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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended September 30, 2021

 

or

 

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

 

For the Transition Period from _________ to _________

 

Commission file number: 000-21990

 

Oncotelic Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   13-3679168

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

29397 Agoura Road Suite 107

Agoura Hills, CA

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

 

(650) 635-7000

(Registrant’s telephone number, including area code)

 

Mateon Therapeutics, Inc.

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

 

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

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

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

 

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

 

 

 

 
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

(Formerly Mateon Therapeutics, Inc.)

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

 

TABLE OF CONTENTS

 

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

 

2
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

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

 

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

 

3
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

 

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

 

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

 

4
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated STATEMENT of STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

(Unaudited)

 

                                                                 
    Preferred Stock     Common Stock    

Additional

Paid-in

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

$

33,511,091      

$

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

 

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

 

5
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

 

    Preferred Stock     Common Stock    

Additional

Paid-in

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

 

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

 

6
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

                 
   

For the Nine Months Ended

September 30,

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

 

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

 

7
 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Description of Business

 

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

 

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

 

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

 

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

 

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

 

8
 

 

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

 

Recent Developments

 

Unsecured Convertible Notes

 

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

 

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

 

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

 

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

 

9
 

 

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

 

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

 

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

 

Equity Purchase Agreement

 

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

 

Geneva Roth Remark Notes

 

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

 

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

 

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

 

10
 

 

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

 

Licensing Agreement with Autotelic Inc.

 

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

 

Principles of Consolidation

 

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

 

Basis of Presentation

 

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

 

Liquidity and Going Concern

 

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

 

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

 

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

 

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

 

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

 

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

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

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

 

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

 

Cash

 

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

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

   

Sept. 30, 2021

Key Assumptions for fair value of conversions

   

Sept. 30, 2020

Key Assumptions for fair value of conversions

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

 

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

 

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Net Income (Loss) Per Share

 

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

 

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

 

Stock-Based Compensation

 

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

 

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

 

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

 

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

 

Impairment of Long-Lived Assets

 

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

 

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Intangible Assets

 

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

 

Goodwill

 

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

 

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

 

Derivative Financial Instruments Indexed to the Company’s Common Stock

 

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

 

Convertible Instruments

 

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

 

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

 

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

 

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

 

Revenue Recognition

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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Agreement with Autotelic BIO (“ATB”)

 

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

 

Research & Development Costs

 

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

 

Prior Period Reclassifications

 

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

 

Recent Accounting Pronouncements

 

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

 

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

 

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

 

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

 

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NOTE 3 - INTANGIBLE ASSETS AND GOODWILL

 

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

 

Assignment and Assumption Agreement with Autotelic, Inc.

 

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

 

Intangible Asset Summary

 

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

 

    Sept 30, 2021    

Remaining

Estimated
Useful Life
(Years)

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

 

    December 31, 2020    

Remaining

Estimated
Useful Life (Years)

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

 

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

 

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

 

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

 

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

 

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

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expense consists of the following amounts:

 

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

 

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

 

NOTE 5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT

 

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

 

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

 

19
 

 

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

 

    December 31, 2020  
Convertible debentures        
10% Convertible note payable, due April 23, 2022 - TFK     39,065  
10% Convertible note payable, due April 23, 2022 – Related Party     14,256  
10% Convertible note payable, due April 23, 2022 – Bridge Investor     69,848  
10% Convertible note payable, due August 6, 2022 – Bridge Investor     168,421  
      291,590  
Fall 2019 Notes        
5% Convertible note payable – Stephen Boesch     213,046  
5% Convertible note payable – Related Party     263,733  
5% Convertible note payable – Dr. Sanjay Jha (Through his family trust)     263,253  
5% Convertible note payable – CEO, CTO & CFO     86,257  
5% Convertible note payable – Bridge Investors     176,722  
      1,003,011  
Other Debt        
Short term debt from CFO     25,000  
Short term debt from CEO     20,000  
Other short term debt – Bridge Investor     50,000  
      95,000  
Total of debentures, notes and other debt   $ 1,389,601  

 

Convertible Debentures

 

The gross principal balances on the convertible debentures listed above totaled $1,000,000 and included an initial debt discount totaling $800,140, resulting from the recording of the original issue discount, the related financing costs, the beneficial conversion feature for the intrinsic value of the non-bifurcated conversion option and the restricted shares issued contemporaneously with the convertible notes.

 

Total amortization expense related to these debt discounts was $110,528 and $611,681 for the nine months ended September 30, 2021, and 2020, respectively. In addition, during the nine months ended September 30, 2021 and 2020, we recorded additional and accelerated amortization of debt discounts, which was created from the bifurcation of the conversion option related the host hybrid instruments, of $24,491 and $262,556, respectively upon the partial and/or full conversion of debt by Peak One and TFK to shares of the Company’s common stock. The total unamortized debt discount at September 30, 2021 and December 31, 2020, was approximately $64,452, respectively.

 

20
 

 

All the above notes issued to Peak One, TFK, our CEO and the bridge investors reached the 180 days during the year ended December 31, 2020. As such, all the note holders had the ability to convert that debt into equity at the variable conversion price of 65% of the Company’s lowest traded price after the first 180 days or at the lower of the Fixed Price or 55% of the Company’s traded stock price under certain circumstances. This gave rise to a derivative feature within the debt instrument. As of December 31, 2020, we had a derivative liability of approximately $777,000. The Company decrease the fair value of the derivative liability by approximately $241,000 during the nine months ended September 30, 2021. The Company also extinguished approximately $145,000 of derivative liability following the conversion of certain notes to the Company’s common stock in the nine months ended September 30, 2021.

 

The Company recorded additional derivative liability of approximately $870,000 during the nine months ended September 30, 2020 since the conversion option attached to certain notes became convertible into a variable number of shares of our common stock. The Company also extinguished approximately $574,000 of derivative liability following the conversion of certain notes to the Company’s common stock in the nine months ended September 30, 2020. Following the recognition as derivative liability of the embedded conversion options, the Company fully amortized the remaining unamortized beneficial conversion feature for approximately $232,000, recorded an initial $258,070 from the initial recognition of the debt discount following the bifurcation of the embedded conversion option. As of September 30, 2020, the Company had a derivative liability of approximately $776,000 and a change in fair value of approximately $60,500.

 

Bridge Financing

 

Peak One Financing

 

On April 17, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Peak One Opportunity Fund, L.P. (the “Buyer”, “Peak One”), for a commitment to purchase convertible notes in the aggregate amount of $400,000, pursuant to which, for an aggregate purchase price of $400,000, the Buyer purchased (a) Tranche #1 in the form of a Convertible Promissory Note in the principal amount of $200,000 (the “Convertible Note”) and (b) 350,000 restricted shares of the Company’s Common Stock (the “Shares”) (the “Purchase and Sale Transaction”). The Company used the net proceeds from the Purchase and Sale Transaction for working capital and general corporate purposes.

 

The Convertible Note has a principal balance of $200,000, including a 10%$ OID of $20,000 and $5,000 in debt issuance costs, receiving net proceeds of $175,000, with a maturity date of April 23, 2022. Upon the occurrence of certain events of default, the Buyer, amongst other remedies, has the right to charge a penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under the Convertible Note may also be converted into shares (the “Tranche #1 Conversion Shares”) of the Company’s Common Stock at any time, at the option of the holder, at (i) a conversion price, during the first 180 days, of $0.10 per share (the “Fixed Price”), and then (2) at the lower of the Fixed Price or 65% of the Company’s lowest traded price after the first 180 days or at the lower of the Fixed Price or 55% of the Company’s traded stock price under certain circumstances. The Company has agreed to at all times, reserve and keep available out of its authorized Common Stock a number of shares equal to at least two times the full number of the Tranche #1 Conversion Shares. The Company may redeem the Convertible Note at rates of 110% to 140% over the principal balance dependent on certain events and redeem the value with accrued interest thereon, if any.

 

The issuance of the Convertible Note resulted in a discount from the beneficial conversion feature totaling $84,570, including $52,285 related to the beneficial conversion feature and a discount from the issuance of restricted stock of 350,000 shares for $32,285. Total amortization of these OID and debt issuance cost discounts totaled $0 for the 3 months ended September 30, 2021. Total unamortized discount on this note was $0 and $0 at September 30, 2021 and December 31, 2020, respectively.

 

On June 12, 2019, the Company entered into an amendment of the Purchase Agreement (“Amendment #1”) in connection with the draw-down of the second tranche, and to provide for additional borrowing capacity under that agreement. Amendment #1 increased the borrowing amount up to $600,000, adding the ability to borrow an additional $200,000 in a third tranche.

 

On June 12, 2019, the Buyer purchased Convertible Note Tranche #2 (“Tranche #2”) totaling $200,000, including a 10% OID of $20,000 and a $1,000 debt issuance cost, receiving net proceeds of $179,000 against the April 17, 2019, Purchase Agreement with Peak One, with a maturity date of June 12, 2022. Amounts due under Tranche #2 are convertible at the same terms as Tranche #1 above.

 

The issuance of Tranche #2 resulted in a discount from the beneficial conversion feature totaling $180,000, including $132,091 related to the conversion feature and a discount from the issuance of restricted stock of 350,000 shares for $47,909. Total amortization of these OID and debt issuance cost discounts totaled $0 for the 3 months ended September 30, 2021. Total unamortized discount on this note was $0 as of September 30, 2021.

 

21
 

 

On November 5, 2019, the Company and Peak One amended the Convertible Note under Tranche #1 to extend the date of conversion of the Convertible Note into Common Stock of the Company at 65% of the traded price of the Company’s Common Stock until January 8, 2020. This amendment put a temporary hold on Peak One to convert the debt under Tranche 1. This restriction did not apply if Peak One opted to convert the Convertible Note at $0.10. The Company compensated Peak One 300,000 shares of the Company’s Common Stock for delaying the conversion until January 18, 2020. Such shares were issued to Peak One on November 14, 2019. Non-cash compensation expense of $60,000 was recorded for such issuance.

 

Peak One converted $200,000 of Tranche #1 out of their total debt into 2,581,945 shares of the Company during the year ended December 31, 2020. Further, Peak One converted $200,000 of Tranche #2 of their total debt into 2,000,000 shares of the Company during the year ended December 31, 2020. As such, the total outstanding debt for Peak One was $0 as of September 30, 2021.

 

TFK Financing

 

On April 23, 2019, the Company, entered into a Convertible Note (the “TFK Note”) with TFK Investments, LLC (“TFK”). The TFK Note has a principal balance of $200,000, including a 10% OID of $20,000 and $5,000 in debt issuance costs, receiving net proceeds of $175,000, with a maturity date of April 23, 2022. Upon the occurrence of certain events of default, the Buyer, amongst other remedies, has the right to charge a penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under the Convertible Note may also be converted into shares (the “TFK Conversion Shares”) of the Company’s Common Stock at any time, at (i) a conversion price, during the first 180 days, of $0.10 per share (the “Fixed Price”), and then (2) at the lower of the Fixed Price or 65% of the Company’s lowest traded price after the first 180 days or at the lower of the Fixed Price or 55% of the Company’s traded stock price under certain circumstances. The Company has agreed to at all times reserve and keep available out of its authorized Common Stock a number of shares equal to at least two times the full number of the TFK Conversion Shares. The Company may redeem the Convertible Note at rates of 110% to 140% rates over the principal balance dependent on certain events and redeem the value with accrued interest thereon, if any.

 

The issuance of the TFK Note resulted in a discount from the beneficial conversion feature totaling $84,570, including $52,285 related to the beneficial conversion feature and a discount from the issuance of restricted, stock of 350,000 shares for $32,285. Total amortization of these OID and debt issuance cost discounts totaled $0 for the three months ended September 30, 2021. Total unamortized discount on this note was $0 and $3,589 as of September 30, 2021 and September 30, 2020 respectively.

 

On November 5, 2019, the Company and TFK amended the TFK Convertible Note to extend the date of conversion of the Convertible Note into Common Stock of the Company at 65% of the traded price of the Company’s Common Stock until January 8, 2020. This restriction did not apply if TFK wished to convert the Convertible Note at $0.10 per share. The Company compensated TFK 300,000 shares of the Company’s Common Stock for delaying the conversion until January 8, 2020. Such shares were issued to TFK on November 14, 2019. Non-cash compensation expense of $60,000 was recorded for such issuance.

 

TFK converted $133,430 of their total debt into 1,950,000 shares of common stock of the Company during the year ended December 31, 2020. As such, the total gross outstanding debt for TFK was approximately $67,000 as of December 31, 2020. TFK had a balance of approximately $109,000 related to the derivative liability as of December 31, 2020. The Company recorded approximately $38,000 as an increase in fair value for the derivative liability, and hence the TFK had a balance of approximately $145,000 of derivative liability. The Company extinguished the $145,000 of derivative liability and approximately $67,000 of the value of the debt, totaling approximately $210,000 following the conversion of the notes to the Company’s common stock during the nine months ended September 30, 2021 for a total of 657,200 shares of common stock of the Company and recorded a loss on the conversion of approximately $2,000 for the nine months ended September 30, 2021. As such, TFK’s debt as of September 30, 2021 was $0.

 

22
 

 

Notes with Officer and Bridge Investor

 

On April 17, 2019, the Company entered into a Securities Purchase Agreement (the “Bridge SPA”) with our CEO and the Bridge Investor with a commitment to purchase convertible notes in the aggregate of $400,000.

 

On April 23, 2019, the Company entered into a convertible note with our Chief Executive Officer, Vuong Trieu, Ph. D. (the “Trieu Note”). The Trieu Note has a principal balance of $164,444, including a 10% OID of $16,444, resulting in net proceeds of $148,000, with a maturity date of April 23, 2022. Upon the occurrence of certain events of default, the Buyer, amongst other remedies, has the right to charge a penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under the Convertible Note may also be converted into shares (the “Trieu Conversion Shares”) of the Company’s Common Stock at any time, at the option of the holder, at a conversion price of $0.10 per share (the “Fixed Price”), at the lower of the Fixed Price or 65% of the Company’s lowest traded price after the 180th day or at the lower of the Fixed Price or 55% of the Company’s traded stock price under certain circumstances. The Company has agreed to at all times reserve and keep available out of its authorized Common Stock a number of shares equal to at least two times the full number of Conversion Shares. The Company may redeem the Convertible Note at rates of 110% to 140% rates over the principal balance dependent on certain events and redeem the value with accrued interest thereon, if any.

 

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 10% OID discount and beneficial conversion feature totaled $2,743 and $5,486 for the nine months ended September 30, 2021, and 2020, respectively. Total unamortized discount on this note was $1,713 as of September 30, 2021.

 

On April 23, 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #1 (“Tranche #1”) with the Bridge Investor. Tranche #1 has a principal balance of $35,556, an OID of $3,556, resulting in net proceeds of $32,000, with a maturity date of April 23, 2022. Upon the occurrence of certain events of default, the Buyer, among other remedies, has the right to charge a penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under Tranche #1 may also be converted into shares (the “Bridge SPA Conversion Shares”) of the Company’s Common Stock at any time, at (i) a conversion price, during the first 180 days, of $0.10 per share (the “Fixed Price”), and then (2) at the lower of the Fixed Price or 65% of the Company’s lowest traded price after the first 180 days or at the lower of the Fixed Price or 55% of the Company’s traded stock price under certain circumstances. The Company may redeem the Convertible Note at rates of 110% to 140% rates over the principal balance dependent on certain events and redeem the value with accrued interest thereon, if any.

 

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 $1,407 for the nine months ended September 30, 2021. Total unamortized discount on this note was $14 as of September 30, 2021.

 

On August 6, 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #2 (“Tranche #2”) with the Bridge Investor. Tranche #2 has a principal balance of $200,000, an OID of $20,000 and debt issuance costs of $5,000, resulting in net proceeds of $175,000, with a maturity date of August 6, 2022. Upon the occurrence of certain events of default, the Buyer, among other remedies, has the right to charge a penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under Tranche #1 may also be converted into Bridge Conversion Shares of the Company’s Common Stock at any time, at the option of the holder, at a conversion price equal to the Fixed Price, at the lower of the Fixed Price or 65% of the Company’s lowest traded price after the 180th day or at the lower of the Fixed Price or 55% of the Company’s traded stock price under certain circumstances. The Company may redeem the Convertible Note at rates of 110% to 140% rates over the principal balance dependent on certain events and redeem the value with accrued interest thereon, if any.

 

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 $6,279 at September 30, 2021. Total unamortized discount on this note was $7,036 as of September 30, 2021.

 

All the above notes issued to TFK, our CEO and the bridge investors reached the 180 days prior to the end of the three months ended March 31, 2020. As such, all the note holders had the ability to convert that debt into equity at the variable conversion price of 65% of the Company’s lowest traded price after the first 180 days or at the lower of the Fixed Price or 55% of the Company’s traded stock price under certain circumstances. This gave rise to a derivative feature within the debt instrument. As of September 30, 2021, Peak One and TFK had fully converted their notes.

 

23
 

 

Fall 2019 Debt Financing

 

In December 2019, the Company closed its Fall 2019 Debt Financing, raising an additional $500,000 bringing the gross proceeds of all debt financings under the Fall 2019 Debt Financing to $1,000,000. The Company entered into those 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 completed the initial closing under the Fall 2019 Note Purchase Agreements in November 2019. 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. In connection with the second and final closing of the Fall 2019 Debt Financing, 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 Chief Technology Officer, and Amit Shah, the Company’s Chief Financial Officer 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 debt. The Company also issued the Fall 2019 Notes of $168,000 to two unaffiliated accredited investors. The balance of the Fall 2019 Notes was $850,000 and $950,000 as of September 30, 2021, and December 31, 2020, respectively.

 

All the Fall 2019 Notes provided for interest at the rate of 5% per annum and were unsecured. All amounts outstanding under the Fall 2019 Notes became due and payable upon the approval of the holders of a majority of the principal amount of outstanding Fall 2019 Notes (the “Majority Holders”) on or after (a) November 23, 2020, or (b) the occurrence of an event of default (either, the “Maturity Date”). The Company may prepay the Fall 2019 Notes at any time. Events of default under the Fall 2019 Notes include failure to make payments of any part of the principal or unpaid accrued interest under the Fall 2019 Notes for more than thirty (30) days after the maturity date, failure to observe of the Fall 2019 Note Purchase Agreement or Fall 2019 Notes which is not cured within thirty (30) days of notice of the breach, bankruptcy, or a change in control of the Company (as defined in the Fall 2019 Note Purchase Agreement).

 

The Majority Holders have the right, at any time not more than five (5) days following the Maturity Date, to elect to convert all, and not less than all, of the outstanding accrued and unpaid interest and principal on the Fall 2019 Notes. The Fall 2019 Notes may be converted, at the election of the Majority Holders, either (a) into shares of the Company’s Common Stock at a conversion price of $0.18 per share, or (b) into shares of common stock of the Edgepoint, at a conversion price of $5.00 (based on a $5.0 million pre-money valuation) of Edgepoint and 1,000,000 shares outstanding.

 

The issuance of the Fall 2019 notes resulted in a discount from the BCF totaling $222,222 related to the conversion feature. Total amortization of the discount totaled $0 and $111,112 for the nine months ended September 30, 2021, and 2020, respectively. Total unamortized discount on this note was $0 as of September 30, 2021.

 

 

Further, the Company recorded interest expense of $10,625 and $12,500 on these Fall 2019 Notes for the three months ended September 30, 2021, and 2020, respectively. The Company recorded interest expense of $32,787 and $37,500 on these Fall 2019 Notes for the nine months ended September 30, 2021, and 2020, respectively.

 

The total amount outstanding under the Fall 2019 Notes, net of discounts and including accrued interest thereon, as of September 30, 2021, and December 31, 2020, was $935,799 and $1,003,011, respectively.

 

Geneva Notes

 

In May and June 2021, the Company entered into Securities Purchase Agreement with Geneva Roth Remark Holdings Inc. (“Geneva”), whereby the Company issued two convertible notes in the aggregate principal amount of $307,500 convertible into shares of common stock of the Company with additional tranches of financing of up to $1,200,000 in the aggregate term of the note. The convertible notes carry a six (6%) percent coupon and a default coupon of 22%, and both mature one year from issuance. Geneva has the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following issuance date and ending on the maturity 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 sixty five (65%) percent multiplied by the lowest two (2) daily volume weighted average price over the fifteen (15) consecutive trading days. The convertible notes carry a put feature, at the option of Geneva, whereby upon the occurrence of certain events of default, the convertible notes repayment should be accelerated, in the amount of principal plus accrued but unpaid interest plus default interest, in cash with premium.

 

The total amount outstanding under the Geneva Notes, including accrued interest thereon, as of September 30, 2021, and December 31, 2020, was $313,472 and $0, respectively.

 

24
 

 

Paycheck Protection Program

 

In April 2020, the Company received loan proceeds in the amount of $250,000 under the Paycheck Protection Program (“1st PPP”) which was established under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and is administered by the Small Business Administration (“SBA”). The 1st PPP provides loans to qualifying businesses in amounts up to 2.5 times the average monthly payroll expenses and was designed to provide direct financial incentive to qualifying businesses to keep their workforce employed during the Coronavirus crisis. The Payment Protection Plan loans (“PPP Loans”) are uncollateralized and guaranteed by the SBA and forgivable after a “covered period” (8 weeks or 24 weeks) as long as the borrower maintained its payroll levels and uses the loan proceeds for eligible expenses, including payroll, benefits, mortgage interest, rent and utilities. The forgiveness amount would be reduced if the borrower terminated employees or reduced salaries and wages more than 25% during the covered period. Any unforgiven portion was payable over 2 years if issued before, or 5 years if issued after, June 5, 2020 at an interest rate of 1% with payments deferred until the SBA remits the borrowers loan forgiveness amount to the lender, or if the borrower did not apply for forgiveness, 10 months after the covered period. PPP loans provide for customary events of default, including payment defaults, breach of representations and warranties, and insolvency events and may be accelerated upon occurrence of one or more of these events of default. Additionally, the PPP Loans do not include prepayment penalties.

 

The Company met the 1st PPP loan forgiveness requirements and on August 7, 2021 applied for forgiveness. On Aug 17, 2021, the Company received the 1st PPP loan forgiveness approval from the lender and wrote off the loan outstanding amount inclusive of interest accrued, in the amount of $253,347. The Company recorded the amount forgiven as forgiveness income within the other income (expense) section of its statement of operations.

 

The SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after the forgiveness has been granted. In accordance with the CARES Act, all borrowers are required to maintain their PPP loan documentation for six years after the loan was forgiven or repaid in full and to provide that documentation to the SBA upon request.

 

The balance outstanding on 1st PPP loan, inclusive of accrued interest, was $0 and $251,733 on September 30, 2021 and December 31, 2020, respectively.

 

In July 2021, the Company’s wholly owned subsidiary, PointR, received loan proceeds in the amount of $92,995 under the PPP (“2nd PPP”). The 2nd PPP was at terms similar to the 1st PPP. The balance outstanding on the 2nd PPP loan was $92,995 and $0 on September 30, 2021 and December 30, 2020, 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 one year from the date of the GMP Note, at the Company’s Common Stock price on the date of conversion with no discount. GMP does not have the option to convert prior to the GMP Note’s maturity at the end of one year. 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. As of September 30, 2021, GMP has been invoiced by the clinical research organization for the full $2 million and as such the Company has recognized the liability as a convertible debt.

 

The balance outstanding on the GMP Note, inclusive of accrued interest, was $2,050,411 and $2,000,000 on September 30, 2021 and December 31, 2020, respectively.

 

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 does not have the option to convert prior to the GMP Note 2’s maturity at the end of one year. Such financing will be utilized solely to fund the clinical trial.

 

25
 

 

As of September 30, 2021, GMP was invoiced by the clinical research organization for $0.5 million. GMP paid the clinical trial organization the first tranche of $0.5 million in October 2021.

 

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

 

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

 

August 2021 Convertible Notes

 

In August 2021, the Company entered into Note Purchase Agreements with related party, affiliate entity, and accredited investors (the “August 2021 investors”), whereby the Company issued four convertible notes in the aggregate principal amount of $698,500 convertible into shares of common stock of the Company for net proceeds of $690,825. The convertible notes carry a five (5%) percent coupon and mature one year from issuance. The majority of the August 2021 investors have the right, but not the obligation, not more than five days following the maturity date, to convert all, but not less than all, the outstanding and unpaid principal plus accrued interest into the Company’s common stock, at a conversion price of $0.18. The 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 September 30, 2021, and December 31, 2020, convertible notes, net of debt discount, consist of the following amounts:

 

   

September 30,

2021

   

December 31,

2020

 
             
Related parties convertible note, 5% coupon August 2022   $ 251,952     $ -  
CFO convertible note, 5% coupon August 2022     75,586          
Accredited investors convertible note, 5% coupon August 2022     376,416       -  
    $ 703,954     $ -  

 

During the three and nine months ended September 30, 2021, the Company recognized approximately $5,400 of interest expense on the August 2021 Investors notes. No similar expense was recorded on such notes during the same periods of 2020. At September 30, 2021, accrued interest on these convertible notes totaled approximately $5,400, of which $2,600 are attributable to related parties.

 

26
 

 

Other short-term loans

 

As of September 30, 2021, other short term notes consist of the following amounts:

 

 

Other Debt  

September 30, 2021

 
Short term debt from CEO     20,000  
Short term debt – bridge investors     258,185  
Short term debt from CFO     45,050  
Short term debt – Autotelic Inc.     20,000  
      343,235  

 

The Company’s CEO had provided a short term loan of $70,000 to the Company during the year ended December 31, 2020, of which $50,000 was repaid. As such, $20,000 was outstanding at September 30, 2021. During the three months ended March 31, 2021, Autotelic Inc. provided a short-term funding of $120,000 to the Company, which was repaid after the three months ended March 31, 2021. On May 18, 2021, Autotelic provided an additional short-term funding of $250,000 to the Company, which was converted into the August 2021 Notes. Autotelic provided an additional $20,000 short-term loan to the Company, and as such, $20,000 was outstanding and payable to Autotelic at September 30, 2021.

 

During the fourth quarter of the year ended December 31, 2020, the Company’s CFO and the Bridge Investor provided short term loans of $25,000 and $50,000, respectively to the Company. Such loans were repaid as of March 31, 2021. During the nine months ended September 30, 2021, the CFO provided a total of approximately $120,000, of which $75,000 was converted into the August 2021 Notes. As such, a balance of approximately $45,000 remained outstanding as a short-term loan as of September 30, 2021.

 

During the nine months ended September 30, 2021, the Company received approximately $630,000 primarily from two bridge investors, of which $373,500 was converted into the August 2021 Notes, and approximately $258,000 was outstanding as a short-term loan as of September 30, 2021.

 

NOTE 6 - PRIVATE PLACEMENT AND JH DARBIE FINANCING

 

During the period from July 2020 to September 30, 2021, the Company entered into subscription agreements with certain accredited investors 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 or an equivalent number of shares of the Company’s common stock at $0.20 per share with a three-year expiration date.

 

As September30, 2021, funds received under the JH Darbie Financing, net of debt discount, consist of the following amounts:

 

    September 30, 2021  
Convertible promissory notes        
Subscription agreements - accredited investors   $ 2,073,480  
Subscription agreements – related party     101,115  
Total convertible promissory notes   $ 2,174,595  

 

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.

 

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The terms of convertible notes are summarized as follows:

 

  Term: Through June 30, 2021 (extended to March 31, 2022).
  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.

 

The Company allocated the proceeds among the freestanding financial instruments that were issued in the single transaction using the relative fair value method, which affects the determination of each financial instrument initial carrying amount. The Company utilized the relative fair value method as none of the freestanding financial instruments issued as part of the single transaction are measured at fair value. Under the relative fair value method, the Company made separate estimates of the fair value of each freestanding financial instrument and then allocated the proceeds in proportion to those fair value amounts. The Company recorded non-controlling interests of approximately $1 million in Edgepoint. Non-controlling interests represent the portion of net assets in consolidated entities that are not owned by the Company and are reported as a component of equity in the consolidated balance sheets.

 

As of the multiple closings of the Company during the three months ended March 31, 2021, under the private placement memorandum with JH Darbie, the estimated volume weighted grant date fair value of approximately $0.23 per share associated with the warrants to purchase up to 2,035,000 shares of common stock issued in this offering, or a total of approximately $ 0.5 million, was recorded to additional paid-in capital on a relative fair value basis. All warrants sold in this offering had an exercise price of $0.20 per share of the Company stock or $1.00 per share of Edge Point, subject to adjustment, are exercisable immediately and expire three 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     1.5 years  
Expected volatility     152.3%-164.8 %
Risk-free interest rates     0.09%-0.11 %
Dividend yields     0.00 %

 

As of the multiple closings of the Company through December 31, 2020, under the private placement memorandum with JH Darbie, the estimated grant date fair value of approximately $0.18 per share associated with the warrants to purchase up to 3,465,000 shares of common stock issued in this offering, or a total of approximately $0.6 million, was recorded to additional paid-in capital on a relative fair value basis. All warrants sold in this offering had an exercise price of $0.20 per share of the Company stock or $1.00 per share of Edge Point, subject to adjustment, are exercisable immediately and expire three 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     1.5 years  
Expected volatility     168.5%-191.9 %
Risk-free interest rates     0.12%-0.15 %
Dividend yields     0.00 %

 

The Company recorded an initial debt discount of approximately $0.7 million representing the intrinsic value of the non-bifurcated conversion option embedded in the convertible debt instrument based upon the difference between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price.

 

The Company recognized amortization expense related to the debt discount and debt issuance costs of $942,160 and $162,267 for the nine months ended June 30, 2021, and June 30, 2020, respectively, which is included in interest expense in the statements of operations.

 

In June 2021, the Company executed amendment #4 to the private placement memorandum. At the time of the original PPM, the Company had inadvertently made an error in the PPM. Originally, the investor was granted 50,000 of the Company’s warrants to purchase an equivalent number of shares of the Company’s common stock at a strike price of $0.20 or 50,000 warrants to purchase an equivalent number of Edgepoint’s common share at strike price of $1.00. However, the PPM was incorrectly written in that the investor could only invest in $10,000 (50,000 shares of common stock at $0.20 per share) of common stock of the Company) or $50,000 (50,000 shares of common stock in Edgepoint AI, Inc. at $1.00 per share). In conjunction with amendment #4 and to correct the error in the PPM, the Company approved the issuance of further 20,000,000 warrants to purchase shares of common stock of the Company to the investors in the 100 Units and 2,000,000 warrants to purchase shares of common stock of the Company to the Placement Agent at the same terms and conditions of the PPM. To clarify further, each unit will receive additional 200,000 warrants to purchase an equivalent number of shares of the Company’s common stock at $0.20 per share, so as to make it overall 250,000 warrants to buy an equivalent number of shares of the Company’s common stock, for which the investor would pay a total of $50,000 per unit invested upon exercise.

 

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In connection with the additional warrants issued by the Company in connection with the amendment #4, the Company recorded a stock-based compensation fair value expense of $2,023,522 during the nine months ended September 30, 2021. No similar expense was recorded during the same period of 2020. The fair value of the warrants was estimated using a Black Scholes valuation models using the following input values.

 

Expected Term   1-2 years  
Expected volatility     94.4%-130.0 %
Risk-free interest rates     0.08%-0.25 %
Dividend yields     0.00 %

 

NOTE 7 - 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. will 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 MSA requires a 90-day written termination notice in the event either party requires to terminate such services.

 

Expenses related to the MSA were $15,801 for the three months ended September 30, 2021 as compared to $6,011 for the same period of 2020. Expenses related to the MSA were $51,039 for the nine months ended September 30, 2021 as compared to $291,887 for the same period of 2020.

 

Licensing Agreement with Autotelic Inc.

 

In September 2021, the Company entered into an exclusive License Agreement (the “Agreement”) with Autotelic, Inc. (“Autotelic”), pursuant to which Autotelic granted Oncotelic, among other things: (i) the exclusive right and license to certain Autotelic Patents (as defined in the Agreement) and Autotelic Know-How (as defined in the Agreement); and (ii) a right of first refusal to acquire at least a majority of the outstanding capital stock of Autotelic prior to Autotelic entering into any transaction that is a financing collaboration, distribution revenues, earn-outs, sales, out-licensing, purchases, debt, royalties, merger acquisition, change of control, transfer of cash or non-cash assets, disposition of capital stock by way of tender or exchange offer, partnership or any other joint or collaborative venture, research collaboration, material transfer, sponsored research or similar transaction or agreements. In exchange for the rights granted to Oncotelic, Autotelic would be entitled to earn the following milestone payments (collectively, the “Milestone Payments”).

 

Milestones   Transaction Value     Actions
           
Tranche 1   $ 1,000,000     Upon the earlier to occur of: (i) the Company receiving an investment of at least $20 million, and (ii) the uplisting of the Company’s common stock to any NASDAQ market or the New York Stock Exchange.
             
Tranche 2   $ 2,000,000     Upon approval by the United States Food and Drug Administration of the Company’s 505(b)2 application for purposes of treating PD.
             
Tranche 3   $ 2,000,000     Upon first patient in (“FPI”) for any clinical trial supporting the use of AL-101 for the treatment of PD or ED.
             
Tranche 4   $ 2,500,000     Upon FPI for phase 2 clinical trials supporting the use of AL-101 to treat FSD.
             
Tranche 5   $ 2,500,000     Upon FPI for phase 3 clinical trials supporting the use of AL-101 to treat FSD
             
Tranche 6   $ 10,000,000     Upon Marketing approval for the use of AL-101 to treat PD.
             
Tranche 7   $ 10,000,000     Upon Marketing approval for the use of AL-101 to treat ED.
             
Tranche 8   $ 10,000,000     Upon Marketing approval for the use of AL-101 to treat FSD
             
Tranche 9   $ 10,000,000     Upon the earlier of: (i) the Company entering into a licensing agreement with a third party for the use of AL-101 for the treatment of PD, ED or FSD with an aggregate licensing value of at least $50 million; and (ii) the Company’s gross revenue derived from sales of AL-101 for the treatment of PD, ED or FSD reaches at least $50.0 million.

 

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In addition to the Milestone Payments, Autotelic will be entitled to royalties equal to 15% of the net sales of any products that incorporate the Autotelic Patents or Autotelic Know-How. The Agreement contains representations, warranties and indemnification provisions of each of the parties thereto that are customary for transactions of this type.

 

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 provided additional short-term funding of $70,000 to the Company, of which the Company repaid $50,000 prior to December 31, 2020. 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 three months ended March 31, 2021, Autotelic Inc, provided a short-term loan of $120,000 to the Company, which was repaid in April 2021. During the three months ended June 30, 2021, Autotelic Inc. provided a short-term loan of $250,000 to the Company, which was converted into a August 2021 Convertible Note. And a short term loan of $20,000.

 

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”). In connection with the Artius Agreement, Mr. King also agreed to assist the Company with strategic advisory services with respect to transactional and operational contracts, budgetary input, among other matters in connection with the formation of a new business unit to develop AI and Blockchain Driven Vision Systems (“EdgePoint AI”), for which Mr. King is Chief Executive Officer.

 

Under the terms of the Artius Agreement, the Company agreed to grant to Artius, subject to approval by the Company’s Board of Directors and pursuant to the Company’s 2017 Equity Incentive Plan, 148,837 restricted shares of the Company’s Common Stock, in addition to a 30% pre-financing ownership stake in EdgePoint AI. The Artius Agreement contemplates that Mr. King will generally provide his services at a rate of $237 per hour, not to exceed 44 hours per month and payable monthly, and to reimburse Mr. King for reasonable and necessary expenses incurred by him or Artius in connection with providing services to the Company.

 

Either the Company or Artius may terminate the Artius Agreement at any time, for any reason following the Effective Date. The Artius Agreement will automatically renew one year from the Effective Date, unless the Parties agree to terminate the Artius Agreement at that time.

 

The Company recorded an expense of $0 and $106,712 during the nine months ended September 30, 2021 and 2020, respectively, related to this Agreement.

 

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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.

 

Pursuant to the terms of the Maida Agreement, the Company will grant to Dr. Maida 400,000 restricted shares of the Company’s Common Stock corresponding to $80,000 at the stock value of $0.20 per share, to vest on May 5, 2021. The Company will also pay Dr. Maida $15,000 per month for a minimum of 20 hours per week, in in addition to reimbursement of reasonable and necessary expenses incurred by Dr. Maida in connection with his services to the Company.

 

Either the Company or Dr. Maida may terminate the Maida Agreement, for any reason, upon 30 days advance written notice.

 

The Company recorded an expense of $45,000 each during the three months ended September 30, 2021 and 2020 respectively. The Company recorded an expense of $135,000 during the nine months ended September 30, 2021 related to this Agreement as compared to $90,000 during the same period in 2020.

 

NOTE 8 - 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”). Under the terms of the EPL, the Company issued 250,000 shares of Common Stock to Peak One. Further, under the terms of the EPL, Peak One agreed to purchase from the Company up to $10,000,000 of the Company’s Common Stock upon effectiveness of a registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission and subject to certain limitations and conditions set forth in the Equity Purchase Agreement. The Registration Rights Agreement provided that the Company would (i) file the Registration Statement with the SEC by July 2, 2021; and (ii) use its best efforts to have the Registration Statement declared effective by the Commission at the earliest possible date (in any event, within 90 days after the execution date of the definitive agreements). The Company filed a Registration Statement on Form S-1 with the Commission on May 24, 2021, and the Form S-1 was declared effective on June 2, 2021.

 

Following effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the Equity Purchase Agreement, the Company shall have the discretion to deliver put notices to the Investor and the Investor will be obligated to purchase shares of the Company’s Common Stock based on the investment amount specified in each put notice. The minimum amount that the Company shall be entitled to put to the Investor in each put notice is $20,000 and the maximum amount is up to the lesser of $1.0 million or two hundred fifty percent (250%) of the average daily trading volume of the Company’s Common Stock defined as the average trading volume of the Company’s Common Stock in the ten (10) days preceding the date on the put notice multiplied by the lowest closing bid price in the ten (10) immediately preceding the date of the put notice. Pursuant to the Equity Purchase Agreement, the Investor will not be permitted to purchase, and the Company may not put shares of the Company’s Common Stock to the Investor that would result in the Investor’s beneficial ownership of the Company’s outstanding Common Stock exceeding 4.99%. The price of each put share shall be equal to ninety one percent (91%) of the market price, which is defined as the lesser of (i) closing bid price of the Common stock on the trading date immediately preceding the respective put date, or (ii) the lowest closing bid price of the Common Stock during the seven (7) trading days immediately following the clearing date associated with the applicable put notice.

 

In connection with the EPL, the Company recorded a non-cash cost of approximately $40,000 during the nine months ended September 30, 2021.

 

During the three months ended June 30, 2021, the Company sold a total of 400,000 shares of Common Stock at prices ranging from $0.15 and $0.23 for total gross proceeds of approximately $99,000, including issuance costs of approximately $29,000. In addition, the Company sold a total of 900,000 shares of Common Stock at prices at prices ranging from $0.11 to $0.12 for total gross proceeds of $110,000, including issuance costs of $11,000. Approximately $50,000 of the total net proceeds was received by the Company subsequent to September 30, 2021 and is included in the accounts receivable as of September 30, 2021.

 

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NOTE 9 - STOCKHOLDERS’ EQUITY

 

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

 

Equity Transactions During the Period Since the Merger with Oncotelic

 

Issuance and conversion of Preferred Stock

 

In April 2019, pursuant to the Oncotelic merger the Company issued 193,713 shares of Series A Preferred in exchange for 77,154 shares of Oncotelic Common Stock. Further, in November 2019 the Company issued 84,475 shares of Series A Preferred to PointR in exchange of 11,135,935 shares of PointR Common Stock upon the consummation of the PointR merger. In March 2021, 278,188 shares of the Company’s preferred stock converted to 278,187,847 shares of its Common Stock, effective March 31, 2021.

 

Issuance of Common Stock during the nine months ended September 30, 2021

 

In January 2021, the Company issued 657,200 shares of its Common Stock to TFK in connection with the part conversion of their convertible notes payable.

 

In March 2021, the Company converted 278,188 shares of our Series A Preferred Stock to 278,187,847 shares of its Common Stock.

 

In May 2021, the Company issued 250,000 shares of its Common Stock to Peak One in connection with the EPL and recorded a stock compensation expense of approximately $70,000.

 

In June 2021, the Company sold a total of 400,000 registered shares of Common Stock at prices ranging from $0.15 and $0.23 in connection with the EPL. The Company received net cash of approximately $70,000 against such sale.

 

In July 2021, the Company issued 1,257,952 shares of Common Stock to its employees in lieu of fully vested restricted stock units under the 2015 Equity Incentive Plan. The Company recorded a stock-based compensation cost of $226,431 related to such issuance.

 

In September 2021, the Company issued 310,000 shares of Common Stock to Equity NY in connection with certain services rendered by them and recorded a non-cash expense of $23,641.

 

In September 2021, the Company sold a total of 900,000 registered shares of Common Stock at prices ranging from $0.11 and $0.12 in connection with the EPL. The Company received net cash of approximately $110,000 against such sale.

 

Issuance of Common Stock during the nine months ended September 30, 2020

 

In February 2020, the Company issued 500,000 shares of its Common Stock to Peak One in connection with the part conversion of one of their convertible notes payable.

 

In March 2020, the Company issued 750,000 shares of its Common Stock to TFK in connection with the part conversion of their convertible notes payable.

 

In March 2020, the Company issued 500,000 shares of its Common Stock to Peak One in connection with the part conversion of one of their convertible notes payable.

 

In March 2020, the Company issued 1,012,145 shares of its Common Stock to TFK in connection with the part conversion of their convertible notes payable.

 

In February 2020, the Company issued 1,200,000 shares of its Common Stock to Peak One in connection with the part conversion of one of their convertible notes payable.

 

In June 2020, the Company issued 569,800 shares of its Common Stock to Peak One in connection with the full conversion of one of their convertible notes payable.

 

In July 2020, the Company issued 1,000,000 shares of its Common Stock to Peak One in connection with the partial conversion of Tranche 2 of their convertible notes payable.

 

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NOTE 10 – STOCK-BASED COMPENSATION

 

Options

 

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

 

As of September 30, 2021, options to purchase Common Stock 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 7,250,000 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. The Company registered an additional total of 20,000,000 shares of its Common Stock, which may be issued pursuant to the Registrant’s Amended and Restated 2015 Equity Incentive Plan (the “Plan”). Such additional shares were approved by the shareholders of the Company on August 10, 2020 and as reported to the Securities and Exchange Commission (the “SEC”) vide a Current Report on Form 8-K on August 14, 2020. As such, the total number of shares of the Company’s Common Stock available for issuance under the 2015 plan is 27,250,000. After June 30, 2021, the Company issued 1,257,952 of its common shares in lieu of fully vested restricted stock units and 4,244,809 incentive and non-qualified stock options to purchase its Common Stock to its employees. All these grants had been approved by the Board of Directors of the Company under the 2015 Plan.

 

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  
For the nine months ended September 30, 2021         Average  
    Shares     Exercise Price  
Outstanding at January 1, 2021     3,941,301     $ 0.78  
Issued during the three and nine months ended September 30, 2021     11,394,809       0.15  
Outstanding at September 30, 2021     15,336,110     $ 0.31  

 

For the year ended December 31, 2020

 

          Weighted  
          Average  
    Shares     Exercise Price  
Outstanding at January 1, 2020     6,145,044     $ 0.75  
Expired or canceled     (2,203,743 )     0.70  
Outstanding at December 31, 2020     3,941,301     $ 0.78  

 

The following table summarizes information about options to purchase shares of the Company’s Common Stock outstanding and exercisable at September 30, 2021:

 

                  Weighted-        
            Weighted-     Average        
      Outstanding     Average     Exercise     Number  
Exercise prices     Options     Remaining Life     Price     Exercisable  
                           
$ 0.14       7,150,000       9.92     $ 0.14       265,000  
  0.16       4,244,809       9.77       0.16       4,244,809  
  0.22       1,750,000       4.84       0.22       1,750,000  
  0.38       900,000       4.16       0.38       900,000  
  0.73       762,500       3.78       0.73       762,500  
  1.37       150,000       2.00       1.37       150,000  
  1.43       300,000       3.91       1.43       300,000  
  11.88       2,359       0.51       11.88       2,359  
  15.00       75,000       3.91       15.00       75,000  
  19.80       1,442       0.34       19.80       1,442  
          15,336,110       8.37     $ 0.31       8,451,110  

 

The compensation expense attributed to the issuance of the options is recognized as they are vested.

 

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The employee stock option plan stock options are generally exercisable for ten years from the grant date and vest over various terms from the grant date to three years.

 

The aggregate intrinsic value totaled $0 and was based on the Company’s closing stock price of $0.14 as of September 30, 2021, which would have been received by the option holders had all option holders exercised their options as of that date. Correspondingly, the aggregate intrinsic value totaled $0 and was based on the Company’s closing stock price of $0.22 as of December 31, 2020, which would have been received by the option holders had all option holders exercised their options as of that date.

 

As of September 30, 2021, there was no future compensation cost as all stock options vested prior to December 31, 2019 and the compensation was fully expensed prior to the 2019 merger between the Company and Oncotelic, Inc. In August 2019, the Company had entered into Employment Agreements and incentive compensation arrangements with each of its executive officers, including Dr. Vuong Trieu, the Chief Executive Officer (“CEO”); Dr. Chulho Park, its prior Chief Technology Officer (“CTO’); and Mr. Amit Shah, the Chief Financial Officer (“CFO”). The incentive stock options and the restricted stock awards approved for the Company’s executive officers were granted and issued in July 2021. The Company issued an aggregate of 1,257,952 of its common shares in lieu of fully vested restricted stock units and 4,244,809 incentive and non-qualified stock options to purchase its Common Stock to all its employees, including the awards due to the CEO, CFO, the prior CTO and Saran Saund, the Chief Business Officer of the Company. Further, the Company issued all its employees, including the CEO and CBO, 4,325,000 performance-based stock options that would vest over two tranches subject to certain corporate goals being achieved, none of which have vested as of September 30, 2021. In addition, the Company granted its Board of Directors and certain consultants 2,825,000 stock options, which for the Board of Directors vest over 5 quarters commencing the quarter ended September 30, 2021 and for the consultants on the same basis as the Company’s employees. Of the options granted to the Board members, 265,000 have vested as of September 30, 2021.

 

The Company recorded a fair value stock-based compensation of $299,890 for the vested stock options during the three and nine months ended September 30,2021. No similar expense was recorded during the same periods in 2020. The fair value of the stock compensation expense, using a Black Scholes valuation model, was calculated using the following input values.

 

Expected Term   1 year  
Expected volatility     97.3110.0 %
Risk-free interest rates     0.05 %
Dividend yields     0.00 %

 

In addition, the Company recorded a fair value stock-based compensation of $226,431 for the fully vested restricted stock units issued during the three and nine months ended September 30,2021, and which had been granted to the employees in August 2019. No similar expense was recorded during the same periods in 2020. The fair value of the stock compensation expense was calculated using the stock price of the restricted stock units on the date of the grant as they were fully vested.

 

Warrants

 

Pursuant to the Oncotelic merger, the Company’s Common Stock and corresponding outstanding warrants survived. The below information represents the Company’s associated warrant activity.

 

During the three months ended March 31, 2021, 2,035,000 warrants were issued related to private placement. The fair value of these warrants on issue date amounted to $467,637 with an expected life of 1.5 years, as calculated using Black Scholes valuation model. Further, during the three months ended June 30, 2021, and as disclosed in Note 6 above, the Company issued 20,000,000 warrants were issued related to private placement. The fair value of these warrants on issue date amounted to $2,023,552 with an expected life of 1-2 years, as calculated using Black Scholes valuation model.

 

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In February 2020, the Company offered to cancel to all the prior warrants of the warrant holders from the 2018 debt financing and offered to reissue new warrants to such warrant holders. Out of all the warrant holders, holders of 13,750,000 warrants opted to participate in the reissuance during the same period in 2020. The company recognized stock-based compensation of $2.1 million as the fair value of the warrants using a Black Scholes valuation model. No similar expense was recorded for the three months ended March 31, 2021.

 

The issuance of warrants to purchase shares of the Company’s Common Stock, including those attributed to debt issuances, as of September 30, 2021 and December 31, 2020 are summarized as follows:

 

          Weighted-  
          Average  
    Shares     Exercise Price  
Outstanding at January 1, 2021     18,702,500     $ 0.20  
Issued during nine months ended September 30, 2021     24,035,000       0.20  
Outstanding at September 30, 2021     42,737,500     $ 0.20  

 

          Weighted-  
          Average  
For the year ended December 31, 2020   Shares     Exercise Price  
             
Outstanding at January 1, 2020     19,515,787     $ 0.60  
Issued during the year ended December 31, 2020     17,215,000       0.20  
Expired or cancelled     (18,028,287 )     0.63  
Outstanding at December 31, 2020     18,702,500     $ 0.20  

 

The following table summarizes information about warrants outstanding and exercisable at September 30, 2021:

 

          Outstanding and exercisable  
                  Weighted-       Weighted-          
                  Average       Average          
          Number       Remaining Life       Exercise       Number  
  Exercise Price       Outstanding       in Years       Price       Exercisable  
                                     
$ 0.20       1,487,500       2.08     $ 0.20       1,487,500  
  0.20       41,250,000       2.15       0.20       41,250,000  
          42,737,500       2.15     $ 0.20       42,737,500  

 

The Company issued 24,035,000 warrants during the nine months ended September 30, 2021, of which 22,000,000 warrants issued during the three months ended June 30, 2021. The Company recorded stock-based compensation of approximately $2.0 million, as fair value of the warrants, using a Black Scholes valuation model using the following input values. The expense attributed to the issuances of the warrants was recognized as they vested/earned. These warrants are exercisable for three to five years from the grant date. All the warrants are currently exercisable.

 

         
Expected Term   1-2 years
Expected volatility     94.4130.0 %
Risk-free interest rates     0.080.25 %
Dividend yields