0001493152-22-032950.txt : 20221118 0001493152-22-032950.hdr.sgml : 20221118 20221118170049 ACCESSION NUMBER: 0001493152-22-032950 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 71 CONFORMED PERIOD OF REPORT: 20220930 FILED AS OF DATE: 20221118 DATE AS OF CHANGE: 20221118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Oncotelic Therapeutics, Inc. CENTRAL INDEX KEY: 0000908259 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 133679168 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21990 FILM NUMBER: 221402634 BUSINESS ADDRESS: STREET 1: 29397 AGOURA RD. STREET 2: #107 CITY: AGUORA HILLS STATE: CA ZIP: 91301 BUSINESS PHONE: 650-635-7000 MAIL ADDRESS: STREET 1: 29397 AGOURA RD. STREET 2: #107 CITY: AGUORA HILLS STATE: CA ZIP: 91301 FORMER COMPANY: FORMER CONFORMED NAME: MATEON THERAPEUTICS INC DATE OF NAME CHANGE: 20160613 FORMER COMPANY: FORMER CONFORMED NAME: OXIGENE INC DATE OF NAME CHANGE: 19930628 10-Q 1 form10-q.htm
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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, 2022

 

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)

 

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 14, 2022, there were 391,107,595 shares of the registrant’s common stock outstanding.

 

 

 

 
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements (unaudited) 3
     
  Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 3
     
  Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 4
     
  Consolidated Statements of Changes in Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2022 and 2021 5
     
  Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 7
     
  Notes to Consolidated Financial Statements 8
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 46
     
ITEM 4. Controls and Procedures 47
     
PART II. OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 48
     
ITEM 1A. Risk Factors 48
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 48
     
ITEM 3. Defaults Upon Senior Securities 49
     
ITEM 4. Mine Safety Disclosures 49
     
ITEM 5. Other Information 49
     
ITEM 6. Exhibits, Financial Statement Schedules 49
     
SIGNATURES 51

 

2
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30,   December 31, 
   2022   2021 
         
ASSETS          
Current assets:          
Cash  $253,882   $568,769 
Restricted cash   20,000    20,000 
Accounts receivable   19,748    19,748 
Prepaid & other current assets   18,394    18,778 
           
Total current assets   312,024    627,295 
           
Intangibles, net of accumulated amortization of $201,180 and $188,339 as of September 30, 2022 and December 31, 2021   -    821,841 
In process R&D   1,101,760    1,101,760 
Goodwill   16,182,457    21,062,455 
Investment in GMP Bio at fair value   22,640,521    - 
Total assets  $40,236,762   $23,613,351 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $2,852,159   $3,092,723 
Accounts payable - related party   349,462    403,423 
Contingent consideration   2,625,000    2,625,000 
Derivative liability on notes   302,550    340,290 
Convertible and short-term debt, net of costs   9,250,021    8,166,622 
Convertible debt and short-term debt - related party, net of costs   831,266    826,862 
           
Total current liabilities   16,210,458    15,454,920 
           
Commitments and contingencies (Note 12)   -    - 
           
Stockholders’ equity:          
Convertible preferred stock, $0.01 par value, 15,000,000 shares authorized; 0 shares issued and outstanding   -    - 
Common stock, $.01 par value; 750,000,000 shares authorized; 390,195,433 and 375,288,146 issued and outstanding, respectively   3,901,954    3,752,881 
Additional paid-in capital   40,921,704    35,223,842 
Accumulated deficit   (20,636,647)   (31,021,050)
Total Oncotelic Therapeutics, Inc. stockholders’ equity   24,187,011    7,955,673 
Non-controlling interests   (160,707)   202,758 
           
Total stockholders’ equity   24,026,304    8,158,431 
Total liabilities and stockholders’ equity  $40,236,762   $23,613,351 

 

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

 

3
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2022   2021   2022   2021 
   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
   2022   2021   2022   2021 
                 
Operating expenses:                    
Research and development  $1,700   $621,927   $690,705   $3,135,413 
General and administrative   593,739    1,187,035    4,505,256    4,475,642 
Total operating expenses   595,439    1,808,962    5,195,961    7,611,055 
                     
Loss from operations   (595,439)   (1,808,962)   (5,195,961)   (7,611,055)
Other income (expense):                    
Interest expense, net   (606,824)   (445,363)   (1,999,164)   (1,400,249)
PPP loan forgiveness   -    253,347    -    253,347 
Gain on derecognition of non-financial asset   -    -    16,951,477    - 
Reimbursement for expenses - related party   237,165    -    484,657    - 
Change in fair value of derivative on debt   105,662    145,449    37,740    239,278 
Loss on debt conversion   -    -    (257,810)   (27,504)
Total other income (expense)   (263,997)   (46,567)   15,216,900    (935,128)
Net income (loss) before non-controlling interests   (859,436)   (1,855,529)   10,020,939    (8,546,183)
Net loss attributable to non-controlling interests   (81,501)   (293,001)   (363,465)   (949,295)
Net income (loss) attributable to Oncotelic Therapeutics, Inc.  $(777,935)  $(1,562,528)  $10,384,404   $(7,596,888)
                     
Basic net loss per share attributable to common stock  $(0.00)  $(0.00)  $0.03   $(0.03)
Basic weighted average common stock outstanding   386,751,480    370,443,893    385,610,191    279,358,671 
                     
Diluted net loss per share attributable to common stock  $(0.00)  $(0.00)  $0.02   $(0.03)
Diluted weighted average common stock outstanding   386,751,480    370,443,893    420,738,409    279,358,671 

 

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, 2022

(Unaudited)

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Interests   Equity 
   Preferred Stock   Common Stock   Additional Paid-in   Accumulated   Non controlling   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Interests   Equity 
                                 
Balance at January 1, 2022        -   $       -    375,288,146   $3,752,881   $35,223,842   $(31,021,050)  $202,758   $8,158,431 
                                         
Common shares issued upon cashless exercise of warrants             3,041,958    30,420    (30,420)   -    -    - 
Common shares issued for cash             300,000    3,000    48,805              51,805 
Stock compensation expense   -    -    -    -    297,360    -    -    297,360 
Warrants issued in connection with
note extension
   -    -    -    -    2,905,316    -    -    2,905,316 
Net loss   -    -                   (4,849,781)   (240,540)   (5,090,321)
Balance at March 31, 2022   -    -    378,630,104    3,786,301    38,444,903    (35,870,831)   (37,782)   6,322,591 
                                         
Beneficial Conversion Feature on
convertible debt
   -    -    -    -    570,717    -    -    570,717 
Warrants issued in connection with debt issuance   -    -    -    -    368,375    -    -    368,375 
Common shares issued for cash   -    -    300,000    3,000    43,822    -    -    46,822 
Common shares issued in connection with debt conversion   -    -    4,525,000    45,250    286,001    -    -    331,251 
Common shares issued upon cashless exercise of warrants   -    -    2,586,758    25,867    (25,867)   -    -    - 
Stock compensation expense   -    -    -    -    25,196    -    -    25,196 
Contribution from shareholder for payment of liabilities   -    -    -    -    644,463    -    -    644,463 
Net income   -    -    -    -    -    16,012,119    (41,424)   15,970,695 
Balance at June 30, 2022   -   $-    386,041,862   $3,860,418   $40,357,610   $(19,858,712)  $(79,206)  $24,280,110 
                                         
Common shares issued for cash             700,000    7,000    53,193    -    -    60,193 
Common shares issued in connection with debt conversion             3,453,571    34,536    207,214              241,750 
Stock compensation expense                       303,687              303,687 
Net loss   -    -                  $(777,935)  $(81,501)   (859,436)
Balance at September 30, 2022   -   $-    390,195,433   $3,901,954   $40,921,704   $(20,636,647)  $(160,707)  $24,026,304 

 

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, 2021

 

                                
   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.

 

6
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2022   2021 
   For the Nine Months Ended September 30, 
   2022   2021 
Cash flows from operating activities:          
Net income (loss)  $10,020,939   $(8,546,183)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:          
Gain on derecognition of non-financial asset   (16,951,477)  $- 
Amortization of debt discount and deferred finance costs   1,560,173    1,059,525 
Amortization of intangible assets   12,841    38,524 
Warrants issued in connection with private placement   2,905,316    2,093,552 
Common shares issued in lieu of restricted stock units   -    226,432 
Stock compensation expense   

626,243

    299,890 
Depreciation on development equipment   -    7,609 
Change in fair value of derivative   (37,740)   (239,278)
Loss on debt conversion   257,810    27,504 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   384    30,865 
Accounts payable and accrued expenses   287,590    1,600,849 
Accounts payable to related party   (53,961)   34,109 
Net cash used in operating activities   (1,371,882)   (3,366,602)
           
Cash flows from financing activities:          
Proceeds from / (repayment to) private placement   (25,000)   1,613,200 
Proceeds from sales of common stock   158,820    118,594 
Proceeds from convertible debt   983,175    300,000 
Proceeds from convertible notes and short term loans, others   500,000    1,020,875 
Repaid to note holders   (500,000)   (100,000)
Repaid to others   (60,000)   (75,000)
Proceeds from Payroll Protection Plan   -    92,995 
           
Net cash provided by financing activities   1,056,995    2,970,664 
           
Net decrease in cash   (314,887)   (395,938)
           
Cash and restricted cash - beginning of period   588,769    494,019 
           
Cash and restricted cash - end of period  $273,882   $98,081 
           
Supplemental cash flow information:          
Cash paid for:          
Interest paid  $328,181   $298,401 
Income taxes paid  $-   $- 
Non-cash investing and financing activities:          
Warrants issued in connection with private placement  $3,273,691   $2,190,127 
Common shares issued upon partial conversion of debt  $573,001   $210,301 
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  $79,180   $39,991 
Beneficial Conversion Feature on convertible debt and restricted common shares  $570,717   $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. (“Oncotelic”), was formed in the State of New York in 1988 as OXiGENE, Inc., was reincorporated in the State of Delaware in 1992, and changed its name to Mateon Therapeutics, Inc. in 2016, and Oncotelic Therapeutics, Inc. in November 2020. Oncotelic conducts business activities through Oncotelic and its wholly owned subsidiaries, Oncotelic, Inc., a Delaware corporation, 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” or “We”). The Company completed a reverse merger with Oncotelic Inc in April 2019, a merger with PointR in November 2019 and formed a subsidiary Edgepoint in February 2020. For more information on these mergers, refer to our 2020 Annual Report on Form 10-K filed with the SEC on April 15, 2021.

 

The Company is currently developing OT-101, through its joint venture (“JV”) with Dragon Overseas Capital Limited (“Dragon”) and GMP Biotechnology Limited (“GMP Bio”), both affiliates of Golden Mountain Partners (“GMP”), for various cancers and COVID-19, Artemisinin for COVID-19 and AI technologies for clinical development and manufacturing. The Company is also independently planning to develop OT-101 for certain animal health indications and contemplating using crypto currencies for that platform. The Company has acquired apomorphine for Parkinson’s Disease, erectile dysfunction and female sexual dysfunction. In addition, 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 primarily 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 are expected to 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. 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. The JV 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, for human pharmaceutical needs. 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 JV is also developing OT-101 for the various epidemics and pandemics, similar to the current corona virus (“COVID-19”) pandemic. In this connection, the Company entered into an agreement and supplemental agreement with GMP for a total of $1.2 million to render services and was paid for the development of OT-101. In 2020 and 2021, the Company was developing Artemisinin as a potential therapy for COVID-19. Artemisinin, purified from a plant Artemisia annua. For more information on GMP and Artemisinin, refer to our 2021 Annual report on Form 10-K filed with the SEC on April 15, 2022.

 

8
 

 

Fundraising

 

J.H. Darbie Financing Notes & Issuance of Oncotelic Warrants

 

Between July 2020 and March 2021, the Company issued and sold a total of 100 units (“Units”). For more information on the JH Darbie Financing, refer to our Annual Report on Form 10-K filed with the SEC on April 15, 2022 and Note 7 to these Financial Statements.

 

In February 2022, the Company and 99 out of 100 of the Investors agreed to extend the maturity date of the notes connected to the Units from March 31, 2022, to March 31, 2023. In addition, the Company issued approximately 33 million warrants to purchase $50,000 of shares of common stock of the Company in connection with agreeing to extend the maturity date by one year. The issuance of the additional warrants resulted in the Company recording an expense of approximately $2.9 million in the Company’s statement of operations during the nine months ended September 30, 2022.

 

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 filed a post-effective amendment to reregister the EPL on April 26, 2022 and the post-effective amendment was found effective by the SEC on May 6, 2022. Since the EPL was made effective in June 2021 till September 30, 2022, the Company has directed Peak One, on multiple occasions, for an aggregate of 4.7 million shares of Common Stock for aggregate net cash proceeds of approximately $0.6 million. For more information on the EPL, refer to our Annual Report on Form 10-K filed with the SEC on April 15, 2022.

 

August 2021 Notes

 

In August 2021, the Company issued Note Purchase Agreements with Autotelic Inc., a related party, 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 “August 2021 Notes”). For further information on the Agreement, refer to our 2021 Annual report on Form 10-K filed with the SEC on April 15, 2022 and Note 5 to these Notes to the Consolidated Financial Statements.

 

November/December 2021 and March 2022 Notes

 

In November and December 2021, the Company entered into various securities purchase agreements with Talos Victory Fund, LLC (the (“Talos”), Mast Hill Fund, LP (“Mast”), FirstFire Global Opportunities Fund, LLC (“FirstFire”), Blue Lake Partners, LLC (“Blue Lake”) and Fourth Man, LLC (“Fourth Man”), (collectively called the “Purchase Agreements”), pursuant to which the Company issued convertible promissory notes in the aggregate principal amount of $0.25 million each, aggregating gross $1.25 million (the “November/December Notes”), which November/December Notes are convertible into shares of the Company’s Common Stock.

 

The Purchase Agreements were entered into as part of a convertible note financing round with aggregate gross proceeds to the Company of up to $1.25 million (the “Financing”), undertaken by the Company pursuant to that certain Finder’s Fee Agreement between the Company and JH Darbie & Co., Inc. (“JH Darbie”), dated October 26, 2021 (the “Darbie Agreement”). All of the Purchase Agreements and the Note contain identical terms except with reference to the name of the holders, the use of proceeds, which include repayment of certain debt, general corporate expenses and payroll, as applicable and the jurisdictions.

 

In January 2022, three of the five note holders under the November and December 2021 Notes exercised their warrants to purchase shares of Common Stock of the Company on a cashless basis. As such, the Company issued the note holders 3,041,958 shares of Common Stock.

 

In March 2022, the Company entered into a Securities Purchase Agreement with Fourth Man, pursuant to which the pursuant to which the Company issued convertible promissory note in the aggregate principal amount of $0.25 million, which Note is convertible into shares of the Company’s Common Stock. This Note was undertaken by the Company pursuant to the Darbie Agreement.

 

9
 

 

In August 2022, the Company converted $140,000 of Fourth Man Note into 2,025,000 shares of common stock. Further in September 2022, the Company converted $68,250 of Blue Lake note into 1,428,571 shares of common stock.

 

For more information on the notes, refer to Note 6: November – December 2021 Financing of these Notes to the Unaudited Consolidated Financial Statements.

 

May 2022 Note

 

In May 2022, the Company entered into a Securities Purchase Agreement with Mast, pursuant to which the Company issued convertible promissory notes in the aggregate principal amount of $0.6 million, which note is convertible into shares of the Company’s Common Stock. This note was used to fully repay November 2021 Talos note and the December 2021 First Fire note. $35,000 of the First Fire Note was converted into 500,000 shares of Common Stock and the balance was repaid in cash

 

In June 2022, Mast fully converted their November 2021 Note, for which the company issued 4,025,000 shares of Common Stock.

 

June 2022 Note

 

In June 2022, the Company entered into a Securities Purchase Agreement with Blue Lake, pursuant to which the Company issued convertible promissory notes in the aggregate principal amount of $0.34 million, which note is convertible into shares of the Company’s Common Stock. This note was utilized for corporate expenses.

 

Joint Venture with GMP Bio

 

In March 2022, the Company formalized a joint venture (“JV”) with Dragon Overseas Capital Limited (“Dragon”) and GMP Biotechnology Limited (“GMP Bio”), both affiliates of GMP. 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. For more information on the JV, refer to Note 6 of the Notes to these Financial Statements and our Current Report on Form 8-K filed with the SEC on April 6, 2022.

 

The Company also entered into certain note purchase agreements and notes with GMP in September 2021, October 2021 and January 2022. For information on the GMP notes, refer to our 2021 Annual Report on Form 10K filed with the SEC on April 15, 2022 and Note 6 to the Notes to these Financial Statements.

 

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.

 

10
 

 

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 $20.6 million, negative working capital of over $15.9 million and negative cash flow from operations of approximately $1.4 million at September 30, 2022. 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 significantly lower costs and losses in the foreseeable future, as a majority of the costs related with the development of OT-101 will be incurred by the JV, but the Company also 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. For more information on Liquidity and Going Concern, refer to our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022.

 

The Company’s long-term plans include continued development of its current pipeline of products, in addition to continue the development of OT-101 which is exclusively out-licensed to the JV and the JV will be responsible for the funding required to support the development in entirety, to generate sufficient revenues, through either technology transfer or product sales, or raise additional financing 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.

 

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/or 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 favourable 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, 2022, and December 31, 2021 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, 2022 and December 31, 2021, respectively. Restricted cash consists of certificates of deposits held at banks as collateral for various purposes.

 

Debt issuance Costs and Debt discount

 

Issuance costs are specific incremental costs that are (1) paid to third parties and (2) directly attributable to the issuance of a debt or equity instrument. The issuance costs attributable to the initial sale of the instrument are offset against the associated proceeds in the determination of the instrument’s initial net carrying amount.

 

Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying balance sheets if related to the issuance of debt or presented as a reduction of additional paid in capital if related to the issuance of an equity instrument. The Company applies the relative fair value to allocate the issuance costs among freestanding instruments that form part of the same transaction.

 

11
 

 

If the Company amends the terms of its convertible notes, the Company reviews and applies the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments, evaluates and concludes whether the terms of the agreements were or were not substantially different as of a particular reporting date and accounts the transaction as a debt modification or a troubled debt restructuring.

 

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.

 

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.

 

Investment in equity securities

 

The following table summarizes the cumulative gross unrealized gains and losses and fair values for long-term investments accounted for at fair value under the fair value option, with the unrealized gains and losses reported within earnings on the Condensed Consolidated Statements of Operation as of September 30, 2022. No similar investments were held by the Company at December 31, 2021:

   Initial Book Value   Cumulative
Gross
Unrealized
Gains
   Cumulative
Gross
Unrealized
Losses
   Fair
Value
 
September 30, 2022                    
Investment in GMP Bio (equity securities)  $22,640,521   $-   $-   $22,640,521 
Total  $22,640,521   $-   $-   $22,640,521 

 

12
 

 

The table below sets forth a summary of the recording of the initial value of the long-term value of investment in equity securities of GMP Bio, based on a third-party valuation report, and changes in the fair value of such equity securities, if such change occurs, as a Level 3 fair value as of September 30, 2022. The Company did not own similar long-term investments as of September 30, 2021:

 

   September 30, 2022
Fair Value
 
Balance at January 1, 2022  $- 
Contribution at cost basis   5,689,044 
Gain on derecognition of non-financial asset   16,951,477 
Change in fair value   - 
      
Balance at September, 2022  $22,640,521 

 

Derivative Liability

 

The Company has certain derivative liabilities associated with its 2019 bridge financing Convertible Notes (see Note 5), consisted of conversion feature derivatives at September 30, 2022 and 2021, 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, 2022 and 2021:

 

   September 30, 2022
Conversion Feature
   September 30, 2021
Conversion Feature
 
Balance at January 1, 2022 and 2021  $340,290   $777,024 
New derivative liability   -    - 
Reclassification to additional paid in capital from conversion of debt to common stock   -    (144,585)
Change in fair value   (37,740)   (239,278)
           
Balance at September, 2022 and 2021  $302,550   $393,161 

 

As of September 30, 2022, and December 31, 2021, 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, 2022:

 

   September 30, 2022
Key Assumptions for fair value of conversions
 
Risk free interest   0.17% -2.69% 
Market price of share  $0.07- 0.23 
Life of instrument in years   0.01-0.33 
Volatility   99.80%-109.40% 
Dividend yield   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, 2022 and 2021, respectively, there were no transfers of financial assets or financial liabilities between the hierarchy levels.

 

13
 

 

The $2,625,000 of contingent consideration, of shares issuable to PointR shareholders which was recorded and associated with the PointR Merger, is also classified as Level 3 fair value measurements. For more information on the contingent consideration, refer to our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022 and our Quarterly Report on Form 10-Q filed with the SEC on August 21, 2022.

 

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 Company has excluded from diluted loss per share the dilutive shares, since such inclusion would be anti-dilutive.

 

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, members of the Board of Directors (the “Board”) and consultants 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.

 

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, 2022 and the year ended December 31, 2021, there were no impairment losses recognized for long-lived assets.

 

14
 

 

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, 2022 and the year ended December 31, 2021, there were no impairment losses recognized for intangible assets. When we sell or contribute properties to unconsolidated arrangements and retain a non-controlling ownership interest in such assets, we recognize the difference between the consideration received and the carrying amount of the asset sold or contributed. For the three and nine months ended September 30, 2022, we derecognized the intangibles of $0.8 million associated with OT-101 upon the transfer of our non-financial asset as a capital contribution for our 45% ownership in the JV.

 

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, 2022 and the year ended December 31, 2021 there were no impairment losses recognized for Goodwill. When we sell or contribute properties to unconsolidated arrangements and retain a non-controlling ownership interest in such assets, we recognize the difference between the consideration received and the carrying amount of the asset sold or contributed. For the three and nine months ended September 30, 2022, we derecognized the goodwill of $4.8 million associated with OT-101upon the transfer of our non-financial asset as a capital contribution for our 45% ownership in the JV.

 

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 Income.

 

15
 

 

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.”

 

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.

 

Variable Interest Entity (VIE) Accounting

 

The Company evaluates its ownership, contractual relationships and other interests in entities to determine the nature and extent of the interests, whether such interests are variable interests and whether the entities are VIEs in accordance with ASC 810, Consolidations. These evaluations can be complex and involve Management judgment as well as the use of estimates and assumptions based on available historical information, among other factors. Based on these evaluations, if the Company determines that it is the primary beneficiary of a VIE, the entity is consolidated into the financial statements. At September 30, 2022 and December 31, 2021, the Company identified EdgePoint to be the Company’s sole VIE. At September 30, 2022 and December 31, 2021, the Company’s ownership percentage of EdgePoint was 29% and 29%, respectively. The VIE’s net assets were $14 thousand and $0.1 million at September 30, 2022 and December 31, 2021, respectively.

 

Investments - Equity Method

 

The Company accounts for equity method investments at cost, adjusted for the Company’s share of the investee’s earnings or losses, which are reflected in the consolidated statements of operations. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Investment in GMP Bio represents the investment into equity securities for which the Company elected the fair value option pursuant to ASC 825-10-15 and subsequent fair value changes in the GMP Bio shares shall be included in the result from other income. Refer to Note 6 to these Notes to the Consolidated Financial Statements.

 

16
 

 

Joint Venture agreement

 

We have equity interest in unconsolidated arrangement that is primarily engaged in the business of drug discovery, development, and commercialization, including but not limited to development and commercialization of TGF-beta therapeutics as well as establishing and operating contract development and manufacturing organization (“CDMO”) facilities and capabilities. The Company first reviews the arrangement to determine if it meets the definition of an accounting joint venture pursuant to ASC 323-10-20. In order to meet the definition of a joint venture, the arrangement must have all of the following characteristics, (i) the arrangement is organized within a separate legal entity, (ii) the entity is under the joint control of the venturers, (iii) the venturers must be able to exercise joint control through their equity investments, (iv) the qualitative characteristics of the entity, including its purpose and design must be consistent with the definition of a joint venture.

 

We consolidate arrangements that are considered to be VIEs where we are the primary beneficiary. We analyze our investments in joint ventures to determine if the joint venture is considered a VIE and would require consolidation. We (i) evaluate the sufficiency of the total equity investment at risk, (ii) review the voting rights and decision-making authority of the equity investment holders as a group and whether there are limited partners (or similar owning entities) that lack substantive participating or kick out rights, guaranteed returns, protection against losses, or capping of residual returns within the group and (iii) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this VIE determination.

 

To the extent that we own interests in a VIE and we (i) have the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) have the obligation or rights to absorb losses or receive benefits that could potentially be significant to the VIE, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent that we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

 

To the extent that our arrangements do not qualify as VIEs, they are consolidated if we control them through majority ownership interests or if we are the managing entity (general partner or managing member) and our partner does not have substantive participating rights. Control is further demonstrated by our ability to unilaterally make significant operating decisions, refinance debt, and sell the assets of the joint venture without the consent of the non-managing entity and the inability of the non-managing entity to remove us from our role as the managing entity.

 

We use the equity method of accounting for those arrangements where we exercise significant influence but do not have control. Under the equity method of accounting, our investment in each arrangement is included on our consolidated balance sheet; however, the assets and liabilities of the joint ventures for which we use the equity method are not included on our consolidated balance sheet.

 

When we sell or contribute properties to unconsolidated arrangements and retain a non-controlling ownership interest in such assets, we recognize the difference between the consideration received and the carrying amount of the asset sold or contributed when its derecognition criteria are met. The equity method investment we retain in such partial sale transactions is noncash consideration and is measured at fair value. As a result, the accounting for a partial sale will result in the recognition of a full gain or loss.

 

When circumstances indicate there may have been a reduction in the value of an equity investment, we evaluate whether the loss in value is other than temporary. If we conclude it is other than temporary, we recognize an impairment charge to reflect the equity investment at fair value.

 

The Company elected the fair value option under the fair value option Subsection of Section 825-10-15 to account for its equity-method investment as the Company believes that the fair value option is most appropriate for a company in the biotechnology industry, The fair value option is more appropriate for companies that are involved in extensive and usually very expensive research and development efforts, which are not appropriately reflected in the market value or reflective of the true value of the development activities of the company

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606).

 

Under Topic 606, 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.

 

17
 

 

At contract inception, once the contract is determined to be within the scope of Topic 606, 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 & Development Costs

 

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

 

Recent Accounting Pronouncements

 

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)” (“ASU 2020-06”) 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 was 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 was permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is evaluating the impact of implementation on its financial statements, if any.

 

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

 

Prior Period Reclassifications

 

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

 

NOTE 3 - INTANGIBLE ASSETS AND GOODWILL

 

Goodwill from 2019 Reverse Merger with Oncotelic and PointR

 

The Company completed the merger with Oncotelic Inc. (“Merger”) in April 2019. The Company completed the merger with PointR Data Inc (“PointR Merger”) in November 2019. For more details on the two mergers, refer to our 2020 Annual Report on Form 10-K for the year ended December 31, 2020 filed by the Company on April 15, 2021.

 

The Oncotelic merger gave rise to Goodwill of $4,879,999. Further, we 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. As of September 30, 2022, the goodwill from the Oncotelic merger of $4.9 million was contributed towards the JV as Oncotelic’s investment in equity in GMP Bio. Since the PointR assets are currently being developed for therapies and manufacturing AI platforms, the Company does not believe the there are any factors or indications that the goodwill is impaired.

 

18
 

 

Upon the non-financial sale of our asset as contribution to our equity method investment we derecognized the balance of the carrying value of our goodwill of approximately $4.9 million from the Oncotelic Merger in accordance with our policy and authoritative accounting guidance.

 

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, 2022 and December 31, 2021, of the intangible assets acquired, their useful life, and annual amortization:

SCHEDULE OF INTANGIBLE ASSETS

   September 30, 2022  

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   (201,180)     
Less: Derecognition of carrying value upon transfer of non-financial asset   (809,000)     
Total  $-      

 

   December 31, 2021  

Remaining

Estimated
Useful Life
(Years)

 
Intangible asset – Intellectual property  $819,191    17.00 
Intangible asset – Capitalization of license cost   190,989    17.00 
    1,010,180      
Less Accumulated Amortization   (188,339)     
Total  $821,841      

 

Amortization of identifiable intangible assets for the three months ended September 30, 2022 and 2021 was $0 and $12,841, respectively. Amortization of identifiable intangible assets for the nine months ended September 30, 2022 and 2021 was $12,841 and $38,524, respectively. Upon the non-financial sale of our asset as contribution to our equity method investment of approximately $0.8 million, we derecognized the balance of the carrying value of our intangibles in accordance with our policy and authoritative accounting guidance.

 

There will be no future yearly amortization expense related to our intangibles.

 

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

 

The IPR&D assets were acquired in the PointR Merger 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, 2022 and December 31, 2021 was $1,101,760. The following table summarizes the balances as of September 30, 2022 and December 31, 2021 of the IPR&D assets. The Company evaluates, on an annual basis, for any impairment and records an impairment if identified. The Company identified no impairment to IPR&D assets during its evaluation.

 

19
 

 

   September 30,
2022
 
Intangible asset – Intellectual property  $1,377,200 
    1,377,200 
Less Accumulated amortization   (275,440)
Total  $1,101,760 

 

   

December 31,

2021

 
Intangible asset – Intellectual property   $ 1,377,200  
      1,377,200  
Less Accumulated amortization     (275,440 )
Total   $ 1,101,760  

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expense consists of the following amounts:

 

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

   September 30, 2022   December 31, 2021 
         
Accounts payable  $1,783,561   $1,927,749 
Accrued expense   1,068,598    1,164,974 
Accounts payable and accrued liabilities, current  $2,852,159   $3,092,723 

 

   September 30, 2022     December 31, 2021  
             
Accounts payable – related party  $349,462   $ 403,423  

 

NOTE 5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT

 

As of September 30, 2022 special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, consist of the following amounts:

 

SCHEDULE OF CONVERTIBLE DEBENTURES AND NOTES, NET OF DISCOUNT

   September 30,
2022
 
Convertible debentures     
10% Convertible note payable, due April 23, 2022 – Bridge Investor  $35,556 
10% Convertible note payable, due April 23, 2022 – Related Party   164,444 
10% Convertible note payable, due August 6, 2022 – Bridge Investor   200,000 
    400,000 
Fall 2019 Notes     
5% Convertible note payable – Stephen Boesch   122,708 
5% Convertible note payable – Related Party   285,608 
5% Convertible note payable – Dr. Sanjay Jha (Through his family trust)   285,128 
5% Convertible note payable – CEO, CTO* & CFO – Related Parties   93,432 
5% Convertible note payable – Bridge Investors   191,422 
    978,298 
      
August 2021 Convertible Notes     
5% Convertible note – Autotelic Inc– Related Party   264,426 
5% Convertible note – Bridge investors   395,053 
5% Convertible note – CFO – Related Party   79,328 
    738,807 
      
JH Darbie PPM Debt     
16% Convertible Notes - Non-related parties   2,305,370 
16% Convertible Notes – CEO – Related Party   141,928 
    2,447,298 
      
November/December 2021 & March 2022 Notes     
12% Convertible Notes – Accredited Investors   304,683 
      
Debt for Clinical Trials – GMP     
2% Convertible Notes – GMP   4,637,096 
      
May and June 2022 Note     
12% Convertible Notes – Accredited Investors   288,540 
      
Other Debt     
Short term debt – Bridge investors   243,916 
Short term debt from CFO – Related Party   25,050 
Short term debt – Autotelic Inc– Related Party   20,000 
    288,966 
Accrued interest   

-2,401

 
Total of convertible debentures & notes and other debt  $10,081,287 

 

20
 

 

For information on the special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, as of December 31, 2022, refer to our Annual Report on Form 10-K for the year ended December 31, 2021.

 

Convertible Debentures

 

As of September 30, 2022, the Company had a derivative liability of approximately $300,000 and a change in fair value of approximately $38,000 on the Convertible Debentures issued in 2019 to our CEO and a bridge investor.

 

Bridge Financing

 

Notes with Officer and Bridge Investor

 

In April 2019, the Company entered into a Securities Purchase Agreement (the “Bridge SPA”) with our CEO and the Bridge Investor with a commitment to purchase convertible notes in the aggregate of $400,000. For more information on the Bridge SPA, refer to our Annual Report on Form 10-K filed with the SEC on April 15, 2022.

 

The issuance of the Trieu Note resulted in a discount from the beneficial conversion feature totaling $131,555 related to the conversion feature. Total amortization of the OID and the discount totaled $19,500 and $2,743 for the nine months ended September 30, 2022, and 2021. Total unamortized discount on this note was approximately $0 and $19,000 as of September 30, 2022, and December 31, 2021, respectively.

 

In April 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #1 (“Tranche #1”) with the Bridge Investor. For more information on Tranche #1, refer to our Annual Report on Form 10-K filed with the SEC on April 15, 2022.

 

The issuance of the note resulted in a discount from the beneficial conversion feature totaling $28,445. Total amortization of the OID and discount totaled approximately $4,400 and $1,400 for the nine months ended September 30, 2022, and 2021, respectively. Total unamortized discount on this note was approximately $0 and $4,400 as of September 30, 2022, and December 31, 2021.

 

On August 6, 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #2 (“Tranche #2”) with the Bridge Investor. For more information on Tranche #2, refer to our Annual Report on Form 10-K filed with the SEC on April 15, 2022.

 

21
 

 

The issuance of the note resulted in a discount from the beneficial conversion feature totaling $175,000. Total amortization of the OID and discount totaled approximately $11,700 and approximately $6,300 for the nine months ended September 30, 2022, and 2021, respectively. Total unamortized discount on this note was $0 and $12,000 as of September 30, 2022, and December 31, 2021.

 

Fall 2019 Debt Financing

 

In December 2019, the Company closed its Fall 2019 Debt Financing, raising an additional $500,000 bringing the gross proceeds of all debt financings under the Fall 2019 Debt Financing to $1,000,000. . The Majority Holders have waived the default in the maturity of the Fall 2019 Notes and as such there is no event of default. The Majority Holders have also extended the terms of the notes till June 30, 2023. For more information on the Fall 2019 Debt Financing, refer to our Annual Report on Form 10-K filed with the SEC on April 15, 2022.

 

The Company recorded interest expense of $10,625 and $31,875 for the three and nine months ended September 30, 2022. The Company recorded interest expense of $10,625 and $32,787 for the three and nine months ended September 30, 2021. The total amount outstanding under the Fall 2019 note, including accrued interest was $978,299 and $946,424 as of September 30, 2022 and December 31, 2021, respectively. The Company repaid $0 of principal during the three and nine months ended September 30, 2022. The total gross principal amount was $850,000 as of September 30, 2022, and December 31, 2021.

 

GMP Notes

 

In June 2020, the Company secured $2 million in debt financing, evidenced by a one-year convertible note (the “GMP Note”) from GMP, to conduct a clinical trial evaluating OT-101 against COVID-19 bearing 2% annual interest, and is personally guaranteed by Dr. Vuong Trieu, the Chief Executive Officer of the Company. The GMP Note is convertible into the Company’s Common Stock upon the GMP Note’s maturity of the GMP Note, at the Company’s Common Stock price on the date of conversion with no discount. GMP has waived the default in the maturity of the GMP Note and as such there is no event of default and also agreed to extend the date of maturity of the GMP Note to December 31, 2022. GMP does not have the option to convert prior to the GMP Note’s maturity. Such financing will be utilized solely to fund the clinical trial. The Company’s liability under GMP Note commenced to accrue when GMP first began to pay for services related to the clinical trial to our third-party clinical research organization, up to a maximum of $2 million. GMP has been invoiced by the clinical research organization for the full $2 million as of March 31, 2022, and as such the Company has recognized the liability as a convertible debt.

 

In September 2021, the Company secured a further $1.5 million in debt financing, evidenced by a one-year convertible note (the “GMP Note 2”) from GMP, to fund the same clinical trial evaluating OT-101 against COVID-19 bearing 2% annual interest. The GMP Note is convertible into the Company’s Common Stock upon the GMP Note 2’s maturity one year from the date of the GMP Note 2, at the Company’s Common Stock price on the date of conversion with no discount. GMP has waived the default in the maturity of the GMP Note and as such there is no event of default and also agreed to extend the date of maturity of the GMP Note to December 31, 2022. GMP does not have the option to convert prior to the GMP Note 2’s maturity at the end of one year. Such financing was to be utilized solely to fund the clinical trial. GMP was invoiced by the clinical research organization for $0.5 million and. GMP paid the clinical trial organization the first tranche of $0.5 million in October 2021.

 

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.

 

In January 2022, the Company entered into an Unsecured Convertible Note Purchase Agreement (the “January Purchase Agreement”) with GMP, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $0.5 million (the “January 2022 Note”), which January 2022 Note is convertible into shares of the Company’s Common Stock.

 

22
 

 

The GMP Note 2, the October 2021 Note and the January 2022 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 Purchase Agreement, or (b) the acceleration of the maturity by GMP upon occurrence of an Event of Default (as defined below). The GMP Note 2, the October 2021 Note and the January 2022 Note contains a voluntary conversion mechanism whereby GMP may convert the outstanding principal and accrued interest under the terms of the GMP Note 2, the October 2021 Note and the January 2022 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 from GMP. Prepayment of the GMP Note 2, the October 2021 Note and the January 2022 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 GMP Note 2, the October 2021 Note and the January 2022 Note, plus accrued but unpaid interest, will become immediately due and payable in cash. The October Purchase Agreement and the January Purchase Agreement requires the Company to use of the proceeds received under the October 2021 Note and January 2022 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.

 

The total principal outstanding on all the GMP notes, inclusive of accrued interest, was $4,637,096 and $4,069,781 as of September 30, 2022, and December 31, 2021, respectively.

 

During the nine months ended September 31, 2022, and 2021, the Company incurred approximately $66,500 and approximately $10,600, of interest expense respectively.

 

August 2021 Notes

 

In August 2021, the Company entered into Note Purchase Agreements with Autotelic - a related party, our CFO - a related party, and certain accredited investors (the “August 2021 investors”), whereby the Company issued four convertible notes in the aggregate principal amount of $698,500 convertible into shares of common stock of the Company for net proceeds of $690,825. The convertible notes carry a five (5%) percent coupon and mature one year from issuance. The majority of the August 2021 investors have the right, but not the obligation, not more than five days following the maturity date, to convert all, but not less than all, the outstanding and unpaid principal plus accrued interest into the Company’s common stock, at a conversion price of $0.18. The August 2021 Note Holders has waived the default in the maturity of the August 2021 Notes and as such there is no event of default and also agreed to extend the date of maturity of the August 2021 Notes to June 30, 2023. The Company determined that the economic characteristics and risks of the embedded conversion option are not clearly and closely related to the economic characteristics and risks of the debt host instrument. Further, the Company determined that the embedded conversion feature meets the definition of a derivative but met the scope exception to the derivative accounting required under ASC 815 for certain contracts involving a reporting entity’s own equity.

 

During the three and nine months ended September 30, 2022, the Company recognized approximately $8,700 and $26,050 of interest, respectively.

 

During the three and nine months ended September 30, 2021, the Company recognized approximately $5,400 of interest.

 

At September 30, 2022, and December 31, 2021, accrued interests on these convertible notes totaled approximately $40,300 and $14,260, respectively.

 

November – December 2021 and March 2022 Financing

 

In November and December 2021, the Company entered into securities purchase agreement with five institutional investors, whereby the Company issued five convertible notes in the aggregate principal amount of $1,250,000 convertible into shares of common stock of the Company. The convertible notes carry a twelve (12%) percent coupon and a default coupon of 16% and mature at the earliest of one year from issuance or upon event of default. Investors has the right at any time following issuance date to convert all or any part of the outstanding and unpaid amount of the note into the Company’s common stock at a conversion price established at a fixed rate of $0.07. The Company granted a total number of 9,615,385 warrants convertible into an equivalent number of the Company common shares at a strike price of $0.13 up to five years after issuance. The Placement agent was also granted a total amount of 961,540 as part of a finder’s fee agreement.

 

23
 

 

In March 2022, the Company entered into a Securities Purchase Agreement with Fourth Man, pursuant to which the Company issued convertible promissory note in the aggregate principal amount of $0.25 million, convertible into shares of common stock of the Company. The convertible notes carry a twelve (12%) percent coupon and a default coupon of 16% and mature at the earliest of one year from issuance or upon event of default. Investors has the right at any time following issuance date to convert all or any part of the outstanding and unpaid amount of the note into the Company’s common stock at a conversion price established at a fixed rate of $0.10. The Company granted a total number of 1,250,000 warrants convertible into an equivalent number of the Company common shares at a strike price of $0.20 up to five years after issuance. The Placement agent was also granted a total amount of 125,000 as part of a finder’s fee agreement.

 

During the nine months ended September 30, 2022, the Company converted the Mast Hill convertible note into 4,025,000 shares of the Company’s common stock, which fully retired the convertible note as of June 30, 2022. Such conversion resulted in a loss from debt conversion of approximately $0.1 million, which was recorded in other expense in the Company’s consolidated statements of operations.

 

During the nine months ended September 30, 2022, the Company repaid the Talos Victory and First Fire convertible notes with the proceeds from the May 2022 Mast Hill convertible note. Such repayment resulted in a loss from debt extinguishment of approximately $258,100, which was recorded in other expense in the Company’s consolidated statements of operations.

 

During the nine months ended September 30, 2022, the Company converted $68,250 of Blue Lake note into 1,428,571 shares of common stock.

 

During the nine months ended September 30, 2022, the Company converted $140,000 of Fourth Man note into 2,025,000 shares of common stock.

 

As of September 30, 2022, and December 31, 2021, convertible notes under the November-December 2021 Financing, net of debt discount, consist of the following amounts:

 

  

September 30,

2022

  

December 31,

2021

 
         
Mast Hill Convertible note, 12% coupon November 21  $-   $250,000 
Talos Victory Convertible note, 12% coupon November 2021   -    250,000 
First Fire Convertible note, 12% coupon, December 2021   -    250,000 
Blue Lake Convertible note, 12% coupon, December 2021   181,750    250,000 
Fourth Man Convertible note, 12% coupon December 2021   110,000    250,000 
Convertible notes, gross  $291,750   $1,250,000 
Less Debt discount recorded   (500,000)   (1,250,000)
Amortization debt discount   386,734    76,994 
Convertible notes, net  $178,484   $76,994 

 

The Company recognized approximately $150,000 and $0 of interest during the nine months ended September 30, 2022, and 2021, respectively. The balance of Accrued interest was approximately $30,000 and $10,300 as of September 30, 2022, and December 31, 2021, respectively.

 

The Company recognized approximately $774,600 and $0 of interest expense attributable to the amortization of the debt discount from the original debt discount, deferred financing costs, fair value allocated to the warrants and the beneficial conversion feature as of September 30, 2022, and 2021, respectively.

 

The Company recorded an initial debt discount of approximately $0.4 million representing the intrinsic value of the conversion option embedded in the convertible debt instrument based upon the difference 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. The Company recognized amortization expense related to the debt discount and debt issuance costs of approximately $0.8 million for the nine months ended September 30, 2022, which is included in interest expense in the consolidated statements of operations.

 

24
 

 

March 2022 Financing

 

In March 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby the Company issued a promissory note in the aggregate principal amount of $250,000 convertible into shares of common stock of the Company. The convertible note carries a twelve (12%) percent coupon and a default coupon of 16% and mature one year from issuance. The investor has the right at any time following issuance date to convert all or any part of the outstanding and unpaid amount of the note into the Company’s common stock at a conversion price established at a fixed rate of $0.10. The Company also granted a total number of 1,250,000 warrants convertible into an equivalent number of the Company common shares at a strike price of $0.20 up to five years after issuance.

 

As of September 30, 2022, the March 2022 convertible note, net of debt discount, consisted of the following amount. There were no similar amounts due on the March 2022 Notes as of December 31, 2021:

 

   

September 30,

2022

 
       
Fourth Man Convertible note, 12% coupon March 2023   $ 250,000  
Debt Discount     (123,801 )
         
Convertible notes, net   $ 126,199  

 

The Company recognized approximately $7,500 and $15,100 of accrued interest during the three and nine months ended September 30, 2022, respectively. The Company recognized approximately $63,000 and $126,000 of interest expense attributable to the amortization of the debt discount from the original deferred financing costs, fair value allocated to the warrants and the beneficial conversion feature during the three and nine months ended September 30, 2022, respectively.

 

May 2022 Mast Financing

 

In May 2022, the Company entered into a securities purchase agreement with one institutional investor, whereby the Company issued one convertible note in the aggregate principal amount of $605,000 convertible into shares of common stock of the Company (“May 2022 Mast Note”). The convertible notes carry a twelve (12%) percent coupon and a default coupon of 16% and mature at the earliest of one year from issuance or upon event of default. Investor has the right at any time following issuance date to convert all or any part of the outstanding and unpaid amount of the note into the Company’s common stock at a conversion price established at a fixed rate of $0.10. The Company granted a total number of 3,025,000 warrants convertible into an equivalent number of the Company common shares at a strike price of $0.20 up to five years after issuance. The Placement agent was also granted a total amount of 302,500 as part of a finder’s fee agreement. Portion of the proceeds will be used to retire some of the November/December 2021 notes. The extinguishment of existing notes resulted in the recognition of approximately $258,100 in loss on extinguishment of debt in the consolidated statement of operations in nine months ended September 30, 2022.

 

As of September 30, 2022 the May 2022 Mast Note, net of debt discount, consisted of the following amount. No similar amount was outstanding as at December 31, 2021:

 

   September 30, 2022 
     
Mast Hill Convertible note, 12% coupon May 2023  $605,000 
Convertible notes, gross  $605,000 
Less Debt discount recorded   (605,000)
Amortization debt discount   196,188 
Convertible notes, net  $196,188 

 

The Company recognized approximately $72,600 and $0 of accrued interest during the nine months ended September 30, 2022, and 2021, respectively, which is the guaranteed twelve-month coupon and earned in full at issuance date. The Company recognized approximately $196,200 and $0 of interest expense attributable to the amortization of the debt discount from the original debt discount, deferred financing costs, fair value allocated to the warrants and the beneficial conversion feature during the nine months ended September 30, 2022, and 2021, respectively.

 

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June 2022 Financing

 

In June 2022, the Company entered into a securities purchase agreement with one institutional investor, whereby the Company issued one convertible note in the aggregate principal amount of $335,000 convertible into shares of common stock of the Company (“June 2022 Blue Lake Note”). The convertible notes carry a twelve (12%) percent coupon and a default coupon of 16% and mature at the earliest of one year from issuance or upon event of default. Investor has the right at any time following issuance date to convert all or any part of the outstanding and unpaid amount of the note into the Company’s common stock at a conversion price established at a fixed rate of $0.10. The Company granted a total number of 837,500 warrants convertible into an equivalent number of the Company common shares at a strike price of $0.20 up to five years after issuance. The Placement agent was also granted a total amount of 83,750 warrants as part of a finder’s fee agreement. Portion of the proceeds will be used to retire some of the November/December 2021 notes.

 

As of September 30, 2022 the June 2022 Blue Lake Note, net of debt discount, consisted of the following amount. No similar amount was outstanding as at December 31, 2021:

 

   September 30, 2022 
     
Blue Lake Convertible note, 12% coupon June 2023  $335,000 
Convertible notes, gross  $335,000 
Less Debt discount recorded   (333,271)
Amortization debt discount   90,623 
Convertible notes, net  $92,352 

 

The Company recognized approximately $40,200 and $0 of accrued interest during the nine months ended September 30, 2022, and 2021, respectively, which is the guaranteed twelve-month coupon and earned in full at issuance date. The Company recognized approximately $90,620 and $0 of interest expense attributable to the amortization of the debt discount from the original debt discount, deferred financing costs, fair value allocated to the warrants and the beneficial conversion feature during the nine months ended September 30, 2022, and 2021, respectively.

 

Other short-term advances

 

During the year ended December 31, 2020, the Company’s CEO provided additional funding of $70,000 to the Company, of which $50,000 was repaid before December 31, 2020. Further, during the nine months ended September 30, 2022, $20,000 was repaid to the Company’s CEO. As such, $0 and $20,000 was outstanding at September 30, 2022 and December 31, 2021, respectively.

 

During the year ended December 31, 2021, Autotelic Inc. provided a short-term funding of $120,000 to the Company, which was repaid in 2021. In May 2021, Autotelic provided an additional short-term funding of $250,000 to the Company, which was converted into the August 2021 Notes. Autotelic provided an additional $20,000 short-term loan to the Company, and as such, $20,000 was outstanding and payable to Autotelic at September 30, 2022 and December 31, 2021, respectively.

 

During the year ended December 31, 2021, the Company’s CFO, a related Party, provided short term advances of approximately $45,000. During the year ended December 31, 2020, the Company’s CFO had provided a short-term advance of $25,000, which was repaid during the year ended December 31, 2021. $20,000 was repaid to the CFO in January 2022. As such approximately $25,000 and $45,000 was outstanding at September 30, 2022 and December 31, 2021, respectively.

 

NOTE 6 - JOINT VENTURE WITH GMP BIO AND AFFILIATES, EQUITY METHOD INVESTMENT

 

On March 31, 2022, the Company entered into (i) a joint venture (the “JV”) agreement with Dragon and GMP Bio, both affiliates of GMP, (and the Company, Dragon and GMP Bio are collectively called the “Parties”) (the “JVA”), (ii) a license agreement for rights to OT-101 (the “US License Agreement”) for the territory within the United States of America (the “US”) with Sapu Holdings, LLC, a subsidiary of GMP Bio and (iii) a license agreement for rights to OT-101 for the rest of the world with GMP Bio (the “Ex-US Rights Agreement”, and the US License Agreement and the Ex-US License Agreement are collectively called the “Agreements”).

 

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Dragon and the Company entered into the JVA to regulate their relationship and the operation and management of the JV. The JVA contains provisions for the licensed products and licensed technologies related to OT-101 (the “Licensed products and technologies”). Pursuant to the JVA the Company is required to transfer to GMP Bio all of the Company’s rights and obligations under the research and development agreement dated 3 February 2020 between the Company and Golden Mountain Partners, LLC (“GMP”), an affiliate of Dragon, as amended, varied and/or supplemented by a supplement to research and Services Agreement dated 23 March 2020 between the Company, Mateon Therapeutics, Inc. (subsequently renamed the Company) and GMP (the “R&D Agreement”). The JVA permits GMP to seek conversion of certain convertible promissory notes entered into between the Company and GMP (see reference to Purchase Agreements and Notes below) into shares of the Common Stock of the Company within 15 business days of the execution of the JVA at a price of $0.2242 per Common Share, the closing price of the Common Share as traded on the OTCQB the day prior to the execution of the JVA, or the closing price of the Common Stock prior to the date of conversion if not within 15 business days of the JVA. Upon the execution of the JVA, Dragon will pay for and hold 55 shares of GMP Bio and the Company will pay for and hold 45 shares of GMP Bio, both to be acquired at $1.00 per share of GMP Bio. Such shares of GMP Bio were issued shortly after the date of the JVA. The JVA required the entering into of the Agreements on or before the execution of the JVA. The JVA defines the valuation of the Agreements (taking into account the transfer of the Company’s rights and obligations under the R&D Agreement) each at approximately $11.3 million, for an aggregate of approximately $22.7 million. The Parties also agreed that if a Rare Pediatric Disease (“RPD”) Priority Review Voucher, upon clinical approval of OT-101 Technologies for treatment of diffuse intrinsic pontine glioma (the “DIPG Voucher”), is issued to GMP Bio and GMP Bio, or a subsidiary thereof, sells the DIPG Voucher to a non-GMP subsidiary, then the Company shall be eligible to receive up to 50% of the net sales proceeds or $50 million, whichever is less. Dragon shall fund the JVA, for a total of approximately $27.7 million, based on the conditions contained in the JVA, and the Company will input the licenses under the Agreements into the JV. The Company is obligated to (i) (A) rectify the chain of legal title such that the Company is the sole legal owner of such rights, (B) complete registration as the sole owner of all the Company’s Patent Rights and (C) provide evidence of such registration that is satisfactory to Dragon; (ii) provide Dragon with copies of official documents issued by the relevant patent offices in the relevant countries evidencing the Company’s legal ownership of all the Company’s Patents Rights; and (iii) reflect the Company’s legal ownership of all the Company’s Patent Rights in the relevant online registers of the relevant patent offices in the relevant countries. The JVA intends to raise funding for the JVA through a Series A round of financing of not less than $20 million. Dragon can suspend funding the JVA if the Series A round of financing is not successfully completed by August 31, 2022, in which case Dragon’s funding obligation would be restricted to $250,000 per month to GMP Bio. If Dragon decides to terminate the JVA, the licenses granted under the Agreements shall be terminated and the OT-101 assets licensed by the Company will revert back to the Company. The rest of the JVA deals with the conduct of the JV, the board of directors of GMP Bio and other administrative matters. Dragon shall nominate up to three directors of their choosing to the board of directors of GMP Bio, two of whom are already nominated as “A” Directors and the Company shall nominate up to two directors of their choosing to the board of directors of GMP Bio, one of whom is already nominated as a “B” Director. The JVA defines how the board of directors will operate as well as the general management and operations of the JV. Other standard terms on shareholder rights, indemnification etc. are also defined in the JVA. Also included are the other terms with relation to insurance, indemnification, jurisdiction and other customary terms and conditions.

 

The Agreements include terms of an exclusive, irrevocable, perpetual, royalty-free, sublicensable license under the Licensed Technology to manufacture, have manufactured, use, import, sell, offer for sale or otherwise exploit the Licensed Products, which is OT-101, in the Field, which is all therapeutic uses in humans, and in the Territories, which is the US and the rest of the world. In addition, the Company grants a non-exclusive, irrevocable, perpetual, royalty-free, non-sublicensable license for its sole use of the Company’s Vision Grid system for monitoring process, man flow, equipment flow, and material flow in contract development and manufacturing organization operations. These have been granted to GMP Bio and Sapu Holdings, LLC as the capital contribution by the Company to GMP Bio. The Agreements include the contributions by the key employees, as defined and included in the Agreements, standard representations and warranties, intellectual property protection, insurance, indemnification, jurisdiction and other customary terms and conditions.

 

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The Company determined that the arrangement does not meet the accounting definition of a joint venture. Subsequently, we analyzed our investment and determined that such investment was not considered a VIE, which would require consolidation because the Company does not have the power to direct the activities that most significantly impact the economic performance of the JV. The Company does not control the JV through majority ownership interest or Board participation. As such, the Company followed the guidance in ASC 610-20 regarding the sale of nonfinancial assets to noncustomers when retaining a non-controlling ownership interest in such assets. The Company is deemed to have substantially transferred the actual intellectual property related to OT-101 as the investee can benefit from the risk and rewards of ownership of such intellectual property. This resulted in the derecognition of the carrying amount of our intangible assets for approximately $0.8 million and goodwill for $4.9 million for an aggregate amount of approximately $5.7 million, recorded its initial investment at its fair value for approximately $22.6 million and which resulted in a non-cash gain on non-financial asset disposal of approximately $17 million, which was reported in other income in the condensed consolidated statements of operations in the three and nine months ended September 30, 2022.

 

As of the effective date of the formation of the JV, the combined enterprise value of GMP Bio was approximately $50.4 million, comprising of the fair value of the Company’s investment in GMP Bio of approximately $22.7 million and the total original capital contributions by Dragon Overseas of approximately $27.7 million. As of September 30, 2022, the JV had approximately $22.8 million in assets, not including GMP Bio’s capital subscriptions of approximately $24 million; recorded approximately $0.5 million in liabilities and incurred approximately $4.1 million in operational expenses. The Company elected the fair value option under subsection of Section 825-10-15 to account for its equity-method investment as the Company believes that it the most appropriate method to properly value the Company and record a change in value when and upon conducting a fair value assessment. As of September 30, 2022, the Company does not believe the fair value of the JV has changed and hence has not recorded a change in value.

 

For information on the various notes from GMP, refer to Note 5 – GMP Notes of the Notes to the Consolidated Financial Statements above.

 

NOTE 7 - PRIVATE PLACEMENT AND JH DARBIE FINANCING

 

During the period from July 2020 to March 31, 2021, the Company entered into various subscription agreements with certain accredited investors, including the CEO, pursuant to the JH Darbie Financing, whereby the Company issued and sold a total of 100 Units, for total gross proceeds of approximately $5 million, pursuant to the JH Darbie Placement Agreement, with each Unit consisting of:

 

  25,000 shares of Edge Point Common stock for a price of $1.00 per share of Edge Point Common stock.
  One convertible promissory note, convertible up to 25,000 shares of Edge Point Common stock, at a conversion price of $