CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT

6 Months Ended

Jun. 30, 2024

Debt Disclosure [Abstract]

CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT

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
		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
		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
		799,933		782,469
JH Darbie PPM Debt
16% Convertible Notes – Non-related parties		-		311,693
16% Convertible Notes – CEO – Related Party		-		-
		-		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
		2,160,050		1,765,050
Total of short term convertible debentures & notes and other debt	$	10,376,308		10,675,313

	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
		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.

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.

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
	$	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.

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.

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
	$	2,160,050	$	1,765,050

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.