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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 March 31, 2022

 

or

 

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

 

For the Transition Period from _________ to _________

 

Commission file number: 000-21990

 

Oncotelic Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   13-3679168

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

29397 Agoura Road Suite 107

Agoura Hills, CA

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

 

(650) 635-7000

(Registrant’s telephone number, including area code)

 

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 May 16, 2022, there were 378,630,104 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 MARCH 31, 2021

 

TABLE OF CONTENTS

 

    Page
     
PART I. FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements (unaudited) 3
   
  Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 3
     
  Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 4
     
  Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021 5
     
  Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 7
     
  Notes to Consolidated Financial Statements 8
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 39
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 47
     
ITEM 4. Controls and Procedures 48
     
PART II. OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 49
   
ITEM 1A. Risk Factors 49
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
     
ITEM 3. Defaults Upon Senior Securities 50
     
ITEM 4. Mine Safety Disclosures 50
     
ITEM 5. Other Information 50
     
ITEM 6. Exhibits, Financial Statement Schedules 50
     
SIGNATURES 52

 

2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

      March 31, 2022       December 31, 2021  
    March 31,     December 31,  
    2022     2021  
             
ASSETS                
Current assets:                
Cash   $ 97,906     $ 568,769  
Restricted cash     20,000       20,000  
Accounts receivable     19,748       19,748  
Prepaid & other current assets     20,682       18,778  
                 
Total current assets     158,336       627,295  
                 
Intangibles, net of accumulated amortization of $201,180 and $188,339     809,000       821,841  
In process R&D     1,101,760       1,101,760  
Goodwill     21,062,455       21,062,455  
Total assets   $ 23,131,551     $ 23,613,351  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued liabilities   $ 3,525,102     $ 3,092,723  
Accounts payable to related party     358,074       403,423  
Contingent consideration     2,625,000       2,625,000  
Derivative liability on Notes     531,131       340,290  
Convertible and short-term debt, net of costs     8,931,916       8,166,622  
Convertible debt and short-term debt, related party, net of costs     837,737       826,862  
                 
Total current liabilities     16,808,960       15,454,920  
                 
Commitments and contingencies (Note 13)     -           
                 
Stockholders’ equity:                
Convertible preferred stock, $0.01 par value, 15,000,000 shares authorized; 0 shares issued and outstanding     -       -  
Common stock, $.01 par value; 750,000,000 shares authorized; 378,630,104 and 375,288,146 issued and outstanding, respectively     3,786,301       3,752,881  
Additional paid-in capital     38,444,903       35,223,842  
Accumulated deficit     (35,870,831 )     (31,021,050 )
                 
Total Oncotelic Therapeutics, Inc. stockholders’ equity     6,360,373       7,955,673  
Non-controlling interests     (37,782 )     202,758  
                 
Total stockholders’ equity     6,322,591       8,158,431  
Total liabilities and stockholders’ equity   $ 23,131,551     $ 23,613,351  

 

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

 

3

 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three MONTHS ended MARCH 31, 2022 and 2021

(Unaudited)

 

                 
    For the Three Months Ended
March 31,
 
    2022     2021  
             
Operating expenses:                
Research and development   $ 580,296     $ 1,556,672  
General and administrative     3,763,910       481,209  
Total operating expenses     4,344,206       2,037,881  
                 
Loss from operations     (4,344,206 )     (2,037,881 )
Other expense:                
Interest expense, net     (297,464 )     (520,907 )
Change in fair value of derivative on debt     (190,841 )      (536,345 )
Loss on extinguishment / conversion of debt     (257,810 )     (27,504 )
Total other expense     (746,115 )     (1,084,756 )
Net loss before non-controlling interests     (5,090,321 )     (3,122,637 )
Net loss attributable to non-controlling interests     (240,540 )     (319,557 )
Net loss attributable to Oncotelic Therapeutics, Inc.   $ (4,849,781 )   $ (2,803,080 )
                 
Basic and diluted net loss per share attributable to common stock   $ (0.01 )   $ (0.03 )
Basic and diluted weighted average common stock outstanding     377,392,785       94,193,348  

 

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 MONTHS ENDED MARCH 31, 2022

(Unaudited)

 

      Shares       Amount       Shares       Amount       Capital       Deficit       Interests       Equity  
    Preferred Stock     Common Stock    

Additional

Paid-in

    Accumulated     Non-controlling     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Interests     Equity  
                                                 
Balance at January 1, 2022     -     $ -       375,288,146     $ 3,752,881     $ 35,223,842     $ (31,021,050 )   $ 202,758     $ 8,158,431  
                                                                 
Common shares issued upon cashless exercise of warrants     -       -       3,041,958       30,420       (30,420 )     -        -      $ -  
Common shares issued for cash                     300,000       3,000       48,805                     $ 51,805  
Stock Compensation expense           -              -        297,360       -        -      $ 297,360  
Warrants issued in connection with note extension     -       -       -       -       2,905,316       -       -     $ 2,905,316  
Net loss     -       -                               (4,849,781 )     (240,540 )   $ (5,090,321 )
Balance at March 31, 2022     -     $          -         378,630,104     $   3,786,301     $   38,444,903     $   (35,870,831 )   $ (37,782 )   $ 6,322,591  

 

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

 

5

 

 

ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2021

 

 

      Shares       Amount       Shares       Amount       Capital       Deficit       Interests       Equity  
    Preferred Stock     Common Stock    

Additional

Paid-in

    Accumulated     Non-controlling     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Interests     Equity  
                                                 
Balance at January 1, 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 partial conversion of debt     (278,188 )     (2,782 )     278,187,847       2,781,878       (2,779,096 )     -       -       -  
Common shares issued upon partial 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  
Non-controlling interest of Edgepoint     -       -       -       -       -       -       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  

 

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 THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Unaudited)

 

      2022       2021  
    For the Three Months Ended March 31,  
    2022     2021  
Cash flows from operating activities:                
Net loss   $ (5,090,321 )   $ (3,122,637 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Stock-based cost on issuance of warrants    

2,874,896

      -  
Amortization of debt discount and deferred financing costs     176,659       421,217  
Amortization of intangible assets     12,841       12,841  
Stock-based compensation     297,360       -  
Depreciation on development equipment     -       2,538  
Change in fair value of derivative     190,841     536,345  
Loss on debt extinguishment / conversion     257,810       27,504  
                 
Changes in operating assets and liabilities:                
Prepaid expenses and other current assets     (1,906 )     17,162  
Accounts payable and accrued expenses     364,499       879,838  
Accounts payable to related party     (45,348 )     (26,308 )
Net cash provided by (used in) operating activities     (962,668 )     (1,251,500 )
                 
Cash flows from financing activities:                
                 
Proceeds from convertible notes     -       1,613,200  
Proceeds from sales of common stock     51,805       -  
Proceeds from convertible debt related to joint venture     500,000       -  
Proceeds from short-term loan, other     -       120,000  
Repayment of short-term loans, others     (60,000 )     (50,000 )
Repaid to others     -       (75,000 )
Net cash provided by financing activities     491,805       1,608,200  
                 
Net increase (decrease) in cash     (470,863 )     356,700  
                 
Cash - beginning of period     588,769       474,019  
                 
Cash - end of period   $ 117,906     $ 830,719  
                 
Supplemental cash flow information:                
Cash paid for:                
Interest paid   $

100,882

    $

65,754

 
Income taxes paid   $ -     $ -  

 

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. (f/k/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, and changed its name to Mateon Therapeutics, Inc. in 2016, and Oncotelic Therapeutics, Inc. in November 2020. Oncotelic conducts business activities through Oncotelic and its wholly owned subsidiaries, Oncotelic, Inc., a Delaware corporation, PointR Data, Inc. (“PointR”), a Delaware corporation: and EdgePoint AI, Inc. (“Edgepoint”), a Delaware Corporation for which there are non-controlling interests, (Oncotelic, Oncotelic Inc., PointR and Edgepoint are collectively called the “Company” or “We”). The Company is currently developing OT-101 for various cancers and COVID-19, Artemisinin for COVID-19 and AI technologies for clinical development and manufacturing. The Company has acquired apomorphine for Parkinson’s Disease, erectile dysfunction and female sexual dysfunction. In addition, the Company is evaluating the further development of its product candidates OXi4503 as a treatment for acute myeloid leukemia and myelodysplastic syndromes and CA4P in combination with a checkpoint inhibitor for the treatment of advanced metastatic melanoma.

 

In April 2019, Oncotelic completed a merger with Oncotelic Inc., which became a wholly owned subsidiary of Oncotelic. The merger was treated as a recapitalization and reverse acquisition for financial accounting purposes. Oncotelic Inc. is considered the acquirer for accounting purposes, and Oncotelic Inc.’s historical financial statements before the merger have been replaced with the historical financial statements of Oncotelic Inc. prior to the merger in the financial statements and filings with the Securities and Exchange Commission (“SEC”). For more information on this merger, refer to our 2020 Annual Report on Form 10-K filed with the SEC on April 15, 2021.

 

In August 2019, the Company entered into an Agreement and Plan of Merger with PointR Date, Inc. PointR survived the merger as a wholly-owned subsidiary of the Company. The PointR Merger was intended to create a publicly-traded artificial intelligence (“AI”) driven immuno-oncology company with a robust pipeline of first in class TGF-β immunotherapies for late stage cancers such as gliomas, pancreatic cancer and melanoma. In November 2019, pursuant to the terms of the PointR Merger Agreement, the Company completed the PointR Merger. For more information on this merger, refer to our 2020 Annual Report on Form 10-K filed with the SEC on April 15, 2021.

 

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

 

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 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.

 

8

 

 

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 for the development of OT-101. Such amount was recorded as revenue upon completion of all performance obligations under the agreement. Further, In June 2020, the Company secured $2 million in 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. In September 2021, the Company secured a further $1.5 million in debt from GMP to complete the study. 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 2020 and 2021, the Company was developing Artemisinin as a potential therapy for COVID-19. Artemisinin, purified from a plant Artemisia annua. It can inhibit TGF-β activity and is able to neutralize COVID-19. The Company initially conducted a study and the 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. In a clinical study undertaken in India, clinical consequences related to the TGF-β surge, including ARDS and cytokine storm, were suppressed by targeting TGF-β with Artemisinin. The ARTI-19 trials were conducted in India by Windlas Biotech Limited (“Windlas”), the Company’s business partner in India. Windlas had applied for regulatory approval for its Artemisinin based product, ArtiShieldTM, but has not been able to obtain regulatory approval for use of ArtiShieldTM as a COVID-19 therapy and as such, no significant revenues have been reported by Windlas nor have we accrued any royalties on Artemisinin due from Windlas. We intend to focus future development on Artemisinin against other respiratory viruses with unmet needs.

 

Between October 2021 and March 2022, GMP provided $1.0 million to the Company to fund operations on the way to complete a JV with the Company.

 

Fundraising

 

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

 

Between July 2020 and March 2021, the Company issued and sold a total of 100 units (“Units”), 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”).

 

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 year ended December 31, 2021. No similar expense was recorded in the same period in 2020. Management reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments and concluded that the terms of the agreements were not substantially different as of June 30, 2021, and, accounted for the transaction as a debt modification.

 

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In February 2022, the Company and 99 out of 100 of the Investors agreed to extend the maturity date of the Notes from March 31, 2022, to March 31, 2023. In addition, the Company issued approximately 33 million Oncotelic Warrants to purchase $50,000 of shares of Common Stock in connection with agreeing to extend the maturity date by one year. The issuance of the additional warrants resulted in the Company recording an expense of approximately $2.9 million in the Company’s statement of operations during the three months ended March 31, 2022. No similar expense was recorded in the same period in 2020. Management reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments and concluded that the terms of the agreements were not substantially different as of June 30, 2021, and, accounted for the transaction as a debt extinguishment.

 

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 ten occasions, for an aggregate of 3.7 million shares of Common Stock for aggregate net cash proceeds of approximately $0.4 million.

 

The Company filed a post-effective amendment to reregister the EPL on April 26, 2022 and the post effective amendment was found effective by the SEC on May 6, 2022.

 

August 2021 Notes

 

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

 

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Joint Venture with GMP Bio

 

On March 31, 2022, the Company formalized a joint venture (“JV”) with Dragon Overseas Capital Limited (“Dragon”) and GMP Biotechnology Limited (“GMP Bio”), both affiliates of GMP. For more information on the JV, refer to Note 6 of the Notes and our Current Report on Form 8-K filed with the SEC on April 6, 2022.

 

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.

 

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.

 

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

 

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

 

For more information on the September 2021 Note, the October 2021 Note and the January 2022 Note, refer to our 2021 Annual Report on Form 10K filed with the SEC on April 15, 2022.

 

November/December 2021 Notes

 

In November and December 2021, the Company entered into various Securities Purchase Agreements with Talos Victory Fund, LLC (the (“Talos”), Mast Hill Fund, LP (“Mast”), FirstFire Global Opportunities Fund, LLC (“FirstFire”), Blue Lake Partners, LLC (“Blue Lake”) and Fourth Man, LLC (“Fourth Man”), pursuant to which the Company issued convertible promissory notes in the aggregate principal amount of $0.25 million each, aggregating gross $1.25 million (the “Notes”), which Notes are convertible into shares of the Company’s common stock, par value $0.01 per share (“Common Stock”).

 

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

 

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

 

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

 

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 $35.9 million since inception of Oncotelic Inc., as the Company’s historical financial statements before the Merger have been replaced with the historical financial statements of Oncotelic Inc. The Company also has a negative working capital of approximately $16.7 million at March 31, 2022, of which approximately $2.6 millioncontingent liability of issuance of common shares of the Company to PointR shareholders upon achievement of certain milestones in accordance with the PointR Merger Agreement. The Company has negative cash flows from operations for the three months ended March 31, 2022 of approximately $1.0 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, in addition to continue the development of OT-101 which is now the product of the JV, to generate sufficient revenues, through either 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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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 March 31, 2022 and December 31, 2021, respectively, the Company held all its cash in banks in the United States of America. 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 March 31, 2022 and December 31, 2021, respectively. Restricted cash consists of certificates of deposits held at banks as collateral for various purposes.

 

Debt issuance Costs and Debt discount

 

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

 

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

 

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

 

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Fair Value of Financial Instruments

 

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

 

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

 

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

 

The derivative liabilities associated with its 2019 bridge financing Convertible Notes (see Note 5), consisted of conversion feature derivatives at March 31, 2022 and 2021, are Level 3 fair value measurements.

 

The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 as of March 31, 2022 and 2021:

 

      1        2   
    March 31, 2022
Conversion Feature
    March 31, 2021
Conversion Feature
 
Balance at January 1, 2021 and 2020   $ 340,290     $ 777,024  
New derivative liability     -       -  
Reclassification to additional paid in capital from conversion of debt to common stock     -       (144,585 )
Change in fair value     190,841       536,345  
                 
Balance at March 31, 2021 and 2020   $ 531,131     $ 1,168,784  

 

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As of March 31, 2022 and 2021, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on assumptions used in the Black-Scholes valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s Common Stock, a risk-free interest rate based on the yield of a Treasury note and expected volatility of the Company’s Common Stock all as of the measurement dates. The Company used the following assumptions to estimate fair value of the derivatives as of March 31, 2022 and 2021:

 

    March 31, 2022 Key Assumptions for fair value of conversions     March 31, 2021 Key Assumptions for fair value of conversions  
Risk free interest     0.17% to 0.52 %     0.07% to 0.12 %
Market price of share   $ 0.22 to 0.36     $ 0.36
Life of instrument in years     0.81 to 1.1       1.06 1.35  
Volatility     94.4 to 148.8 %     148.79 %
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 March 31, 2022 and March 31, 2021, there were no transfers of financial assets or financial liabilities between the hierarchy levels.

 

The $2,625,000 of contingent consideration, of shares issuable to PointR shareholders which was recorded and associated with the PointR Merger, is also classified as Level 3 fair value measurements. The Company initially recorded the contingency based on a valuation conducted by a third-party valuation expert. The valuation was based on a probability of the completion of certain milestones by PointR for the shareholders to earn additional shares. The Company evaluated the probability of the earning of the milestones and concluded that the probability of achievement of the milestones had not changed, primarily due to the shifting of focus by the Company to develop AI technologies for the COVID-19 pandemic. As such, the Company did not record any change to the valuation during the three months ended March 31, 2022 or 2021, respectively.

 

Net Loss Per Share

 

Basic net loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net 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 Months Ended March 31,  
    2022     2021  
             
Convertible notes     68,070,034       35,388,901  
Stock options     16,590,261       3,941,301  
Warrants     80,545,259       20,737,500  
Potentially dilutive securities     165,205,554       60,067,702  

 

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 and non-employees, including employee stock options, in the statements of operations.

 

For stock options issued, 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.

 

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

 

Intangible Assets

 

The Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. The Company reviews the intangible assets for impairment on an annual basis or if events or changes in circumstances indicate it is more likely than not that they are impaired. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. If the review indicates the impairment, an impairment loss would be recorded for the difference of the value recorded and the new value. For the three months ended March 31, 2022 and the year ended December 31, 2021, 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 months ended March 31, 2022 and year ended December 31, 2021, there were no impairment losses recognized for Goodwill.

 

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Derivative Financial Instruments Indexed to the Company’s Common Stock

 

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

 

Convertible Instruments

 

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

 

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

 

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

 

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

 

Variable Interest Entity (VIE) Accounting

 

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

 

The Company signed a joint venture agreement (“JVA”) with Dragon to form a joint venture called GMP Biotechnology, LLC, both affiliates of GMP, on March 31, 2022. The JVA prescribes certain requirements to be completed during the three months ended June 30, 2022 to make the JV fully functional and operational, including issuance of the shares issuable to the Company and Dragon. The Company will evaluate the accounting for the JV and once these functional and operational activities are completed, the Company will appropriately record the transactions.

 

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Revenue Recognition

 

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

 

Under ASC 606, the Company recognizes revenue when its customers obtain control of the promised good or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company applies the following five-step process: (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 ASC 606, the Company identifies the performance obligation(s) in the contract by assessing whether the goods or services promised within each contract are distinct. The Company then recognizes revenue for the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The Company anticipates generating revenues from rendering services to other third party customers for the development of certain drug products and/or in connection with certain out-licensing agreements. In the case of services rendered for development of the drugs, revenue is recognized upon the achievement of the performance obligations or over time on a straight-line basis over the extended service period. In the case of out-licensing contracts, the Company records revenues either (i) 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 (ii) upon achievement of the performance obligations if the milestones require the Company to provide the performance obligations.

 

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

 

Research & Development Costs

 

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

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”) which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition was permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted no earlier than the fiscal year beginning after December 15, 2020. The Company has not adopted ASU 2020-06 during the three months ended March 31, 2022 and is evaluating the impact of implementation on its financial statements, if any.

 

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

 

Prior Period Reclassifications

 

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

 

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NOTE 3 - GOODWILL AND INTANGIBLE ASSETS

 

2019 Reverse Merger with Oncotelic and PointR

 

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

 

The Oncotelic merger gave rise to Goodwill of $4,879,999. Further, we added goodwill of $16,182,456 upon the completion of the Merger with PointR. In general, the goodwill is tested on an annual impairment date of December 31. However, as of March 31, 2022, since both assets are currently being developed for various cancer and COVID-19 therapies, 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 March 31, 2022 and December 31, 2021, of the intangible assets acquired, their useful life, and annual amortization:

SCHEDULE OF INTANGIBLE ASSETS 

    March 31,
2022
   

Remaining

Estimated
Useful Life (Years)

 
Intangible asset – Intellectual Property   $ 819,191       16.75  
Intangible asset – Capitalization of license cost     190,989       16.75  
      1,010,180          
Less Accumulated Amortization     (201,180 )        
Total   $ 809,000          

 

    December 31,
2021
   

Remaining

Estimated

Useful Life (Years)

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

 

Amortization of identifiable intangible assets for the three months ended March 31, 2022 and 2022 was $12,841 and $12,841, respectively.

 

19

 

 

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

 

For the years ended December 31,
       
2022   $ 38,524  
2023     51,365  
2024     51,365  
2025     51,365  
2026     51,365  
Thereafter     577,857  
    $ 821,841  

 

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

 

The IPR&D assets were acquired in the PointR Merger during the year ended December 31, 2019. Since January 2021, the Company has determined that the IPR&D should be reported as an indefinitely lived asset and therefore will evaluate, on an annual basis, for any impairment on the IPR&D and will record an impairment if identified. The balance of IPR&D as of March 31, 2022 and December 31, 2021 was $1,101,760. The following table summarizes the balances as of March 31, 2022 and December 31, 2021 of the IPR&D assets. The Company evaluates, on an annual basis, for any impairment and records an impairment if identified. The Company identified no impairment to IPR&D assets during its evaluation.

 

   

March 31,

2022

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

 

   

December 31,

2021

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

 

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expense consists of the following amounts:

 

   

 

March 31,

2022

   

 

December 31, 2021

 
   

March 31,

2022

   

December 31, 2021

 
             
Accounts payable   $ 1,946,179     $ 1,927,749  
Accrued expense   1,578,923       1,164,974  
Accounts payable and accrued liabilities   $ 3,525,102     $ 3,092,723  

 

   

 

March 31,

2022

      December 31, 2021  
   

March 31,

2022

    December 31, 2021  
         
Accounts payable – related party   $ 358,074     $ 403,423  

 

20

 

 

NOTE 5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT

 

As of March 31, 2022, special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, consist of the following amounts:

 

   

March 31,

2022

 
Convertible debentures        
10% Convertible note payable, due April 23, 2022 – Bridge Investor   $ 34,459  
10% Convertible note payable, due April 23, 2022 – Related Party     159,571  
10% Convertible note payable, due August 6, 2022 – Bridge Investor     193,325  
      387,355  
Fall 2019 Notes        
5% Convertible note payable – Stephen Boesch     120,208  
5% Convertible note payable – Related Party     279,358  
5% Convertible note payable – Dr. Sanjay Jha (Through his family trust)     278,878  
5% Convertible note payable – CEO, CTO* & CFO– Related Parties     91,382  
5% Convertible note payable – Bridge Investors     187,222  
      957,048  
         
August 2021 Convertible Notes        
5% Convertible note – Autotelic Inc– Related Party     257,158  
5% Convertible note – Bridge investors     384,193  
5% Convertible note – CFO – Related Party     77,147  
      718,498  
         
JH Darbie PPM Debt        
16% Convertible Notes - Non-related parties    

2,312,023

 
16% Convertible Notes – CEO – Related Party    

121,650

 
     

2,433,673

 
         
November/December 2021 & March 2022 Notes        
12% Convertible Notes – Accredited Investors     386,459  
         
Debt for Clinical Trials – GMP        
2% Convertible Notes - GMP     4,591,973  
         
Other Debt        
Short term debt – Bridge investors     245,000  
Short term debt from CFO – Related Party     25,050  
Short term debt – Autotelic Inc– Related Party     20,000  
Accrued Interest on Loans     4,597  
      294,647  
Total of convertible debentures & notes and other debt   $ 9,769,653  

 

21

 

 

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

 

* The CTO was a related party till July 2021, when he resigned as the CTO due to health reasons.

 

The gross principal balances on the convertible debentures listed above totaled $1,000,000 and included initial debt discounts totaling $800,140, resulting from the recording of the original issue discount, the related financing costs, the beneficial conversion feature (“BCF”) 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 $22,918 and $54,572 for the three months ended March 31, 2022, and 2021, respectively. In addition, during the three months ended March 31, 2022, and 2021, 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 $0 and $24,491, respectively, upon the partial and/or full conversion of debt by TFK to shares of the Company’s common stock. The total unamortized debt discount at March 31, 2022, and December 31, 2021 was approximately $12,646 and $35,564, respectively.

 

All the above notes issued to Peak One, TFK, our CEO, and the bridge investors reached the 180 days during the fiscal 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 liability for the debt instrument of approximately $870,000, since the conversion option attached to certain notes became convertible into a variable number of shares of our common stock, and correspondingly debited additional debt discounts of approximately $258,000 and interest expense of approximately $612,000.

 

As of March 31, 2022, the Company had a derivative liability of approximately $531,000 and a change in fair value of approximately $191,000.

 

22

 

 

Bridge Financings

 

TFK Financing

 

For information on the special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, as of December 31, 2022, refer to our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.

 

Notes with Officer and Bridge Investor

 

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

 

In April 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.

 

23

 

 

The issuance of the Trieu Note resulted in a discount from the beneficial conversion feature totaling $131,555 related to the conversion feature. Total amortization of the OID and the discount totaled $14,620 and $18,058 for the three months ended March 31, 2022, and 2021. Total unamortized discount on this note was approximately $4,900 and $19,000 as of March 31, 2022, and December 31, 2021, respectively.

 

In April 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #1 (“Tranche #1”) with the Bridge Investor. 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 approximately $3,300 and $4,100 for the three months March 31, 2022, and 2021, respectively. Total unamortized discount on this note was approximately $1,100 and $4,400 as of March 31, 2022, and December 31, 2021.

 

On August 6, 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #2 (“Tranche #2”) with the Bridge Investor. 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 approximately $5,000 and $4,900 for the three months ended March 31, 2022, and March 31, 2021, respectively. Total unamortized discount on this note was $6,700 and $12,000 as of March 31, 2022, and December 31, 2021.

 

Fall 2019 Debt Financing

 

In December 2019, the Company closed its Fall 2019 Debt Financing, raising an additional $500,000 bringing the gross proceeds of all debt financings under the Fall 2019 Debt Financing to $1,000,000. The 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, all related parties as Officers of the Company, and converted such amounts due into the Fall 2019 Notes. $35,000 due to Dr. Vuong Trieu, $27,000 due to Chulho Park and $20,000 due to Amit Shah were converted into debt. The Company also issued the Fall 2019 Notes of $168,000 to two accredited investors.

 

The Company repaid $0 and $50,000 of principal in the three months ended March 31, 2022, and 2021, respectively. The total unamortized principal amount of the Fall 2019 Notes was $850,000 as of March 31, 2022, and December 31, 2021, respectively.

 

All the Fall 2019 Notes provided for interest at the rate of 5% per annum and are 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 Majority Holders have waived the default in the maturity of the Fall 2019 Notes and as such there is no event of default. The Company had the option to prepay the Fall 2019 Notes at any time. Events of default under the Fall 2019 Notes included failure to make payments under the Fall 2019 Notes within thirty (30) days of the date due, 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).

 

24

 

 

The Majority Holders had 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 for the three months ended March 31, 2022, and 2021.Total unamortized discount on this note was $0 as of March 31, 2022, and December 31, 2021.

 

Further, the Company recorded interest expense of $10,625 and approximately $11,460 on these Fall 2019 Notes for the three months ended March 31, 2022, and 2021, respectively. The total amount outstanding under the Fall 2019 Notes, net of discounts and including accrued interest thereon, as of March 31, 2022, and December 31, 2021, was $957,048 and $946,424, respectively.

 

GMP Notes

 

In June 2020, the Company secured $2 million in debt financing, evidenced by a one-year convertible note (the “GMP Note”) from GMP, to conduct a clinical trial evaluating OT-101 against COVID-19 bearing 2% annual interest, and is personally guaranteed by Dr. Vuong Trieu, the Chief Executive Officer of the Company. The GMP Note is convertible into the Company’s Common Stock upon the GMP Note’s maturity of the GMP Note, at the Company’s Common Stock price on the date of conversion with no discount. GMP has waived the default in the maturity of the GMP Note and as such there is no event of default and also agreed to extend the date of maturity of the GMP Note to June 30, 2022. GMP does not have the option to convert prior to the GMP Note’s maturity. Such financing will be utilized solely to fund the clinical trial. The Company’s liability under GMP Note commenced to accrue when GMP first began to pay for services related to the clinical trial to our third-party clinical research organization, up to a maximum of $2 million. GMP has been invoiced by the clinical research organization for the full $2 million as of March 31, 2022, and as such the Company has recognized the liability as a convertible debt.

 

In September 2021, the Company secured a further $1.5 million in debt financing, evidenced by a one-year convertible note (the “GMP Note 2”) from GMP, to fund the same clinical trial evaluating OT-101 against COVID-19 bearing 2% annual interest. The GMP Note is convertible into the Company’s Common Stock upon the GMP Note 2’s maturity one year from the date of the GMP Note 2, at the Company’s Common Stock price on the date of conversion with no discount. GMP does not have the option to convert prior to the GMP Note 2’s maturity at the end of one year. Such financing was to be utilized solely to fund the clinical trial. As of March 31, 2022, 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.

 

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

 

The GMP Note 2, the October 2021 Note and the January 2022 Note carries an interest rate of 2% per annum and matures on the earlier of (a) the one-year anniversary of the date of the Purchase Agreement, or (b) the acceleration of the maturity by GMP upon occurrence of an Event of Default (as defined below). The GMP Note 2, the October 2021 Note and the January 2022 Note contains a voluntary conversion mechanism whereby GMP may convert the outstanding principal and accrued interest under the terms of the GMP Note 2, the October 2021 Note and the January 2022 Note into shares of Common Stock (the “Conversion Shares”), at the consolidated closing bid price of the Company’s Common Stock on the applicable OTC Market as of the date the Company receives a Notice of Conversion from GMP. Prepayment of the GMP Note 2, the October 2021 Note and the January 2022 Note may be made at any time by payment of the outstanding principal amount plus accrued and unpaid interest. The October Note contains customary events of default (each an “Event of Default”). If an Event of Default occurs, at GMP’s election, the outstanding principal amount of the GMP Note 2, the October 2021 Note and the January 2022 Note, plus accrued but unpaid interest, will become immediately due and payable in cash. The October Purchase Agreement and the January Purchase Agreement requires the Company to use of the proceeds received under the October 2021 Note and January 2022 Note to support the clinical development of OT-101, including payroll and has been made in continuation of the relationship between the Company and GMP.

 

The total principal outstanding on all the GMP notes, inclusive of accrued interest, was $4,569,781 and $4,069,781 as of March 31, 2022, and December 31, 2021, respectively.

 

Geneva Roth Remark Notes

 

For information on the special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, as of December 31, 2022, refer to our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.

 

25

 

 

Paycheck Protection Program

 

For information on the special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, as of December 31, 2022, refer to our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.

 

August 2021 Notes

 

In August 2021, the Company entered into Note Purchase Agreements with Autotelic - a related party, our CFO - a related party, and certain accredited investors (the “August 2021 investors”), whereby the Company issued four convertible notes in the aggregate principal amount of $698,500 convertible into shares of common stock of the Company for net proceeds of $690,825. The convertible notes carry a five (5%) percent coupon and mature one year from issuance. The majority of the August 2021 investors have the right, but not the obligation, not more than five days following the maturity date, to convert all, but not less than all, the outstanding and unpaid principal plus accrued interest into the Company’s common stock, at a conversion price of $0.18. The 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 March 31, 2022, and December 31, 2021, the August 2021 convertible notes, net of debt discount, consist of the following amounts:

 

   

 

March 31,

2022

   

 

December 31,

2021

 
   

March 31,

2022

   

December 31,

2021

 
             
Autotelic Related party convertible note, 5% coupon August 2022   $ 257,158     $ 256,634  
CFO Related party convertible note, 5% coupon August 2022     77,147       76,531  
Accredited investors convertible note, 5% coupon August 2022     384,193       381,123  
Total   $ 718,498     $ 714,288  

 

During the three months ended March 31, 2022, and 2021, the Company recognized approximately $5,700 and $0 of interest, respectively. At March 31, 2022, and December 31, 2021, accrued interests on these convertible notes totaled approximately $20,000 and $14,260, respectively.

 

November – December 2021 Financing

 

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

  

In January 2022, three of the five investors made a cashless exercise for their warrants. In this connection, the Company issued approximately 3 million shares of the Common Stock in exchange of approximately 5.8 million warrants.

 

26

 

 

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

 

   

 

March 31,

2022

   

 

December 31,

2021

 
   

March 31,

2022

   

December 31,

2021

 
             
Mast Hill Convertible note, 12% coupon November 21   $ 250,000     $ 250,000  
Talos Victory Convertible note, 12% coupon November 2021     250,000       250,000  
First Fire Global Opportunities LLC Convertible note, 12% coupon, December 2021     250,000       250,000  
Blue Lake Partners LLC Convertible note, 12% coupon, December 2021     250,000       250,000  
Fourth Man LLC Convertible note, 12% coupon December 2021     250,000       250,000  
Convertible notes, gross   $ 1,250,000     $ 1,250,000  
Less Debt discount recorded     (1,250,000 )     (1,250,000 )
Amortization debt discount     386,459       76,994  
Convertible notes, net   $ 386,459     $ 76,994  

 

The Company recognized approximately $48,000 and $0 of accrued interest during the three months ended March 31, 2022, and 2021, respectively. The Company recognized approximately $309,500 and $0 of interest expense attributable to the amortization of the debt discount from the original debt discount, deferred financing costs, fair value allocated to the warrants and the beneficial conversion feature during the three months ended March 31, 2022, and 2021, respectively.

 

The Company recorded an initial debt discount of approximately $0.4 million representing the intrinsic value of the conversion option embedded in the convertible debt instrument based upon the difference between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company recognized amortization expense related to the debt discount and debt issuance costs of approximately $0.3 million for the three months ended March 31, 2022, which is included in interest expense in the consolidated statements of operations.

 

Other short-term advances

 

As of March 31, 2022 compared to December 31, 2021, other short-term advances consist of the following amounts obtained from various employees and related parties:

 

Other Advances  

 

March 31,

2022

      December 31,
2021
 
Other Advances  

March 31,

2022

    December 31,
2021
 
Short term advance from CEO – Related Party   $ -     $ 20,000  
Short term advances – bridge investors     245,000       265,000  
Short term advances from CFO – Related Party     25,050       45,050  
Short term advance – Autotelic Inc. – Related Party     20,000       20,000  
Accrued Interest on advances     5,003       9,212  
Total   $ 295,053     $ 359,262  

 

27

 

 

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

 

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

 

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

 

NOTE 6 – JOINT VENTURE WITH GMP AFFILIATES

 

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

 

Dragon and the Company entered into the JVA to regulate their relationship and the operation and management of the JV. The JVA contains provisions for the licensed products and licensed technologies related to OT-101 (the “Licensed products and technologies”). Pursuant to the JVA the Company is required to transfer to GMP Bio all of the Company’s rights and obligations under the research and development agreement dated 3 February 2020 between the Company and Golden Mountain Partners, LLC (“GMP”), an affiliate of Dragon, as amended, varied and/or supplemented by a supplement to research and Services Agreement dated 23 March 2020 between the Company, Mateon Therapeutics, Inc. (subsequently renamed the Company) and GMP (the “R&D Agreement”). The JVA permits GMP to seek conversion of certain convertible promissory notes entered into between the Company and GMP (see reference to Purchase Agreements and Notes below) into shares of the Common Stock of the Company within 15 business days of the execution of the JVA at a price of $0.2242 per Common Share, the closing price of the Common Share as traded on the OTCQB the day prior to the execution of the JVA, or the closing price of the Common Stock prior to the date of conversion if not within 15 business days of the JVA. Upon the execution of the JVA, Dragon will pay for and hold 55 shares of GMP Bio and the Company will pay for and hold 45 shares of GMP Bio, both to be acquired at $1.00 per share of GMP Bio. Such shares of GMP Bio were issued shortly after the date of the JVA. The JVA required the entering into of the Agreements on or before the execution of the JVA. The JVA defines the valuation of the Agreements (taking into account the transfer of the Company’s rights and obligations under the R&D Agreement) each at $11,320,237.25, for an aggregate of $22,640,474.50. The Parties also agreed that if a Rare Pediatric Disease (“RPD”) Priority Review Voucher, upon clinical approval of OT-101 Technologies for treatment of diffuse intrinsic pontine glioma (the “DIPG Voucher”), is issued to GMP Bio and GMP Bio, or a subsidiary thereof, sells the DIPG Voucher to a non-GMP subsidiary, then the Company shall be eligible to receive up to 50% of the net sales proceeds or $50 million, whichever is less. Dragon shall fund the JVA, for a total of $27,671,691, based on the conditions contained in the JVA, and the Company will input the licenses under the Agreements into the JV. The Company is obligated to (i) (A) rectify the chain of legal title such that the Company is the sole legal owner of such rights, (B) complete registration as the sole owner of all the Company’s Patent Rights and (C) provide evidence of such registration that is satisfactory to Dragon; (ii) provide Dragon with copies of official documents issued by the relevant patent offices in the relevant countries evidencing the Company’s legal ownership of all the Company’s Patents Rights; and (iii) reflect the Company’s legal ownership of all the Company’s Patent Rights in the relevant online registers of the relevant patent offices in the relevant countries. The JVA intends to raise funding for the JVA through a Series A round of financing of not less than $20 million. Dragon can suspend funding the JVA if the Series A round of financing is not successfully completed by August 31, 2022, in which case Dragon’s funding obligation would be restricted to $250,000 per month to GMP Bio. If Dragon decides to terminate the JVA, the licenses granted under the Agreements shall be terminated and the OT-101 assets licensed by the Company will revert back to the Company. The rest of the JVA deals with the conduct of the JV, the board of directors of GMP Bio and other administrative matters. Dragon shall nominate up to three directors of their choosing to the board of directors of GMP Bio, two of whom are already nominated as “A” Directors and the Company shall nominate up to two directors of their choosing to the board of directors of GMP Bio, one of whom is already nominated as a “B” Director. The JVA defines how the board of directors will operate as well as the general management and operations of the JV. Other standard terms on shareholder rights, indemnification etc. are also defined in the JVA. Also included are the other terms with relation to insurance, indemnification, jurisdiction and other customary terms and conditions.

 

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

 

The Company is currently evaluating the estimated impact the accounting for the JV will have on its financial statements upon completion of the formation.

 

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

 

NOTE 7 - PRIVATE PLACEMENT AND JH DARBIE FINANCING

 

During the period from July 2020 to March 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 Edgepoint Common Stock for a price of $1.00 per share of Edgepoint Common Stock.
  One convertible promissory 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.
  50,000 warrants to purchase an equivalent number of shares of Edgepoint 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 March 31, 2022 and December 31, 2021 funds received under the JH Darbie Financing, net of debt discount, consist of the following amounts:

   

 

March 31,

2022

   

 

December 31,

2021

 
   

March 31,

2022

   

December 31,

2021

 
Convertible promissory notes                
Subscription agreements - accredited investors   $

2,312,023

    $ 1,520,720  
Subscription agreements – related party     121,650       85,664  
Total convertible promissory notes   $

2,433,673

    $ 1,606,384  

 

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

 

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

 

The terms of convertible notes are summarized as follows:

 

  Term: Through March 31, 2022.
  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 $1.8 million in Edgepoint between July 2020 and March 2021. 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 grant date fair value of approximately $0.20 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 $ 0.7 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 $0.20 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 $0.4 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 %

 

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

 

In February 2022, the Company and all except one of the Investors agreed to extend the maturity date of the Notes from March 31, 2022, to March 31, 2023. In consideration for the extension of the Notes, the Company issued to the Investors an aggregate of 33,000,066 Oncotelic Warrants at a price of $0.15 per share of Company’s Common Stock. Each Investor will be entitled to receive 333,334 Oncotelic Warrants for each Unit purchased. Upon the amendment of the terms of the convertible notes under the private placement memorandum. As incentive to extend the maturity date, approximately 33 million warrants were issued to the Unit Holders who participated in the amendment, The Company repaid the 1 unit holder who did not participate in the amendment shortly after March 31, 2022.

 

The Company reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments and concluded that the terms of the agreements were substantially different as of March 31, 2022, and, accounted for the transaction as a debt extinguishment. The loss is recognized equal to the difference between the net carrying amount of the original debt and the fair value of the modified debt instrument.

 

At March 31, 2022, the Company estimated the fair value of the warrants issued in conjunction with the amendment of the private placement under the JH Darbie financing 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 date. The Company used the following assumptions to estimate fair value of the warrants as of March 31, 2022:

 

Expected Term   1 year  
Strike price   $ 0.15  
Expected volatility     115.1 %
Risk-free interest rates     1.36 %
Dividend yields     0.00 %

 

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All the warrants issued in conjunction with the amendment #5 had an exercise price of $0.15 per share and are immediately exercisable and expire two years from the date of issuance or February 9, 2024. The warrants resulted in an aggregate fair value of approximately $2.9 million.

 

The Company recognized amortization expense related to the debt discount and debt issuance costs of $30,775 and $373,949 for the three months ended March 31, 2022 and March 31, 2021 respectively, which is included in interest expense in the statements of operations.

 

NOTE 8 - 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 approximately $66,000 for the three months ended March 31, 2022 as compared to approximately $77,000 for the same period of 2021.

 

In September 2021, the Company entered into an exclusive License Agreement (the “Agreement”) with 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. Further, the Company repaid $20,000 to Dr. Trieu for the balance of his short term loan of $20,000. During the year ended December 31, 2020, Dr. Trieu purchased a total of 5 Units under the private placement for a gross total of $250,000.

 

During the year ended December 2021, Autotelic Inc provided a short term loans of $270,000, of which $250,000 was converted into the August 2021 loan and the balance of $20,000 continues to be a short term loan. During the three months ended March 31, 2021, Autotelic Inc, provided a short-term loan of $120,000 to the Company. Such loan was repaid in April 2021. No loans or repayments were made to Autotelic Inc. during the same period in 2022.

 

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, par value $.01 per share (“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.

 

33

 

 

No expense was recorded during the three months ended March 31, 2022 or March 31, 2021 related to this Agreement.

 

Maida Consulting Agreement

 

Effective May 5, 2020, the Company and Dr. Maida entered into an independent consulting agreement, commencing April 1, 2020 (the “Maida Agreement”), under which Dr. Maida will assist the Company in providing medical expertise and advice from time to time in the design, conduct and oversight of the Company’s existing and future clinical trials.

 

Pursuant to the terms of the Maida Agreement, the Company granted to Dr. Maida 400,000 restricted shares of the Company’s Common Stock 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 $75,000 during the three months ended March 31, 2022 as compared to $45,000 during the three months ended March 31, 2021 related to this Agreement.

 

NOTE 9 - 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.

 

The Company filed a post-effective amendment Registration Statement on Form S-1 with the Commission on April 26, 2022, and the Form S-1 was declared effective on May 6, 2022. The Company filed the prospectus in this connection on May 11, 2022.

.

In connection with the EPL, the Company issued 250,000 shares of Common Stock to Peak One and recorded a fair value in lieu of service of approximately $70,000.

 

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During the three months ended March 31, 2022, the Company sold a total of 300,000 shares of Common Stock at price of $0.21 for total gross proceeds of approximately $65,500 and approximately $51,800, net of issuance costs. No similar sales were recorded during the three months ended March 31, 2021.

 

NOTE 10 - STOCKHOLDERS’ EQUITY

 

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

 

Issuance of Common Stock during the three months ended March 31, 2022

  

In January 2022, three of the five investors from the November/December 2021 financing made a cashless exercise for their warrants. In connection with this exercise, the Company issued 3,041,958 shares of Common Stock in exchange of approximately 5,769,231 million warrants.

 

In March 2022, the Company sold 300,000 shares of its Common Stock to Peak One under the EPL for net proceeds of approximately $52 thousand.

 

Issuance of Common Stock during the three months ended March 31, 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.

 

NOTE 11 – STOCK-BASED COMPENSATION

 

Options

 

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

 

As of March 31, 2022, 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, in aggregate, 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 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. 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 for the three months ended March 31, 2022 is summarized as follows:

 

          Weighted  
For the three months ended March 31, 2022         Average  
    Shares     Exercise Price  
Outstanding at January 1, 2022     16,592,620     $ 0.30  
Expired or cancelled     (2,359 )     11.88  
Outstanding at March 31, 2022     16,590,261     $ 0.30  

 

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Information on compensation-based stock option activity for qualified and unqualified stock options for the year ended December 31, 2021 can be found in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.

 

The following table summarizes information about options to purchase shares of the Company’s Common Stock outstanding and exercisable at March 31, 2022:

 

            Weighted-     Weighted-        
            Average     Average        
      Outstanding     Remaining Life     Exercise     Number  
Exercise prices     Options     In Years     Price     Exercisable  
                           
$ 0.14       7,150,000       9.43     $ 0.14       3,707,500  
  0.16       5,502,761       9.27       0.16       5,502,761  
  0.22       1,750,000       4.09       0.22       1,750,000  
  0.38       900,000       3.41       0.38       900,000  
  0.73       762,500       3.04       0.73       762,500  
  1.37       150,000       1.25       1.37       150,000  
  1.43       300,000       3.16       1.43       300,000  
  15.00       75,000       3.16       15.00       75,000  
          16,590,261       7.97     $ 0.30       13,147,761  

 

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

 

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 approximately $1.0 million and was based on the Company’s closing stock price of $0.23 as of March 31, 2022, which would have been received by the option holders had all option holders exercised their options as of that date. Information on the aggregate intrinsic value for the year ended December 31, 2021 can be found in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.

 

The Company amortized approximately $297,000 of stock compensation expense during the three months ended March 31, 2022 on the grants of certain milestone driven options that were granted during the year ended December 31, 2021. No similar expense was recorded during the same period of 2021.

 

In August 2019, the Company entered into Employment Agreements and incentive compensation arrangements with each of its executive officers, including Dr. Vuong Trieu, the Chief Executive Officer; Dr. Fatih Uckun, the Chief Medical Officer; Dr. Chulho Park, its Chief Technology Officer; and Mr. Amit Shah, the Chief Financial Officer. Details of the agreements and the incentive compensation is described in detail in Note 11 – Commitments & Contingencies under “Employment Agreements”. The incentive stock options or the restricted stock awards granted to the Company’s executive officers have not been granted as of the date of this filing.

 

Warrants

 

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

 

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In February 2022, the Company and all except one of the Investors agreed to extend the maturity date of the Notes from March 31, 2022, to March 31, 2023. In consideration for the extension of the Notes, the Company issued to the Investors an aggregate of approximately 33 million Oncotelic Warrants at a price of $0.15 per share of Company’s Common Stock. At March 31, 2022, the Company estimated the fair value of the warrants issued in conjunction with the amendment of the private placement under the JH Darbie financing 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 date. The Company used the following assumptions to estimate fair value of the warrants as of March 31, 2022:

 

         
Expected Term     1 year  
Strike price   $ 0.15  
Expected volatility     115.1 %
Risk-free interest rates     1.36 %
Dividend yields     0.00 %

 

All the warrants issued in conjunction with the amendment #5 had an exercise price of $0.15 per share and are immediately exercisable and expire two years from the date of issuance or February 9, 2024. The warrants resulted in an aggregate fair value of approximately $2.9 million.

 

The issuance of warrants to purchase shares of the Company’s Common Stock, including those attributed to debt issuances, as of March 31, 2022 are summarized as follows:

 

For the three months ended March 31, 2022         Average  
    Shares     Exercise Price  
Outstanding at January 1, 2022     53,314,424     $ 0.20  
Issued during the three months ended March 31, 2022     33,000,066       0.15-0.20  
Exercised / cancelled during the three months ended March 31, 2022     (5,769,231 )     0.13  
Outstanding at December 31, 2021     80,545,259     $ 0.18  

 

Information on warrants for the year ended December 31, 2022 can be found in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.

 

The following table summarizes information about warrants outstanding and exercisable at March 31, 2022:

 

      Outstanding and exercisable  
            Weighted-     Weighted-        
            Average     Average        
      Number     Remaining Life     Exercise     Number  
Exercise Price     Outstanding     in Years     Price     Exercisable  
                           
$ 0.20       42,737,500       1.00     $ 0.20       4,237,500  
  0.13       4,807,693       5.00       0.13       4,807,693  
  0.15       33,000,066       2.00       0.15       33,000,066  
          80,545,259       2.15     $ 0.18       80,545,259  

 

In January 2022, three of the five November/December accredited investors made a cashless exercise for their warrants. In this connection, the Company issued 3,041,958 shares of Common Stock in exchange of approximately 5,769,231 million warrants.

 

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NOTE 12 – INCOME TAXES

 

The Company had gross deferred tax assets, which primarily relate to net operating loss carryforwards. As of December 31, 2021, the Company had gross federal and state net operating loss carryforwards of approximately $236.1 million and $76.3 million, respectively, which are available to offset future taxable income, if any. The Company recorded a valuation allowance in the full amount of its net deferred tax assets since realization of such tax benefits has been determined by our management to be less likely than not. Information on our deferred tax assets and liabilities can be found in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.

 

Portions of these carryforwards will expire through 2038, if not otherwise utilized. The Company’s utilization of net operating loss carryforwards could be subject to an annual limitation. as a result of certain past or future events, such as stock sales or other equity events constituting a “change in ownership” under the provisions of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations could result in the expiration of net operating loss carryforwards and tax credits before they can be utilized. We have not performed a formal analysis, but we believe our ability to use such net operating losses and tax credit carryforwards will be subject to annual limitations, due to change of ownership control provisions under Section 382 and 383 of the Internal Revenue Code, which would significantly impact our ability to realize these deferred tax assets.

 

NOTE 13 – COMMITMENTS AND CONTINGENCIES

 

Leases

 

Currently, the Company is leasing the office located at 29397 Agoura Road, Suite 107, Agoura Hills, CA 91301 on a month-to-month basis until such time a new office is identified. The Company believes the office is sufficient for its current operations.

 

Legal Claims

 

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any legal proceedings that it currently believes, if determined adversely to the Company, would individually or taken together have a material adverse effect on the Company’s business, operating results, financial condition or cash flows.

 

PointR Merger Consideration

 

The total purchase price of $17,831,427 represented the consideration transferred from the Company in the PointR Merger and was calculated based on the number of shares of Common Stock plus the preferred shares outstanding but convertible into Common Stock outstanding at the date of the PointR Merger and included $2,625,000 of contingent consideration of shares issuable to PointR shareholders, which can increase to $15 million of contingent consideration, upon achievement of certain milestones. The $2,625,000 of contingent consideration of shares issuable to PointR shareholders was recorded and associated with the PointR Merger is also classified as Level 3 fair value measurements. The Company initially recorded the contingency based on a valuation conducted by a third-party valuation expert. The valuation was based on a probability of the completion of certain milestones by PointR for the shareholders to earn additional shares. The Company evaluated the probability of the earning of the milestones and concluded that the probability of achievement of the milestones had not changed, primarily due to the shifting of focus by the Company to develop AI technologies for the COVID-19 pandemic. As such, the Company did not record any change to the valuation during the years ended and as of March 31, 2022 or December 31, 2021, respectively.

 

NOTE 14 – SUBSEQUENT EVENTS

 

March 2022 – Fourth Man Financing

 

In March 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby the Company issued a promissory note in the aggregate principal amount of $250,000 convertible into shares of common stock of the Company. The convertible note carries a twelve (12%) percent coupon and a default coupon of 16% and mature one year from issuance. The investor has the right at any time following issuance date to convert all or any part of the outstanding and unpaid amount of the note into the Company’s common stock at a conversion price established at a fixed rate of $0.10. The Company also granted a total number of 1,250,000 warrants convertible into an equivalent number of the Company common shares at a strike price of $0.20 up to five years after issuance. As the funds for the Note were received in April 2022, the Company will record the transaction during the six months ended June 30, 2022.

 

Peak One Equity Purchase Agreement

 

The Company filed a post-effective amendment to reregister the EPL on April 26, 2022 and the post effective amendment was found effective by the SEC on 6 May, 2022. The Company filed the prospectus in this connection on May 11, 2022.

 

Appointments of Chief Medical Officer and Chief Regulatory Officer

 

The Company appointed Dr. Fatih Uckun and Dr. Seymour Fein as its Consulting Chief Medical Officer and Chief Regulatory Officer in May 2022. For more information on the appointments of Drs. Uckun and Fein, refer to our Current Report on form 8-K filed with the SEC on May 6, 2022.

 

Cashless exercise of warrants

 

On May 13, 2022, the Company received a request from one of the November/December 2021 note holders for a cashless exercise of their warrants. The Company will issue 1,403,326 shares of Common Stock to the debt holder in lieu of 1,923,077 warrants.

 

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (the “Quarterly Report” or “Report”) includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. These statements are only predictions and involve known and unknown risks, uncertainties and other factors. Some of these risks are included in the section entitled “Risk Factors” set forth in this Quarterly Report and in other reports that we file with the SEC. The occurrence of any of these risks, or others of which we are currently unaware, may cause our company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and without limitation: