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tROC

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File Number: 001-40558

 

Akili, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

92-3654772

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

71 Commercial Street, Mailbox 312

Boston, Massachusetts

02109

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 313-8853

 

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 per share

 

AKLI

 

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 7, 2024, the registrant had 78,715,885 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

 

Cautionary Statement Regarding Forward-Looking Statements

1

 

 

 

PART I.

FINANCIAL INFORMATION

4

 

 

 

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

5

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

 

 

 

PART II.

OTHER INFORMATION

29

 

 

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

Item 3.

Defaults Upon Senior Securities

68

Item 4.

Mine Safety Disclosures

68

Item 5.

Other Information

68

Item 6.

Exhibits

70

Signatures

71

 

i


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains statements that are forward-looking. All statements other than statements of historical facts are forward-looking statements. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for our future operations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

Forward-looking statements in this Quarterly Report and in any document incorporated by reference in this Quarterly Report may include, for example, statements about:

our ability to achieve and maintain profitability in the future;
our financial performance and ability to respond to general economic conditions;
our ability to manage our business in a cost-efficient manner;
our ability to manage our business as a result of the recent workforce reduction and shift in our strategy announced in April 2024 to focus on supporting our partnership with Shionogi & Co. Ltd. (“Shionogi”), in parallel with our and our board of directors’ (“Board”) evaluation of potential strategic alternatives;
our and our Board’s ability to complete the evaluation of potential strategic alternatives and to identify, pursue, and complete a transaction on terms that are in the best interests of and favorable to us and our stockholders, if at all;
our ability to access sources of capital, including debt financing and other sources of capital to finance operations and growth;
our ability to successfully manage and execute on our transition from a prescription to a non-prescription model;
our ability to successfully manage and execute on our ongoing efforts to obtain regulatory authorization of EndeavorOTC in adults with ADHD;
our ability to achieve and maintain market acceptance and adoption of EndeavorRx, EndeavorOTC and any other future digital therapeutics by users;
our ability to accurately forecast demand for EndeavorRx, EndeavorOTC and any other future products;
our ability to obtain or maintain access for EndeavorRx, EndeavorOTC and any other future products via the Apple App Store and Google Play;
the effect of uncertainties related to public health crises;
our ability to maintain or obtain patent protection and/or the patent rights relating to EndeavorRx, EndeavorOTC and our other product candidates and our ability to protect our intellectual property and prevent third parties from competing against us;
our ability to successfully manage and continue to support and make available EndeavorRx, EndeavorOTC and any other future products;
our ability to maintain regulatory authorization for EndeavorRx in the authorized indication, to obtain and maintain regulatory authorization to convert our prescription EndeavorRx product to a non-prescription product, and to obtain and maintain regulatory authorization for EndeavorOTC and any other future products or product candidates, in the U.S. and in foreign markets, and any related restrictions or limitations of an authorized product or product candidate;
our ability to obtain funding for our operations, including funding necessary to further develop, advance and commercialize EndeavorRx, EndeavorOTC and our other product candidates;
our ability to retain our key executives and to attract and retain highly skilled employees;
our ability to identify, in-license or acquire additional technology or product candidates;
our ability to successfully protect against security breaches and other disruptions to our information technology structure;
the impact of applicable laws and regulations, whether in the U.S. or foreign jurisdictions, and any changes thereto;

1


our ability to successfully compete against other companies developing similar products to our current and potential future product offerings;
our estimates regarding expenses, capital requirements and needs for additional financing;
our ability to establish and maintain an effective system of internal controls over financial reporting;
our ability to regain compliance with the continued listing requirements of the Nasdaq Capital Market (“Nasdaq”) and maintain the listing of our securities on Nasdaq;
the outcome of any legal or governmental proceedings that may be instituted against us; and
other factors detailed under the section titled “Risk Factors”.

These forward-looking statements are based on information available as of the date of this Quarterly Report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.

 

RISK FACTORS SUMMARY

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors”, which illuminate challenges that we face in connection with the successful implementation of our strategy and the growth of our business. The following considerations, among others, may offset our competitive strengths or have a negative effect on our business strategy, which could cause a decline in the price of shares of our securities and result in a loss of all or a portion of your investment:

We are exploring strategic alternatives that could significantly impact our future operations and financial position. Any strategic alternative process may disrupt our current plans and operations, and we may be unable to recognize any benefits of the strategic alternatives process or a potential strategic transaction. We will incur significant costs related to the strategic alternatives process or a potential strategic transaction.
We have a history of significant losses and may not be able to achieve or maintain profitability.
The failure of our digital therapeutics to achieve and maintain market acceptance and adoption by users could have a material adverse effect on our business, prospects, results of operations and financial condition.
The market for digital therapeutics is new, rapidly evolving, and increasingly competitive, the healthcare industry in the U.S. is undergoing significant structural change, and the demand for digital therapeutics in the U.S. and in markets outside of the U.S. is uncertain, which makes it difficult to forecast demand for our products. As a result, all prospective financial information included herein is subject to change.
The market opportunities and revenue potential of EndeavorRx and EndeavorOTC and any potential expanded market for EndeavorRx and EndeavorOTC across additional age ranges in ADHD have not been established with precision. We have estimated the sizes and revenue potential of the market opportunities for EndeavorRx, our FDA-authorized product, and for EndeavorOTC, and these market opportunities may be smaller than we estimate.
Our development programs represent novel and innovative potential therapeutic areas, and negative perception of any product or product candidate that we develop could adversely affect our ability to conduct our business, obtain marketing authorizations or identify alternate regulatory pathways to market for such product candidate.
Clinical trials conducted by us or by third parties of any of our products or product candidates may fail to produce results necessary to support marketing authorization.
We face competition, and new products may emerge that provide different or better alternatives for treatment of the conditions that EndeavorRx, EndeavorOTC, if granted marketing authorization, or our future products, if granted marketing authorization, are authorized to treat.
If we fail to obtain and maintain clearance, de novo classification or approval to market our products and product candidates, including EndeavorRx and EndeavorOTC, or if we are delayed in obtaining such marketing authorizations, our business, prospects, results of operations and financial condition could be materially and adversely affected.

2


EndeavorOTC and EndeavorRx are currently available via the Apple App Store® and on Google PlayTM, and each of our products is supported by third-party infrastructure. If our ability to access these markets or access necessary third-party infrastructure was stopped or otherwise restricted or limited, it could have a material adverse effect on our business, prospects, results of operations and financial condition.
If we are not able to develop and release new products, or successful enhancements, new features, and modifications to EndeavorOTC, EndeavorRx or any future products, our business, prospects, results of operations and financial condition could be materially and adversely affected.
We recently transitioned from a single third-party digital pharmacy for the fulfillment of prescriptions to an internally developed in-house distribution system for EndeavorRx. The limited experience we have with this new in-house distribution system may increase the risk that we could have a disruption in the fulfillment of prescriptions for EndeavorRx, which could have a material and adverse effect on our reputation, business, results of operations and financial condition.
If we are unable to adequately protect and enforce our intellectual property and proprietary technology, obtain and maintain patent protection for our technology and products where appropriate or if the scope of the patent protection obtained is not sufficiently broad, or if we are unable to protect the confidentiality of our trade secrets and know-how, our competitors could develop and commercialize technology and products similar or identical to our products, and our ability to successfully commercialize our technology and products may be impaired.
If we fail to comply with obligations in the agreements under which we collaborate with or license intellectual property rights from third parties, or otherwise experience disruptions to our business relationships with collaborators or licensors, we could lose rights or the potential benefits of prospective cash payments that are important to our business, such as under the Option and Collaboration Agreement dated December 19, 2018, by and between us and Shionogi, as amended (the “Amended Shionogi Agreement”).
We will need substantial additional funding, and if we are unable to raise capital when needed or on terms favorable to us, our business, financial condition and results of operations could be materially and adversely affected.
The amount of our future losses is uncertain and our quarterly and annual operating results may fluctuate significantly or fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
If we fail to regain compliance with the continued listing requirements of Nasdaq, our common stock could be delisted from Nasdaq, which would adversely affect the liquidity of our common stock and our ability to raise additional capital or enter into strategic transactions.
Our common stock has been subject to price volatility, low trading volume and large spreads in bid and ask prices quoted by market makers from time to time, which has led to significant fluctuations in the market price of our common stock. Our stockholders may not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low trading volume. If a higher volume active market in our common stock does not develop, our stockholders may be unable to readily sell the shares they hold or may not be able to sell their shares at all.

3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

AKILI, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,161

 

 

$

75,150

 

Restricted cash

 

 

180

 

 

 

305

 

Accounts receivable

 

 

144

 

 

 

300

 

Prepaid expenses and other current assets

 

 

1,513

 

 

 

2,275

 

Total current assets

 

 

64,998

 

 

 

78,030

 

Property and equipment, net

 

 

835

 

 

 

680

 

Operating lease right-of-use asset

 

 

1,442

 

 

 

1,577

 

Prepaid expenses and other long-term assets

 

 

90

 

 

 

96

 

Total assets

 

$

67,365

 

 

$

80,383

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

 

1,101

 

 

 

1,285

 

Accrued expenses and other current liabilities

 

 

1,794

 

 

 

3,326

 

Deferred revenue

 

 

38

 

 

 

100

 

Operating lease liability

 

 

779

 

 

 

756

 

Note payable, short term

 

 

7,500

 

 

 

7,500

 

Total current liabilities

 

 

11,212

 

 

 

12,967

 

Note payable, long term

 

 

1,671

 

 

 

3,445

 

Operating lease liability, net of current portion

 

 

1,528

 

 

 

1,730

 

Corporate bond, net of bond discount

 

 

2,115

 

 

 

2,054

 

Earn-out liabilities

 

 

608

 

 

 

1,632

 

Other long-term liabilities

 

 

23

 

 

 

23

 

Total liabilities

 

 

17,157

 

 

 

21,851

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, $0.0001 par value: 1,000,000,000 shares authorized; 78,684,864
   and
78,356,527 shares issued and outstanding at March 31, 2024 and
   December 31, 2023, respectively

 

8

 

 

 

8

 

Additional paid-in capital

 

 

359,744

 

 

 

358,305

 

Accumulated deficit

 

 

(309,544

)

 

 

(299,781

)

Total stockholders' equity

 

 

50,208

 

 

 

58,532

 

Total liabilities and stockholders’ equity

 

$

67,365

 

 

$

80,383

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


AKILI, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Revenues

 

$

383

 

 

$

113

 

Cost of revenues

 

 

173

 

 

 

137

 

Gross profit (loss)

 

 

210

 

 

 

(24

)

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

4,183

 

 

 

6,084

 

Selling, general and administrative

 

 

6,892

 

 

 

13,011

 

Total operating expenses

 

 

11,075

 

 

 

19,095

 

Operating loss

 

 

(10,865

)

 

 

(19,119

)

Other income (expense):

 

 

 

 

 

 

Other income

 

 

667

 

 

 

1,043

 

Interest expense

 

 

(453

)

 

 

(622

)

Change in estimated fair value of earn-out liabilities

 

 

888

 

 

 

(2,013

)

Total other income (expense)

 

 

1,102

 

 

 

(1,592

)

Loss before income taxes

 

 

(9,763

)

 

 

(20,711

)

Income tax expense

 

 

-

 

 

 

-

 

Net loss

 

$

(9,763

)

 

$

(20,711

)

Unrealized gain on short-term investments

 

$

 

 

$

23

 

Comprehensive loss

 

$

(9,763

)

 

$

(20,688

)

Net loss

 

$

(9,763

)

 

$

(20,711

)

Weighted average common stock outstanding - basic and diluted

 

 

78,526,669

 

 

 

78,079,013

 

Net loss per share - basic and diluted

 

$

(0.12

)

 

$

(0.27

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


AKILI, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(unaudited)

 

Three Months Ended March 31, 2024

 

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Total

 

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

 

 

 

Balance at December 31, 2023

 

78,356,527

 

 

$

8

 

 

$

358,305

 

 

$

(299,781

)

 

$

58,532

 

 

 

 

Stock-based compensation
   expense

 

-

 

 

 

-

 

 

 

1,438

 

 

 

-

 

 

 

1,438

 

 

 

 

Exercise of stock options

 

204,053

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

 

Vesting of RSUs

 

124,284

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,763

)

 

 

(9,763

)

 

 

-

 

Balance at March 31, 2024

 

78,684,864

 

 

$

8

 

 

$

359,744

 

 

$

(309,544

)

 

$

50,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Accumulated Other
Comprehensive

 

 

Total

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2022

 

78,022,924

 

 

$

8

 

 

$

350,980

 

 

$

(240,288

)

 

$

(21

)

 

$

110,679

 

Stock-based compensation
   expense

 

-

 

 

 

-

 

 

 

2,449

 

 

 

-

 

 

 

-

 

 

 

2,449

 

Exercise of stock options

 

16,713

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Vesting of RSUs

 

78,161

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other comprehensive income

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23

 

 

 

23

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(20,711

)

 

 

-

 

 

 

(20,711

)

Balance at March 31, 2023

 

78,117,798

 

 

$

8

 

 

$

353,429

 

 

$

(260,999

)

 

$

2

 

 

$

92,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


AKILI, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(9,763

)

 

$

(20,711

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

75

 

 

 

77

 

Reduction in the carrying amount of right-of-use assets

 

 

135

 

 

 

169

 

Stock-based compensation expense

 

 

1,302

 

 

 

2,759

 

Amortization of premium on short-term investments

 

 

-

 

 

 

(432

)

Non cash interest expense

 

 

162

 

 

 

194

 

Change in fair value of earn-out liabilities

 

 

(888

)

 

 

2,013

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

156

 

 

 

(8

)

Prepaid expenses and other current assets

 

 

776

 

 

 

1,079

 

Prepaid expenses and other long-term assets

 

 

6

 

 

 

(1

)

Accounts payable

 

 

(184

)

 

 

(1,268

)

Accrued expenses and other current liabilities

 

 

(1,532

)

 

 

(2,788

)

Operating lease liabilities

 

 

(179

)

 

 

(195

)

Deferred revenue

 

 

(62

)

 

 

14

 

Net cash used in operating activities

 

 

(9,996

)

 

 

(19,098

)

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(3

)

 

 

(3

)

Capitalized software development costs

 

 

(227

)

 

 

-

 

Purchases of short-term investments

 

 

-

 

 

 

(22,082

)

Proceeds from maturities of short-term investments

 

 

-

 

 

 

75,000

 

Net cash provided by (used in) investing activities

 

 

(230

)

 

 

52,915

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

1

 

 

 

-

 

Taxes paid related to net share settlement of share-based awards

 

 

(14

)

 

 

(45

)

Repayment of principal on note payable

 

 

(1,875

)

 

 

-

 

Net cash used in financing activities

 

 

(1,888

)

 

 

(45

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(12,114

)

 

 

33,772

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

75,455

 

 

 

54,402

 

Cash, cash equivalents, and restricted cash at end of period

 

$

63,341

 

 

$

88,174

 

Supplementary Information:

 

 

 

 

 

 

Cash paid for interest

 

$

310

 

 

$

422

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


AKILI, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share amounts)

1. Nature of the Business and Basis of Presentation

Organization

Akili, Inc. (collectively referred to with its wholly-owned, controlled subsidiaries, as “Akili” or the “Company”) operates as one business segment and is a leading digital medicine company, pioneering the development of cognitive treatments through game-changing technologies. Akili’s approach of leveraging technologies designed to directly target the physiology of the brain has established a new category of medicine—medicine that is validated through clinical trials like a drug or medical device, but experienced like entertainment. In June 2020, EndeavorRx, the first product built on Akili’s platform, was granted marketing authorization and classified as a Class II medical device by the U.S. Food and Drug Administration (“FDA”) through FDA’s de novo process. EndeavorRx is indicated for use to improve attention function for children ages 8-17 with primarily inattentive or combined-type ADHD, who have a demonstrated attention issue, following the Company’s receipt of FDA authorization in December 2023 for the expanded EndeavorRx label to include older children ages 13-17. In June 2023, the Company released EndeavorOTC, which is built on the same platform as EndeavorRx, nationwide without a prescription to improve attention function, ADHD symptoms and quality of life in adults 18 years of age and older with primarily inattentive or combined-type ADHD, under the FDA guidance entitled “Enforcement Policy for Digital Health Devices for Treating Psychiatric Disorders During the Coronavirus Disease 2019 Public Health Emergency” (the “COVID-19 Guidance”). The COVID-19 Guidance allows for the marketing of certain digital therapeutics without premarket clearance, de novo classification, or approval so long as certain criteria are met for the duration of the COVID-19 Guidance, which was expected to remain in effect until November 7, 2023 consistent with FDA guidance entitled “Transition Plan for Medical Devices That Fall Within Enforcement Policies Issued During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency” (the “COVID-19 Transition Guidance”). The COVID-19 Transition Guidance allows for the continued distribution of devices falling under the COVID-19 Guidance without marketing authorization so long as the manufacturer has submitted a marketing submission to FDA, the submission has been accepted by FDA prior to November 7, 2023 and FDA has not taken a final action on the marketing submission. While EndeavorOTC has not been authorized by FDA for any indications, the Company submitted a marketing submission to FDA for EndeavorOTC on October 30, 2023. Through guidance from FDA regarding the COVID-19 Transition Guidance, it was clarified that marketing submissions received by FDA on or before November 7, 2023, that pass their technical review after the deadline without being placed on submission hold will still be eligible for continued enforcement discretion. Pursuant to FDA’s guidance on this topic, and given that the Company has since passed FDA’s technical review and has not been placed on submission hold, the Company is continuing to distribute and make EndeavorOTC available under the COVID-19 Guidance. In April 2024, the Company announced an amended agreement with Shionogi & Co. Ltd. (“Shionogi”), as well as the Company and the Company’s board of directors’ (the “Board”) ongoing process to evaluate potential strategic alternatives. As a result of the Company’s announcements and the related workforce reduction of approximately 46% of the Company’s employees, the Company’s efforts are primarily focused on supporting Shionogi’s regulatory and commercialization activities, continuing to support current users of its EndeavorRx and EndeavorOTC products and make its products available for purchase, and continuing to pursue regulatory authorization from FDA for EndeavorOTC in adults with ADHD. The Company is headquartered in Boston, Massachusetts.

On August 19, 2022, (the “Closing Date”), Social Capital Suvretta Holdings Corp. I (“SCS”) consummated the previously announced merger pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated January 26, 2022, by and among SCS, Akili Interactive Labs, Inc. and Karibu Merger Sub, Inc., pursuant to which Karibu Merger Sub, Inc. merged with and into Akili Interactive Labs, Inc., with Akili Interactive Labs, Inc. becoming a wholly owned subsidiary of SCS (the “Business Combination”). Upon the closing of the Business Combination (the “Closing”), SCS changed its name to Akili, Inc. Akili, Inc. (formerly SCS) is a Delaware corporation incorporated on December 1, 2020. Akili Interactive Labs, Inc. is a Delaware corporation incorporated on December 1, 2011.

Going Concern

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. The Company requires a significant amount of capital to fund its current operating requirements based on its shift in corporate strategy announced in late April 2024. The Company’s efforts are primarily focused on supporting Shionogi’s regulatory and commercialization activities, continuing to support current users of its EndeavorRx and EndeavorOTC products and make its products available for purchase, and continuing to pursue regulatory authorization from FDA for EndeavorOTC in adults with ADHD.

There can be no assurance that the Company’s product development and substantially reduced commercialization efforts will be successful; that adequate protection for the Company’s intellectual property will be obtained; that any products developed will obtain necessary government regulatory authorization; or that any products will be commercially viable. Even if the Company’s product development and limited commercialization efforts are successful, it is uncertain when, if ever, the Company will generate significant

8


AKILI, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share amounts)

revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has experienced negative operating cash flows for the three months ended March 31, 2024 and had an accumulated deficit of $309,544 at March 31, 2024. The Company believes that its cash and cash equivalents at March 31, 2024 of $63,161, will be sufficient to fund the Company’s planned operations and existing obligations for at least one year after the date of this Quarterly Report.

The future viability of the Company is dependent on its ability to generate cash from operating activities and manage liquidity by maintaining reduced operating expenses. The Company may also seek to raise additional capital to finance its operations. The Company’s failure to generate cash from operating activities or to raise capital when needed, or on terms favorable to the Company, could have a negative impact on its financial condition and ability to execute on its shift in corporate strategy announced in late April 2024.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company, after elimination of all intercompany accounts and transactions. As permitted for interim reporting, certain footnotes or other financial information that are normally required by U.S. GAAP may be condensed or omitted, unless otherwise required by U.S. GAAP or Securities and Exchange Commission (“SEC”) rules and regulations. These condensed consolidated financial statements were prepared on the same basis as and should be read in conjunction with the Company’s annual consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”). In the opinion of management, all adjustments of a normal recurring nature, considered necessary for fair presentation, have been included in these condensed consolidated financial statements. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other interim period or future year. The condensed consolidated balance sheet as of December 31, 2023 was derived from the audited annual consolidated financial statements but does not include all information required by U.S. GAAP for annual consolidated financial statements.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2023, included in the Annual Report. There have been no material changes to the significant accounting policies during the three months ended March 31, 2024.

Earn-Out Liabilities: In connection with the Business Combination, holders of Legacy Akili common stock, Legacy Convertible Preferred Stock and warrants to purchase shares of Legacy Akili common stock (“Earn-Out Shareholders”) and employees or individual service providers holding options to purchase shares of Legacy Akili common stock, in each case as designated by the Board of Akili as an earn-out service provider prior to the Closing Date (“Earn-Out Service Providers”) received the contingent right to receive additional Common Stock upon the achievement of certain earn-out targets (the “Rights”). The Company concluded the issuance of Rights to Earn-Out Shareholders constitutes a deemed dividend and evaluated the Rights for classification under guidance applicable to financial instruments. In assessing classification, the Company considered ASC Subtopic 815-40 “Contracts in Entity’s Own Equity” and determined the Rights contain settlement provisions that preclude them from being indexed to the Company’s stock and accordingly liability classification is required. The Company concluded issuance of the Rights to Earn-Out Service Providers represents compensation in scope of ASC Topic 718, “Compensation - Stock Compensation. In considering relevant classification guidance, the Company determined the Rights issued to Earn-Out Service Providers are liabilities because they are indexed to whether such Earn-Out Service Providers hold qualifying equity instruments when the earn-out targets are achieved. The fair value of the contingent earn-out consideration is estimated as of the Closing Date at the present value of the expected contingent earn-out consideration using a Monte Carlo Simulation Method (“MCSM”). The Company reviews the probability of achievement of the earn-out targets to determine the impact on the fair value of the earn-out consideration on a quarterly basis over the earn-out period. For Earn-Out Shareholders, the corresponding fair value was initially recorded against additional paid-in capital. Changes in the estimated fair value of the contingent earn-out consideration related to Earn-Out Shareholders are recorded in other income (expense) in the Consolidated Statements of Operations and Comprehensive Loss and are reflected in the period in which they are identified. For Earn-Out Service Providers, the corresponding fair value was initially recorded within operating expenses in the same functional category as the grantees' operating expenses. Changes in the estimated fair value of contingent earn-out consideration related to Earn-Out

9


AKILI, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share amounts)

Service Providers is recorded as stock compensation for the period. Changes in the estimated fair value of the contingent earn-out consideration may materially impact or cause volatility in the Company's operating results.

Revenue: The Company generates revenue from contracts with caregivers and patients who purchase subscriptions to access EndeavorRx (“Clients”), the Company’s FDA-authorized video game treatment. Clients are billed in advance for the entire subscription term (new subscriptions are currently for 30 days). Along with the subscription to the video game product, Clients also receive reporting metrics and technical support services. The reporting metrics rely on gameplay data being sent back from EndeavorRx, which the Company analyzes in order to provide information on daily efforts and level completion to Clients throughout the subscription term via the EndeavorRx Insight app. The subscription to the video game product, reporting metrics and technical support services are combined as a single stand-ready performance obligation because these elements are not considered distinct in the context of the contract with the customer. Accordingly, the consideration is recognized ratably on an over time basis over the subscription period which begins once the access code is inputted into the game by the Client and game play has started.

The Company generates revenue from customers who purchase EndeavorOTC subscriptions of variable term lengths (currently available as three months, six months or one year) to access the video game treatment. Customers are billed in advance for the entire applicable subscription term. Along with the subscription to the video game treatment, the customers also receive technical support services and access to software updates. The technical support services and access to software updates were determined to be immaterial in the context of the contract primarily due to the fact that the underlying selective stimulus management engine (“SSME”) technology is not being updated throughout the subscription term, and therefore the primary functionality of the product is not changed during the term of the arrangement. As EndeavorOTC has significant stand-alone functionality that can be used immediately upon delivery, the performance obligation is considered complete upon delivery and all of the consideration is recognized at that point in time.

The following table presents the Company’s revenue by product type:

 

Three Months Ended
March 31,

 

2024

 

2023

EndeavorOTC revenue

 

$254

 

$

EndeavorRx revenue

 

129

 

113

Total

 

$383

 

$113

There was no collaboration revenue in either period.

As of March 31, 2024, the Company has a contract liability related to EndeavorRx product revenue, which consists of amounts that have been paid but have not been recognized as revenue. All amounts are expected to be recognized as revenue within 12 months of the balance sheet date and are classified as current deferred revenue. The Company recognized $80 of product revenue in the three months ended March 31, 2024 that was previously included in the December 31, 2023 deferred revenue balance.

Contract Liabilities

 

Product

 

Balance at December 31, 2023

 

$

100

 

Revenue recognized

 

 

129

 

Revenue deferred

 

 

(191

)

Balance at March 31, 2024

 

$

38

 

 

Cost of revenue: Cost of revenue includes personnel and related costs, third party contractor expenses, customer support costs, royalties, amortization of capitalized software related to our two commercialized products and subscription portal, and software subscriptions related to our products and hosting fees. Sales of EndeavorOTC incur Apple App Store and Google Play fees, both of which are included in cost of revenue. As the Company controls the product until it is transferred to the customer, it is considered the principal in the arrangement and all revenue and cost of revenue is shown gross in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

10


AKILI, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share amounts)

3. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

March 31,
2024

 

 

December 31,
2023

 

 

 

 

 

 

 

 

Accrued bonus

 

$

454

 

 

$

2,355

 

Accrued royalties

 

 

139

 

 

 

150

 

Accrued wages and benefits

 

 

136

 

 

 

200

 

Accrued clinical study expenses

 

 

19

 

 

 

12

 

Accrued consulting service expenses

 

 

45

 

 

 

129

 

Other accrued expenses

 

 

1,001

 

 

 

480

 

Total

 

$

1,794

 

 

$

3,326

 

 

4. Corporate Bond

In March 2019, in connection with Shionogi exercising its option to enter into a collaboration agreement with the Company, the Company issued a $5,000 corporate bond to Shionogi for cash (the “Corporate Bond”). The Corporate Bond is unsecured and is subordinated to the obligations of the Company under indebtedness for borrowed money owed by the Company to any bank or other financial institution.

The Company recognized amortization expense of $61 and $54 related to the discount on the Corporate Bond as a component of interest expense in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023, respectively.

The carrying amount of the corporate bond is as follows:

 

 

March 31, 2024

 

 

December 31, 2023

 

Corporate Bond

 

$

5,000

 

 

$

5,000

 

Unamortized discount on Corporate Bond

 

 

(2,885

)

 

 

(2,946

)

Corporate Bond, net of discount

 

$

2,115

 

 

$

2,054

 

See Note 9 for a description of the Shionogi Amendment entered into by the Company and Shionogi effective as of April 26, 2024, pursuant to which the Corporate Bond was canceled and forgiven by Shionogi.

5. Note Payable

Amended and Restated Loan and Security Agreement

At March 31, 2024, the Company had outstanding principal of $8,750 and there is no remaining available undrawn debt. The Company recognized non-cash interest expense related to debt issuance costs of $101 and $139 for the three months ended March 31, 2024 and 2023, respectively. The Company recognized selling, general and administrative expense related to loan commitment fees of $0 and $42 for the three months ended March 31, 2024 and 2023, respectively. The interest rate in effect was 12.3% and 11.8% as of March 31, 2024 and 2023, respectively. At March 31, 2024, the carrying amount of the note payable (excluding the current portion of $7,500) is as follows:

 

Outstanding principal

 

$

8,750

 

Note payable, short term

 

 

(7,500

)

Final payment

 

 

750

 

Unamortized debt issuance costs

 

 

(329

)

Note payable, long term (net of debt issuance costs)

 

$

1,671

 

 

11


AKILI, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share amounts)

 

Future minimum principal payments due under the Amended and Restated Loan and Security Agreement, excluding the final payment of $750 due at maturity, prepayment or termination, are as follows:

Years Ending December 31,

 

 

 

Remainder of 2024

 

 

5,625

 

2025

 

 

3,125

 

Total

 

$

8,750

 

See Note 9 for a description of the Company’s May 8, 2024 repayment in full of the outstanding principal, outstanding interest, and final payment under, and full termination of, the Amended and Restated Loan and Security Agreement, including agreement to terminate the associated liens on Company assets.

6. Stock-Based Compensation

2022 Stock Option and Incentive Plan: Share-based compensation expense related to stock options, RSUs, PSUs, and the expense related to Earn-Out Service Providers, is classified in the condensed consolidated statements of operations and comprehensive loss as follows:

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

 

Research and development

 

$

670

 

 

$

879

 

 

Selling, general and administrative

 

 

632

 

 

 

1,880

 

 

Total

 

$

1,302

 

 

$

2,759

 

 

 

Included in the three months ended March 31, 2024 and 2023 balances in the table above is $(136) and $310, respectively, of stock-based compensation related to the potential issuance of the Earn-Out Shares to Earn-Out Service Providers.

 

Stock Options: The following is a summary of stock option activity for the three months ended March 31, 2024:

 

 

Number of
Options

 

 

Weighted-
Average
Exercise
Price
Per Share

 

 

Weighted-
Average
Remaining
Contractual
Term (Years)

 

 

Aggregate
Intrinsic
Value

 

Balance at December 31, 2023

 

 

14,591,753

 

 

$

2.94

 

 

 

7.31

 

 

 

 

Granted

 

 

66,000

 

 

$

0.25

 

 

 

 

 

 

 

Cancelled

 

 

(513,456

)

 

$

2.09

 

 

 

 

 

 

 

Exercised

 

 

(207,238

)

 

$

0.01

 

 

 

 

 

 

 

Balance at March 31, 2024

 

 

13,937,059

 

 

$

3.00

 

 

 

7.11

 

 

$

3

 

Exercisable March 31, 2024

 

 

7,738,868

 

 

$

3.81

 

 

 

5.57

 

 

$

 

Options vested and expected to vest, March 31, 2024

 

 

13,937,059

 

 

$

3.00

 

 

 

7.11

 

 

$

3

 

 

The fair value of all option activity was estimated at the date of grant using a Black-Scholes model with the following weighted-average assumptions for the three months ended March 31, 2024 and 2023:

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Fair value of Common Stock

 

$

0.25

 

 

$

1.56

 

Expected volatility

 

 

102.89

%

 

 

99.24

%

Expected term (in years)

 

 

5.83

 

 

 

6.13

 

Risk-free interest rate

 

 

4.23

%

 

 

3.87

%

Expected dividend yield

 

 

0.00

%

 

 

0.00

%

 

12


AKILI, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share amounts)

The weighted average grant-date fair value of stock options granted to employees during the three months ended March 31, 2024 and 2023 was $0.21 and $1.26 per share, respectively.

During the three months ended March 31, 2024 and 2023, the aggregate intrinsic value of stock option awards exercised was $54 and $26, respectively. Aggregate intrinsic value represents the difference between the exercise price and the fair value of the underlying Common Stock on the date of exercise.

As of March 31, 2024 there was $8,666 of unrecognized compensation cost related to unvested stock option grants to employees under the 2022 Plan, which is expected to be recognized over a weighted-average period of 2.0 years.

Restricted Stock Units: The following table summarizes RSU activity for the three months ended March 31, 2024:

 

Number of
RSUs

 

 

Weighted-
Average
Grant
Date
Fair Value

 

Balance at December 31, 2023

 

 

2,998,837

 

 

$

0.89

 

Granted

 

 

16,000

 

 

$

0.32

 

Vested

 

 

(129,530

)

 

$

1.77

 

Forfeited

 

 

(113,917

)

 

$

0.87

 

Balance at March 31, 2024

 

 

2,771,390

 

 

$

0.85

 

 

As of March 31, 2024 there was $2,096 of unrecognized compensation cost related to unvested RSUs under the 2022 Plan, which is expected to be recognized over a weighted-average period of 2.2 years.

Performance Stock Units: The following table summarizes PSU activity for the three months ended March 31, 2024:

 

Number of
PSUs

 

 

Weighted-
Average
Grant
Date
Fair Value

 

Balance at December 31, 2023

 

 

2,028,134

 

 

$

1.50

 

Granted

 

 

 

 

n/a

 

Vested

 

 

 

 

n/a

 

Forfeited

 

 

(284,650

)

 

$

1.50

 

Balance at March 31, 2024

 

 

1,743,484

 

 

$

1.50

 

As of March 31, 2024, there was $1,254 of unrecognized compensation cost related to unvested PSUs, which is expected to be recognized over a weighted average period of approximately 1.4 years.

7. Fair Value of Financial Assets and Liabilities

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values:

 

Fair Value Measurements as of March 31, 2024

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

50,252

 

 

$

-

 

 

$

-

 

 

$

50,252

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Earn-out liabilities

 

$

-

 

 

$

-

 

 

$

608

 

 

$

608

 

 

13


AKILI, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share amounts)

 

Fair Value Measurements as of December 31, 2023

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

61,539

 

 

$

-

 

 

$

-

 

 

$

61,539

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Earn-out liabilities

 

$

-

 

 

$

-

 

 

$

1,632

 

 

$

1,632

 

 

The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of financial instruments between levels during the three months ended March 31, 2024.

As of March 31, 2024 and December 31, 2023, the Company’s cash equivalents consisted of money market funds with original maturities of less than 90 days from the date of purchase.

Earn-out liabilities — Upon the Closing, the Earn-Out Shares were accounted for as a liability because the triggering events that determine the number of shares to be earned (the “Triggering Events”) included events that were indexed to the Common Stock of the Company. The estimated fair value of the Earn-out liabilities is determined at each reporting period using a Monte Carlo Simulation Method (“MCSM”).

 

 

Earn-Out Shareholders

 

 

Earn-Out Service Providers

 

 

Total

 

Fair value as of December 31, 2023

 

$

1,415

 

 

$

217

 

 

$

1,632

 

Change in fair value

 

 

(888

)

 

 

(136

)

 

 

(1,024

)

Fair value as of March 31, 2024

 

$

527

 

 

$

81

 

 

$

608

 

The following assumptions were used at March 31, 2024:

Price target: price target as defined in the Merger Agreement for each Triggering Event:

Triggering Event I is $15.00 per share
Triggering Event II is $20.00 per share
Triggering Event III is $30.00 per share

Current stock price: the closing stock price as quoted on Nasdaq as of March 31, 2024 was $0.29.

Expected term: the expected term is 3.4 years as of March 31, 2024, which is the remaining term of the earn-out period.

Expected volatility: the volatility rate as of March 31, 2024 was 122.5%. The volatility rate was determined using an average of historical volatilities over the expected term of selected industry peers deemed comparable to the Company.

Expected dividend yield: the expected dividend yield is zero as it is not expected that the Company will declare dividends on Common Stock during the expected term.

8. Net Loss Per Share

The computation of basic net loss per share is based on the weighted-average number of our common shares outstanding. The computation of diluted net loss per share is based on the weighted-average number of our common shares outstanding and potential dilutive common shares during the period as determined by the treasury stock method. The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company:

14


AKILI, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share amounts)

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss attributable to common stockholders - basic and diluted

 

$

(9,763

)

 

$

(20,711

)

Denominator:

 

 

 

 

 

 

Weighted average common stock outstanding - basic and diluted

 

 

78,526,669

 

 

 

78,079,013

 

Net loss per share attributable to common stockholders - basic and diluted

 

$

(0.12

)

 

$

(0.27

)

The following potentially dilutive outstanding securities were excluded from the computation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period:

Three Months Ended
March 31,

 

2024

 

 

2023

 

Warrants to purchase Common Stock

 

133,578

 

 

 

133,578

 

Stock options to purchase Common Stock

 

13,937,059

 

 

 

12,773,849

 

Earn-out shares

 

7,536,461

 

 

 

7,536,461

 

Unvested RSUs

 

2,771,390

 

 

 

1,645,948

 

Unvested PSUs

 

1,743,484

 

 

 

4,554,408

 

Total

 

26,121,972

 

 

 

26,644,244

 

 

 

9. Subsequent Events

Shionogi

Akili Interactive Labs, Inc., a wholly owned subsidiary of the Company (“Akili Interactive Labs”), and Shionogi previously entered into a December 2018 Option and Collaboration Agreement (as previously amended, the “Shionogi Agreement”) pursuant to which Akili Interactive Labs and Shionogi agreed to collaborate in the clinical development and commercialization of certain Company digital therapeutic products in Japan and Taiwan. On April 26, 2024, Akili Interactive Labs and Shionogi entered into a further amendment (the “Shionogi Amendment”, and such date the “Amendment Effective Date”) to the Shionogi Agreement, modifying certain payment terms and obligations.

The Shionogi Amendment modified the financial terms of the Shionogi Agreement to provide for the following:

Shionogi will pay Akili Interactive Labs $10.5 million within 30 business days of the Amendment Effective Date, in consideration for the elimination of (i) all future royalty payments that had been provided for under the Shionogi Agreement and (ii) certain future regulatory and sales milestone payments that had been provided for under the Shionogi Agreement.
In consideration for Akili Interactive Labs entering into the Shionogi Amendment, and effective as of the Amendment Effective Date, Shionogi and Akili Interactive Labs canceled the $5.0 million Corporate Bond previously issued by Akili Interactive Labs to Shionogi and terminated the corresponding bond subscription agreement, resulting in the elimination of all Akili Interactive Labs repayment obligations under such Corporate Bond.
Akili Interactive Labs is entitled to receive up to a total of $3.5 million from Shionogi by the end of 2025 in consideration of certain development and support services to be performed by Akili Interactive Labs, as well as an additional $1.0 million from Shionogi payable in the event that Akili Interactive Labs delivers to Shionogi an updated version of SDT-001 within 11 months of the Amendment Effective Date. Of the above $3.5 million, at least $1.5 million shall be paid to Akili Interactive Labs within 30 business days of the Amendment Effective Date.
Akili Interactive Labs is entitled to receive up to a total of $3.0 million from Shionogi in potential regulatory milestone payments.

15


AKILI, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share amounts)

Restructuring

On April 30, 2024, the Company announced a restructuring of its operations and a reduction in its workforce as part of the Company and the Board’s ongoing process of evaluating potential strategic alternatives. As a result of the restructuring, the Company expects to incur a restructuring charge associated primarily with severance and other benefits related to 31 employees, representing approximately 46% of the employee base at the time of the restructuring across different areas and functions. The Company estimates the severance and restructuring-related costs associated with the restructuring will be approximately $2.3 - $2.8 million and such costs are expected to be recorded in the quarter ended June 30, 2024. The Company expects that payment of most of these costs will be paid in 2024.

SVB Debt Repayment

On May 8, 2024, the Company, Silicon Valley Bank (“SVB”) and SVB Innovation Credit Fund VIII, L.P. entered into a payoff letter (the “Payoff Letter”) for a voluntary prepayment with respect to the Amended and Restated Loan and Security Agreement, dated May 25, 2021 (the “SVB Loan Agreement”). Pursuant to the Payoff Letter, the Company paid a total of approximately $8.3 million to SVB, representing the outstanding principal, accrued and unpaid interest, final payment and fees due to SVB under the SVB Loan Agreement, all facilities thereunder and related loan documents, in repayment of the Company’s outstanding obligations under the SVB Loan Agreement, all facilities thereunder and related loan documents, and thereby terminated the SVB Loan Agreement, all facilities thereunder and related loan documents.

Pursuant to the Payoff Letter, SVB’s commitments to extend further credit to the Company terminated; SVB agreed to release and terminate all liens or security interests granted to secure the obligations under the SVB Loan Agreement and the Company was unconditionally released from its respective guaranties and obligations under the SVB Loan Agreement, all facilities thereunder and related loan documents without further action (other than with respect to customary provisions and agreements that are expressly specified to survive the termination).

 

16


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the financial condition and results of operations of Akili, Inc. and its consolidated subsidiaries should be read together with Akili’s unaudited condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023, together with the related notes thereto, included elsewhere in this Quarterly Report. The discussion and analysis should also be read together with the audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022 included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”). This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in this Form 10-Q. All references to years, unless otherwise noted, refer to our fiscal years, which end on December 31. Akili Interactive Labs, Inc. became a wholly owned subsidiary of Akili, Inc. on August 19, 2022. For purposes of this section, all references to “we,” “us,” “our,” “Akili” or the “Company” refer to Akili, Inc. and its consolidated subsidiaries.

Overview

Akili is a leading digital medicine company, pioneering the development of cognitive treatments through game-changing technologies. Our approach of leveraging technologies designed to directly target the physiology of the brain has established a new category of medicine—medicine that is validated through clinical trials like a drug or medical device, but experienced like entertainment. In June 2020, EndeavorRx, the first product built on our platform, was granted marketing authorization and classified as a Class II medical device by the U.S. Food and Drug Administration (“FDA”) through FDA’s de novo process. EndeavorRx is indicated for use to improve attention function for children ages 8-17 with primarily inattentive or combined-type ADHD, who have a demonstrated attention issue. The indication was expanded from children ages 8-12 to include older children ages 13-17 following our receipt of FDA authorization in December 2023 for the expanded EndeavorRx label. In June 2023, we released EndeavorOTC, which is built on the same platform as EndeavorRx, nationwide without a prescription to improve attention function, ADHD symptoms and quality of life in adults 18 years of age and older with primarily inattentive or combined-type ADHD, under the FDA guidance entitled “Enforcement Policy for Digital Health Devices for Treating Psychiatric Disorders During the Coronavirus Disease 2019 Public Health Emergency” (the “COVID-19 Guidance”). The COVID-19 Guidance allows for the marketing of certain digital therapeutics without premarket clearance, de novo classification, or approval so long as certain criteria are met for the duration of the COVID-19 Guidance, which was expected to remain in effect until November 7, 2023 consistent with FDA guidance entitled “Transition Plan for Medical Devices That Fall Within Enforcement Policies Issued During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency” (the “COVID-19 Transition Guidance”). The COVID-19 Transition Guidance allows for the continued distribution of devices falling under the COVID-19 Guidance without marketing authorization so long as the manufacturer has submitted a marketing submission to FDA, the submission has been accepted by FDA prior to November 7, 2023 and FDA has not taken a final action on the marketing submission. While EndeavorOTC has not been authorized by FDA for any indications, we submitted a marketing submission to FDA for EndeavorOTC on October 30, 2023. Through guidance from FDA regarding the COVID-19 Transition Guidance, it was clarified that marketing submissions received by FDA on or before November 7, 2023, that pass their technical review after the deadline without being placed on submission hold are eligible for continued enforcement discretion. Pursuant to FDA’s guidance on this topic, and given that we have since passed FDA’s technical review and have not been placed on submission hold, we are continuing to distribute and make EndeavorOTC available under the COVID-19 Guidance. We are headquartered in Boston, Massachusetts.

Recent Developments

On April 30, 2024, we announced an amendment (the “Shionogi Amendment”) to the Option and Collaboration Agreement dated December 19, 2018 with Shionogi, as amended (together with the Shionogi Amendment, the “Amended Shionogi Agreement”). Under the terms of this Amended Shionogi Agreement, Shionogi has canceled and forgiven our $5.0 million long-term debt obligation under the Corporate Bond and agreed to make certain payments for SDT-001 (the Japanese, localized version of our AKL-T01 digital treatment, marketed as EndeavorRx® in the United States). We will receive an upfront payment of $10.5 million in consideration for the elimination of future royalty payments and certain future milestone payments and will also be eligible to receive up to a total of $4.5 million from Shionogi in consideration of our development and support services, with at least $1.5 million of such services fees payable up front, and up to a total of $3.0 million from Shionogi in potential regulatory milestone payments. SDT-001 is currently under marketing approval review in Japan as a potential digital treatment for children and adolescents with ADHD.

 

In parallel, we announced that our Board has initiated a process that is currently ongoing to evaluate potential strategic alternatives to maximize shareholder value. As a part of this evaluation of strategic alternatives, we also announced a restructuring to lower operating expenses while focusing on supporting Shionogi’s regulatory and commercialization activities. Our workforce was reduced by

17


 

approximately 46% including an elimination of the Company’s marketing and medical affairs teams. In conjunction with this restructuring, we have substantially reduced promotional activity for our EndeavorRx and EndeavorOTC products.

 

As a result, our efforts are primarily focused on supporting Shionogi's regulatory and commercialization activities, continuing to support current users of our EndeavorRx and EndeavorOTC products and make our products available for purchase, and continuing to pursue regulatory authorization from FDA for EndeavorOTC in adults with ADHD, which remains under review, in parallel with exploration of broader strategic options. Further development of our pipeline outside of ADHD will be contingent upon a number of factors, including the outcome of our and our Board’s evaluation of strategic alternatives.

 

On May 8, 2024, as further detailed in Part II, Item 5. of this Quarterly Report, we, Silicon Valley Bank (“SVB”) and SVB Innovation Credit Fund VIII, L.P. entered into a payoff letter (the “Payoff Letter”) for a voluntary prepayment with respect to the Amended and Restated Loan and Security Agreement, dated May 25, 2021 (the “SVB Loan Agreement”). Pursuant to the Payoff Letter, we paid a total of approximately $8.3 million to SVB, representing the outstanding principal, accrued and unpaid interest, final payment and fees due to SVB under the SVB Loan Agreement, all facilities thereunder and related loan documents, in repayment of the Company’s outstanding obligations under the SVB Loan Agreement, all facilities thereunder and related loan documents, and thereby terminated the SVB Loan Agreement, all facilities thereunder and related loan documents.

 

Key Commercial Metrics for EndeavorOTC

We have historically reported certain commercial metrics for EndeavorOTC. In light of our recently announced restructuring and substantially reduced promotional activity for our products, and our and our Board’s exploration of potential strategic alternatives, we no longer intend to report these metrics for EndeavorOTC as we no longer believe that they provide useful information to investors and others in understanding and evaluating our business and results of operations.

Development Pipeline and Commercial Update

Our limited development efforts and significantly reduced commercialization efforts are primarily focused on ADHD in adults and in children ages 8-17. Within ADHD, on the commercial side, in June 2023 we released EndeavorOTC in the Apple App Store in the United States and in September 2023 we released EndeavorOTC on Android devices in Google Play, in each case under the FDA’s COVID-19 Guidance.

With respect to our ongoing partnership with Shionogi, in February 2024, Shionogi announced its submission of a marketing approval application for SDT-001 to Japan’s Ministry of Health, Labour, and Welfare, for commercialization and sale in Japan. The submission for marketing approval in Japan is based on the results of the Phase 3 clinical trial conducted by Shionogi in Japan in pediatric ADHD patients. In addition, on April 30, 2024, we announced our entry into the Amended Shionogi Agreement, described above.

Our current pipeline of clinical development programs includes investigator-initiated studies.

Our efforts are primarily focused on supporting Shionogi's regulatory and commercialization activities, continuing to support current users of our EndeavorRx and EndeavorOTC products and making our products available for purchase, and continuing to pursue regulatory authorization from FDA for EndeavorOTC in adults with ADHD, in parallel with exploration of broader strategic options. Further development of our pipeline outside of ADHD will be contingent upon a number of factors, including the outcome of our and our Board’s evaluation of strategic alternatives.

Factors Affecting Our Performance and Results of Operations

We believe that our performance and future success depend on many factors that present significant opportunities for us, but also pose risks and challenges, including those discussed below and in the “Risk Factors” section of this Quarterly Report.

Product Revenue

To date, we have not generated significant product revenue from the sale of EndeavorRx prescriptions and EndeavorOTC subscriptions. Revenue from sales of our products is difficult to predict and is not expected to substantially reduce Akili’s continued operating losses resulting from our commercial efforts and research and development activities for the foreseeable future, particularly given the recently announced elimination of our marketing and medical affairs teams and substantial reduction in promotional activity for our EndeavorRx and EndeavorOTC products.

Product revenue from our existing products, as well as potential future product candidates, is and will be impacted by many factors, including product adoption and pricing.

Product Adoption

18


 

To grow our business, we will need to manage and execute on our transition from a prescription to a non-prescription model. We believe this new consumer-led subscription model will remove barriers to adoption, such as reliance on payers or the need for a prescription, and enable us to meet customer needs directly to grow the business. Given our substantial reduction in promotional activity, we may not be successful in demonstrating the benefits of our products and may not achieve the support of customers, and as a result, we anticipate that our sales may decline and/or we may fail to increase our revenue.

Pricing

In the future, we may decide to expand the pricing options available with offers spanning multiple tiers as well as various patient populations. In the future, our products may be subject to competition which may impact our pricing and in addition, our prescription products may be subject to legislative prescription-pricing practices.

As a result of our transition to a non-prescription model (beginning with our efforts to pursue regulatory authorization from FDA for our EndeavorOTC product for adults with ADHD) and in light of the corporate updates announced in April 2024, we do not anticipate actively pursuing conversations with commercial insurers and government payers regarding reimbursement coverage for our treatments. However, we plan to continue to support caregivers and patients interested in our EndeavorRx pediatric ADHD product. Patients may not be able to adopt or may choose not to adopt our prescription digital therapeutic if they are unable to obtain adequate third-party coverage or reimbursement.

Currently, EndeavorOTC is available through direct purchase via the Apple App Store, Google Play or our subscription portal.

Collaboration Revenue

We currently have the Amended Shionogi Agreement with Shionogi and pursuant to the Shionogi Amendment, we will receive an upfront payment of $10.5 million in consideration for the elimination of future royalty payments and certain future milestone payments. We will also be eligible to receive up to a total of $4.5 million from Shionogi in consideration of our development and support services, with at least $1.5 million of such service fees payable up front, and up to a total of $3.0 million from Shionogi in potential regulatory milestone payments.

If our development efforts for existing products or additional programs are successful and result in regulatory marketing authorization or collaboration or license agreements with third parties, we may generate revenue in the future from collaboration or license agreements that we may enter into with third parties. We cannot predict if, when or to what extent we may enter into future licensing or collaboration agreements. Further, we may never succeed in obtaining regulatory authorization for EndeavorOTC or additional indications for EndeavorRx or any of our product candidates that are currently under development or for any other future products.

Cost of Product Revenue

Cost of product revenue consists primarily of costs that are closely correlated or directly related to the delivery of our EndeavorRx and EndeavorOTC products, including personnel and related costs, third party contractor expenses, customer support costs, royalties, amortization of capitalized software related to our commercialized products and software subscriptions related to our products and hosting fees. Sales of EndeavorRx incurred pharmacy dispense fees and sales of EndeavorOTC incur Apple App Store and Google Play fees, which are also included in cost of product revenue. With the termination of our digital pharmacy agreement, effective in late October 2023, pharmacy dispense fees for EndeavorRx have ended as we have transitioned to an in-house direct distribution system for the processing and fulfillment of EndeavorRx. Fees charged by the app stores are between 15% and 30% of the sales price and are dependent on certain revenue thresholds. Accordingly, we expect the overall cost of product revenue to decrease given the recently announced elimination of our marketing and medical affairs teams and substantial reduction in promotional activity for our EndeavorRx and EndeavorOTC products.

Research and Development Expenses

Following the May 2023 announcement of topline results of the STARS-ADHD-Adult clinical trial, in June 2023 we released EndeavorOTC, which is built on the same SSME technology platform as our EndeavorRx product, nationwide without a prescription to improve attention function, ADHD symptoms and quality of life in adults 18 years of age and older with primarily inattentive or combined-type ADHD under the FDA’s COVID-19 Guidance. We submitted a marketing submission to FDA for EndeavorOTC on October 30, 2023 and we plan to continue to pursue regulatory authorization from FDA for our EndeavorOTC product.

Following the June 2023 release of EndeavorOTC, in September 2023 we announced a new strategic plan to transition our business from a prescription to a non-prescription model. In April 2024, we announced a reprioritization of our efforts in connection with the Amended Shionogi Agreement, exploration of strategic alternatives, and a workforce reduction of approximately 46% of our employee population including the elimination of our marketing and medical affairs team and a substantial reduction in our promotional activity for EndeavorOTC and EndeavorRx. While our focus is primarily on supporting Shionogi, we plan to continue to

19


 

support existing customers using our EndeavorOTC product and our one FDA-authorized product, EndeavorRx, which is indicated for use to improve attention function for children ages 8-17 with primarily inattentive or combined-type ADHD who have a demonstrated attention issue, following our receipt of FDA authorization in December 2023 for the expanded EndeavorRx label to include older children ages 13-17.

 

Developing products requires a significant investment of resources over a prolonged period of time, and we plan to continue making investments in this area, particularly in connection with the Amended Shionogi Agreement. We have chosen to leverage our SSME technology, which is the therapeutic engine that targets and activates systems in the brain that play a key role in attention function, to focus on advancing our R&D activities on expanded patient populations within ADHD.

 

Our efforts are primarily focused on supporting Shionogi's regulatory and commercialization activities, continuing to support current users of our EndeavorRx and EndeavorOTC products and make our products available for purchase, and continuing to pursue regulatory authorization from FDA for EndeavorOTC in adults with ADHD, which remains under review, in parallel with exploration of broader strategic options. As a result, our R&D expenses decreased in the three months ended March 31, 2024, and we expect R&D expenses to decrease during the remainder of 2024.

R&D expenses consist of costs incurred in performing R&D activities, which include:

personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in R&D functions;
expenses incurred in connection with the development of our developmental and clinical pipeline;
cost of clinical trials;
cost of regulatory submissions, reviews, and associated external consultants;
expenses incurred in connection with the discovery and development of our products, including under agreements with third parties, such as consultants;
expenses incurred under agreements with consultants who supplement our internal capabilities, including software development; and
facilities, depreciation and other expenses, which include direct and allocated expenses, such as rent and maintenance of facilities and other operating costs.

In addition to our ADHD programs, our R&D activities include investigator-initiated studies. Further development of our pipeline outside of ADHD will be contingent upon a number of factors, including the outcome of our and our Board’s evaluation of strategic alternatives.

Development activities for our product candidates have a number of risks and uncertainties. All therapeutic development activities have risks and probabilities of success that can vary by disease indication. Each of our product candidates have technical, clinical, regulatory and commercial risk. See the section entitled “Risk Factors—Risks Relating to our Products and Product Candidates.”

We expense R&D costs as incurred and do not track the costs at a project level. Advance payments that we make for goods or services to be received in the future for use in R&D activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed. In the early phases of development, our R&D costs are often devoted to product platform and proof-of-concept studies that are not necessarily allocable to a specific product.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of compensation for personnel, including stock-based compensation, related to commercial, marketing, executive, finance and accounting, legal, information technology, corporate and business development, human resource functions and impairments of right-of-use assets. Other SG&A expenses include marketing-related expenses (including advertising, marketing partners and materials, market research and analysis), software expenses, travel expenses, professional services fees (including legal, patent, accounting, audit, tax and consulting fees), insurance costs, amortization of issuance costs on undrawn debt, general corporate expenses and allocated certain payroll and facilities-related expenses, including payroll taxes, benefits, rent and facility maintenance.

We expect our commercialization-related expenses to continue to decrease for the remainder of 2024 due to our April 2024 announcement regarding the elimination of our marketing and medical affairs teams and the substantial reduction in promotional activity for our products. We plan to continue to support current users of our EndeavorRx and EndeavorOTC products and make our products available for purchase, and to continue to pursue regulatory authorization from FDA for EndeavorOTC in adults with ADHD.

20


 

Other income (expense)

Other income consists of interest earned on cash balances held in interest-bearing accounts. We expect that our other income will fluctuate in future periods based on the timing and ability to raise additional funds as well as the amount of expenditures on our commercial products, R&D and ongoing business operations.

 

Interest expense includes interest due on the note payable, accretion of the corporate bond discount and note payable debt issuance costs, which will decline given the Amended Shionogi Agreement executed on April 26, 2024 and the related cancellation and forgiveness of the Corporate Bond, as well as our full repayment and termination of our debt facility with SVB on May 8, 2024.

Change in fair value of earn-out liabilities includes the change in fair value during each period presented of the earn-out liabilities related to Earn-Out Shareholders.

Income taxes

Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. The provision for income taxes for 2024 and 2023 is immaterial because Akili has historically incurred net operating losses and maintains a full valuation allowance against its deferred tax assets.

Results of Operations

Three Months Ended March 31, 2024 and 2023

The table and discussion below present the results for the periods indicated:

 

Three Months Ended March 31,

 

(dollars in thousands, except percentages)

 

2024

 

 

2023

 

 

$
Change

 

 

%
Change

 

Revenues

 

$

383

 

 

$

113

 

 

$

270