0001493152-24-031995.txt : 20240814 0001493152-24-031995.hdr.sgml : 20240814 20240814120034 ACCESSION NUMBER: 0001493152-24-031995 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 75 CONFORMED PERIOD OF REPORT: 20240630 FILED AS OF DATE: 20240814 DATE AS OF CHANGE: 20240814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Oncotelic Therapeutics, Inc. CENTRAL INDEX KEY: 0000908259 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] ORGANIZATION NAME: 03 Life Sciences 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: 241205663 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 June 30, 2024

 

or

 

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

 

For the Transition Period from _________ to _________

 

Commission file number: 000-21990

 

Oncotelic Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   13-3679168
(State or other jurisdiction   (I.R.S. Employer
of incorporation or organization)   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 August 11, 2024, there were 406,270,315 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION 3
     
ITEM 1. Financial Statements (unaudited) 3
     
  Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 3
     
  Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 4
     
  Consolidated Statements of Changes in Stockholders’ Equity for the Three Months and Six Months Ended June 30, 2024 and 2023 5
     
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 7
     
  Notes to Consolidated Financial Statements 8
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 49
     
ITEM 4. Controls and Procedures 49
     
PART II. OTHER INFORMATION 51
     
ITEM 1. Legal Proceedings 51
     
ITEM 1A. Risk Factors 51
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 51
     
ITEM 3. Defaults Upon Senior Securities 51
     
ITEM 4. Mine Safety Disclosures 51
     
ITEM 5. Other Information 52
     
ITEM 6. Exhibits, Financial Statement Schedules 52
     
SIGNATURES 54

 

2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   June 30,
2024
   December 31,
2023
 
         
ASSETS          
Current assets:          
Cash  $72,216   $170,405 
Restricted cash   20,000   $20,000 
Accounts receivable   18,976    18,976 
Prepaid & other current assets   80,766    62,356 
           
Total current assets   191,958    271,737 
           
In process R&D   1,101,760    1,101,760 
Goodwill, net of impairment   5,988,230    5,988,230 
Investment in GMP Bio at fair value   22,653,225    22,653,225 
Total assets  $29,935,173   $30,014,952 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $2,460,960   $2,437,321 
Accounts payable to related party   345,058    344,099 
Contingent consideration   2,625,000    2,625,000 
Derivative liability on notes   397,108    423,214 
Convertible and short-term debt, net of costs   7,511,526    8,066,957 
Convertible debt and short-term debt - related party, net of costs   2,864,782    2,608,356 
           
Total current liabilities   16,204,434    16,504,947 
           
Convertible long-term debt, net of costs   2,102,116    1,898,468 
Convertible long-term debt, related party   125,000    - 
           
Total liabilities   18,431,550    18,403,415 
           
Commitments and contingencies (Note 13)   -    - 
           
Stockholders’ equity:          
Common stock, $.01 par value; 750,000,000 shares authorized; 407,289,618 and 399,184,128 issued and outstanding, respectively   4,072,899    3,991,839 
Additional paid-in capital   42,219,400    41,655,026 
Accumulated deficit   (34,135,249)   (33,516,736)
           
Total Oncotelic Therapeutics, Inc. stockholders’ equity   12,157,050    12,130,129 
Non-controlling interests   (653,427)   (518,592)
           
Total stockholders’ equity   11,503,623    11,611,537 
Total liabilities and stockholders’ equity  $29,935,173   $30,014,952 

 

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

 

3

 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three MONTHS AND SIX MONTHS ended JUNE 30, 2024 and 2023

(Unaudited)

 

                 
   For the Three Months Ended June 30,   For the Six Months Ended June 30, 
   2024   2023   2024   2023 
                 
Operating expenses:                    
Research and development  $252   $-   $732   $28,927 
General and administrative   96,330    238,758    263,071    436,958 
Goodwill impairment (See note 2 and 3)   -    6,083,146    -    6,083,146 
Total operating expenses   96,582    6,321,904    263,803    6,549,031 
                     
Loss from operations   (96,582)   (6,321,904)   (263,803)   (6,549,031)
Other income (expense):                    
Interest expense, net   (215,619)   (257,396)   (450,330)   (651,675)
Reimbursement for expenses - related party   10,398    -    22,937    72,246 
Change in fair value of derivative on debt   23,630    (307,698)   26,106    (327,594)
Loss on extinguishment / conversion of debt   -    -    (88,258)   - 
Miscellaneous income   -    36,988    -    - 
Total other income (expense)   (181,591)   (528,106)   (489,545)   (907,023)
Net income (loss) before non-controlling interests   (278,173)   (6,850,010)   (753,348)   (7,456,054)
Net income (loss) attributable to non-controlling interests   (68,336)   (93,010)   (134,835)   (173,635)
Net income (loss) attributable to Oncotelic Therapeutics, Inc.   (209,837)  $(6,757,000)  $(618,513)  $(7,282,419)
                     
Basic net income (loss) per share attributable to common stock  $(0.00)  $(0.02)  $(0.00)  $(0.02)
Basic weighted average common stock outstanding   401,595,958    394,374,227    401,487,247    393,829,610 

 

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 SIX MONTHS ENDED JUNE 30, 2024

(Unaudited)

 

                          
            Additional       Non-     
    Common Stock   Paid-in   Accumulated   controlling   Stockholders’ 
    Shares   Amount   Capital   Deficit   Interests   Equity 
                          
Balance at January 1, 2024    399,184,128   $3,991,839   $41,655,026   $(33,516,736)  $(518,592)  $    11,611,537 
Common shares issued upon partial conversion of debt    500,000    5,000    108,029         -    113,029 
Net Loss                   (408,676)   (66,499)   (475,175)
Balance at March 31, 2024    399,684,128    3,996,839    41,763,055    (33,925,412)   (585,091)   11,249,391 
                                
Common shares issued upon partial conversion of debt    7,605,760    76,060    456,345              532,405 
Net loss                   (209,837)   (68,336)   (278,173)
Balance at June 30, 2024    407,289,888   $4,072,899   $42,219,400   $(34,135,249)  $(653,427)  $11,503,623 

 

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

 

5

 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated STATEMENT of STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023

(Unaudited)

 

                          
    Common Stock  

Additional

Paid-in

   Accumulated   Non controlling   Stockholders’ 
    Shares   Amount   Capital   Deficit   Interests   Equity 
                          
Balance at January 1, 2023    391,846,880   $3,918,469   $41,416,632   $(25,926,069)  $(215,620)  $       19,193,412 
Adoption of ASU 2020-06              (521,749)   312,426         (209,323)
Common shares issued upon partial conversion of debt    1,025,000    10,250    61,499    -    -    71,749 
Net loss                   (525,419)   (80,625)   (606,044)
Balance at March 31, 2023    392,871,880    3,928,719    40,956,382    (26,139,062)   (296,245)   18,449,794 
                                
Common shares issued in connection with debt conversion    4,659,710    46,597    279,567    -    -    326,164 
Net income/(loss)    -    -    -    (6,757,000)   (93,010)   (6,850,010)
Balance as of June 30, 2023    397,531,590   $3,975,316   $41,235,949   $(32,896,062)  $(389,255)  $11,925,948 

 

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

 

6

 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(Unaudited)

 

         
   For the Six Months Ended June 30, 
   2024   2023 
Cash flows from operating activities:          
Net loss  $(753,348)  $(7,456,054)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Goodwill impairment   -    6,083,146 
Amortization of debt discount and deferred finance costs   102,352    251,782 
Change in fair value of derivative   (26,106)   327,594 
Loss on debt conversion   88,258    - 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   (18,410)   (38,000)
Accounts payable and accrued expenses   113,106    117,289 
Accounts payable to related party   959    14,663 
Net cash provided by (used in) operating activities   (493,189)   (699,580)
           
Cash flows from financing activities:          
Proceeds from / (repayment to) private placement   -    (50,000)
Proceeds from short term loans, others   395,000    690,000 
Net cash provided by financing activities   395,000    640,000 
           
Net increase (decrease) in cash   (98,189)   (59,580)
           
Cash and restricted cash - beginning of period   190,405    261,452 
           
Cash and restricted cash - end of period  $92,216   $201,872 
           
Supplemental cash flow information:          
Cash paid for:          
Interest paid  $188,515   $197,458 
Non-cash investing and financing activities:          
Common shares issued upon conversion of debt  $557,176   $397,912 
Loss on extinguishment of debt  $

88,258

   $- 
Adoption of ASU 2020-06, net   -   $(209,323)

 

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; Pet2DAO, Inc (“Pet2DAO”) and EdgePoint AI, Inc. (“Edgepoint”), a Delaware Corporation for which there are non-controlling interests, (Oncotelic, Oncotelic Inc., PointR, Pet2DAO 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 2022 Annual Report on Form 10-K filed with the SEC on April 12, 2024.

 

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 2 and 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 JV will also be sponsoring many investigator-initiated studies for OT-101 for other oncology indications. 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 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. The Company was working with the Biomedical Advanced Research and Development Authority (“BARDA”) to conduct an observational study to evaluate the effects of long COVID-19 and had been provided a grant of up to $0.75 million for the study; however, BARDA discontinued that program with the Company. 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 2023 Annual report on Form 10- K filed with the SEC on April 12, 2024.

 

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Fundraising

 

Private Placement 2 & JH Darbie Financing

 

Between July 2023 and September 2023, the Company entered into a series of subscription agreements with 15 accredited investors which resulted in a conversion of a gross amount of $1.0 million, consisting of 40 notes, under the prior JH Darbie Financing into new debt to the Company. JH Darbie and the Company are parties to a March 2023 placement agent agreement (“Agreement”) pursuant to which JH Darbie has the right to sell/convert a minimum of 10 Units and a maximum of 200 Units on a best-efforts basis. Further, in October 2023, the Company entered into a series of subscription agreements with 27 accredited investors which resulted in a conversion of a gross amount of $1.05 million, consisting of 42 notes, under the prior JH Darbie Financing into new debt to the Company. Additionally, in January 2024, Company entered into a series of subscription agreements with 4 accredited investors which resulted in a conversion of a gross amount of $0.3 million, consisting of 12 notes. The July 2023, October 2023 and January 2024 conversions fully converted JH Darbie PPM-1 notes into PPM-2 notes. For more information on the new JH Darbie Financing, refer to Note 8 of these Notes to the Consolidated Financial Statements.

 

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

 

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 (“Common Stock’) 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 year ended December 31, 2022. The approximately 33 million warrants to purchase shares of our Common Stock expired on March 31, 2024. For more information on the JD Darbie financing, refer to Note 7 of these unaudited Notes to the Consolidated Financial Statements.

 

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 for the EPL on April 12, 2024 with the SEC and the SEC has made the post-effective amendment effective on April 22, 2024. The Company filed a prospectus under rule 424b3 with the SEC on April 26, 2024. For more information on the EPL, refer to Note 10 of the Notes to the Unaudited Consolidated Financial Statements.

 

August 2021 Notes

 

In August 2021, the Company issued Note Purchase Agreements with Autotelic Inc., the Company’s Chief Financial Officer (“CFO”), and certain other accredited investors. Under the terms of the Note Purchase Agreements, the Company issued an aggregate of $698,500 (the “Principal Amount”) in debt in the form of unsecured convertible promissory notes (collectively, the “Notes”). The Notes are unsecured, and provide for interest at the rate of 5% per annum. For more information on the debt financing of the Company, refer to Note 5 of the Notes to the Consolidated Financial Statements.

 

November-December 2021 and March 2022 Notes

 

In November / 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”), 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 “Notes”), and which Notes were convertible into shares of the Company’s common stock, par value $0.01 per share (“Common Stock”). In June 2022, Mast fully converted their November 2021 Note, for which the company issued 4,025,000 shares of Common Stock. Further, during the year ended December 31, 2023, the Company fully converted the balance of Fourth Man convertible note of approximately $127,000 into 1,820,395 shares of the Company’s common stock, which fully retired the convertible note as of June 30, 2024.

 

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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, which Note is convertible into shares of the Company’s Common Stock. As of June 30, 2024, this note is in default and available for conversion into the Company’s Common Stock due to cross default provision contained in November / December 2021 Notes. During the six months ended June 30, 2024, Fourth Man converted a portion of the March 2022 debt, including interest, and conversion fee, of approximately $35,000 for 500,000 shares of the Company’s Common Stock.

 

For more information on the debt financing of the Company, refer to Note 5 of the Notes to the 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. In May 2024, the May 2022 Note was extended till May 27, 2025, at a cost of 10% of the outstanding Note amount, including interest and penalty. For more information on the debt financing of the Company, refer to Note 5 of the Notes to the Consolidated Financial Statements.

 

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 was convertible into shares of the Company’s Common Stock. During the six months ended June 30, 2024, Blue Lake converted the balance of their debt, including accrued interest and penalty, of approximately $531,000 for approximately 7.6 million shares of the Company’s Common Stock.

 

For more information on the debt financing of the Company, refer to Note 5 of the Notes to the Consolidated Financial Statements.

 

Forever Prosperity (previously GMP) Note purchase agreements and unsecured notes

 

Between June 2020 and January 2022, the Company entered into various purchase agreements and promissory notes with GMP, cumulatively totaling $4.5 million. Such notes were assigned to Forever Prosperity, LLC, an affiliated entity of GMP.

 

For more information on the GMP debt financing, refer to Note 5 of the Notes to the Consolidated Financial Statements.

 

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 unaudited Notes to the Consolidated Financial Statements.

 

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Pet2DAO

 

In November 2022, the Company formed a Decentralized autonomous organization (“DAO”) entity, Pet2DAO LLC (“Pet2DAO”), as a wholly owned subsidiary.

 

For more information on Pet2DAO, refer to our 2023 Annual Report on Form 10-K filed with the SEC on April 12, 2024.

 

Mosaic ImmunoEngineering, Inc. Term Sheet

 

In April 2024, the Company entered into a binding term sheet (the “Term Sheet”) with Mosaic ImmunoEngineering, Inc. (“Mosaic”). For more information on the Term Sheet, refer to the Current Report on Form 8-K filed with the SEC on April 29, 2024.

 

Licensing Agreement with Autotelic Inc.

 

In September 2021, the Company entered into an exclusive License Agreement (the “Agreement”) with Autotelic, Inc. (“Autotelic”). For more information on the Agreement, refer to our 2023 10-K filed with the SEC on April 12, 2024.

 

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-K and Regulation S-X.

 

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 $34 million since inception of Oncotelic Inc., as the Company’s historical financial statements before the Merger have been replaced with the historical financial statements of Oncotelic Inc. The Company also has a negative working capital of approximately $16.0 million at June 30, 2024, of which approximately $2.6 million contingent liability of issuance of common shares of the Company to PointR shareholders upon achievement of certain milestones in accordance with the PointR Merger Agreement. The Company has negative cash flows from operations for the six months ended June 30, 2024 of approximately $0.5 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of this filing Management expects to incur 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.

 

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.

 

The Company obtained short terms loans of approximately $0.4 million from Autotelic Inc., a related party, during the six months ended June 30, 2024. In addition, the Company obtained a short term loan of $15 thousand from Amit Shah, it’s CFO during the six months ended June 30, 2024.

 

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

 

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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 June 30, 2024, and December 31, 2023 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 June 30, 2024 and December 31, 2023, respectively. Restricted cash consists of certificates of deposits held at banks as collateral.

 

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.

 

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.

 

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

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

   

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

   

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

The Company did not have any Level 1 or Level 2 assets and liabilities at June 30, 2024 and December 31, 2023.

 

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 June 30, 2024 and December 31, 2023:

 

   Initial Book Value   Cumulative Gross
Unrealized Gains
   Cumulative Gross
Unrealized Losses
   Fair Value 
June 30, 2024                    
Investment in GMP Bio (equity securities)  $22,653,225   $       -   $        -   $22,653,225 
Total  $22,653,225   $-   $-   $22,653,225 

 

   Initial Book Value   Cumulative Gross
Unrealized Gains
   Cumulative Gross
Unrealized Losses
   Fair Value 
December 31, 2023                    
Investment in GMP Bio (equity securities)  $22,640,521   $12,704   $       -   $22,653,225 
Total  $22,640,521   $12,704   $-   $22,653,225 

 

The table above 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 June 30, 2024 and December 31, 2023. During the six months ended June 30, 2024, there have been no changes in the long-term value of the investment in equity securities of GMP Bio.

 

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Derivative Liability

 

The Company has certain derivative liabilities associated with its 2019 bridge financing Convertible Notes (see Note 5), which consisted of conversion feature derivatives at June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023:

 

   June 30, 2024
Conversion Feature
   December 31, 2023
Conversion Feature
 
Balance at January 1, 2024 and 2023  $423,214   $198,140 
New derivative liability   -    - 
Reclassification to additional paid in capital from conversion of debt to common stock   -    - 
Change in fair value   (26,106)   225,074 
           
Balance at June 30, 2024 and December 31, 2023  $397,108   $423,214 

 

As of June 30, 2024, and December 31, 2023, 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 June 30, 2024 and December 31, 2023, respectively:

 

   June 30, 2024   December 31, 2023 
   Key   Key 
   Assumptions   Assumptions 
   for fair value   for fair value 
   of conversions   of conversions 
Risk free interest   5.03% - 5.09%   4.64% - 5.40%
Market price of share  $0.04 - 0.03   $0.03 - 0.05 
Life of instrument in years   0.01    0.01 
Volatility   226.9% -210.64%   142.45%-236.86%
Dividend yield   0%   0%

 

When the Company changes its valuation inputs for measuring financial liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended June 30, 2024 and 2023, respectively, there were no transfers of financial assets or financial liabilities between the hierarchy levels.

 

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. The Company initially recorded the contingency based on a valuation conducted by a third-party valuation expert. The valuation was based on a probability of the completion of certain milestones by PointR for the shareholders to earn additional shares. The Company evaluated the probability of the earning of the milestones and concluded that the probability of achievement of the milestones had not changed, primarily due to the shifting of focus by the Company to develop AI technologies for the COVID-19 pandemic as well as other AI technologies. As such, the Company did not record any change to the valuation during the six months ended June 30, 2024 or 2023, respectively.

 

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Net Income (Loss) Per Share

 

Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share includes the effect of Common Stock equivalents (notes convertible into Common Stock, stock options and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. For the three and six months ended June 30, 2024 and 2023, no equivalent shares of the Common Stock were excluded as the company has a loss and addition of such stock equivalents in the computation would have been 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 and members of the Board of Directors (the “Board”) for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.

 

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 six months ended June 30, 2024 and June 30, 2023, respectively, there were no impairment losses recognized for long-lived assets.

 

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 six months ended June 30, 2024 and June 30, 2023, 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.

 

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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 six months ended June 30, 2024, no impairment was recognized towards goodwill. For the three and six months ended June 30, 2023, we recorded an impairment loss of approximately $6.1 million, based on the difference between the carrying value of our goodwill as against the market capitalization of the Company. For more information on goodwill and impairment, refer to Note 3 to these Notes to the Consolidated Financial Statements.

 

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 based on the price of our Common Stock as of December 31 each year, 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.

 

Convertible Instruments

 

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

 

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

 

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The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with ASC 470-20 “Debt – Debt with Conversion and Other Options.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Original issue discounts (“OID”) 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 June 30, 2024 and June 30, 2023, the Company identified EdgePoint to be the Company’s sole VIE. At June 30, 2024 and June 30, 2023, the Company’s ownership percentage of EdgePoint was 29% and 29%, respectively. The VIE’s net assets were less than $0.1 million at June 30, 2024 and December 31, 2023, 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.

 

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.

 

17

 

 

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.

 

Embedded debt costs in convertible debt instruments

 

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 adopted ASU 2020-06 effective January 1, 2023 and has removed the effects of any embedded conversion features from certain of our convertible instruments as of that date.

 

Revenue Recognition

 

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

 

18

 

 

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.

 

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 adopted ASU 2020-06 effective January 1, 2023 and recorded approximately $0.5 million as a reduction to the additional paid in capital and added approximately $0.3 million to the opening retained earnings in accordance with the authoritative guidance under ASU 2020-06.

 

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

 

NOTE 3 - INTANGIBLE ASSETS AND GOODWILL

 

Goodwill from 2019 Reverse Merger with Oncotelic and PointR

 

The Company completed the reverse 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.

 

19

 

 

The Oncotelic merger gave rise to Goodwill of approximately $4.9 million. 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.

 

Further, we added goodwill of $16,182,456 upon the completion of the Merger with PointR.

 

We have one operating segment and reporting unit. Accordingly, our review of goodwill impairment indicators was performed at the entity-wide level. In performing our annual impairment assessment, we determined if we should qualitatively assess whether it was more likely than not the fair value of goodwill was less than its carrying amount (the qualitative impairment test). The factors we considered in the assessment included our market capitalization, general macroeconomic conditions, conditions specific to the industry and market and whether there had been sustained declines in our share price. If we concluded, it was more likely than not, the fair value of the reporting unit was less than its carrying amount, or elected not to use the qualitative impairment test, a quantitative impairment test would be performed.

 

We used our market capitalization as an indicator of fair value. While we believe the fair value measurement need not be based solely on the quoted market price of an individual share of our Common Stock, and that we also could consider the impact of a control premium in measuring the fair value of its reporting unit. In the absence of any other valuation metrics, the Company believed using a control premium utilized would not be appropriate under the current circumstances. We also considered some other market comparables’ trends in our stock price as well as the industry over a period of two successive quarters and prospective quarter to evaluate whether the fair value of our reporting unit was greater than our carrying amount. As such, we performed a quantitative impairment assessment of goodwill for our single reporting unit at the end of 2023, due to a sustained decline in our market capitalization and an increase in negative economic outlook for biotech markets We estimated and reconciled the fair value of our reporting unit utilizing our market capitalization based on the stock price of our Common Stock as of December 31, 2023. Before completing our goodwill impairment test, we first tested our indefinite-lived intangible asset then our remaining long-lived assets for impairment. We concluded our indefinite-lived intangible assets were not impaired. Based on the market capitalization, we further concluded the fair value of our single reporting unit was less than its carrying value and therefore recognized an impairment charge of $6.1 million during the year ended December 31, 2023. The calculation of the impairment charge included substantial fact-based determinations and estimates. The Company evaluated if it needed to record any additional goodwill impairment as of June 30, 2024, based solely on the market capitalization of the Company and concluded that no further impairment was required to be recorded for the six months ended June 30, 2024.

 

A summary of our goodwill as of June 30, 2024 and December 31, 2023 is shown below:

 

   June 30,
2024
   December 31,
2023
 
Balance at January 1, 2024 and 2023  $5,988,230   $12,071,376 
Less: Goodwill impairment due to market capitalization   -    (6,083,146)
           
Balance at June 30, 2024 and December 31, 2023  $5,988,230   $5,988,230 

 

In general, the goodwill is tested on an annual impairment date of December 31, unless we observe any further deterioration in our market capitalization in any interim periods, in which case we may, depending on the materiality of the impairment, record an impairment at the end of other reporting periods, as we did during the course of the year ended December 31, 2023.

 

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. After the formation of the JV with Dragon, the costs of development and maintenance are now the responsibility of the JV.

 

20

 

 

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 March 31, 2024 and December 31, 2023, respectively, was $1,101,760. For more information on the IPR&D, please refer to our 2023 Annual Report on Form 10-K filed with the SEC on April 12, 2024.

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expense consists of the following amounts:

  

  

June 30,
2024

   December 31,
2023
 
         
Accounts payable  $1,685,898   $1,656,613 
Accrued expense   775,062    780,708 
Accounts payable and accrued liabilities  $2,460,960   $2,437,321 

 

  

June 30,
2024

   December 31,
2023
 
         
Accounts payable – related party  $345,058   $344,099 

 

NOTE 5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT

 

As of June 30, 2024 and December 31, 2023, special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, consist of the following amounts:

 

   June 30,
2024
   December 31,
2023
 
Current Debt          
Convertible debentures          
10% Convertible note payable – Bridge Investor  $35,556   $35,556 
10% Convertible note payable – Related Party   164,444    164,444 
10% Convertible note payable – Bridge Investor   200,000    200,000 
Convertible note payable   400,000    400,000 
Fall 2019 Notes          
5% Convertible note payable – Stephen Boesch   131,458    128,958 
5% Convertible note payable – Related Party   307,483    301,233 
5% Convertible note payable – Dr. Sanjay Jha (Through his family trust)   307,003    300,753 
5% Convertible note payable – CEO & CFO – Related Parties   100,609    98,559 
5% Convertible note payable – Bridge Investors   206,122    201,922 
Convertible note payable   1,052,675    1,031,425 
August 2021 Convertible Notes          
5% Convertible note – Autotelic Inc– Related Party   286,302    280,052 
5% Convertible note – Bridge investors   427,737    418,399 
5% Convertible note – CFO – Related Party   85,894    84,018 
 Convertible note payable    799,933    782,469 
JH Darbie PPM Debt          
16% Convertible Notes – Non-related parties   -    311,693 
16% Convertible Notes – CEO – Related Party   -    - 
Convertible note payable   -    311,693 
           
November/December 2021 & March 2022 Notes          
16% Convertible Notes – Accredited Investors   216,903    233,393 
           
Debt for Clinical Trials – Forever Prosperity ( Formerly GMP)          
2% Convertible Notes – Forever Prosperity   4,794,877    4,750,000 
           
May and June 2022 Note          
16% Convertible Notes – Accredited Investors   951,870    1,401,283 
           
Other Debt          
Short term debt – Bridge investors   210,000    210,000 
Short term debt from CFO – Related Party   50,050    35,050 
Short term debt – Autotelic Inc. – Related Party   1,850,000    1,470,000 
Short Term Debt from CEO – Related Party   50,000    50,000 
 Short term debt    2,160,050    1,765,050 
Total of short term convertible debentures & notes and other debt  $10,376,308    10,675,313 

 

21

 

 

   June 30,
2024
   December 31,
2023
 
Long Term Debt          
JH Darbie PPM 2 Debt          
16% Convertible Notes - Non-related parties   2,102,116    1,773,468 
16% Convertible Notes – CEO – Related Party   125,000    125,000 
 Convertible note payable    2,227,116    1,898,468 

 

Convertible Debentures

 

As of June 30, 2024, the Company had a derivative liability of approximately $397,000 and recorded a change in fair value of approximately $263,000 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 (the “Trieu Note”) and a 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 2023 Annual Report on Form 10-K filed with the SEC on April 12, 2024.

 

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 approximately $0 for the three months ended March 31, 2024 and 2023, respectively. Total unamortized discount on this note was approximately $0 as of March 31, 2024, and December 31, 2023, 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 2023 Annual Report on Form 10-K filed with the SEC on April 12, 2024.

 

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 $0 for the six months June 30, 2024, and 2023, respectively. Total unamortized discount on this note was approximately $0 as of June 30, 2024, and December 31, 2023.

 

In August 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 2023 Annual Report on Form 10-K filed with the SEC on April 12, 2024.

 

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 $0 for the six months ended June 30, 2024, and 2023, respectively. Total unamortized discount on this note was $0 as of June 30, 2024, and December 31, 2023.

 

Fall 2019 Debt Financing

 

Between November and December 2019, the Company closed its Fall 2019 Debt Financing and entered into certain Note Purchase Agreements (the “Fall 2019 Note Purchase Agreements”) with certain accredited investors and the officers of the Company for the sale of convertible promissory notes (the “Fall 2019 Notes”). The Company issued Fall 2019 Notes in the principal amount of $250,000 to each of Dr. Vuong Trieu, the Company’s Chief Executive Officer, and Stephen Boesch, in exchange for gross proceeds of $500,000. Further, the Company issued Fall 2019 Notes to additional investors including $250,000 to Dr. Sanjay Jha, through his family trust, the former CEO of Motorola and COO/President of Qualcomm. The Company also offset certain amounts due to Dr. Vuong Trieu, the Company’s Chief Executive Officer, Chulho Park, the Company’s then Chief Technology Officer, and Amit Shah, the Company’s Chief Financial Officer, all related parties as Officers of the Company, and converted such amounts due into the Fall 2019 Notes. $35,000 due to Dr. Vuong Trieu, $27,000 due to Chulho Park and $20,000 due to Amit Shah were converted into convertible debt under the Fall 2019 Notes. The Company also issued the Fall 2019 Notes of $168,000 to two accredited investors.

 

All the Fall 2019 Notes provided for interest at the rate of 5% per annum and are unsecured. For more information on the Fall 2019 Debt Financing, refer to our 2023 Annual Report on Form 10-K filed with the SEC on April 12, 2024.

 

There was no activity during the six months ended June 30, 2024 and 2023. The total unamortized principal amount of the Fall 2019 Notes was $850,000 as of June 30, 2024, and December 31, 2023.

 

Further, the Company recorded interest expense of $10,625 and $21,250 on these Fall 2019 Notes for the three and six months ended June 30, 2024. Similarly, the Company recorded interest expense of $10,625 and $21,250 for the three and six months ended June 30, 2023 on the Fall 2019 Notes. The total amount outstanding under the Fall 2019 Notes, net of discounts and including accrued interest thereon, as of June 30, 2024 and December 31, 2023, was $1,052,675 and $1,031,425, respectively.

 

22

 

 

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, 2023. 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 June 30, 2024, 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, 2023. 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. As of June 30, 2024, GMP was invoiced by the clinical research organization for $1.5 million. Till date, GMP paid the clinical trial organization the $1.0 million.

 

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. 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, 2024.

 

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. GMP agreed to extend the date of maturity of the January 2022 Note to December 31, 2024.

 

Cumulatively, the GMP Note, GMP Note 2, October 2021 Note and the January 2022 Notes are referred to as the “GMP Notes”. The GMP Notes carry an interest rate of 2% per annum and mature 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). All Notes contain a voluntary conversion mechanism whereby GMP may convert the outstanding principal and accrued interest under the terms of all the GMP Notes 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 Notes 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 Notes, plus accrued but unpaid interest, will become immediately due and payable in cash. The October Purchase Agreement requires the Company to use of the proceeds received under the October 2021 Note to support the clinical development of OT-101, including payroll and has been made in continuation of the relationship between the Company and GMP. All the GMP notes were assigned to Forever Prosperity, LLC, an affiliated entity of GMP. The total principal outstanding on all the GMP notes, inclusive of accrued interest, was approximately $4.79 million and $4.75 million, both as of June 30, 2024, and December 31, 2023, respectively. During the three and six months ended June 30, 2024, and 2023, the Company incurred approximately $22,400 and $44,850 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 approximately $691,000. 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 December 31, 2024. 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.

 

23

 

 

As of June 30, 2024, and December 31, 2023, the August 2021 convertible notes, inclusive of accrued interest, consist of the following amounts:

 

   June 30,
2024
   December 31,
2023
 
Autotelic Related party convertible note, 5% coupon December 2023  $286,302   $280,052 
Accredited investors convertible note, 5% coupon December 2023   427,737    418,399 
CFO Related party convertible note, 5% coupon December 2023   85,894    84,018 
Convertible notes  $799,933   $782,469 

 

During the three and six months ended June 30, 2024 and 2023, the Company recognized approximately $8,700 and approximately $17,500 of interest expense on the August 2021 Investors notes, of which approximately $4,000 and approximately $8,100 are attributable to related parties, respectively.

 

At June 30, 2024, and December 31, 2023, accrued interests on these convertible notes totaled approximately $101,400 and $84,000, respectively.

 

November – December 2021 and March 2022 Financing

 

In November / 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 Stock at a strike price of $0.13 up to five years after issuance. The Placement agent was also granted a total of 961,540 warrants convertible into an equivalent number of the Company Common Stock at a strike price of $0.13 up to five years after issuance, as part of a finder’s fee agreement.

 

Further, 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. As of December 31, 2022, this note is in Investors have 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 of 125,000 warrants convertible into an equivalent number of the Company Common Stock at a strike price of $0.20 up to five years after issuance, as part of a finder’s fee agreement.

 

As of June 30, 2024, all of the November- December 2021 notes and any accrued interest, are fully converted.

 

24

 

 

As of June 30, 2024, and December 31, 2023, the March 2022 Fourth Man convertible note, including accrued interest and net of debt discount, consist of the following amounts:

 

    June 30,
2024
    December 31,
2023
 
             
Fourth Man Convertible note, 16% coupon March 2023 inclusive of accrued interest and default provision   $ 216,903     $ 233,393  
Unamortized debt discount     -       -  
Convertible notes, net   $ 216,903       233,393  

 

In February 2024, the Company converted $35,000 in principal, accrued interest and legal fees into 500,000 shares of common stock. The Company recognized approximately $8,400 and $17,000 of interest during the three and six months ended June 30, 2024. Similarly, the Company recognized approximately $8,400 and $22,800 of interest during the three and six months ended June 30, 2023. As of June 30, 2024, the Fourth Man note was in technical default as the Company failed to repay the principal at the maturity date. However, the Company has not received notification of default from the lender. The default provision requires the accrual of a default penalty of 25% of the outstanding principal plus accrued interest. The Company has recorded an estimated default penalty of approximately $70,000. As of June 30, 2024, and December 31, 2023, the balance of the unamortized debt discount was $0. The Company adopted ASU 2020-06 on January 1, 2023, which resulted in the reversal of the original BCF amount to additional paid in capital for $109,349, reversal of the unamortized debt discount related to the BCF for $25,489 with the balance being recorded through retained earnings for $78,460.

 

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 were be used to retire some of the November/December 2021 notes.

 

As of June 30, 2024, and December 31, 2023, the May 2022 Mast Financing, net of debt discount, consist of the following amounts:

 

   June 30,
2024
   December 31,
2023
 
Mast Hill Convertible note, 12% coupon May 2023, inclusive of accrued interest and penalty  $951,870   $905,484 
Convertible notes, net  $951,870   $905,484 

 

Accrued interest was approximately $174,000 and $131,000 as of June 30, 2024 and December 31, 2023, which is the guaranteed twelve-month coupon and earned in full at issuance date. The May 2022 Mast Note was extended through May 27, 2024 at a cost of approximately $82 thousand, and which is included in the amount outstanding and payable to Mast as of June 30, 2024. Accrued interest was $80,667 as of June 30, 2023.

 

The Company recognized approximately $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 during the three and six months ended June 30, 2024 compared to approximately $56,500 and approximately $146,500 ended June 30, 2023, respectively.

 

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Effective January 1, 2023, the Company adopted ASU 2020-06, which resulted in the reversal of the original BCF amount to additional paid in capital for approximately $0.2 million, a reversal of the unamortized debt discount related to the BCF for approximately $0.1 million, with the balance of approximately $0.1 million being recorded through retained earnings.

 

June 2022 Blue Lake 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.

 

In May 2024, Blue Lake converted the balance of their note of approximately $531,000 including principal, accrued interest and default penalty, into 7,605,760 common shares of the Company.

 

As of June 30, 2024, and December 31, 2023, convertible note under the June 2022 Blue Lake Financing, net of debt discount, consist of the following amounts:

 

   June 30,
2024
   December 31,
2023
 
Blue Lake Convertible note, 16% coupon June 2023, inclusive of accrued interest and penalty  $-   $495,800 
Convertible notes, net  $-   $495,800 

 

The Company recognized approximately $8,500 and $35,000 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 during the three and six months ended June 30, 2024, respectively.

 

The Company adopted ASU 2020-06 effective January 1, 2023, which resulted in the reversal of the original BCF amount to additional paid in capital of approximately $0.2 million, reversal of the unamortized debt discount of approximately $0.1 million related to the BCF and the balance of $0.1 million being recorded through retained earnings.

 

Other short-term advances

 

As of June 30, 2024 compared to December 31, 2023, other short-term advances consist of the following amounts obtained from various employees and related parties:

 

Other Advances 

June 30,
2024

  

December 31,
2023

 
Short term advance from CFO – Related Party  $50,050   $35,050 
Short term advance from CEO – Related Party   50,000    50,000 
Short term advances – bridge investors & others   210,000    210,000 
Short term advances – Autotelic Inc. – Related Party   1,850,000    1,470,000 
Short term advance  $2,160,050   $1,765,050 

 

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During the year ended December 31, 2023, Autotelic provided $1.4 million in various short-term loans to the Company. During the six months ended June 30, 2024 Autotelic Inc. provided additional short-term funding of $380,000 to the Company. As such, approximately $1.9 million was outstanding and payable to Autotelic at June 30, 2024.

 

The Company’s CFO was owed approximately $25 thousand at December 31, 2022. During the year ended December 31, 2023, the company’s CFO provided additional short-term advance of $10 thousand. During the six months ended June 30, 2024, the CFO provided additional short-term funding of $15 thousand. As such, approximately $50 thousand was outstanding from the Company’s CFO at June 30, 2024.

 

In December 2023, the Company received $50 thousand from the company’s CEO. As such, $50 thousand was outstanding to the Company’s CEO at June 30, 2024.

 

As of June 30, 2024 and December 31, 2023, respectively, approximately $210,000 was outstanding as short-term advances from certain bridge investors.

 

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”). For more information on the JV, JVA, and Agreements, refer to our 2022 Annual Report on Form 10-K/A filed with the SEC on April 19, 2023.

 

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 June 30, 2024, the JV had approximately $__ million in assets, not including GMP Bio’s capital subscriptions of approximately $__ million; recorded approximately $__ million in liabilities and incurred approximately $__ million and approximately $1.5 million in operational expenses for the six months ended June 30, 2024 and 2023, respectively. While GMP’s fiscal year commences on April 1 and ends on March 31, the Company has reported the operational expenses for the same fiscal period as the Company. 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. GMP Bio conducted a fair value valuation study of the entity. Based on the results of the valuation study and the 45% ownership of the Company in GMP Bio, the Company reported a change in fair value of the Company. As such, the Company reported a change in fair value of the investment in GMP Bio of approximately $13 thousand at December 31, 2023. No change has been assessed to the fair value of the company during the six months ended June 30, 2024.

 

A summary of the change in fair value of our investment in GMP Bio, as of June 30, 2024 and December 31, 2023 is shown below:

 

   June 30,
2024
  

December 31,

2023

 
Balance at January 1, 2024 and 2023  $22,653,225   $22,640,521 
Add: change in fair value of investment in GMP Bio   -    12,704 
           
Balance at December 31, 2024 and 2023  $22,653,225   $22,653,225 

 

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

 

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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 $1.00 per share or up to 138,889 shares of the Company’s common stock, at a conversion price of $0.18 per share.
  50,000 warrants to purchase an equivalent number of shares of Edge Point Common stock at $1.00 per share and an equivalent number of shares of the Company’s common stock at $0.20 per share with a three-year expiration date.

 

During the period between July 2023 and January 2024, the Company converted the debt of forty six accredited investors from the JH Darbie Financing (now referred to as “PPM-1”) into the new subscription agreements under the new financing (“PPM-2”- See Note 8 below), which resulted in conversion of $2.35 million of old debt into new debt to the Company.

 

As June 30, 2024 and December 31, 2023 funds received under the JH Darbie Financing, net of debt discount, consist of the following amounts:

 

   June 30,
2024
   December 31,
2023
 
Convertible promissory notes          
Subscription agreements - accredited investors  $-   $311,693 
Subscription agreements – related party   -    - 
Total convertible promissory notes  $-   $311,693 

 

The Company incurred approximately $0.64 million of issuance costs, including legal costs of approximately $39,000, that are incremental costs directly related to the issuance of the various instruments bundled in the offering.

 

Concurrently with the sale of the Units, JH Darbie was granted a warrant, exercisable over a five-year period, to purchase 10% of the number of Units sold in the JH Darbie Financing. As such, the Company granted 10 Units to JH Darbie pursuant to the JH Darbie Placement Agreement.

 

The terms of convertible notes are summarized as follows:

 

  Term: Through March 31, 2022, extended further to March 31, 2023
  Coupon: 16%.
  Convertible at the option of the holder at any time in the Company’s Common Stock or Edgepoint Common Stock.
  The conversion price is initially set at $0.18 per share for the Company’s Common Stock or $1.00 for Edgepoint Common Stock, subject to adjustment.

 

In February 2022, the Company and all except one of the Investors agreed to extend the maturity date of the Notes from March 31, 2022, to March 31, 2023. In consideration for the extension of the Notes, the Company issued to the Investors an aggregate of 33,000,066 Oncotelic Warrants at a price of $0.15 per share of Company’s Common Stock. Each Investor were entitled to receive 333,334 Oncotelic Warrants for each Unit purchased. Upon the amendment of the terms of the convertible notes under the private placement memorandum. As incentive to extend the maturity date, approximately 33 million warrants were issued to the Unit Holders who participated in the amendment. The approximately 33 million warrants to purchase shares of our Common Stock expired on March 31, 2024. The Company repaid the 1-unit holder who did not participate in the amendment shortly after March 31, 2022. Further, during the year ended December 31, 2023, the Company repaid two of the unit holders, who held 5 units and opted not to participate in the new JH Darbie financing. While the Company had been in default under the PPM-1 since April 2023, as of the date of this Quarterly Report, with the conversion of the rest of the Note Holders under the PPM-1, the event of default has been addressed.

 

28

 

 

The Company recognized amortization expense related to the debt discount and debt issuance costs of approximately $0 and $8,400 for the six months ended June 30, 2024 and, 2023 respectively, which is included in interest expense in the statements of operations.

 

NOTE 8 – PRIVATE PLACEMENT -2 (PPM-2) AND JH DARBIE FUNDING

 

During the period between July 2023 to January 2024, the Company entered into a series of subscription agreements with forty six accredited investors (the “Financing”) whereby the Company issued and converted a total of 94 Units from the previous PPM (“PPM -1”- See Note 7 above) into the current subscription agreements under the PPM-2, which resulted in conversion of $2.35 million of old debt into new debt to the Company; and the Company did not receive any cash proceeds through the July 2023 through January 2024 conversions., with each Unit consisting of:

 

  One 16% convertible unsecured promissory note (the “Note”) of $25,000, convertible into up to 250,000 shares of the Company’s common stock (par value of $0.01) based on a conversion price of $0.10 per share.
     
  250,000 warrants to purchase an equivalent number of shares of the Company’s common stock at a strike price of $0.12 per share (“Oncotelic warrant”).

 

JH Darbie and the Company are parties to a March 2023 placement agent agreement (“Agreement”) pursuant to which DH Darbie had the right to sell a minimum of 10 Units and a maximum of 200 Units on a best-efforts basis. For the 4 tranches of conversion related to PPM 2, placement agent fees of $377,500 were paid to JH Darbie. Based on the placement agent agreement, JH Darbie was entitled to a non-refundable $25,000 fee to start the due diligence process and 2% due diligence fees and 13% commissions on all subsequent conversions or new funding. In addition, the Company provided warrant coverage equal to 13 % of all of the units sold to JH Darbie. As the Company converted an aggregate of 94 units, JH Darbie was entitled to earn a total of 3,055,000 warrants. A total of 5 unit holders under the PPM-1 opted not to participate in the PPM-2.

 

In connection with the consummation of Tranche 1, 2 and 3 and 4 of the July 2023 PPM, the Company entered into a Registration Rights Agreement granting certain registration rights with respect to the shares of the Company’s Common Stock issued in connection with the financing, as well as the shares of the Company’s Common Stock issuable upon exercise of the Warrants. The issuance of the Units is exempt from the registration requirements of the Securities Act of 1933, as amended (“Securities Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506 of Regulation D promulgated thereunder. The shares of common stock and warrants and any shares of common stock issuable upon exercise of the warrants, have not been registered under the Securities Act or any other applicable securities laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act.

 

As of June 30, 2024 and December 31, 2023, the PPM2 - JH Darbie Financing, net of debt discounts, consisted of the following amounts:

 

  

June 30,

2024

  

December 31,
2023

 
Convertible promissory notes          
PPM-2 Darbie Financing, inclusive of accrued interest, including related parties  $2,227,116   $1,898,468 
Total PPM-2 Darbie Financing, net of discounts  $2,227,116   $1,898,468 

 

29

 

 

The Company incurred approximately $0.4 million of issuance costs under the PPM-2 and are incremental costs directly related to the issuance of the various instruments bundled in the offering. Concurrently with the sale of the Units, JH Darbie was granted a total of 3,055,000 stock warrants, exercisable over a two-year period.

 

The terms of convertible notes are summarized as follows:

 

  Term: through January 31, 2026
  Coupon: 16%
  Convertible at the option of the holder at any time into the Company’s common stock
  Conversion price is set at $0.10 per share subject to standard anti-dilution provision.

 

Management reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments and concluded that the terms of the agreements were substantially different and, accounted for the transaction as a debt extinguishment. The transaction related to T4 resulted in a loss from debt extinguishment of approximately $88,000, which is presented in other expense in the consolidated statements of operations for the year ended March 31, 2024. The estimated volume weighted grant date fair value of approximately $0.026 per share associated with the warrants to purchase up to 3,390,000 shares of common stock issued in this offering, or a total of approximately $88,000 was recorded to additional paid-in capital. All warrants sold in this offering have an exercise price of $0.12 per share of the Company stock, subject to adjustment, are exercisable immediately and expire two years from the date of issuance. The fair value of the warrants was estimated using a Black Scholes valuation models using the following input values:

 

 

Expected Term   2 years 
Expected volatility   173%
Risk-free interest rate   4.29%
Dividend   0.00%

 

The Company recorded approximately $318,000 as an initial debt discount related to the four tranches of PPM 2. The Company recognized amortization expense related to the debt discount and debt issuance costs of approximately $38,000 and $77,000 for the three and six months ended June 30, 2024. Further, the Company recognized amortization expense of approximately $122,000 for the year ended December 31, 2023. The amortization expense has been included in interest expense in the statements of operations of the respective periods. No similar debt discounts, debt issuance costs or amortizations were recorded during the three and the six month period ended June 30, 2023.

 

During the six months ended June 30, 2024, the Company incurred approximately $176,000 of interest expense related to the convertible notes. No similar interest expense was recorded during the same periods of 2023.

 

NOTE 9 - RELATED PARTY TRANSACTIONS

 

Master Service Agreement with Autotelic Inc.

 

In October 2015, Oncotelic entered into a Master Service Agreement (the “MSA”) with Autotelic Inc., a related party that is partly-owned by the Company’s CEO Vuong Trieu, Ph.D. Dr. Trieu, a related party, is a control person in Autotelic Inc. Autotelic Inc. currently owns less than 10% of the Company. The MSA stated that Autotelic Inc. would provide business functions and services to the Company and allowed Autotelic Inc. to charge the Company for these expenses paid on its behalf. The MSA includes personnel costs allocated based on amount of time incurred and other services such as consultant fees, clinical studies, conferences and other operating expenses incurred on behalf of the Company. The Company had minimally used the services under the MSA since the formation of the JV with Dragon. The MSA requires a 90-day written termination notice in the event either party requires to terminate such services.

 

Expenses related to the MSA were approximately $500 and $1,000 and for the three and six months ended June 30, 2024 as compared to $0 and approximately $11,000 for the same period of 2023.

 

30
 

 

License Agreement with Autotelic Inc.

 

In September 2021, the Company entered into an exclusive License Agreement with Autotelic. For more information on the exclusive license Agreement with Autotelic, refer to our 2023 Annual Report on Form 10-K filed with SEC on April 15, 2024.

 

Note Payable and Short-Term Loan – Related Parties

 

In April 2019, the Company issued a convertible note to Dr. Trieu totaling $164,444, including OID of $16,444, receiving net proceeds of $148,000, which was used by the Company for working capital and general corporate purposes. The Company issued a Fall 2019 Note to Dr. Trieu in the principal amount of $250,000. Dr. Trieu also offset certain amounts due to him in the amount of $35,000 and was converted into the Fall 2019 debt. During the year ended December 31, 2020, Dr. Trieu purchased a total of 5 Units under the private placement for a gross total of $250,000. During the year ended December 31, 2023, Dr Trieu provided short term loan of $50 thousand to the Company.

 

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 $120,000 short-term loan to the Company during the year ended December 31, 2022. During the year ended December 31, 2023, Autotelic provided $1.4 million in short term advances to the Company. In addition, Autotelic provided a short term advance of $380,000 during the six months ended June 30, 2024 and as such, approximately $1.9 million was outstanding and payable to Autotelic at June 30, 2024.

 

Artius Consulting Agreement

 

On March 9, 2020, the Company and Artius Bioconsulting, LLC (“Artius”), for which Mr. King is the Managing Member, entered into an amendment to the Consulting Agreement dated December 1, 2018, under which Artius agreed to serve as a consultant to the Company for services related to the Company’s business from time to time, effective December 1, 2019 (the “Effective Date”) (the “Artius Agreement”). For more information on this Agreement, refer to our 2023 Annual Report on Form 10-K filed with the SEC on April 12, 2024.

 

No expense was recorded during the six months ended June 30, 2024 and 2023, respectively, related to this Agreement.

 

Maida Consulting Agreement

 

Effective May 5, 2020, the Company and Dr. Maida entered into an independent consulting agreement, commencing April 1, 2020 (the “Maida Agreement”), under which Dr. Maida will assist the Company in providing medical expertise and advice from time to time in the design, conduct and oversight of the Company’s existing and future clinical trials. For more information on this Agreement, refer to our 2023 Annual Report on Form 10-K filed with the SEC on April 15, 2024.

 

The Company recorded an expense of $0 during the six months ended June 30, 2024 and 2023 related to this Agreement. Effective April 1, 2022, Dr Maida’s compensation shall be borne by the JVA with GMP Bio.

 

NOTE 10 - EQUITY PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT

 

On May 3, 2021, the Company entered into an Equity Purchase Agreement (“EPL”) and Registration Rights Agreement with Peak One Opportunity Fund LP (“Peak One” or the “Investor”). For further information on EPL, refer to our 2023 Annual Report on Form 10-K filed with the SEC on April 12, 2024. The Company also filed a post-effective amendment Registration Statement on Form S-1 with the Commission on April 12, 2024, and the Form S-1 was declared effective on April 22, 2024. The Company filed the prospectus under rule 424b3 with the SEC on April 26, 2024.

 

During the six months ended June 30, 2024 and 2023, the Company did not sell any shares of Common Stock under the EPL.

 

31
 

 

NOTE 11 - STOCKHOLDERS’ EQUITY

 

The following transactions affected the Company’s Stockholders’ Equity:

 

Issuance of Common Stock during the six months ended June 30, 2024

 

In February 2024, Fourth Man partially converted $35,000 of their debt. In connection with the partial Note conversion, the Company issued 500,000 shares of Common Stock to Fourth Man.

 

In May 2024, Blue Lake converted the balance of their $531,000 debt, inclusive of accrued interest and penalty, into 7,605,760 shares of Common Stock of the Company.

 

Issuance of Common Stock during the six months ended June 30, 2023

 

In February 2023, Blue Lake partially converted $71,750 of their debt. In connection with the partial Note conversion, the Company issued 1,025,000 shares of Common Stock to Blue Lake.

 

In June 2023, Blue Lake converted the full remainder of their $181,750 debt, accrued interest and penalty. In connection with this Note conversion, the Company issued 3,466,853 shares of Common Stock to Blue Lake.

 

In May and June 2023, Fourth Man converted $50,000 in principal and $30,000 in accrued interest into 1,192,857 shares of common stock.

 

NOTE 12– STOCK-BASED COMPENSATION

 

Options

 

Pursuant to the Merger, the Company’s Common Stock and corresponding outstanding options survived. The below information details the Company’s associated option activity.

 

As of June 30, 2024, the Company had options to purchase Common Stock that were outstanding under three stock option plans – the 2017 Equity Incentive Plan (the “2017 Plan”), the 2015 Equity Incentive Plan (the “2015 Plan”) and the 2005 Stock Plan (the “2005 Plan”). Under the 2017 Plan, up to 2,000,000 shares of the Company’s Common Stock may be issued pursuant to awards granted in the form of nonqualified stock options, restricted and unrestricted stock awards, and other stock-based awards. Under the 2015 and 2005 Plans, taken together, up to 27,250,000 shares of the Company’s Common Stock may be issued pursuant to awards granted in the form of incentive stock options, nonqualified stock options, restricted and unrestricted stock awards, and other stock-based awards

 

Employees, consultants, and directors are eligible for awards granted under the 2017 and 2015 Plans. Since the adoption of the 2015 Plan, no further awards may be granted under the 2005 Plan, although options previously granted remain outstanding in accordance with their terms.

 

Compensation based stock option activity for qualified and unqualified stock options are summarized as follows:

  

       Weighted 
       Average 
For the six months ended June 30, 2024  Shares   Exercise Price 
Outstanding at January 1, 2024   24,177,761   $0.21 
Expired or cancelled   -    - 
Outstanding at June 30, 2024   24,177,761    0.21 
Options exercisable at June 30, 2024   13,985,261    0.10 

 

32
 

 

       Weighted 
       Average 
For the six months ended June 30, 2023  Shares   Exercise Price 
Outstanding at January 1, 2023   25,690,261   $0.23 
Expired or cancelled   (1,512,500)   0.46