti-cancer therapeutics in development. The Company’s platform consists of patented technology from leading universities and researchers and we are currently in the process of developing an innovative therapeutic drug platform through strong partnerships with world renowned educational institutions, including the University of Texas at Austin, the University of Maryland, Baltimore and Wake Forest University. Our diverse pipeline of therapeutics includes therapies for pancreatic cancer, acute myeloid leukemia (“AML”) and acute lymphoblastic leukemia (“ALL”). The Company is also developing a broad-spectrum antiviral platform that may potentially inhibit replication of multiple viruses including Influenza virus, SARS-CoV (coronavirus), MERS-CoV, Ebolavirus and Marburg virus.
The Company previously focused its efforts on owning, developing, acquiring and monetizing intellectual property assets. Since May 2016, the Company has received limited funds from its intellectual property monetization. In addition to its patent monetization efforts, since the fourth quarter of 2017, the Company has been transitioning to focus its efforts as a technology and biotechnology development company. These efforts have focused on biotechnology research and blockchain technology research. The Company’s investment in biotechnology research development includes: (i) an investment in Hoth Therapeutics, Inc. (“Hoth”), a development stage biopharmaceutical company focused on unique targeted therapeutics for patients suffering from indications such as atopic dermatitis, also known as eczema, (ii) an investment in DatChat, Inc. (“DatChat”), a privately held personal privacy platform focused on encrypted communication, internet security and digital rights management, and (iii) the acquisition of assets of CBM BioPharma, Inc. (“CBM”), a pharmaceutical company focusing on the development of cancer treatments.
As a result of the Company’s biotechnology research development and associated investments and acquisitions, our business portfolio now focuses on the treatment of three different cancers, including pancreatic cancer, AML and ALL. Our AML and ALL compounds, developed at Wake Forest University, are targeted therapeutics designed to overcome multiple resistance mechanisms observed with the current standard of care. DHA-dFdC, our pancreatic drug candidate developed at the University of Texas at Austin, is a new compound that we hope will become the next generation of chemotherapy treatment for advanced pancreatic cancer. DHA-dFdC overcomes tumor cell resistance to current chemotherapeutic drugs and is well tolerated in preclinical toxicity tests. Preclinical studies have also indicated that DHA-dFdC inhibits pancreatic cancer cell growth (up to 100,000-fold more potent that gemcitabine, a current standard therapy), has documented efficacy against pancreatic tumors in a clinically relevant transgenic mouse model and has demonstrated activities against other cancers, including leukemia, lung and melanoma. In addition, we are constantly seeking to grow our pipe to treat unmet medical needs in oncology.
In addition, the Company owns an exclusive world-wide license to patented technology from the University of Maryland Baltimore (“UMB”). Our license is for a broad-spectrum antiviral drug platform. The licensed technology is a broadly acting pan-viral inhibitory compound with efficacy against multiple viral pathogens. The technology works to inhibit replication of multiple viruses including Influenza virus, SARS-CoV (coronavirus), MERS-CoV, Ebolavirus and Marburg virus. The technology is covered by two patent applications already on file with the United States Patent and Trademark Office. The UMB inventors are Drs. Matthew Frieman, Alexander MacKerell and Stuart Watson. The Company has also executed a Sponsored Research Agreement with UMB to support the development of the technology.
Critical Accounting Policies
Our critical accounting policies are disclosed in our annual report on Form 10K for the year ended December 31, 2019 and there have been no material changes to such policy or estimates during the six months ended June 30, 2020.
Recently Issued Accounting Pronouncements
See Note 3 to the condensed consolidated financial statements for a discussion of recent accounting standards.
13
Results of Operations
Three months ended June 30, 2020 compared to three months ended June 30, 2019
During the three months ended June 30, 2020, we incurred a loss from operations of approximately $1.8 million as compared to $0.9 million during the comparable prior year period. The increase in loss was primarily attributed to $0.1 million increase in research and development expense incurred in connection with the license acquired, $0.7 million increase in other research and development expense, and $0.1 million increase in general and administrative expenses.
During the three months ended June 30, 2020, other expense was approximately $0.5 million as compared to approximately $0.2 million of income during the comparable prior year period. The increase in other expense was primarily attributed to a $1.8 million decrease in value of our investment in Hoth, and partially offset by $1.2 million increase in gains on marketable securities.
Six months ended June 30, 2020 compared to six months ended June 30, 2019
During the six months ended June 30, 2020, we incurred a loss from operations of approximately $4.2 million as compared to $1.6 million during the comparable prior year period. The increase in loss was primarily attributed to $1.1 million increase in research and development expense incurred in connection with the license acquired, $0.8 million increase in other research and development expense, and $0.7 million increase in general and administrative expenses. During the six months ended June 30, 2020, we raised over $2.0 million of proceeds, therefore a payment of $1.0 million was due to CBM pursuant to that certain Asset Purchase Agreement, dated as of May 15, 2019, by and between the Company and CBM, as amended (the “CBM Purchase Agreement”). We recorded the payment to CBM as a component of research and development license acquired.
During the six months ended June 30, 2020, other expense was approximately $6.5 million as compared to approximately $0.2 million during the comparable prior year period. The increase in other expense was primarily attributed to a $6.4 million decrease in value of our investment in Hoth, and partially offset by $0.2 million increase in gains on marketable securities.
Liquidity and Capital Resources
We continue to incur ongoing administrative and other expenses, including public company expenses, in excess of corresponding (non-financing related) revenue. We do not expect to incur revenue until our biotechnology products are fully developed. While we continue to implement our business strategy, we intend to finance our activities through:
| ● | managing current cash, cash equivalents and marketable securities 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. |
We have funded our operations from proceeds from the sale of equity and debt securities, including pre-funded warrants. We will require significant additional capital to make the investments we need to execute our longer-term business plan. Our ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, even if we were successful, future equity issuances would result in dilution to our existing stockholders and future debt securities may contain covenants that limit our operations or ability to enter into certain transactions.
Our current cash is sufficient to fund operations for at least the next 12 months; however, we will need to raise additional funding through strategic relationships, public or private equity or debt financings, grants or other arrangements to develop and seek regulatory approvals for our existing and new product candidates. If such funding is not available, or not available on terms acceptable to us, our current development plan and plans for expansion of our general and administrative infrastructure may be curtailed.
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In addition to the foregoing, based on our current assessment, we do not expect any material impact on our long-term development timeline and our liquidity due to the worldwide spread of the COVID-19 virus. However, we are continuing to assess the effect on our operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world.
Cash Flows from Operating Activities - For the six months ended June 30, 2020 and 2019, net cash used in operations was approximately $2.4 million and $1.6 million, respectively. The cash used in operating activities for the six months ended June 30, 2020 primarily resulted from a net loss of $10.6 million, and partially offset by reduction in fair value of investment of $6.7 million and $1.1 million research and development expense related with license acquired. The cash used in operating activities for the six months ended June 30, 2019 primarily resulted from a net loss of $1.8 million, $0.1 million unrealized loss on marketable securities and $0.2 million changes in assets and liabilities, and partially offset by $0.3 million change in fair value of our investment.
Cash Flows from Investing Activities - For the six months ended June 30, 2020 and 2019, net cash (used in) and provided by investing activities was approximately $(26.5) million and $1.4 million, respectively. The cash used in investing activities for the six months ended June 30, 2020 primarily resulted from our purchase of marketable securities of $78.0 million and research and development expense related with license acquired of $1.1 million, partially offset by our purchase of marketable securities of $52.2 million since we invest excess cash into marketable securities until additional cash is needed. The cash provided by investing activities primarily resulted from our sale of marketable securities for the six months ended June 30, 2019 of $6.9 million, partially offset by our purchase of marketable securities of $5.0 million.
Cash Flows from Financing Activities - Cash provided by financing activities for the six months ended June 30, 2020 was $31.6 million, which reflects the net proceeds of $6.6 from investors in exchange of issuance of common stock, common warrants and prefunded warrants, net proceeds of $17.8 from investors in exchange of issuance of common stock, and net proceeds of $7.2 million from the exercise of common warrants and prefunded warrants. Cash provided by financing activities for the six months ended June 30, 2019 was $0.8 million, which reflects the net proceeds from investors in exchange of issuance of common stock and prefunded common stock 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, 2020, 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, 2020 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.
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, 2020 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
15
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.
Investing in our common stock is subject to a number of risks and uncertainties. You should carefully consider the risk factors described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, in other reports we file with the SEC, and below.
Risks Related to Our Business
Because we have a limited operating history to evaluate our Company, the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by an early-stage company.
Since we have a limited operating history in our current business of technology and biotechnology development, it will make it difficult for investors and securities analysts to evaluate our business and prospects. You must consider our prospects in light of the risks, expenses and difficulties we face as an early stage company with a limited operating history. Investors should evaluate an investment in our securities in light of the uncertainties encountered by early stage companies in an intensely competitive industry. There can be no assurance that our efforts will be successful or that we will be able to become profitable.
Our cancer treatment business is pre-revenue, pre-development and subject to the risks of an early stage biotechnology company.
Since the Company’s primary focus for the foreseeable future will likely be our cancer treatment business, shareholders should understand that we are primarily an early stage biotechnology company with no history of revenue-generating operations, and our only assets consist of our proprietary drug and the know-how of our officers. Therefore, we are subject to all the risks and uncertainties inherent in a new business, in particular new businesses engaged in the early detection of certain cancers. DHA-dFdC is in its early stages of development, and we still must establish and implement many important functions necessary to commercialize the biotechnology.
Accordingly, you should consider the Company’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in their pre-revenue and pre-development generating stages, particularly those in the biotechnology field. Shareholders should carefully consider the risks and uncertainties that a business with no operating history will face. In particular, shareholders should consider that there is a significant risk that we will not be able to:
| ● | demonstrate the effectiveness of DHA-dFdC; |
| ● | implement or execute our current business plan, or that our current business plan is sound; |
| ● | raise sufficient funds in the capital markets or otherwise to fully effectuate our business plan; |
| ● | maintain our management team; |
| ● | conduct the required clinical studies; |
16
| ● | determine that the processes and technologies that we have developed or will develop are commercially viable; and/or |
| ● | attract, enter into or maintain contracts with potential commercial partners such as licensors of technology and suppliers. |
Any of the foregoing risks may adversely affect the Company and result in the failure of our business. In addition, we expect to encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. At some point, we will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may not be able to reach such achievements, which would have a material adverse effect on our Company.
We continue to incur operating losses and may not achieve profitability.
Our loss from operations for the six months ended June 30, 2020 and 2019 was $4.2 million and $1.6 million, respectively. Our net loss for the six months ended June 30, 2020 and 2019 was $10.6 million and $1.8 million, respectively. Our accumulated deficit was $154.9 million at June 30, 2020. Our ability to become profitable depends upon our ability to generate revenue from biotechnology products. We do not know when, or if, we will generate any revenue from such biotechnology products. Even though our revenue may increase, we expect to incur significant additional losses while we grow and expand our business. We cannot predict if and when we will achieve profitability. Our failure to achieve and sustain profitability could negatively impact the market price of our common stock.
We expect to need additional capital to fund our growing operations and if we are unable to obtain sufficient capital, we may be forced to limit the scope of our operations.
We expect that for our business to grow we will need additional working capital. If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to expand our business or pay our outstanding obligations, and we will have to modify our business plans accordingly. These factors would have a material adverse effect on our future operating results and our financial condition.
If we reach a point where we are unable to raise needed additional funds to continue as a going concern, we will be forced to cease our activities and dissolve the Company. In such an event, we will need to satisfy various creditors and other claimants, severance, lease termination and other dissolution-related obligations and we may not have sufficient funds to pay to our stockholders.
If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls over financial reporting, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports. We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.
Our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as of June 30, 2020, our internal control over financial reporting was not effective, due to our lack of segregation of duties, and lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected. We can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial reporting in the future.
17
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
Due to our net losses, negative cash flow and negative working capital, in their report on our audited financial statements for the years ended December 31, 2019 and 2018, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.
We may seek to internally develop additional new inventions and intellectual property, which would take time and be costly. Moreover, the failure to obtain or maintain intellectual property rights for such inventions would lead to the loss of our investments in such activities.
Part of our business may include the internal development of new inventions or intellectual property that we will seek to monetize. For example, in December 2019, we acquired substantially all of the assets of CBM, including the acquisition of certain licensing rights with respect to patents and other intellectual property related to pioneering drug compounds that were developed at the University of Wake Forest and the University of Texas at Austin, in the areas of AML, ALL, acral lentiginous melanoma and pancreatic cancer (collectively, the “University Developments”). Should we choose to assist in the development of the University Developments and/or internally develop any other inventions or intellectual property, such aspect of our business will require significant capital and will take time to achieve. Such activities may also distract our management team from its present business initiatives, which could have a material and adverse effect on our business. There is also the risk that our initiatives in this regard would not yield any viable new inventions or technology, which would lead to a loss of our investments in time and resources in such activities.
Our ability to raise additional capital may be adversely affected by certain of our agreements.
Our ability to raise additional capital for use in our operating activities may be adversely impacted by the terms of a securities purchase agreement, dated as of July 15, 2015 (the “Securities Purchase Agreement”), between us and the investors who purchased securities in our July 2015 offering of our common stock and warrants for the purchase of our common stock. The Securities Purchase Agreement provides that, until the warrants issued thereunder are no longer outstanding, we will not effect or enter into a variable rate transaction, which includes issuances of securities whose prices or conversion prices may vary with the trading prices of or quotations for the shares of our common Stock at any time after the initial issuance of such securities, as well as the entry into agreements where our stock would be issued at a future-determined price. These warrants may remain outstanding as late as January 22, 2021, when the warrants expire in accordance with their terms. These restrictions may have an adverse impact on our ability to raise additional capital, or to use our cash to make certain payments that we are contractually obligated to make.
We may also identify targets with patent or other intellectual property assets that cost more than we are prepared to spend with our own capital resources. We may incur significant costs to organize and negotiate a structured acquisition that does not ultimately result in an acquisition of any patent assets or, if consummated, proves to be unprofitable for us. Acquisitions involving issuance of our securities could be dilutive to existing stockholders and could be at prices lower than those prices reflected in the trading markets. These higher costs could adversely affect our operating results and, if we incur losses, the value of our securities will decline. The integration of acquired assets may place a significant burden on management and our internal resources. The diversion of management attention and any difficulties encountered in the integration process could harm our business.
As we are targeting technology companies in the development stage, their patents and technologies are in the early stages of adoption. Demand for some of these technologies will likely be untested and may be subject to fluctuation based upon the rate at which our licensees or others adopt our patents and technologies in their products and services. As a result, there can be no assurance as to whether technologies we acquire or develop will have value that can be realized through licensing or other activities.
We are exploring and evaluating strategic alternatives and there can be no assurance that we will be successful in identifying, or completing any strategic alternative or that any such strategic alternative will yield additional value for shareholders.
Our management and board of directors (“Board of Directors”) has commenced a review of strategic alternatives which could result in, among other things, a sale, a merger, consolidation or business combination, asset divestiture, partnering or other collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions, or continuing to operate with our current business plan and strategy. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction. In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of exploring strategic alternatives may be time consuming and disruptive to our business operations and if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We also cannot assure you that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our shareholders than that reflected in the current stock price. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business and the availability of financing to potential buyers on reasonable terms.
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We may be unsuccessful at integrating future acquisitions.
If we find appropriate opportunities in the future, we may acquire businesses to further the Company’s strategic business objectives. For example, in December 2019, we acquired substantially all of the assets of CBM, including the acquisition of certain licensing rights with respect to patents and other intellectual property related to pioneering drug compounds that were developed at the University of Wake Forest and the University of Texas at Austin, in the areas of AML, ALL, acral lentiginous melanoma and pancreatic cancer. There can be no guarantee that we will be able to successfully integrate the business or assets of CBM into the Company.
As we acquire businesses or substantial stakes in certain businesses, the process of integration may produce unforeseen operating difficulties and expenditures, fail to result in expected synergies or other benefits and absorb significant attention of our management that would otherwise be available for the ongoing development of our business. In addition, in the event of any future acquisitions, we may record a portion of the assets we acquire as goodwill, other indefinite-lived intangible assets or finite-lived intangible assets. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The recoverability of goodwill and indefinite-lived intangible assets is dependent on our ability to generate sufficient future earnings and cash flows. Changes in estimates, circumstances or conditions, resulting from both internal and external factors, could have a significant impact on our fair valuation determination, which could then have a material adverse effect on our business, financial condition and results of operations. We cannot guarantee that we will be able to identify suitable acquisition opportunities, consummate any pending or future acquisitions or that we will realize any anticipated benefits from any such acquisitions.
Our pre-CBM acquisition stockholders have a reduced ownership and voting interest after the acquisition of CBM’s assets and exercise less influence over our management and policies than they did prior to the acquisition.
Our pre-CBM acquisition stockholders had the right to vote in the election of our Board of Directors on other matters affecting us. As a result of the CBM Purchase Agreement, because of the issuance of shares of common stock to the CBM shareholders, our pre-CBM acquisition stockholders hold a percentage ownership of the Company that is much smaller than the pre-CBM acquisition stockholder’s previous percentage ownership. Because of this, our pre-CBM acquisition stockholders have less influence over the management and policies of the Company than they now have after the consummation of the acquisition of CBM’s assets.
Any failure to maintain or protect our patent assets or other intellectual property rights could significantly impair our return on investment from such assets and harm our brand, our business and our operating results.
Our ability to operate our new line of business and compete in the intellectual property market largely depends on the superiority, uniqueness and value of our acquired patent assets and other intellectual property. To protect our proprietary rights, we will rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. No assurances can be given that any of the measures we undertake to protect and maintain our assets will have any measure of success.
We are required to spend significant time and resources to maintain the effectiveness of our assets by paying maintenance fees and making filings with the USPTO. We may acquire patent assets, including patent applications, which require us to spend resources to prosecute the applications with the USPTO prior to issuance of patents. Further, there is a material risk that patent related claims (such as, for example, infringement claims (and/or claims for indemnification resulting therefrom), unenforceability claims, or invalidity claims) will be asserted or prosecuted against us, and such assertions or prosecutions could materially and adversely affect our business.
Despite our efforts to protect our intellectual property rights, any of the following or similar occurrences may reduce the value of our intellectual property:
| ● | our applications for patents, trademarks and copyrights may not be granted and, if granted, may be challenged or invalidated; |
| ● | issued trademarks, copyrights, or patents may not provide us with any competitive advantages when compared to potentially infringing other properties; |
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| ● | our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology; or |
| ● | our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we acquire and/or prosecute. |
Moreover, we may not be able to effectively protect our intellectual property rights in certain foreign countries where we may do business or enforce our patents against infringers in foreign countries. If we fail to maintain, defend or prosecute our patent assets properly, the value of those assets would be reduced or eliminated, and our business would be harmed.
We may be unable to issue securities under our shelf registration statement, which may have an adverse effect on our liquidity.
We have filed a shelf registration statement on Form S-3 with the SEC. The registration statement, which has been declared effective, was filed in reliance on Instruction I.B.6. of Form S-3, which imposes a limitation on the maximum amount of securities that we may sell pursuant to the registration statement during any twelve-month period. At the time we sell securities pursuant to the registration statement, the amount of securities to be sold plus the amount of any securities we have sold during the prior twelve months in reliance on Instruction I.B.6. may not exceed one-third of the aggregate market value of our outstanding common stock held by non-affiliates as of a day during the 60 days immediately preceding such sale as computed in accordance with Instruction I.B.6. Whether we sell securities under the registration statement will depend on a number of factors, including availability of our existing S-3 under the 1/3 limitation calculations set forth in Instruction I.B.6 of Form S-3, the market conditions at that time, our cash position at that time and the availability and terms of alternative sources of capital. Furthermore, Instruction I.B.6. of Form S-3 requires that the issuer have at least one class of common equity securities listed and registered on a national securities exchange. If we are not able to maintain compliance with applicable Nasdaq rules, we will no longer be able to rely upon that Instruction. If we cannot sell securities under our shelf registration, we may be required to utilize more costly and time-consuming means of accessing the capital markets, which could materially adversely affect our liquidity and cash position.
We may be at risk for delay in technology development and other economic repercussions as a result of the COVID-19 pandemic.
We may be at risk as a result of the current COVID-19 pandemic. Risks that could affect our business include the duration and scope of the COVID-19 pandemic and the impact on the demand for our products; actions by governments, businesses and individuals taken in response to the pandemic; the length of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required to develop effective treatments and a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions taken in response to the pandemic on global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides.
Additionally, New York, where our U.S. operations are based, is currently significantly affected by COVID-19, which led to measures taken by the New York government trying to contain the spread of COVID-19, such as shelter in place, closure of schools and travel restrictions. Additional travel and other restrictions may be put in place to further control the outbreak in U.S. Accordingly, our operation and business have been and will continue to be adversely affected as the results of the COVID-19 pandemic.
The extent to which COVID-19 negatively impacts our business is highly uncertain and cannot be accurately predicted. We believe that the coronavirus outbreak and the measures taken to control it may have a significant negative impact on not only our business, but economic activities globally. The magnitude of this negative effect on the continuity of our business operations in the U.S. remains uncertain. These uncertainties impede our ability to conduct our daily operations and could materially and adversely affect our business, financial condition and results of operations, and as a result affect our stock price and create more volatility.
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Risks Related to the Product Development, Regulatory Approval, Manufacturing and Commercialization
We are early in our development efforts and currently have no clinical-stage product candidates. If we are unable to clinically develop and ultimately commercialize DHA-dFdC or other product candidates, or experience significant delays in doing so, our business will be materially harmed.
We are early in our development efforts and have no clinical-stage product candidates as of the date of this prospectus. We have the exclusive U.S. rights to develop DHA-dFdC for the treatment of cancer in the licensed field. We are presently planning on filing an IND for DHA-dFdC, and we hope to begin human testing for this indication in 2021, although no assurance can be given that we will be able to achieve this goal.
Therefore, our ability to generate product or royalty revenues, which we do not expect will occur for several years, if ever, will depend heavily on our ability to develop and eventually commercialize our product candidate. The positive development of our product candidate will depend on several factors, including the following:
| ● | positive commencement and completion of clinical trials; |
| ● | successful preparation of regulatory filings and receipt of marketing approvals from applicable regulatory authorities; |
| ● | obtaining and maintaining patent and trade secret protection and potential regulatory exclusivity for our product candidate and protecting our rights in our intellectual property portfolio; |
| ● | launching commercial sales of our product, if and when approved for one or more indications, whether alone or in collaboration with others; |
| ● | acceptance of the product for one or more indications, if and when approved, by patients, the medical community and third-party payors; |
| ● | protection from generic substitution based upon our own or licensed intellectual property rights; |
| ● | effectively competing with other therapies; |
| ● | obtaining and maintaining adequate reimbursement from healthcare payors; and |
| ● | maintaining a continued acceptable safety profile of our product following approval, if any. |
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to clinically develop and commercialize DHA-dFdC as a therapy for cancer, which would materially harm our business.
If we are unable to convince physicians as to the benefits of DHA-dFdC as a therapy for cancer, if and when it is approved, we may incur delays or additional expense in our attempt to establish market acceptance.
Use of DHA-dFdC as a cancer therapy will require physicians to be informed regarding the intended benefits of the product for a new indication. The time and cost of such an educational process may be substantial. Inability to carry out this physician education process may adversely affect market acceptance of DHA-dFdC as a therapy for cancer. We may be unable to timely educate physicians in sufficient numbers regarding our intended application of DHA-dFdC to achieve our marketing plans or to achieve product acceptance. Any delay in physician education or acceptance may materially delay or reduce demand for our product candidate. In addition, we may expend significant funds toward physician education before any acceptance or demand for DHA-dFdC as a therapy for cancer is created, if at all.
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Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidate.
The risk of failure for product candidates in clinical development is high. It is impossible to predict when our sole product candidate, DHA-dFdC for the treatment of cancer, will prove effective and safe in humans or will receive regulatory approval for the treatment of any disease, the indication for which is licensed to us. Before obtaining marketing approval from regulatory authorities for the sale of DHA-dFdC as a cancer therapy, we must conduct one or more clinical trials to demonstrate the safety and efficacy of our product candidate in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. Moreover, the outcome of early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their products.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidate, including:
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● | regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; |
| ● | we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; | |
| ● | clinical trials of our product candidate may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs, which would be time consuming and costly; | |
| ● | the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; | |
| ● | we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks; | |
| ● | regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; | |
| ● | the cost of clinical trials may be greater than we anticipate; | |
| ● | the supply or quality of materials necessary to conduct clinical trials of our product candidate may be insufficient or inadequate; | |
| ● | our product candidate may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate the trials; and | |
| ● | interactions with other drugs. |
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If we are required to conduct additional clinical trials or other testing of our product candidate beyond those that we currently contemplate, if we are unable to complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
| ● | be delayed in obtaining marketing approval for our product candidate for one or more indications; | |
| ● | not obtain marketing approval at all for one or more indications; | |
| ● | obtain approval for indications or patient populations that are not as broad as intended or desired (particularly, in our case, for different types of cancer); | |
| ● | obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; | |
| ● | be subject to additional post-marketing testing requirements; or | |
| ● | have the product removed from the market after obtaining marketing approval. |
Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know which, if any, of our clinical trials will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the right to commercialize our product candidate or allow our competitors to bring products to market before we do and impair our ability to commercialize our product candidate and may harm our business and results of operations.
If we experience delays or difficulties in the enrollment of patients in any future clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue future clinical trials for DHA-dFdC or our present or future product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the U.S. Food and Drug Administration (“FDA”) or similar regulatory authorities outside the United States. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidate, and patients who would otherwise be eligible for our future clinical trials may instead enroll in clinical trials of our competitors’ product candidates.
Patient enrollment is affected by other factors including:
| ● | the severity of the disease under investigation; | |
| ● | the eligibility criteria for the study in question; | |
| ● | the perceived risks and benefits of the product candidate under study; | |
| ● | the patient referral practices of physicians; | |
| ● | the ability to monitor patients adequately during and after treatment; and | |
| ● | the proximity and availability of clinical trial sites for prospective patients. |
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Our inability to enroll a sufficient number of patients for any future clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidate, which would cause the value of our company to decline and otherwise materially and adversely affect our company.
If serious adverse or unacceptable side effects are identified during the development of our product candidate, we may need to abandon or limit such development, which would adversely affect our company.
If clinical testing of our product candidates results in undesirable side effects or demonstrates characteristics that are unexpected, we may need to abandon such development or limit such development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early stage testing for treating cancer have later been found to cause side effects that prevented further development of the compound.
For the foreseeable future, we expect to expend our limited resources primarily to pursue a particular product candidate, leaving us unable to capitalize on other product candidates or indications that may be more profitable or for which there is a greater likelihood of clinical and commercial development.
Because we have limited financial and managerial resources, we will focus for the foreseeable future primarily on the clinical development of DHA-dFdC for the treatment of prostate cancer. As a result, we may forego or be unable to pursue opportunities with other product candidates or for indications other than those we intend to pursue that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on research and development programs related to DHA-dFdC for the treatment of cancer may not yield any commercially viable therapies. Because of this concentration of our efforts, our business will be particularly subject to significant risk of failure of our one current product candidate.
We expect to rely on collaborations with third parties for key aspects of our business. If we are unable to secure or maintain any of these collaborations, or if these collaborations do not achieve their goals, our business would be adversely affected.
We presently have very limited capabilities for drug development and do not yet have any capability for manufacturing, sales, marketing or distribution. Accordingly, we expect to enter into collaborations with other companies that we believe can provide such capabilities. These collaborations may also provide us with important funding for our development programs.
There is a risk that we may not be able to maintain our current collaboration or to enter into additional collaborations on acceptable terms or at all, which would leave us unable to progress our business plan. We will face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. If we are unable to maintain or reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of our product candidate, reduce or delay its development program, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.
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Moreover, even if we are able to maintain and/or enter into such collaborations, such collaborations may pose a number of risks, including the following:
| ● | collaborators may not perform their obligations as expected; | |
| ● | disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of our product candidate, might lead to additional responsibilities for us with respect to such product candidate, or might result in litigation or arbitration, any of which would be time-consuming and expensive; | |
| ● | collaborators could independently develop or be associated with products that compete directly or indirectly with our product candidate; | |
| ● | collaborators could have significant discretion in determining the efforts and resources that they will apply to our arrangements with them; | |
| ● | should our product candidate achieve regulatory approval, a collaborator with marketing and distribution rights to our product candidate may not commit sufficient resources to the marketing and distribution of such product; | |
| ● | collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; | |
| ● | collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and | |
| ● | collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to either find alternative collaborators (which we may be unable to do) or raise additional capital to pursue further development or commercialization of our product candidate on our own. |
Our business could be materially harmed if any of the foregoing or similar risks comes to pass with respect to our key collaborations.
Even if any of our product candidates receive marketing approval for any indication, they may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
Even if DHA-dFdC for the treatment of cancer receives marketing approval for any indication, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current cancer treatments such as chemotherapy, immunotherapy and radiation therapy are well established in the medical community, and doctors may continue to rely on these treatments. If our product candidate does not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of DHA-dFdC for the treatment of cancer, if approved for commercial sale, will depend on a number of factors, including:
| ● | the efficacy and potential advantages compared to alternative treatments; | |
| ● | our ability to offer our products for sale at competitive prices; | |
| ● | the convenience and ease of administration compared to alternative treatments; | |
| ● | the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; | |
| ● | the strength of marketing and distribution support; | |
| ● | the availability of third-party coverage and adequate reimbursement; | |
| ● | the prevalence and severity of any side effects; and | |
| ● | any restrictions on the use of our product together with other medications. |
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If we are unable to establish sales, marketing and distribution capabilities, we may not be able to commercialize our product candidate if and when it is approved.
We currently do not have a sales or marketing infrastructure. To achieve any level of commercial success for any product for which we have obtained marketing approval, we will need to establish a sales and marketing organization or outsource sales and marketing functions to third parties, and achieve the following:
| ● | successful preparation of regulatory filings and receipt of marketing approvals from applicable regulatory authorities; |
| ● | obtaining and maintaining patent and trade secret protection and potential regulatory exclusivity for our product candidate and protecting our rights in our intellectual property portfolio; |
| ● | launching commercial sales of our product, if and when approved for one or more indications, whether alone or in collaboration with others; |
| ● | acceptance of the product for one or more indications, if and when approved, by patients, the medical community and third-party payors; |
| ● | protection from generic substitution based upon our own or licensed intellectual property rights; |
| ● | effectively competing with other therapies; |
| ● | obtaining and maintaining adequate reimbursement from healthcare payors; and |
| ● | maintaining a continued acceptable safety profile of our product following approval, if any. |
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to clinically develop and commercialize DHA-dFdC as a therapy for cancer, which would materially harm our business.
In addition, given our current limited financial resources, we are currently focusing our efforts on one key cancer indication, namely prostate cancer. We are thus faced with the risk that DHA-dFdC could be ineffective in addressing this particular cancer indication, and if our efforts to demonstrate the efficacy of DHA-dFdC in prostate cancer are not positive, we may lack the resources to expand our efforts into other cancer indications.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of new drug products is highly competitive. We face competition with respect to our current product candidate and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of cancer. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
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Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs, and we may be unable to effectively compete with these companies for these or other reasons.
Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals.
Our ability to commercialize any product candidate also will depend in part on the extent to which coverage and adequate reimbursement for our product candidate will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Coverage and reimbursement may not be available for any product that we commercialize and, even if these are available, the level of reimbursement may not be satisfactory. Reimbursement may affect the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to commercialize any product candidate for which we obtain marketing approval.
In addition, there may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA. Moreover, eligibility for reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
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Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of DHA-dFdC in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot defend ourselves against claims that our product candidate or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
| ● | decreased demand for any product candidates or products that we may develop; | |
| ● | damage to our reputation and significant negative media attention; | |
| ● | withdrawal of clinical trial participants; | |
| ● | significant costs to defend the related litigation; | |
| ● | substantial monetary awards to trial participants or patients; | |
| ● | loss of revenue; | |
| ● | reduced resources of our management to pursue our business strategy; and | |
| ● | the inability to commercialize any products that we may develop. |
We currently do not have product liability insurance coverage, which leaves us exposed to any product-related liabilities that we may incur. We may be unable to obtain insurance on reasonable terms or at all. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
If we fail to comply with healthcare regulations, we could face substantial enforcement actions, including civil and criminal penalties and our business, operations and financial condition could be adversely affected.
We could be subject to healthcare fraud and abuse laws and patient privacy laws of both the federal government and the states in which we conduct our business. The laws include:
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● | the federal healthcare program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs; |
| ● | federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, and which may apply to entities like us which provide coding and billing information to customers; | |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; | |
| ● | the FDCA which among other things, strictly regulates drug manufacturing and product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug sample; and | |
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts. |
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If our operations are found to be in violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
Members of our management team lack experience in the pharmaceutical field.
Members of our management team lack experience in the pharmaceutical field. This lack of experience may impair our ability to commercialize our pharmaceutical products and attain profitability. We will need to hire or engage managerial personnel with relevant experience in the pharmaceutical field; however, there can be no assurance that such personnel will be available to us or, that once engaged, will be retained by us. Failure to establish and maintain an effective management team with experience in the pharmaceutical field and commercialization of pharmaceuticals products would have a material adverse effect on our business and results of operations.
The marketing approval process of the FDA is lengthy, time consuming and inherently unpredictable, and if were ultimately are unable to obtain marketing approval for the product candidates we intend to develop, our business will be substantially harmed.
None of the product candidates we intend to develop have gained marketing approval in the U.S. and we cannot guarantee that we will ever have marketable products. Our business is substantially dependent on our ability to complete the development of, obtain marketing approval for, and successfully commercialize our product candidates in a timely manner. We cannot commercialize our product candidates in the United States without first obtaining approval from the FDA to market each product candidate. Our product candidates could fail to receive marketing approval for many reasons.
In addition, the process of seeking regulatory clearance or approval to market the product candidates we intend to develop is expensive and time consuming and, notwithstanding the effort and expense incurred, clearance or approval is never guaranteed. If we are not successful in obtaining timely clearance or approval of our product candidates from the FDA, we may never be able to generate significant revenue and may be forced to cease operations. The FDA process is costly, lengthy and uncertain. Any FDA application filed by the Company will have to be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the product for its intended use.
Obtaining clearances or approvals from the FDA and from the regulatory agencies in other countries is an expensive and time consuming process and is uncertain as to outcome. The FDA and other agencies could ask us to supplement our submissions, collect non-clinical data, conduct additional clinical trials or engage in other time-consuming actions, or it could simply deny our applications. In addition, even if we obtain an FDA approval or pre-market approvals in other countries, the approval could be revoked or other restrictions imposed if post-market data demonstrates safety issues or lack of effectiveness. We cannot predict with certainty how, or when, the FDA will act. If we are unable to obtain the necessary regulatory approvals, our financial condition and cash flow may be adversely affected, and our ability to grow domestically and internationally may be limited. Additionally, even if cleared or approved, the Company’s products may not be approved for the specific indications that are most necessary or desirable for successful commercialization or profitability.
Modifications to our products may require new FDA approvals.
Once a particular product receives FDA approval or clearance, expanded uses or uses in new indications of our products may require additional human clinical trials and new regulatory approvals or clearances, including additional IND and FDA submissions and premarket approvals before we can begin clinical development, and/or prior to marketing and sales. If the FDA requires new clearances or approvals for a particular use or indication, we may be required to conduct additional clinical studies, which would require additional expenditures and harm our operating results. If the products are already being used for these new indications, we may also be subject to significant enforcement actions. Conducting clinical trials and obtaining clearances and approvals can be a time consuming process, and delays in obtaining required future clearances or approvals could adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth.
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Additional delays to the completion of clinical studies may result from modifications being made to the protocol during the clinical trial, if such modifications are warranted and/or required by the occurrences in the given trial.
Each modification to the protocol during a clinical trial has to be submitted to the FDA. This could result in the delay or halt of a clinical trial while the modification is evaluated. In addition, depending on the quantity and nature of the changes made, the FDA could take the position that the data generated by the clinical trial is not poolable because the same protocol was not used throughout the trial. This might require the enrollment of additional subjects, which could result in the extension of the clinical trial and the FDA delaying clearance or approval of a product. Any such delay could have a material adverse effect on our business and results of operations.
There can be no assurance that the data generated from our clinical trials using modified protocols will be acceptable to FDA.
There can be no assurance that the data generated using modified protocols will be acceptable to the FDA or that if future modifications during the trial are necessary, that any such modifications will be acceptable to the FDA. If the FDA believes that its prior approval is required for a particular modification, it can delay or halt a clinical trial while it evaluates additional information regarding the change.
Serious injury or death resulting from a failure of one of our drug candidates during current or future clinical trials could also result in the FDA delaying our clinical trials or denying or delaying clearance or approval of a product.
Even though an adverse event may not be the result of the failure of our drug candidate, the FDA or an Internal Review Board (“IRB”) could delay or halt a clinical trial for an indefinite period of time while an adverse event is reviewed, and likely would do so in the event of multiple such events.
Any delay or termination of our current or future clinical trials as a result of the risks summarized above, including delays in obtaining or maintaining required approvals from IRBs, delays in patient enrollment, the failure of patients to continue to participate in a clinical trial, and delays or termination of clinical trials as a result of protocol modifications or adverse events during the trials, may cause an increase in costs and delays in the filing of any product submissions with the FDA, delay the approval and commercialization of our products or result in the failure of the clinical trial, which could adversely affect our business, operating results and prospects.
The future results of our current or future clinical trials may not support our product candidate claims or may result in the discovery of unexpected adverse side effects.
Even if our clinical trials are completed as planned, we cannot be certain that their results will support our drug candidate claims or that the FDA or foreign authorities will agree with our conclusions regarding them. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and preclinical studies. The clinical trial process may fail to demonstrate that our drug candidates are safe and effective for the proposed indicated uses. If the FDA concludes that the clinical trials for DHA-dFdC, or any other product for which we might seek clearance, has failed to demonstrate safety and effectiveness, we would not receive FDA clearance to market that product in the United States for the indications sought.
In addition, such an outcome could cause us to abandon the product candidate and might delay development of others. Any delay or termination of our clinical trials will delay the filing of any product submissions with the FDA and, ultimately, our ability to commercialize our product candidates and generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’s profile.
Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain for such product candidates.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell our product candidates. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
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In the United States, the Medicare Modernization Act (“MMA”) changed the way Medicare covers and pays for pharmaceutical products. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for our product candidates and could seriously harm our business.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “Health Care Reform Law”) is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The Health Care Reform Law remains subject to legislative efforts to repeal, modify or delay the implementation of the law. However, if the Health Care Reform Law is repealed or modified, or if implementation of certain aspects of the Health Care Reform Law are delayed, such repeal, modification or delay may materially adversely impact our business, strategies, prospects, operating results or financial condition.
In addition, other legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce or eliminate our profitability.
Upon commercialization of our products, we may be dependent on third parties to market, distribute and sell our products.
Our ability to receive revenues may be dependent upon the sales and marketing efforts of any future co-marketing partners and third-party distributors. At this time, we have not entered into an agreement with any commercialization partner and only plan to do so after the successful completion of Phase 1 clinical trials and prior to commercialization. If we fail to reach an agreement with any commercialization partner, or upon reaching such an agreement that partner fails to sell a large volume of our products, it may have a negative impact on our business, financial condition and results of operations.
Adverse events involving our products may lead the FDA to delay or deny clearance for our products or result in product recalls that could harm our reputation, business and financial results.
Once a product receives FDA clearance or approval, the agency has the authority to require the recall of commercialized products in the event of adverse side effects, material deficiencies or defects in design or manufacture. The authority to require a recall must be based on an FDA finding that there is a reasonable probability that the product would cause serious injury or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a product is found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of adverse side effects, impurities or other product contamination, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. The FDA requires that certain classifications of recalls be reported to FDA within ten working days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted.
Risks Related to Ownership of Our Common Stock
We face evolving regulation of corporate governance and public disclosure that may result in additional expenses and continuing uncertainty.
As a public company, we incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, or SOX, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of time towards maintaining compliance with these requirements. These rules, regulations and standards are subject to varying interpretations, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest the resources necessary to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us, which could be costly and time-consuming, and our reputation and business may be harmed.
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Our common stock may be delisted from The Nasdaq Capital Market if we fail to comply with continued listing standards.
Our common stock is currently traded on The Nasdaq Capital Market under the symbol “AIKI”. If we fail to meet any of the continued listing standards of The Nasdaq Capital Market, our common stock could be delisted from The Nasdaq Capital Market. These continued listing standards include specifically enumerated criteria, such as:
| ● | a $1.00 minimum closing bid price; |
| ● | stockholders’ equity of $2.5 million; |
| ● | 500,000 shares of publicly-held common stock with a market value of at least $1 million; |
| ● | 300 round-lot stockholders; and |
| ● | compliance with Nasdaq’s corporate governance requirements, as well as additional or more stringent criteria that may be applied in the exercise of Nasdaq’s discretionary authority. |
On April 28, 2020, we received a staff deficiency notice from Nasdaq informing the Company that its common stock failed to comply with the $1.00 minimum bid price required for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). Nasdaq’s letter advised the Company that, based upon the closing bid price during the period from March 16, 2020 to April 27, 2020, the Company no longer met this test.
Given the current extraordinary market conditions, Nasdaq had determined to toll the compliance periods for the bid price and market value of publicly held shares requirements through June 30, 2020. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company had been provided with a compliance period of 180 calendar days, or until December 28, 2020, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive business days prior to December 28, 2020. As of the close of trading on July 30, 2020, the closing bid price of our common stock was at least $1.00 per share for 10 consecutive trading days and, accordingly, we regained compliance with NASDAQ’s continued listing requirements.
There can be no assurance that we will be able to maintain compliance and remain in compliance in the future. In particular, our share price may continue to decline for a number of reasons, including many that are beyond our control. If we fail to comply with Nasdaq’s continued listing standards, we may be delisted and our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Further, delisting of our common stock would likely result in our common stock becoming a “penny stock” under the Exchange Act.
Our share price may be volatile and there may not be an active trading market for our common stock.
There can be no assurance that the market price of our common stock will not decline below its present market price or that there will be an active trading market for our common stock. The market prices of technology or technology related companies have been and are likely to continue to be highly volatile. Fluctuations in our operating results and general market conditions for technology or technology related stocks could have a significant impact on the volatility of our common stock price. We have experienced significant volatility in the price of our common stock. From January 1, 2019 through June 30, 2020, the share price of our common stock (on a split-adjusted basis) ranged from a high of $3.92 to a low of $0.51. The reason for the volatility in our stock is not well understood and may continue. Factors that may have contributed to such volatility include, but are not limited to:
| ● | developments regarding regulatory filings; |
| ● | our funding requirements and the terms of our financing arrangements; |
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| ● | technological innovations; |
| ● | introduction of new technologies by us or our competitors; |
| ● | material changes in existing litigation; |
| ● | changes in the enforceability or other matters surrounding our patent portfolios; |
| ● | government regulations and laws; |
| ● | public sentiment relating to our industry; |
| ● | developments in patent or other proprietary rights; |
| ● | the number of shares issued and outstanding; |
| ● | the number of shares trading on an average trading day; |
| ● | performance of companies in the non-performing entity space generally; |
| ● | announcements regarding other participants in the technology and technology related industries, including our competitors; |
| ● | block sales of our shares by stockholders to whom we have sold stock in private placements, or the cessation of transfer restrictions with respect to those shares; and |
| ● | market speculation regarding any of the foregoing. |
We could fail in future financing efforts or be delisted from The Nasdaq Capital Market if we fail to receive stockholder approval when needed.
We are required under the Nasdaq rules to obtain stockholder approval for any issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding before the issuance of such securities sold in an offering that is not deemed to be a “public offering” by Nasdaq. Funding of our operations and acquisitions of assets may require issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding, but we might not be successful in obtaining the required stockholder approval for such an issuance. If we are unable to obtain financing due to stockholder approval difficulties, such failure may have a material adverse effect on our ability to continue operations.
Our shares of common stock are thinly traded and, as a result, stockholders may be unable to sell at or near ask prices, or at all, if they need to sell shares to raise money or otherwise desire to liquidate their shares.
Our common stock has been “thinly-traded” meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. Our trading volumes are further adversely affected by the 1-for-19 reverse stock split that was effective as of March 4, 2016. In addition, we believe that due to the limited number of shares of our common stock outstanding, an options market has not been established for our common stock, limiting the ability of market participants to hedge or otherwise undertake trading strategies available for larger companies with broader shareholder bases which prevents institutions and others from acquiring or trading in our securities. Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give stockholders any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.
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Because of the “anti-takeover” provisions in our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Delaware General Corporation Law, a third party may be discouraged from making a takeover offer that could be beneficial to our stockholders.
The effect of certain provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and the anti-takeover provisions of the Delaware General Corporation Law (the “DGCL”), could delay or prevent a third party from acquiring us or replacing members of our Board of Directors, or make more costly any attempt to acquire control of the Company, even if the acquisition or the Board designees would be beneficial to our stockholders. These factors could also reduce the price that certain investors might be willing to pay for shares of the common stock and result in the market price being lower than it would be without these provisions.
Dividends on our common stock are not likely.
During the last five years, we have not paid cash dividends on our common stock, and we do not anticipate paying cash dividends on our common stock in the foreseeable future. Investors must look solely to the potential for appreciation in the market price of the shares of our common stock to obtain a return on their investment.
It may be difficult to predict our financial performance because our quarterly operating results may fluctuate.
Our revenues, operating results and valuations of certain assets and liabilities may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our results of operations as an indication of our future performance. Our results of operations may fall below the expectations of market analysts and our own forecasts. If this happens, the market price of our common stock may fall significantly. The factors that may affect our quarterly operating results include the following:
| · | fluctuations in results of our enforcement and licensing activities or outcome of cases; |
| · | fluctuations in duration of judicial processes and time to completion of cases; |
| · | the timing and amount of expenses incurred to negotiate with licensees and obtain settlements from infringers; |
| · | the impact of our anticipated need for personnel and expected substantial increase in headcount; |
| · | fluctuations in the receptiveness of courts and juries to significant damages awards in patent infringement cases and speed to trial in the jurisdictions in which our cases may be brought and the accepted royalty rates attributable to damages analysis for patent cases generally, including the royalty rates for industry standard patents which we may own or acquire; |
| · | worsening economic conditions which cause revenues or profits attributable to infringer sales of products or services to decline; |
| · | changes in the regulatory environment, including regulation of NPE activities or patenting practices, that may negatively impact our or infringers practices; |
| · | the timing and amount of expenses associated with litigation, regulatory investigations or restructuring activities, including settlement costs and regulatory penalties assessed related to government enforcement actions; |
| · | any changes we make in our Critical Accounting Estimates described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of our periodic reports; |
| · | the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures; and |
| · | costs related to acquisitions of technologies or businesses. |
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If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.
Our future depends, in part, on our ability to attract and retain key personnel and the continued contributions of our executive officers, each of whom may be difficult to replace. In particular, Anthony Hayes, our Chief Executive Officer, is important to the management of our business and operations and the development of our strategic direction. The loss of the services of any such individual and the process to replace any key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.
Because an increasing amount of our outstanding shares may become freely tradable, sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.
As of August 5, 2020, we had outstanding 34,920,219 shares of common stock, of which our directors and executive officers owned 24,283 shares which are subject to the limitations of Rule 144 under the Securities Act.
In general, Rule 144 provides that any non-affiliate of ours, who has held restricted common stock for at least six-months, is entitled to sell their restricted stock freely, provided that we are then current in our filings with the SEC.
An affiliate of the Company may sell after six months with the following restrictions:
| · | we are current in our filings; |
| · | certain manner of sale provisions; |
| · | filing of Form 144; and |
| · | volume limitations limiting the sale of shares within any three-month period to a number of shares that does not exceed the greater of 1% of the total number of outstanding shares or, the average weekly trading volume during the four calendar weeks preceding the filing of a notice of sale. |
Because almost all of our outstanding shares are freely tradable (subject to certain restrictions imposed by lockup agreements executed by the holders thereof) and the shares held by our affiliates may be freely sold (subject to the Rule 144 limitations), sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
| 10.1* | Master License Agreement, dated as of April 13, 2020, by and between AIkido Pharma, Inc. and the University of Maryland, Baltimore (incorporated herein by reference to Form S-3/A filed on June 12, 2020) | |
| 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 | XBRL Instance Document. | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| * | Portions of this document have been redacted. |
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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 6, 2020 | By: | /s/ Anthony Hayes |
| Anthony Hayes | ||
| Chief Executive Officer | ||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
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Exhibit 31.1
Certification of
Principal Executive and Financial 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 6, 2020 |
Exhibit 32.1
Certification of
Principal Executive and Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Anthony Hayes, Chief Executive 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, 2020 (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 6, 2020 |
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.