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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended September 30, 2021

 

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: 000-21990

 

Oncotelic Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   13-3679168

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

29397 Agoura Road Suite 107

Agoura Hills, CA

  91301
(Address of principal executive offices)   (Zip Code)

 

(650) 635-7000

(Registrant’s telephone number, including area code)

 

Mateon Therapeutics, Inc.

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of exchange on which registered
None   OTLC   N/A

 

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, or a small reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
       
Non-accelerated filer Smaller reporting company
       
    Emerging growth company

 

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

 

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

 

As of November 15, 2021, there were 372,814,911 shares of the registrant’s common stock outstanding.

 

 

 

 
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

(Formerly Mateon Therapeutics, Inc.)

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements (unaudited) 3
     
  Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 3
     
  Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 4
     
  Consolidated Statements of Changes in Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2021 and 2020 5
     
  Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 7
     
  Notes to Consolidated Financial Statements 8
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 53
     
ITEM 4. Controls and Procedures 53
     
PART II. OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 54
     
ITEM 1A. Risk Factors 54
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 55
     
ITEM 3. Defaults Upon Senior Securities 55
     
ITEM 4. Mine Safety Disclosures 55
     
ITEM 5. Other Information 56
     
ITEM 6. Exhibits, Financial Statement Schedules 56
     
SIGNATURES 57

 

2
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

           
   September 30,   December 31, 
   2021   2020 
         
ASSETS          
Current assets:          
Cash  $78,081   $474,019 
Restricted cash   20,000    20,000 
Accounts receivable   69,806    19,748 
Prepaid & other current assets   20,946    101,869 
           
Total current assets   188,833    615,636 
           
Development equipment, net of depreciation of $109,419 and $101,810   2,539    10,148 
Intangibles, net of accumulated amortization of $175,497 and $136,974   834,683    873,206 
In process R&D   1,101,760    1,101,760 
Goodwill   21,062,455    21,062,455 
Total assets  $23,190,270   $23,663,205 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $4,406,807   $2,735,805 
Accounts payable to related party   425,740    391,631 
Contingent Consideration   2,625,000    2,625,000 
Derivative liability on Notes   393,161    777,024 
Convertible debt for clinical trial   2,050,409    2,000,000 
Convertible debt, net of costs   1,941,490    1,091,612 
Convertible debt, related party, net of costs   690,518    297,989 
Private Placement convertible note, net of costs   2,073,480    943,586 
Private Placement convertible note, related party, net of costs   101,115    67,992 
Payroll Protection Plan loan   92,995    251,733 
           
Total current liabilities   14,800,715    11,182,372 
           
Commitments and contingencies (Note 12)   -      
           
Stockholders’ equity:          
Convertible Preferred stock, $0.01 par value, 15,000,000 shares authorized; 0 and 278,188 shares issued and outstanding   -    2,782 
Common stock, $.01 par value; 750,000,000 and 150,000,000 shares authorized; 372,564,911 and 90,601,912 issued and outstanding, respectively   3,725,649    906,019 
Additional paid-in capital   33,511,091    32,493,086 
Accumulated deficit   (29,226,896)   (21,630,008)
           
Total Oncotelic Therapeutics, Inc. stockholders’ equity   8,009,844    11,771,879 
Non-controlling interests   379,711    708,954 
           
Total stockholders’ equity   8,389,555    12,480,833 
Total liabilities and stockholders’ equity  $23,190,270   $23,663,205 

 

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

 

3
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three MONTHS AND NINE MONTHS ended SEPTEMBER 30, 2021 and 2020

(Unaudited)

 

                     
   For the Three Months Ended
September 30,
   For the Nine Months Ended
September 30,
 
   2021   2020   2021   2020 
                 
Service Revenue  $-   $-   $-   $1,740,855 
Total Revenue   -    -    -   $1,740,855 
Operating expenses:                    
Research and development   621,927    936,196    3,135,413   $1,730,337 
General and administrative   1,187,035    680,077    4,475,642    4,263,265 
Total operating expenses   1,808,962    1,616,273    7,611,055    5,993,602 
                     
Loss from operations   (1,808,962)   (1,616,273)   (7,611,055)   (4,252,747)
Other income (expense):                    
Interest expense, net   (445,363)   (331,459)   (1,400,249)   (1,615,233)
PPP loan forgiveness   253,347    -    253,347    - 
Change in fair value of derivative on debt   145,449    49,992    239,278    60,504 
Loss on debt conversion   -    (88,817)   (27,504)   (254,884)
Total other income (expense)   (46,567)   (370,284)   (935,128)   (1,809,612)
Net loss before non-controlling interests   (1,855,529)   (1,986,557)   (8,546,183)   (6,062,360)
Net loss attributable to non-controlling interests   (293,001)   -    (949,295)   - 
Net loss attributable to Oncotelic Therapeutics, Inc.  $(1,562,528)  $(1,986,557)  $(7,596,888)  $(6,062,360)
                     
Basic net loss per share attributable to common stock  $(0.00)  $(0.02)  $(0.03)  $(0.07)
Basic weighted average common stock outstanding   370,443,893    88,964,549    279,358,671    87,474,986 

 

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

 

4
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated STATEMENT of STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

(Unaudited)

 

                                         
   Preferred Stock   Common Stock  

Additional

Paid-in

   Accumulated   Non controlling   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Interests   Equity 
                                 
Balance at January 1, 2021   278,188   $2,782    90,601,912   $906,019   $32,493,086   $(21,630,008)  $708,954   $  12,480,833 
                                         
Common shares issued upon conversion
of Preferred Stock
   (278,188)   (2,782)   278,187,847    2,781,878    (2,779,096)   -    -    - 
Common shares issued upon conversion of debt   -    -    657,200    6,572    203,729    -    -    210,301 
Beneficial Conversion Feature on
convertible debt
   -    -    -    -    605,719    -    -    605,719 
Warrants issued in connection with
private placement
   -    -    -    -    166,575    -    -    166,575 
Increase in non-controlling interest from
issuance of additional Edgepoint stock
   -    -    -    -    -    -    620,052    620,052 
Net loss   -    -    -     -     -     (2,803,080)   (319,557)   (3,122,637)
Balance at March 31, 2021   -    -    369,446,959    3,694,469    30,690,013    (24,433,088)   1,009,449    10,960,843 
                                         
Warrants issued in connection with private placement   -    -    -    -    2,023,552    -    -    2,023,552 
Common shares issued in lieu of services   -    -    250,000    2,500    67,500    -    -    70,000 
Common shares issued for cash             400,000    4,000    95,055              99,055 
Net loss   -    -    -    -    -    (3,231,280)   (336,737)   (3,568,017)
Balance as of June 30, 2021   -   -    370,096,959   $3,700,969   $32,876,120   $(27,664,368)  672,712   9,585,433 
                                         
Common shares issued in lieu of services   -    -    310,000    3,100    20,541    -    -    23,641 
Common shares issued for cash   -    -    900,000    9,000    100,688    -    -    109,688 
Common shares issued in lieu of restricted stock units   -    -     1,257,952    12,580    213,852    -    -    226,432 
Stock Compensation Expense                  -    299,890    -    -    299,890 
Net loss   -    -    -    -    -    (1,562,528)   (293,001)   (1,855,529)
Balance as of September 30, 2021   -   $-    372,564,911    $3,725,649   

$

33,511,091    

$

(29,226,896)   $379,711    $8,389,555 

 

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

 

5
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

 

   Preferred Stock   Common Stock  

Additional

Paid-in

   Accumulated   Non-Controlling   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Equity 
                                 
Balance at January 1, 2020   278,188   $2,782    84,069,967   $840,700   $28,185,599   $(12,127,406)  $-   $    16,901,675 
                                         
Stock-based compensation   -    -    -    -    2,147,591    -    -    2,147,591 
Common shares issued upon partial conversion of debt   -    -    3,962,145    39,621    681,443    -    -    721,064 
Net loss   -    -                   (4,657,894)   -    (4,657,894)
Balance at March 31, 2020   278,188    2,782    88,032,112    880,321    31,014,633    (16,785,300)   -    15,112,436 
                                         
Common shares issued upon partial conversion of debt   -    -    569,800    5,699    97,741    -    -    103,440 
Net loss   -    -    -    -    -    582,091    -    582,091 
Balance as of June 30, 2020   278,188   2,782    88,601,912   886,020   31,112,374   (16,203,209)   -   15,797,967 
                                         
Common shares issued upon partial conversion of debt   -    -    1,000,000    10,000    66,065    -    -    76,065 
Beneficial Conversion Feature on convertible debt   -    -    -    -    632,194    -    -    632,194 
Warrants issued in connection with private placement   -    -    -    -    365,431    -    -    365,431 
Non-controlling interest in Edgepoint   -    -    -    -    -    -    979,541    979,541 
Net loss   -    -    -    -    -    (1,986,557)   -    (1,986,557)
Balance as of September 30, 2020   278,188   $2,782    89,601,912    $896,020    $32,176,064    $(18,189,766)  $979,541    $15,864,641 

 

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

 

6
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

           
  

For the Nine Months Ended

September 30,

 
   2021   2020 
Cash flows from operating activities:          
Net loss  $(8,546,183)  $(6,062,360)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of debt discount and deferred finance costs   1,059,525    1,591,261 
Amortization of intangible assets   38,524    245,104 
Warrants issued in connection with private placement   2,093,552     
Common shares issued in lieu of restricted stock units   226,432    - 
Stock compensation expense   299,890    2,147,591 
Depreciation on development equipment   7,609    27,987 
Change in fair value of derivative   (239,278)   (60,504)
Loss on debt conversion   27,504    254,884 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   30,865    104,071 
Accounts payable and accrued expenses   1,600,849    644,329 
Accounts payable to related party   34,109    (216,680)
Net cash used in operating activities   (3,366,602)   (1,324,317)
           
Cash flows from financing activities:          
Proceeds from private placement   1,613,200    2,304,541 
Proceeds from sales of common stock   118,594    - 
Proceeds from convertible debt   300,000    - 
Proceeds from convertible notes and short term loans, others   1,020,875    - 
Repaid to note holder   (100,000)   - 
Repaid to others   (75,000)   - 
Proceeds from Payroll Protection Plan   92,995    250,000 
Proceeds from short term loan, related party   -    70,000 
Net cash provided by financing activities   2,970,664    2,624,541 
           
Net (decrease) increase in cash   (395,938)   1,300,224 
           
Cash and restricted cash - beginning of period   494,019    81,964 
           
Cash and restricted cash - end of period  $98,081   $1,382,188 
           
Supplemental cash flow information:          
Cash paid for:          
Interest paid  $-   $- 
Non-cash investing and financing activities:          
Warrants issued in connection with private placement  $2,190,127   $- 
Common shares issued upon partial conversion of debt  $210,301   $900,569 
Common shares issued in lieu of services  $93,641   $- 
Common shares issued in lieu of restricted stock units  $226,432   $- 
Non-cash cost upon sale of common stock  $39,991   $- 
Beneficial Conversion Feature on convertible debt and restricted common shares  $605,719   $- 

 

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

 

7
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Description of Business

 

Oncotelic Therapeutics, Inc. (also d/b/a Mateon Therapeutics, Inc.) (“Oncotelic”), was formed in the State of New York in 1988 as OXiGENE, Inc., was reincorporated in the State of Delaware in 1992, changed its name to Mateon Therapeutics, Inc. in 2016, and then Oncotelic Therapeutics, Inc. in November 2020. Oncotelic conducts business activities through Oncotelic and its wholly-owned subsidiaries, Oncotelic, Inc., a Delaware corporation (“Oncotelic, Inc.”), PointR Data, Inc. (“PointR”), a Delaware corporation, and EdgePoint AI, Inc. (“Edgepoint”), a Delaware Corporation for which there are non-controlling interests, (Oncotelic, Oncotelic Inc., PointR and Edgepoint are collectively called the “Company”).

 

In February 2020, the Company formed a subsidiary, Edgepoint. Edgepoint is a start-up company that plans to develop technologies and IP related to various unmet issues within the pharmaceutical and medical device industries. The Company may spin off Edgepoint into a separate public company.

 

The Company is a cancer immunotherapy company dedicated to the development of first in class self-immunization protocol (“SIP™”) candidates for difficult to treat cancers. The Company’s proprietary SIP™ candidates offer advantages over other immunotherapies because they do not require extraction of the tumor or isolation of the antigens, and they have the potential for broad-spectrum applicability for multiple cancer types. The Company’s proprietary product candidates have shown promising clinical activity in phase 2 trials for the treatment of gliomas and pancreatic cancers. The Company aims to translate its unique insights, which span more than three decades of original work using RNA therapeutics, into the deployment of antisense as a RNA therapeutic for diseases which are caused by TGF-β overexpression, starting with cancer and expanding to Duchenne Muscular Dystrophy (“DMD”) and others. Oncotelic Inc.’s lead product candidate, OT-101, is being developed as a broad-spectrum anti-cancer drug that can also be used in combination with other standard cancer therapies to establish an effective multi-modality treatment strategy for difficult-to-treat cancers. Together, the Company plans to initiate phase 3 clinical trials for OT-101 in both high-grade glioma and pancreatic cancer, and any other indications that may evolve. The Company is evaluating the further development of its product candidates OXi4503 as a treatment for acute myeloid leukemia and myelodysplastic syndromes and CA4P in combination with a checkpoint inhibitor for the treatment of advanced metastatic melanoma.

 

The Company is also developing OT-101 for the various epidemics and pandemics, similar to the current coronavirus (“COVID-19”) pandemic. In this connection, the Company entered into an agreement and supplemental agreement with Golden Mountain Partners (“GMP”) for a total of $1.2 million to render services and was paid for the development of OT-101. The Company recorded $0 and $1.7 million as revenue during the three and nine months ended September 30, 2020 respectively, upon completion of all performance obligations under the agreement. No similar revenues were recorded during the same periods in 2021. Further, in June 2020, the Company secured $2 million in convertible debt financing from GMP to conduct a clinical trial evaluating OT-101 against COVID-19. The Company discontinued enrollment in its OT-101 clinical trial in patients with COVID-19 in June 2021. The trial completed randomization of 32 out of 36 patients planned, on an intent to treat basis. The discontinuance of the trial was due to the continuing rise of more severe variants in Latin America, leading to exhaustion of medical care infrastructure in Latin America.

 

In addition, the Company is developing Artemisinin. Artemisinin, purified from a plant Artemisia annua, is able to inhibit TGF-β activity and is able to neutralize SARS-CoV-2 (COVID-19). The Company’s test results during an in vitro study at Utah State University showed Artemisinin having an EC50 of 0.45 ug/ml, and a Safety Index of 140. Artemisinin can target multiple viral threats including COVID-19 by suppressing both viral replication and clinical symptoms that arise from viral infection. Viral replication cannot occur without TGF-β. Artemisinin also has been reported to have antiviral activities against hepatitis B and C viruses, human herpes viruses, HIV-1, influenza virus A, and bovine viral diarrhea virus in the low micromolar range. TGF-β surge and cytokine storm cannot occur without TGF-β. Clinical consequences related to the TGF-β surge, including ARDS and cytokine storm, are suppressed by targeting TGF-β with Artemisinin. The ARTI-19 Clinical Study (“ARTI-19”) was a global study with India to contribute at least 120 patients up to the total potential aggregate of 3000 patients. ARTI-19 in India was conducted by Windlas Biotech Private Limited (“Windlas”), business partner in India, as part of the plan for the Company’s global effort at deploying PulmohealTM across India, Africa, and Latin America. We continue to evaluate to seek approval, and subsequently launch PulmohealTM, with or without local partners, in various countries within the regions planned. PulmohealTM is a combination of ARTIVedaTM, our artificial intelligence (“AI”) cough application and our AI post marketing survey (“PMS”).

 

8
 

 

In January 2021 and subsequently in February 2021, the Company announced preliminary results for ARTIVeda, or PulmoHeal, which is the Company’s lead Ayurvedic drug against COVID-19 in India and being developed by the Company in partnership with Windlas. These interim results were based on 120 randomized patients across 3 sites in India. The ARTI-19 India trial completed enrollment of 120 randomized individuals, we reported positive topline results in April 2021 and we expect final data as soon as available. Upon completion of the trial results and obtaining regulatory approval for the use in India, it is the Company’s objective to file for Emergency Use Authorization (“EUA”) with regulatory authorities around the world, including India, the United States, the United Kingdom, countries in Africa and Latin America; discussions regarding EUA with several of these authorities have commenced. On August 24, 2021, the Company announced that PulmoHealTM and ArtiVedaTM have proven to be effective against mild and moderate COVID-19 following the preplanned prospective analysis of the Company’s ARTI-19 clinical trial. As previously announced, the study report would serve as the basis for the Company’s regulatory submission for marketing approval of ArtiVedaTM.

 

Recent Developments

 

Unsecured Convertible Notes

 

In August 2021, the Company issued Note Purchase Agreements with Autotelic Inc., the Company’s Chief Financial Officer (“CFO”), and certain other accredited investors. Under the terms of the Note Purchase Agreements, the Company issued an aggregate of $698,500 (the “Principal Amount”) in debt in the form of unsecured convertible promissory notes (collectively, the “Notes”). The Notes are unsecured, and provide for interest at the rate of 5% per annum. Such Notes were issued against some of the short-term debt due as of June 30, 2021. All amounts outstanding under the Notes become due and payable at such time as determined by the holders of a majority of the Principal Amount of the Notes (the “Majority Holders”), on or after (a) the one year anniversary of the Notes ,or (b) the occurrence of an Event of Default (as defined in the Note Purchase Agreements) (the “Maturity Date”). The Company may prepay the Notes at any time. Events of Default under the Notes include, without limitation, (i) failure to make payments under the Notes within thirty (30) days of the Maturity Date, (ii) breaches of the Note Purchase Agreement or Notes by the Company which is not cured within thirty (30) days of notice of the breach, (iii) bankruptcy, or (iv) a change in control of the Company (as defined in the Note Purchase Agreements). The Majority Holders have the right, at any time not more than five days following the Maturity Date, to elect to convert all, and not less than all, of the outstanding accrued and unpaid interest and principal on the Notes. The Notes may be converted, at the election of the Majority Holders, into shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), at a fixed conversion price of $0.18 per share.

 

GMP Letter of Intent, Term Sheet, note purchase agreements and unsecured notes

 

In August 2021 the Company, the Company’s Chief Executive Officer (the “CEO”), and GMP executed a letter of intent and a non-binding term sheet (the “Term Sheet”), which Term Sheet included certain binding terms relating to a standstill agreement and the issuance of a convertible promissory note (as more fully described below). The Term Sheet sets forth the terms and conditions pursuant to which the Company and GMP will, subject to shareholder approval, form a joint venture (the “JV”) with the objective to develop the Company’s product portfolio. Pursuant to the Term Sheet, the Company will contribute its product portfolio to the JV in consideration for a 35% ownership stake in the JV. As set forth above, the Term Sheet sets forth certain binding terms regarding (i) a 45-day standstill by the Company, and (ii) the issuance by the Company of a convertible note for $1.5 million to GMP to fund the OT-101 clinical trial study close-out. Although no assurances can be given, the Company and GMP currently intend to conduct an initial public offering of the JV, at a future date, on either the Hong Kong Exchange or other stock exchange. The formation of the JV is not assured as the formation of the JV is subject to approval of the Company’s shareholders and the execution of definitive agreements, among other conditions.

 

In September 2021, the Company entered into an Unsecured Convertible Note Purchase Agreement (the “Purchase Agreement”) with GMP, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $1.5 million (the “September 2021 Note”), which September 2021 Note is convertible into shares of the Company’s Common Stock.

 

9
 

 

The September 2021 Note carries an interest rate of 2% per annum and matures on the earlier of (a) the one year anniversary of the date of the Agreement, (b) early termination of that certain clinical trial known as “A Randomized, Controlled, Multi - Center Study of OT-101 in COVID-19 Patients (Investigational New Drug (IND) Application #149299)” (the “Clinical Trial”), or any termination of the Clinical Trial, or (c) the acceleration of the maturity of the September 2021 Note by GMP upon occurrence of an Event of Default (as defined below). The September 2021 Note contains a voluntary conversion mechanism whereby GMP may convert the outstanding principal and accrued interest under the terms of the September 2021 Note into shares of Common Stock (the “Conversion Shares”), at the consolidated closing bid price of the Company’s Common Stock on the applicable OTC Market as of the date the Company receives a Notice of Conversion (as defined in the September 2021 Note) from GMP. Prepayment of the September 2021 Note may be made at any time by payment of the outstanding principal amount plus accrued and unpaid interest. The September 2021 Note contains customary events of default (each an “Event of Default”). If an Event of Default occurs, at GMP’s election, the outstanding principal amount of the September 2021 Note, plus accrued but unpaid interest, will become immediately due and payable in cash.

 

In October 2021, the Company entered into an Unsecured Convertible Note Purchase Agreement (the “October Purchase Agreement”) with GMP, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $0.5 million (the “October 2021 Note”), which October 2021 Note is convertible into shares of the Company’s Common Stock.

 

The October 2021 Note carries an interest rate of 2% per annum and matures on the earlier of (a) the one-year anniversary of the date of the October Purchase Agreement, or (b) the acceleration of the maturity of the October 2021 Note by GMP upon occurrence of an Event of Default (as defined below). The October 2021 Note contains a voluntary conversion mechanism whereby GMP may convert the outstanding principal and accrued interest under the terms of the October 2021 Note into shares of Common Stock (the “Conversion Shares”), at the consolidated closing bid price of the Company’s Common Stock on the applicable OTC Market as of the date the Company receives a Notice of Conversion (as defined in the October 2021 Note) from GMP. Prepayment of the October 2021 Note may be made at any time by payment of the outstanding principal amount plus accrued and unpaid interest. The October Note contains customary events of default (each an “Event of Default”). If an Event of Default occurs, at GMP’s election, the outstanding principal amount of the October 2021 Note, plus accrued but unpaid interest, will become immediately due and payable in cash. The October Purchase Agreement requires the Company to use of the proceeds received under the October 2021 Note to support the clinical development of OT-101, including payroll and has been made in continuation of the relationship between the Company and GMP.

 

Equity Purchase Agreement

 

In May 2021, the Company entered into an Equity Purchase Agreement (the “EPL”) and Registration Rights Agreement (the “Registration Rights Agreement”) with Peak One Opportunity Fund, L.P. (“Peak One”), pursuant to which the Company shall have the right, but not the obligation, to direct Peak One, to purchase up to $10.0 million (the “Maximum Commitment Amount”) in shares of the common stock, par value $0.01 per share (“Common Stock”) in multiple tranches. The Company has directed Peak One, on four occasions, since to the Company entered into the EPL for an aggregate of 1.3 million shares of Common Stock for aggregate cash proceeds of approximately $169,000 and incurred a cost of approximately $40,000 against the sale of the Common Stock.

 

Geneva Roth Remark Notes

 

In May 2021, the Company consummated the closing of a private placement transaction whereby, pursuant to a Securities Purchase Agreement (the “Geneva Agreement”) entered into with Geneva Roth Remark (“Geneva”), the Company issued a convertible promissory note in the aggregate principal amount of $203,750 (the “Note 1”). Further on June 28, 2021, the Company issued an additional convertible promissory note in the aggregate principal amount of $103,750 (“Note 2”, and collectively with Note 1, the “Notes”). The Notes are convertible into shares of the Company’s Common Stock. Additional convertible promissory notes may be issued under the Geneva Agreement for up to $1.2 million in the aggregate principal amount subject to further agreement by and between the Company and Geneva.

 

Extension of Maturity Date for J.H. Darbie Financing Notes & Issuance of Oncotelic Warrants

 

The Company issued and sold a total of 100 units (“Units”), with each Unit consisting of (i) 25,000 shares of Edgepoint common stock, par value $0.01 per share (“Edgepoint Common Stock”), for a price of $1.00 per share of Edgepoint Common Stock; (ii) one convertible promissory note issued by the Company (the “Unit Note”), convertible into up to 25,000 shares of EdgePoint Common Stock at a conversion price of $1.00 per share, or up to 138,889 shares of the Company’s Common Stock, at a conversion price of $0.18 per share; and (iii) 100,000 warrants, consisting of (a) 50,000 warrants to purchase an equivalent number of shares of EdgePoint Common Stock at $1.00 per share (“Edgepoint Warrant”), and (b) 50,000 warrants to purchase an equivalent number of shares of Company Common Stock at $0.20 per share (“Oncotelic Warrant”) (collectively, the “JH Darbie Financing”).

 

10
 

 

In June 2021, the Company and the Investors agreed to extend the maturity date of the Notes from June 30, 2021, to March 31, 2022. In addition, the Company and JHDarbie identified an error in the Oncotelic Warrants and JH Darbie Financing documents which intended to have the investors to purchase $50,000 of shares of Common Stock or Edgepoint Common Stock. However, the Company only issued 50,000 Oncotelic Warrants, with an aggregate exercise price of $10,000. The error was corrected by the Company and the Company issued to the Investors an aggregate of 20.0 million additional Oncotelic Warrants, and 2.0 million additional Oncotelic Warrants to J.H. Darbie., as placement agent. Each Investor was entitled to receive 200,000 additional Oncotelic Warrants for each Unit purchased. The issuance of the additional warrants resulted in the Company recording an expense of $2,023,552 in the Company’s statement of operations during the three months ended June 30, 2021. No similar expense was recorded in the same period in 2020.

 

Licensing Agreement with Autotelic Inc.

 

In September 2021, the Company entered into an exclusive License Agreement (the “Agreement”) with Autotelic, Inc. (“Autotelic”), pursuant to which Autotelic granted Oncotelic, among other things: (i) the exclusive right and license to certain Autotelic Patents (as defined in the Agreement) and Autotelic Know-How (as defined in the Agreement); and (ii) a right of first refusal to acquire at least a majority of the outstanding capital stock of Autotelic prior to Autotelic entering into any transaction that is a financing collaboration, distribution revenues, earn-outs, sales, out-licensing, purchases, debt, royalties, merger acquisition, change of control, transfer of cash or non-cash assets, disposition of capital stock by way of tender or exchange offer, partnership or any other joint or collaborative venture, research collaboration, material transfer, sponsored research or similar transaction or agreements. In exchange for the rights granted to Oncotelic, Autotelic will be entitled to earn the milestone payments of up to $50 million upon achievement of certain financial, development and regulatory milestones. In addition to the milestone payments, Autotelic would be entitled to earn royalties equal to 15% of the net sales of any products that incorporate the Autotelic Patents or Autotelic Know-How. The Agreement contains representations, warranties and indemnification provisions of each of the parties thereto that are customary for transactions of this type.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Oncotelic, its wholly owned subsidiaries, Oncotelic Inc. and PointR, and Edgepoint our non-controlled interest entity. Intercompany accounts and transactions have been eliminated in consolidation.

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly state the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been omitted pursuant to such rules and regulations.

 

Liquidity and Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net accumulated losses of approximately $29.2 million since inception of Oncotelic Inc., as the Company’s historical financial statements of the Company with Oncotelic Inc. have been replaced with the historical financial statements of Oncotelic Inc. due to the reverse merger with Oncotelic Inc. The Company has a negative working capital of $14.6 million at September 30, 2021 of which $2.6 million contingent liability of issuance of common shares of the Company to PointR shareholders upon achievement of certain milestones in accordance with the PointR merger agreement. In addition, the Company has negative cash flows from operations for the nine months ended September 30, 2021 of $3.4 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of this filing. Management expects to incur additional losses in the foreseeable future and recognizes the need to raise capital to remain viable. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

The Company’s long-term plans include continued development of its current pipeline of products to generate sufficient revenues, either through technology transfer or product sales, to cover its anticipated expenses. Until the Company is able to generate sufficient revenues from its current pipeline, the Company plans on funding its operations through the sale of equity and/or the issuance of debt, combined with or without warrants or other equity instruments.

 

11
 

 

Between July 2020 and March 2021, the Company raised gross proceeds of $5 million, through the JH Darbie Financing. The Company incurred $0.7 million of costs associated with the raise, of which $0.65 million was paid as direct placement fees to JH Darbie. JH Darbie and the Company are parties to a placement agent agreement, dated February 25, 2020 pursuant to which JH Darbie had the right to sell a minimum of 40 Units and a maximum of 100 Units on a best-efforts basis. Concurrently with the sale of the Units, JH Darbie was granted, a warrant, exercisable over a five-year period, to purchase 10% of the number of Units sold in the JH Darbie Financing. As such, the Company granted 10 Units to JH Darbie pursuant to the JH Darbie Placement Agreement.

 

In addition to the JH Darbie Financing, the Company raised approximately $0.2 million from the Equity Purchase Agreement with Peak One, $0.3 million from Geneva, an approximately $1.0 million from various bridge financiers, including $0.3 million from Autotelic Inc., a related party and approximately $0.1 million from the Paycheck Protection Plan of 2021 for PointR.

 

During the nine months ended September 30, 2020, the Company recorded a total of approximately $1.2 million in service revenues from GMP and $0.5 million in licensing milestone revenue from Autotelic BIO (“ATB”), an unrelated party. No similar revenues were recorded during the similar periods in 2021. There are no assurances that the Company would be able to generate revenues for services and/or out-licensing fees in the near future.

 

Although no assurances can be given as to the Company’s ability to deliver on its revenue plans, or that unforeseen expenses may arise, management believes that the potential equity and debt financing or other potential financing will provide the necessary funding for the Company to continue as a going concern. Also, management cannot guarantee any potential debt or equity financing will be available on favorable terms or at all. As such, management does not believe the Company has sufficient cash for 12 months from the date of this report. If adequate funds are not available on acceptable terms, or at all, the Company will need to curtail operations, or cease operations completely.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expense during the reporting period. Actual results could materially differ from those estimates.

 

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the valuation of goodwill and intangible assets for impairment, deferred tax asset and valuation allowance, and fair value of financial instruments.

 

Cash

 

As of September 30, 2021, and December 31, 2020 the Company held all its cash in banks. The Company considers investments in highly liquid instruments with a maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2021 and December 31, 2020, respectively. Restricted cash consists of certificates of deposits held at banks as collateral for various purposes.

 

Fair Value of Financial Instruments

 

The carrying value of cash, accounts payable and accrued expense approximate their fair values based on the short-term maturity of these instruments. As defined in ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.

 

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The three levels of the fair value hierarchy defined by ASC 820 are as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
   
Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
   
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

The Company did not have any Level 1 or Level 2 assets and liabilities at September 30, 2021 and December 31, 2020. The derivative liabilities associated with its 2019 bridge financing Convertible Notes (see Note 5), consisted of conversion feature derivatives at September 30, 2021 and December 31, 2020, are Level 3 fair value measurements.

 

The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 as of September 30, 2021 and 2020:

 

   September 30, 2021
Conversion Feature
   September 30, 2020
Conversion Feature
 
Balance at January 1, 2021 and 2020  $777,024   $540,517 
New derivative liability   -    870,268 
Reclassification to additional paid in capital from conversion of debt to common stock   (144,585)   (573,811)
Change in fair value   (239,278)   (60,504)
Balance at September 30, 2021 and 2020  $393,161   $776,470 

 

As of September 30, 2021 and 2020, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on assumptions used in the Black-Scholes valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s Common Stock, a risk-free interest rate based on the yield of a Treasury note and expected volatility of the Company’s Common Stock all as of the measurement dates. The Company used the following assumptions to estimate fair value of the derivatives as of September 30, 2021 and 2020:

 

   

Sept. 30, 2021

Key Assumptions for fair value of conversions

   

Sept. 30, 2020

Key Assumptions for fair value of conversions

 
Risk free interest     0.05 %     0.13 %
Market price of share   $ 0.14     $ 0.18  
Life of instrument in years     0.56 - 0.85       1.56 -1.85  
Volatility     108.96 %     150.77 %
Dividend yield     0 %     0 %

 

When the Company changes its valuation inputs for measuring financial liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended September 30, 2021 and 2020, respectively, there were no transfers of financial assets or financial liabilities between the hierarchy levels.

 

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Net Income (Loss) Per Share

 

Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share includes the effect of Common Stock equivalents (notes convertible into Common Stock, stock options and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. The following number of shares have been excluded from diluted loss since such inclusion would be anti-dilutive:

 

   Three and Nine Months Ended Sept. 30, 
   2021   2020 
         
Convertible notes   41,522,204    20,237,084 
Stock options   16,594,062    6,130,004 
Warrants   42,737,500    18,152,500 
Potentially dilutive securities   100,853,766    44,519,588 

 

Stock-Based Compensation

 

The Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations.

 

For stock options issued to employees and members of the Board of Directors (the “Board”) for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.

 

Pursuant to ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, the Company accounts for stock options issued to non-employees for their services in accordance with ASC 718. The Company uses valuation methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above.

 

For warrants issued in connection with fund raising activities, the Company estimates the grant date fair value of each warrant using the Black-Scholes pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the warrant, the expected volatility of the Common Stock consistent with the expected life of the warrant, risk-free interest rates and expected dividend yields of the Common Stock. If the warrants are issued upon termination or cancellation of prior issued warrants, then the Company estimates the grant date fair value of the new warrants using the Black-Scholes pricing model and evaluates whether the new warrants are deemed as equity instruments or liability instruments. If the warrants are deemed to be equity instruments, the Company records stock compensation expense and an addition to additional paid in capital. If however, the warrants are deemed to be liability instruments, then the fair value is treated as a deemed dividend and credited to additional paid in capital.

 

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. For the three and nine months ended September 30, 2021 and 2020, there were no impairment losses recognized for long-lived assets.

 

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Intangible Assets

 

The Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. The Company reviews the intangible assets for impairment on an annual basis or if events or changes in circumstances indicate it is more likely than not that they are impaired. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. If the review indicates the impairment, an impairment loss would be recorded for the difference of the value recorded and the new value. For the three and nine months ended September 30, 2021 and 2020, there were no impairment losses recognized for intangible assets.

 

Goodwill

 

Goodwill represents the excess of the purchase price of acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least once annually, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered not more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment would not be required. Otherwise, goodwill impairment is tested using a two-step approach.

 

The first step involves comparing the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. The second step involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded. For the three and nine months ended September 30, 2021 and 2020, there were no impairment losses recognized for Goodwill.

 

Derivative Financial Instruments Indexed to the Company’s Common Stock

 

We have generally issued derivative financial instruments, such as warrants, in connection with our equity offerings. We evaluate the terms of these derivative financial instruments in order to determine their accounting treatment in our financial statements. Key considerations include whether the financial instruments are freestanding and whether they contain conditional obligations. If the warrants are freestanding, do not contain conditional obligations and meet other classification criteria, we account for the warrants as an equity instrument. However, if the warrants contain conditional obligations, then we account for the warrants as a liability until the conditional obligations are met or are no longer relevant. Because no established market prices exist for the warrants that we issue in connection with our equity offerings, we must estimate the fair value of the warrants, which is as inherently subjective as it is for stock options, and for similar reasons as noted in the stock-based compensation section above. For financial instruments which are accounted for as a liability, we report any changes in their estimated fair values as gains or losses in our Consolidated Statement of Operations.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives and Hedging”.

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”

 

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The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with ASC 470-20 “Debt – Debt with Conversion and Other Options.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Original issue discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

 

ASC 815-40 “Derivatives and Hedging – Contracts in Entity’s Own Equity” provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).

 

Under ASU 2014-9, the Company recognizes revenue when its customers obtain control of the promised good or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company applies the following five-step: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

 

At contract inception, once the contract is determined to be within the scope of ASU 2014-09, the Company identifies the performance obligation(s) in the contract by assessing whether the goods or services promised within each contract are distinct. The Company then recognizes revenue for the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The Company anticipates generating revenues from rendering services to other third party customers for the development of certain drug products and/or in connection with certain out-licensing agreements. In the case of services rendered for development of the drugs, revenue is recognized upon the achievement of the performance obligations or over time on a straight-line basis over the extended service period. In the case of out-licensing contracts, the Company records revenues either upon achievement of certain pre-defined milestones, when there is no obligation of the Company achieve any performance obligations in connection with the said pre-defined milestones, or upon achievement of the performance obligations if the milestones require the Company to provide the performance obligations.

 

The Company occasionally collects advance payments from customers toward commitments to provide services or performance obligations, in which case the advance payment is recorded as a liability until the obligations are fulfilled and revenue is recognized.

 

Research Service Agreement between GMP and Oncotelic /Oncotelic Inc. (“Oncotelic Entities”)

 

In February 2020, Oncotelic Inc. and GMP entered into a research and services agreement (the “Agreement”) memorializing their collaborative efforts to develop and test COVID-19 antisense therapeutics. In March 2020, the Company reported the positive anti-viral activity results of OT-101 (the “Product”) in an in vitro antiviral testing performed by an independent laboratory to GMP, at which time, the Oncotelic Entities and GMP entered into a supplement to the Agreement (the “Supplement”) to confirm the inclusion of the Product within the scope of the Agreement, pending positive confirmatory testing against COVID-19. In consideration for the financial support provided by GMP for the research, pursuant to the terms of the Agreement (as amended by the Supplement) GMP was entitled to obtain certain exclusive rights to the use of the Product in the COVID field on a global basis, and an economic interest in the use of the Product in the COVID field including 50/50 profit sharing. GMP paid the Company total fees of $1.2 million for the Agreement and Supplement during the nine months ended September 30, 2020. The Company also recorded approximately $40 thousand for reimbursement of actual costs incurred.

 

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Agreement with Autotelic BIO (“ATB”)

 

Oncotelic Inc. had entered into a license agreement in February 2018 (the “ATB Agreement”) with ATB. The ATB Agreement licensed the use of OT-101 in combination with Interleukin-2 (the “Combined Product”), and granted to ATB an exclusive license under the Oncotelic Inc. technology to develop, make, have made, use, sell, offer for sale, import and export the Combined Product, and the Combination Product only, in the field, throughout the entire world (excluding the United States of America and Canada) as the territory, on the terms and subject to the conditions of the ATB Agreement. The ATB Agreement requires ATB to be responsible for the development of the Combination Product. Oncotelic Inc. was responsible to provide to ATB the technical know-how and other pertinent information on the development of the Combination Product. ATB paid Oncotelic Inc. a non-refundable milestone payment in consideration for the rights and licenses granted to ATB under the ATB Agreement, and ATB was to pay Oncotelic Inc. $500,000 within sixty days from the successful completion of the in vivo efficacy studies. This payment was made after the successful completion of the in-vivo study and, as such, the Company recorded the revenue. In addition, ATB is to pay Oncotelic Inc.: (i) $500,000 upon Oncotelic Inc.’s completion of the technology know how and Oncotelic Inc.’s technical assistance and regulatory consultation to ATB, as determined by the preparation of a Current Good Regulation Practices audit or certification by the Food and Drug Administration, with a mutual goal to obtain marketing approval of the Combined Product developed by ATB in the aforementioned territory; (ii) $1,000,000 upon receiving marketing approval of the Combined Product in Japan, China, Brazil, Mexico, Russia, or Korea; and (iii) $2,000,000 from receiving marketing approval of the Combined Product in Germany, France, Spain, Italy, or the United Kingdom. The Company recorded $500,000 as revenue under the ATB Agreement for the successful completion of the in-vivo study during the nine months ended September 30, 2020.

 

Research & Development Costs

 

In accordance with ASC 730-10-25 “Research and Development”, research and development costs are charged to expense as and when incurred.

 

Prior Period Reclassifications

 

Certain amounts in prior periods may have been reclassified to conform with current period presentation.

 

Recent Accounting Pronouncements

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting period unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 had no material impact on the Company’s consolidated financial statements and related disclosures.

 

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 became effective on January 1, 2018. The ASU also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The Company adopted ASU 2015-14 during the three months ended March 31, 2020 as till then, no revenue was earned by the Company.

 

In August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently evaluating the potential impact of the update on its consolidated financial statements.

 

All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.

 

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NOTE 3 - INTANGIBLE ASSETS AND GOODWILL

 

The Company completed a merger with Oncotelic, which gave rise to Goodwill of $4,879,999. Further, the Company added goodwill of $16,182,456 upon the completion of the merger with PointR. In general, the goodwill is tested on an annual impairment date of December 31. However, since both assets are currently being developed for various cancer and COVID-19 therapies, and the Company is contemplating other collaboration efforts for both products and the other products that the Company owns, the Company does not believe the there are any factors or indications that the goodwill is impaired.

 

Assignment and Assumption Agreement with Autotelic, Inc.

 

In April 2018, Oncotelic Inc. entered into an Assignment and Assumption Agreement (the “Assignment Agreement”) with Autotelic Inc., an affiliate company, and Autotelic LLC, an affiliate company, pursuant to which Oncotelic acquired the rights to all intellectual property (“IP”) related to a patented product. As consideration for the Assignment Agreement, Oncotelic Inc. issued 204,798 shares of its Common Stock for a value of $819,191. The Assignment Agreement also provides that Oncotelic Inc. shall be responsible for all costs related to the IP, including development and maintenance, going forward.

 

Intangible Asset Summary

 

The following table summarizes the balances as of September 30, 2021 and December 31, 2020, of the intangible assets acquired, their useful life, and annual amortization:

 

   Sept 30, 2021  

Remaining

Estimated
Useful Life
(Years)

 
Intangible asset – Intellectual Property  $819,191    16.25 
Intangible asset – Capitalization of license cost   190,989    16.25 
    1,010,180      
Less Accumulated Amortization   (175,497)     
Total  $834,683      

 

   December 31, 2020  

Remaining

Estimated
Useful Life (Years)

 
Intangible asset – Intellectual Property  $819,191    18.00 
Intangible asset – Capitalization of license cost   190,989    18.00 
    1,010,180      
Less Accumulated Amortization   (136,974)     
Total  $873,206      

 

Amortization of identifiable intangible assets for the three months ended September 30, 2021 and 2020 was $12,841 and $12,841, respectively. Amortization of identifiable intangible assets for the nine months ended September 30, 2021 and 2020 was $38,524 and $38,524, respectively.

 

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The future yearly amortization expense over the next five years and thereafter are as follows:

 

For the three months and years ending December 31,
     
Remainder of 2021  $12,841 
2022   51,365 
2023   51,365 
2024   51,365 
2025   51,365 
Thereafter   616,382 
   $834,683 

 

In-Process Research & Development (IPR&D) Summary

 

The IPR&D assets were acquired in the PointR acquisition during the year ended December 31, 2019. Since January 2021, the Company has determined that the IPR&D should be reported as an indefinitely lived asset and therefore will evaluate, on an annual basis, for any impairment on the IPR&D and will record an impairment if identified. The balance of IPR&D as of September 30, 2021 and December 31, 2020 was $1,101,760.

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expense consists of the following amounts:

 

   September 30, 2021   December 31, 2020 
         
Accounts payable  $3,360,233   $1,937,419 
Accrued expense   1,046,574    798,386 
Accounts payable and accrued liabilities  $4,406,807   $2,735,805 

 

    September 30, 2021    December 31, 2020 
           
Accounts payable – related party  $425,740   $391,631 

 

NOTE 5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT

 

As of September 30, 2021 special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, consist of the following amounts:

 

   September 30, 2021 
Convertible debentures     
10% Convertible note payable, due April 23, 2022 – Bridge Investor   26,778 
10% Convertible note payable, due April 23, 2022 – Related Party   125,458 
10% Convertible note payable, due August 6, 2022 – Bridge Investor   183,313 
    335,549 
Fall 2019 Notes     
5% Convertible note payable – Stephen Boesch   117,708 
5% Convertible note payable – Related Party   273,108 
5% Convertible note payable – Dr. Sanjay Jha (Through his family trust)   272,628 
5% Convertible note payable – CEO, CTO & CFO   89,332 
5% Convertible note payable – Bridge Investors   183,022 
    935,798 
Geneva Notes     
Geneva notes   313,472 
      
August 2021 Convertible Notes     
5% Convertible note – Autotelic Inc   251,952 
5% Convertible note – bridge investors   376,416 
5% Convertible note - CFO   75,586 
    703,954 
      
Other Debt     
Short term debt from CEO   20,000 
Short term debt – bridge investors   258,185 
Short term debt from CFO   45,050 
Short term debt – Autotelic Inc.   20,000 
    343,235 
Total of debentures, notes and other debt  $2,632,008 

 

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As of December 31, 2020, convertible debentures and notes, net of debt discount, consist of the following amounts:

 

   December 31, 2020 
Convertible debentures     
10% Convertible note payable, due April 23, 2022 - TFK