UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Quarterly Period Ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(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.
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).
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 | ☐ | |
☒ | 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 ☐
As of November 14, 2022, there were 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
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 | $ | $ | ||||||
Restricted cash | ||||||||
Accounts receivable | ||||||||
Prepaid & other current assets | ||||||||
Total current assets | ||||||||
Intangibles, net of accumulated amortization of $ | ||||||||
In process R&D | ||||||||
Goodwill | ||||||||
Investment in GMP Bio at fair value | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | $ | ||||||
Accounts payable - related party | ||||||||
Contingent consideration | ||||||||
Derivative liability on notes | ||||||||
Convertible and short-term debt, net of costs | ||||||||
Convertible debt and short-term debt - related party, net of costs | ||||||||
Total current liabilities | ||||||||
Commitments and contingencies (Note 12) | ||||||||
Stockholders’ equity: | ||||||||
Convertible preferred stock, $ | par value, shares authorized; shares issued and outstanding||||||||
Common stock, $ | par value; shares authorized; and issued and outstanding, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Oncotelic Therapeutics, Inc. stockholders’ equity | ||||||||
Non-controlling interests | ( | ) | ||||||
Total stockholders’ equity | ||||||||
Total liabilities and stockholders’ equity | $ | $ |
The accompanying footnotes are an integral part of these unaudited consolidated financial statements.
3 |
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | $ | $ | $ | ||||||||||||
General and administrative | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
PPP loan forgiveness | ||||||||||||||||
Gain on derecognition of non-financial asset | ||||||||||||||||
Reimbursement for expenses - related party | ||||||||||||||||
Change in fair value of derivative on debt | ||||||||||||||||
Loss on debt conversion | ( | ) | ( | ) | ||||||||||||
Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
Net income (loss) before non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||||||
Net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income (loss) attributable to Oncotelic Therapeutics, Inc. | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
Basic net loss per share attributable to common stock | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
Basic weighted average common stock outstanding | ||||||||||||||||
Diluted net loss per share attributable to common stock | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
Diluted weighted average common stock outstanding |
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)
Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non controlling | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||
Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
Common shares issued upon cashless exercise of warrants | ( | ) | ||||||||||||||||||||||||||||||
Common shares issued for cash | ||||||||||||||||||||||||||||||||
Stock compensation expense | - | - | ||||||||||||||||||||||||||||||
Warrants issued in connection with note extension | - | - | ||||||||||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
Balance at March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Beneficial Conversion Feature on convertible debt | - | - | ||||||||||||||||||||||||||||||
Warrants issued in connection with debt issuance | - | - | ||||||||||||||||||||||||||||||
Common shares issued for cash | - | |||||||||||||||||||||||||||||||
Common shares issued in connection with debt conversion | - | |||||||||||||||||||||||||||||||
Common shares issued upon cashless exercise of warrants | - | ( | ) | |||||||||||||||||||||||||||||
Stock compensation expense | - | - | ||||||||||||||||||||||||||||||
Contribution from shareholder for payment of liabilities | - | - | ||||||||||||||||||||||||||||||
Net income | - | - | ( | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
Common shares issued for cash | ||||||||||||||||||||||||||||||||
Common shares issued in connection with debt conversion | ||||||||||||||||||||||||||||||||
Stock compensation expense | ||||||||||||||||||||||||||||||||
Net loss | - | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||
Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
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 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
Common shares issued upon conversion of Preferred Stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
Common shares issued upon conversion of debt | - | |||||||||||||||||||||||||||||||
Beneficial Conversion Feature on convertible debt | - | - | ||||||||||||||||||||||||||||||
Warrants issued in connection with private placement | - | - | ||||||||||||||||||||||||||||||
Increase in non-controlling interest from issuance of additional Edgepoint stock | - | - | ||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
Balance at March 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||
Warrants issued in connection with private placement | - | - | ||||||||||||||||||||||||||||||
Common shares issued in lieu of services | - | |||||||||||||||||||||||||||||||
Common shares issued for cash | - | |||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
Balance as of June 30, 2021 | ( | ) | ||||||||||||||||||||||||||||||
Common shares issued in lieu of services | - | |||||||||||||||||||||||||||||||
Common shares issued for cash | ||||||||||||||||||||||||||||||||
Common shares issued in lieu of restricted stock units | - | |||||||||||||||||||||||||||||||
Stock Compensation Expense | - | - | ||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ |
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)
For the Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Gain on derecognition of non-financial asset | ( | ) | $ | |||||
Amortization of debt discount and deferred finance costs | ||||||||
Amortization of intangible assets | ||||||||
Warrants issued in connection with private placement | ||||||||
Common shares issued in lieu of restricted stock units | ||||||||
Stock compensation expense | ||||||||
Depreciation on development equipment | ||||||||
Change in fair value of derivative | ( | ) | ( | ) | ||||
Loss on debt conversion | ||||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | ||||||||
Accounts payable and accrued expenses | ||||||||
Accounts payable to related party | ( | ) | ||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from / (repayment to) private placement | ( | ) | ||||||
Proceeds from sales of common stock | ||||||||
Proceeds from convertible debt | ||||||||
Proceeds from convertible notes and short term loans, others | ||||||||
Repaid to note holders | ( | ) | ( | ) | ||||
Repaid to others | ( | ) | ( | ) | ||||
Proceeds from Payroll Protection Plan | ||||||||
Net cash provided by financing activities | ||||||||
Net decrease in cash | ( | ) | ( | ) | ||||
Cash and restricted cash - beginning of period | ||||||||
Cash and restricted cash - end of period | $ | $ | ||||||
Supplemental cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest paid | $ | $ | ||||||
Income taxes paid | $ | $ | ||||||
Non-cash investing and financing activities: | ||||||||
Warrants issued in connection with private placement | $ | $ | ||||||
Common shares issued upon partial conversion of debt | $ | $ | ||||||
Common shares issued in lieu of services | $ | $ | ||||||
Common shares issued in lieu of restricted stock units | $ | $ | ||||||
Non-cash cost upon sale of common stock | $ | $ | ||||||
Beneficial Conversion Feature on convertible debt and restricted common shares | $ | $ |
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 $
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 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
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 $
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 $
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 $
The
Purchase Agreements were entered into as part of a convertible note financing round with aggregate gross proceeds to the Company of up
to $
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 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 $
9 |
In
August 2022, the Company converted $
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 $
In June 2022, Mast fully converted their November 2021 Note, for which the company issued 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 $
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 $
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) | $ | $ | $ | $ | ||||||||||||
Total | $ | $ | $ | $ |
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 | ||||
Gain on derecognition of non-financial asset | ||||
Change in fair value | ||||
Balance at September, 2022 | $ |
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 | $ | $ | ||||||
New derivative liability | ||||||||
Reclassification to additional paid in capital from conversion of debt to common stock | ( | ) | ||||||
Change in fair value | ( | ) | ( | ) | ||||
Balance at September, 2022 and 2021 | $ | $ |
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 | ||||
Market price of share | $ | - | ||
Life of instrument in years | ||||
Volatility | ||||
Dividend yield | % |
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
$
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.
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
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
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
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
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 $
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 $
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
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:
September 30, 2022 | Remaining Estimated | |||||||
Intangible asset – Intellectual property | $ | |||||||
Intangible asset – Capitalization of license cost | ||||||||
Less Accumulated Amortization | ( | ) | ||||||
Less: Derecognition of carrying value upon transfer of non-financial asset | ( | ) | ||||||
Total | $ |
December 31, 2021 | Remaining Estimated | |||||||
Intangible asset – Intellectual property | $ | |||||||
Intangible asset – Capitalization of license cost | ||||||||
Less Accumulated Amortization | ( | ) | ||||||
Total | $ |
Amortization
of identifiable intangible assets for the three months ended September 30, 2022 and 2021 was $
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 $
19 |
September 30, 2022 | ||||
Intangible asset – Intellectual property | $ | |||
Less Accumulated amortization | ( | ) | ||
Total | $ |
December 31, 2021 |
||||
Intangible asset – Intellectual property | $ | |||
Less Accumulated amortization | ( |
) | ||
Total | $ |
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expense consists of the following amounts:
September 30, 2022 | December 31, 2021 | |||||||
Accounts payable | $ | $ | ||||||
Accrued expense | ||||||||
$ | $ |
September 30, 2022 | December 31, 2021 | |||||||
Accounts payable – related party | $ | $ |
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:
September 30, 2022 | ||||
Convertible debentures | ||||
10% Convertible note payable, due April 23, 2022 – Bridge Investor | $ | |||
10% Convertible note payable, due April 23, 2022 – Related Party | ||||
10% Convertible note payable, due August 6, 2022 – Bridge Investor | ||||
Fall 2019 Notes | ||||
5% Convertible note payable – Stephen Boesch | ||||
5% Convertible note payable – Related Party | ||||
5% Convertible note payable – Dr. Sanjay Jha (Through his family trust) | ||||
5% Convertible note payable – CEO, CTO* & CFO – Related Parties | ||||
5% Convertible note payable – Bridge Investors | ||||
August 2021 Convertible Notes | ||||
5% Convertible note – Autotelic Inc– Related Party | ||||
5% Convertible note – Bridge investors | ||||
5% Convertible note – CFO – Related Party | ||||
JH Darbie PPM Debt | ||||
16% Convertible Notes - Non-related parties | ||||
16% Convertible Notes – CEO – Related Party | ||||
November/December 2021 & March 2022 Notes | ||||
12% Convertible Notes – Accredited Investors | ||||
Debt for Clinical Trials – GMP | ||||
2% Convertible Notes – GMP | ||||
May and June 2022 Note | ||||
12% Convertible Notes – Accredited Investors | ||||
Other Debt | ||||
Short term debt – Bridge investors | ||||
Short term debt from CFO – Related Party | ||||
Short term debt – Autotelic Inc– Related Party | ||||
Accrued interest | - | |||
Total of convertible debentures & notes and other debt | $ |
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 $
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 $
The
issuance of the Trieu Note resulted in a discount from the beneficial conversion feature totaling $
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 $ . Total amortization of the OID and discount totaled approximately $ and $ for the nine months ended September 30, 2022, and 2021, respectively. Total unamortized discount on this note was approximately $ and $ 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 $ . Total amortization of the OID and discount totaled approximately $ and approximately $ for the nine months ended September 30, 2022, and 2021, respectively. Total unamortized discount on this note was $ and $ 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 $
The
Company recorded interest expense of $
GMP Notes
In
June 2020, the Company secured $
In
September 2021, the Company secured a further $
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 $
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 $
22 |
The
GMP Note 2, the October 2021 Note and the January 2022 Note carries an interest rate of
The
total principal outstanding on all the GMP notes, inclusive of accrued interest, was $
During
the nine months ended September 31, 2022, and 2021, the Company incurred approximately $
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 $
During
the three and nine months ended September 30, 2022, the Company recognized approximately $
During
the three and nine months ended September 30, 2021, the Company recognized approximately $
At
September 30, 2022, and December 31, 2021, accrued interests on these convertible notes totaled approximately $
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 $
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 $
During
the nine months ended September 30, 2022, the Company converted the Mast Hill convertible note into
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 $
During
the nine months ended September 30, 2022, the Company converted $
During
the nine months ended September 30, 2022, the Company converted $
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 | $ | $ | ||||||
Talos Victory Convertible note, 12% coupon November 2021 | ||||||||
First Fire Convertible note, 12% coupon, December 2021 | ||||||||
Blue Lake Convertible note, 12% coupon, December 2021 | ||||||||
Fourth Man Convertible note, 12% coupon December 2021 | ||||||||
Convertible notes, gross | $ | $ | ||||||
Less Debt discount recorded | ( | ) | ( | ) | ||||
Amortization debt discount | ||||||||
Convertible notes, net | $ | $ |
The
Company recognized approximately $
The
Company recognized approximately $
The
Company recorded an initial debt discount of approximately $
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 $
September 30, 2022 |
||||
Fourth Man Convertible note, 12% coupon March 2023 | $ | |||
Debt Discount | ( |
) | ||
Convertible notes, net | $ |
The
Company recognized approximately $
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 $
September 30, 2022 | ||||
Mast Hill Convertible note, 12% coupon May 2023 | $ | |||
Convertible notes, gross | $ | |||
Less Debt discount recorded | ( | ) | ||
Amortization debt discount | ||||
Convertible notes, net | $ |
The
Company recognized approximately $
25 |
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 $
September 30, 2022 | ||||
Blue Lake Convertible note, 12% coupon June 2023 | $ | |||
Convertible notes, gross | $ | |||
Less Debt discount recorded | ( | ) | ||
Amortization debt discount | ||||
Convertible notes, net | $ |
The
Company recognized approximately $
Other short-term advances
During
the year ended December 31, 2020, the Company’s CEO provided additional funding of $
During
the year ended December 31, 2021, Autotelic Inc. provided a short-term funding of $
During
the year ended December 31, 2021, the Company’s CFO, a related Party, provided short term advances of approximately $
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”).
26 |
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 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.
27 |
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
$
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
■ | shares of Edge Point Common stock for a price of $ per share of Edge Point Common stock. | |
■ | One convertible promissory note, convertible up to shares of Edge Point Common stock, at a conversion price of $ |