NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description
of Business
Oncotelic
Therapeutics, Inc. (also d/b/a Mateon Therapeutics, Inc.) (“Oncotelic”), was formed in the State of New York in 1988
as OXiGENE, Inc., was reincorporated in the State of Delaware in 1992, changed its name to Mateon Therapeutics, Inc. in 2016, and then
Oncotelic Therapeutics, Inc. in November 2020. Oncotelic conducts business activities through Oncotelic and its wholly-owned subsidiaries,
Oncotelic, Inc., a Delaware corporation (“Oncotelic, Inc.”), PointR Data, Inc. (“PointR”), a Delaware
corporation, and EdgePoint AI, Inc. (“Edgepoint”), a Delaware Corporation for which there are non-controlling interests,
(Oncotelic, Oncotelic Inc., PointR and Edgepoint are collectively called the “Company”).
In
February 2020, the Company formed a subsidiary, Edgepoint. Edgepoint is a start-up company that plans to develop technologies and IP
related to various unmet issues within the pharmaceutical and medical device industries. The Company may spin off Edgepoint into
a separate public company.
The
Company is a cancer immunotherapy company dedicated to the development of first in class self-immunization protocol (“SIP™”)
candidates for difficult to treat cancers. The Company’s proprietary SIP™ candidates offer advantages over other immunotherapies
because they do not require extraction of the tumor or isolation of the antigens, and they have the potential for broad-spectrum applicability
for multiple cancer types. The Company’s proprietary product candidates have shown promising clinical activity in phase 2 trials
for the treatment of gliomas and pancreatic cancers. The Company aims to translate its unique insights, which span more than three decades
of original work using RNA therapeutics, into the deployment of antisense as a RNA therapeutic for diseases which are caused by TGF-β
overexpression, starting with cancer and expanding to Duchenne Muscular Dystrophy (“DMD”) and others. Oncotelic Inc.’s
lead product candidate, OT-101, is being developed as a broad-spectrum anti-cancer drug that can also be used in combination with other
standard cancer therapies to establish an effective multi-modality treatment strategy for difficult-to-treat cancers. Together, the Company
plans to initiate phase 3 clinical trials for OT-101 in both high-grade glioma and pancreatic cancer, and any other indications that
may evolve. The Company is evaluating the further development of its product candidates OXi4503 as a treatment for acute myeloid leukemia
and myelodysplastic syndromes and CA4P in combination with a checkpoint inhibitor for the treatment of advanced metastatic melanoma.
The
Company is also developing OT-101 for the various epidemics and pandemics, similar to the current coronavirus (“COVID-19”)
pandemic. In this connection, the Company entered into an agreement and supplemental agreement with Golden Mountain Partners (“GMP”)
for a total of $1.2 million to render services and was paid for the development of OT-101. The Company recorded $0 and $1.7 million as
revenue during the three and nine months ended September 30, 2020 respectively, upon completion of all performance obligations under
the agreement. No similar revenues were recorded during the same periods in 2021. Further, in June 2020, the Company secured $2 million
in convertible debt financing from GMP to conduct a clinical trial evaluating OT-101 against COVID-19. The Company discontinued enrollment
in its OT-101 clinical trial in patients with COVID-19 in June 2021. The trial completed randomization of 32 out of 36 patients planned,
on an intent to treat basis. The discontinuance of the trial was due to the continuing rise of more severe variants in Latin America,
leading to exhaustion of medical care infrastructure in Latin America.
In
addition, the Company is developing Artemisinin. Artemisinin, purified from a plant Artemisia annua, is able to inhibit
TGF-β activity and is able to neutralize SARS-CoV-2 (COVID-19). The Company’s test results during an in vitro study at
Utah State University showed Artemisinin having an EC50 of 0.45 ug/ml, and a Safety Index of 140. Artemisinin can target multiple
viral threats including COVID-19 by suppressing both viral replication and clinical symptoms that arise from viral infection. Viral
replication cannot occur without TGF-β. Artemisinin also has been reported to have antiviral activities against hepatitis B and
C viruses, human herpes viruses, HIV-1, influenza virus A, and bovine viral diarrhea virus in the low micromolar range. TGF-β
surge and cytokine storm cannot occur without TGF-β. Clinical consequences related to the TGF-β surge, including ARDS and
cytokine storm, are suppressed by targeting TGF-β with Artemisinin. The ARTI-19 Clinical Study
(“ARTI-19”) was a global study with India to contribute at least 120 patients up to the total potential
aggregate of 3000 patients. ARTI-19 in India was conducted by Windlas Biotech Private Limited (“Windlas”),
business partner in India, as part of the plan for the Company’s global effort at deploying PulmohealTM across
India, Africa, and Latin America. We continue to evaluate to seek approval, and subsequently launch PulmohealTM, with or
without local partners, in various countries within the regions planned. PulmohealTM is a combination of
ARTIVedaTM, our artificial intelligence (“AI”) cough application and our AI post marketing survey
(“PMS”).
In
January 2021 and subsequently in February 2021, the Company announced preliminary results for ARTIVeda™, or PulmoHeal™,
which is the Company’s lead Ayurvedic drug against COVID-19 in India and being developed by the Company in partnership with Windlas.
These interim results were based on 120 randomized patients across 3 sites in India. The ARTI-19 India trial completed enrollment of
120 randomized individuals, we reported positive topline results in April 2021 and we expect final data as soon as available. Upon completion
of the trial results and obtaining regulatory approval for the use in India, it is the Company’s objective to file for Emergency
Use Authorization (“EUA”) with regulatory authorities around the world, including India, the United States, the United
Kingdom, countries in Africa and Latin America; discussions regarding EUA with several of these authorities have commenced. On
August 24, 2021, the Company announced that PulmoHealTM and ArtiVedaTM have proven to be effective against mild
and moderate COVID-19 following the preplanned prospective analysis of the Company’s ARTI-19 clinical trial. As previously announced,
the study report would serve as the basis for the Company’s regulatory submission for marketing approval of ArtiVedaTM.
Recent
Developments
Unsecured
Convertible Notes
In
August 2021, the Company issued Note Purchase Agreements with Autotelic Inc., the Company’s Chief Financial Officer (“CFO”),
and certain other accredited investors. Under the terms of the Note Purchase Agreements, the Company issued an aggregate of $698,500
(the “Principal Amount”) in
debt in the form of unsecured convertible promissory notes (collectively, the “Notes”). The Notes are unsecured, and
provide for interest at the rate of %
per annum. Such Notes were issued against some of the short-term debt due as of June
30, 2021. All amounts outstanding under the Notes
become due and payable at such time as determined by the holders of a majority of the Principal Amount of the Notes (the “Majority
Holders”), on or after (a) the one year anniversary of the Notes ,or (b) the occurrence of an Event of Default (as defined
in the Note Purchase Agreements) (the “Maturity Date”). The
Company may prepay the Notes at any time. Events of Default under the Notes include, without limitation, (i) failure to make payments
under the Notes within thirty (30) days of the Maturity Date, (ii) breaches of the Note Purchase Agreement or Notes by the Company which
is not cured within thirty (30) days of notice of the breach, (iii) bankruptcy, or (iv) a change in control of the Company (as defined
in the Note Purchase Agreements). The Majority Holders have the right, at any time not more than five days following the Maturity Date,
to elect to convert all, and not less than all, of the outstanding accrued and unpaid interest and principal on the Notes.
The Notes may be converted, at the election of the Majority Holders, into shares of the Company’s common stock, par value $0.01
per share (“Common Stock”),
at a fixed conversion price of $0.18
per share.
GMP
Letter of Intent, Term Sheet, note purchase agreements and unsecured notes
In
August 2021 the Company, the Company’s Chief Executive Officer
(the “CEO”), and GMP executed a letter of intent and a non-binding term sheet (the “Term Sheet”),
which Term Sheet included certain binding terms relating to a standstill agreement and the issuance of a convertible promissory note
(as more fully described below). The Term Sheet sets forth the terms and conditions pursuant to which the Company and GMP will, subject
to shareholder approval, form a joint venture (the “JV”) with the objective to develop the Company’s product
portfolio. Pursuant to the Term Sheet, the Company will contribute its product portfolio to the JV in consideration for a 35% ownership
stake in the JV. As set forth above, the Term Sheet sets forth certain binding terms regarding (i) a 45-day standstill by the Company,
and (ii) the issuance by the Company of a convertible note for $1.5
million to GMP to fund the OT-101 clinical trial
study close-out. Although no assurances can be given, the Company and GMP currently intend to conduct an initial public offering of the
JV, at a future date, on either the Hong Kong Exchange or other stock exchange. The formation of the JV is not assured as the formation
of the JV is subject to approval of the Company’s shareholders and the execution of definitive agreements, among other conditions.
In
September 2021, the Company entered into an Unsecured Convertible Note Purchase Agreement (the “Purchase Agreement”)
with GMP, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $1.5 million (the “September
2021 Note”), which September 2021 Note is convertible into shares of the Company’s Common Stock.
The
September 2021 Note carries an interest rate of 2% per annum and matures on the earlier of (a) the one year anniversary of the date of
the Agreement, (b) early termination of that certain clinical trial known as “A Randomized, Controlled, Multi - Center Study of
OT-101 in COVID-19 Patients (Investigational New Drug (IND) Application #149299)” (the “Clinical Trial”), or
any termination of the Clinical Trial, or (c) the acceleration of the maturity of the September 2021 Note by GMP upon occurrence of an
Event of Default (as defined below). The September 2021 Note contains a voluntary conversion mechanism whereby GMP may convert the outstanding
principal and accrued interest under the terms of the September 2021 Note into shares of Common Stock (the “Conversion Shares”),
at the consolidated closing bid price of the Company’s Common Stock on the applicable OTC Market as of the date the Company receives
a Notice of Conversion (as defined in the September 2021 Note) from GMP. Prepayment of the September 2021 Note may be made at any time
by payment of the outstanding principal amount plus accrued and unpaid interest. The September 2021 Note contains customary events of
default (each an “Event of Default”). If an Event of Default occurs, at GMP’s election, the outstanding principal
amount of the September 2021 Note, plus accrued but unpaid interest, will become immediately due and payable in cash.
In
October 2021, the Company entered into an Unsecured Convertible Note Purchase Agreement (the “October Purchase Agreement”)
with GMP, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $0.5 million (the “October
2021 Note”), which October 2021 Note is convertible into shares of the Company’s Common Stock.
The
October 2021 Note carries an interest rate of 2% per annum and matures on the earlier of (a) the one-year anniversary of the date of
the October Purchase Agreement, or (b) the acceleration of the maturity of the October 2021 Note by GMP upon occurrence of an Event of
Default (as defined below). The October 2021 Note contains a voluntary conversion mechanism whereby GMP may convert the outstanding principal
and accrued interest under the terms of the October 2021 Note into shares of Common Stock (the “Conversion Shares”),
at the consolidated closing bid price of the Company’s Common Stock on the applicable OTC Market as of the date the Company receives
a Notice of Conversion (as defined in the October 2021 Note) from GMP. Prepayment of the October 2021 Note may be made at any time by
payment of the outstanding principal amount plus accrued and unpaid interest. The October Note contains customary events of default (each
an “Event of Default”). If an Event of Default occurs, at GMP’s election, the outstanding principal amount of
the October 2021 Note, plus accrued but unpaid interest, will become immediately due and payable in cash. The October Purchase Agreement
requires the Company to use of the proceeds received under the October 2021 Note to support the clinical development of OT-101, including
payroll and has been made in continuation of the relationship between the Company and GMP.
Equity
Purchase Agreement
In
May 2021, the Company entered into an Equity Purchase Agreement (the “EPL”) and Registration Rights Agreement (the
“Registration Rights Agreement”) with Peak One Opportunity Fund, L.P. (“Peak One”), pursuant to
which the Company shall have the right, but not the obligation, to direct Peak One, to purchase up to $10.0
million (the “Maximum Commitment Amount”)
in shares of the common stock, par value $0.01
per share (“Common Stock”)
in multiple tranches. The Company has directed Peak One, on four occasions, since to the Company entered into the EPL for
an aggregate of 1.3
million shares of Common Stock for aggregate
cash proceeds of approximately $169,000
and incurred a cost of approximately $40,000
against the sale of the Common Stock.
Geneva
Roth Remark Notes
In
May 2021, the Company consummated the closing of a private placement transaction whereby, pursuant to a Securities Purchase Agreement
(the “Geneva Agreement”) entered into with Geneva Roth Remark (“Geneva”), the Company issued a
convertible promissory note in the aggregate principal amount of $203,750 (the “Note 1”). Further on June 28, 2021,
the Company issued an additional convertible promissory note in the aggregate principal amount of $103,750 (“Note 2”,
and collectively with Note 1, the “Notes”). The Notes are convertible into shares of the Company’s Common Stock.
Additional convertible promissory notes may be issued under the Geneva Agreement for up to $1.2 million in the aggregate principal amount
subject to further agreement by and between the Company and Geneva.
Extension
of Maturity Date for J.H. Darbie Financing Notes & Issuance of Oncotelic Warrants
The
Company issued and sold a total of 100 units (“Units”), with each Unit consisting of (i) 25,000 shares of Edgepoint
common stock, par value $0.01 per share (“Edgepoint Common Stock”), for a price of $1.00 per share of Edgepoint Common
Stock; (ii) one convertible promissory note issued by the Company (the “Unit Note”), convertible into up to 25,000
shares of EdgePoint Common Stock at a conversion price of $1.00 per share, or up to 138,889 shares of the Company’s Common Stock,
at a conversion price of $0.18 per share; and (iii) 100,000 warrants, consisting of (a) 50,000 warrants to purchase an equivalent number
of shares of EdgePoint Common Stock at $1.00 per share (“Edgepoint Warrant”), and (b) 50,000 warrants to purchase
an equivalent number of shares of Company Common Stock at $0.20 per share (“Oncotelic Warrant”) (collectively, the
“JH Darbie Financing”).
In
June 2021, the Company and the Investors agreed to extend the maturity date of the Notes from June 30, 2021, to March 31, 2022. In addition,
the Company and JHDarbie identified an error in the Oncotelic Warrants and JH Darbie Financing documents which intended to have the investors
to purchase $50,000 of shares of Common Stock or Edgepoint Common Stock. However, the Company only issued 50,000 Oncotelic Warrants,
with an aggregate exercise price of $10,000. The error was corrected by the Company and the Company issued to the Investors an aggregate
of 20.0 million additional Oncotelic Warrants, and 2.0 million additional Oncotelic Warrants to J.H. Darbie., as placement agent. Each
Investor was entitled to receive 200,000 additional Oncotelic Warrants for each Unit purchased. The issuance of the additional warrants
resulted in the Company recording an expense of $2,023,552 in the Company’s statement of operations during the three months ended
June 30, 2021. No similar expense was recorded in the same period in 2020.
Licensing
Agreement with Autotelic Inc.
In
September 2021, the Company entered into an exclusive License Agreement (the “Agreement”) with Autotelic, Inc.
(“Autotelic”), pursuant to which Autotelic granted Oncotelic, among other things: (i) the exclusive right and
license to certain Autotelic Patents (as defined in the Agreement) and Autotelic Know-How (as defined in the Agreement); and (ii) a
right of first refusal to acquire at least a majority of the outstanding capital stock of Autotelic prior to Autotelic entering into
any transaction that is a financing collaboration, distribution revenues, earn-outs, sales, out-licensing, purchases, debt,
royalties, merger acquisition, change of control, transfer of cash or non-cash assets, disposition of capital stock by way of tender
or exchange offer, partnership or any other joint or collaborative venture, research collaboration, material transfer, sponsored
research or similar transaction or agreements. In exchange for the rights granted to Oncotelic, Autotelic will be entitled to earn
the milestone payments of up to $50
million upon achievement of certain financial, development and regulatory milestones. In addition to the milestone payments,
Autotelic would be entitled to earn royalties equal to 15%
of the net sales of any products that incorporate the Autotelic Patents or Autotelic Know-How. The Agreement contains
representations, warranties and indemnification provisions of each of the parties thereto that are customary for transactions of
this type.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Oncotelic, its wholly owned subsidiaries, Oncotelic Inc. and PointR, and Edgepoint
our non-controlled interest entity. Intercompany accounts and transactions have been eliminated in consolidation.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting
of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly state the operating results
for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been omitted
pursuant to such rules and regulations.
Liquidity
and Going Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company
has incurred net accumulated losses of approximately $29.2
million since inception of Oncotelic Inc., as
the Company’s historical financial statements of the Company with Oncotelic Inc. have been replaced with the historical financial
statements of Oncotelic Inc. due to the reverse merger with Oncotelic Inc. The Company has a negative working capital of $14.6
million at September 30, 2021 of which
$2.6 million
contingent liability of issuance of common shares of the Company to PointR shareholders upon achievement of certain milestones in accordance
with the PointR merger agreement. In addition, the Company has negative cash flows from operations for the nine months ended September
30, 2021 of $3.4
million. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern for a period of one year from the date of this filing. Management expects
to incur additional losses in the foreseeable future and recognizes the need to raise capital to remain viable. The accompanying consolidated
financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The
Company’s long-term plans include continued development of its current pipeline of products to generate sufficient revenues, either
through technology transfer or product sales, to cover its anticipated expenses. Until the Company is able to generate sufficient revenues
from its current pipeline, the Company plans on funding its operations through the sale of equity and/or the issuance of debt, combined
with or without warrants or other equity instruments.
Between
July 2020 and March 2021, the Company raised gross proceeds of $5 million, through the JH Darbie Financing. The Company incurred $0.7
million of costs associated with the raise, of which $0.65 million was paid as direct placement fees to JH Darbie. JH Darbie and the
Company are parties to a placement agent agreement, dated February 25, 2020 pursuant to which JH Darbie had the right to sell a minimum
of 40 Units and a maximum of 100 Units on a best-efforts basis. Concurrently with the sale of the Units, JH Darbie was granted, a warrant,
exercisable over a five-year period, to purchase 10% of the number of Units sold in the JH Darbie Financing. As such, the Company granted
10 Units to JH Darbie pursuant to the JH Darbie Placement Agreement.
In
addition to the JH Darbie Financing, the Company raised approximately $0.2
million from the Equity Purchase Agreement
with Peak One, $0.3
million from Geneva, an approximately $1.0
million from various bridge financiers, including
$0.3
million from Autotelic Inc., a related party
and approximately $0.1
million from the Paycheck Protection Plan of
2021 for PointR.
During
the nine months ended September 30, 2020, the Company recorded a total of approximately $1.2 million in service revenues from GMP and
$0.5 million in licensing milestone revenue from Autotelic BIO (“ATB”), an unrelated party. No similar revenues were
recorded during the similar periods in 2021. There are no assurances that the Company would be able to generate revenues for services
and/or out-licensing fees in the near future.
Although
no assurances can be given as to the Company’s ability to deliver on its revenue plans, or that unforeseen expenses may arise,
management believes that the potential equity and debt financing or other potential financing will provide the necessary funding for
the Company to continue as a going concern. Also, management cannot guarantee any potential debt or equity financing will be available
on favorable terms or at all. As such, management does not believe the Company has sufficient cash for 12 months from the date of this
report. If adequate funds are not available on acceptable terms, or at all, the Company will need to curtail operations, or cease operations
completely.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, equity-based transactions and disclosure of contingent liabilities at the date of the financial
statements and revenues and expense during the reporting period. Actual results could materially differ from those estimates.
The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation
of the financial statements. Significant estimates include the valuation of goodwill and intangible assets for impairment, deferred tax
asset and valuation allowance, and fair value of financial instruments.
Cash
As
of September 30, 2021, and December 31, 2020 the Company held all its cash in banks. The Company considers investments in highly liquid
instruments with a maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of September
30, 2021 and December 31, 2020, respectively. Restricted cash consists of certificates of deposits held at banks as collateral for various
purposes.
Fair
Value of Financial Instruments
The
carrying value of cash, accounts payable and accrued expense approximate their fair values based on the short-term maturity of these
instruments. As defined in ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit
price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including
assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair
value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level
1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at
both initial and subsequent measurement.
The
three levels of the fair value hierarchy defined by ASC 820 are as follows:
|
●
|
Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets
are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information
on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities
and listed equities.
|
|
|
|
|
●
|
Level
2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly
observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation
methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices
for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well
as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full
term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed
in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest
rate swaps, options and collars.
|
|
|
|
|
●
|
Level
3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be
used with internally developed methodologies that result in management’s best estimate of fair value.
|
The
Company did not have any Level 1 or Level 2 assets and liabilities at September 30, 2021 and December 31, 2020. The derivative liabilities
associated with its 2019 bridge financing Convertible Notes (see Note 5), consisted of conversion feature derivatives at September 30,
2021 and December 31, 2020, are Level 3 fair value measurements.
The
table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3
as of September 30, 2021 and 2020:
SUMMARY OF CHANGES IN FAIR VALUE OF DERIVATIVE LIABILITIES
|
|
|
September 30, 2021
Conversion Feature
|
|
|
September 30, 2020
Conversion Feature
|
|
|
Balance at January 1, 2021 and 2020
|
|
$
|
777,024
|
|
|
$
|
540,517
|
|
|
New derivative liability
|
|
|
-
|
|
|
|
870,268
|
|
|
Reclassification to additional paid in capital from conversion of debt to common stock
|
|
|
(144,585
|
)
|
|
|
(573,811
|
)
|
|
Change in fair value
|
|
|
(239,278
|
)
|
|
|
(60,504
|
)
|
|
Balance at September 30, 2021 and 2020
|
|
$
|
393,161
|
|
|
$
|
776,470
|
|
As
of September 30, 2021 and 2020, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible
debentures based on assumptions used in the Black-Scholes valuation model. The key valuation assumptions used consists, in part, of the
price of the Company’s Common Stock, a risk-free interest rate based on the yield of a Treasury note and expected volatility of
the Company’s Common Stock all as of the measurement dates. The Company used the following assumptions to estimate fair value of
the derivatives as of September 30, 2021 and 2020:
SUMMARY OF ESTIMATE FAIR VALUE OF DERIVATIVE LIABILITIES
|
|
|
Sept.
30, 2021
Key
Assumptions for fair value of conversions
|
|
|
Sept.
30, 2020
Key
Assumptions for fair value of conversions
|
|
|
Risk
free interest
|
|
|
0.05
|
%
|
|
|
0.13
|
%
|
|
Market
price of share
|
|
$
|
0.14
|
|
|
$
|
0.18
|
|
|
Life
of instrument in years
|
|
|
0.56
- 0.85
|
|
|
|
1.56
-1.85
|
|
|
Volatility
|
|
|
108.96
|
%
|
|
|
150.77
|
%
|
|
Dividend
yield
|
|
|
0
|
%
|
|
|
0
|
%
|
When
the Company changes its valuation inputs for measuring financial liabilities at fair value, either due to changes in current market conditions
or other factors, it may need to transfer those liabilities to another level in the hierarchy based on the new inputs used. The Company
recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended September 30, 2021
and 2020, respectively, there were no transfers of financial assets or financial liabilities between the hierarchy levels.
Net
Income (Loss) Per Share
Basic
net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding
during the period. Diluted net income (loss) per share includes the effect of Common Stock equivalents (notes convertible into Common
Stock, stock options and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be
dilutive. The following number of shares have been excluded from diluted loss since such inclusion would be anti-dilutive:
SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
|
|
|
Three and Nine Months Ended Sept. 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
41,522,204
|
|
|
|
20,237,084
|
|
|
Stock options
|
|
|
16,594,062
|
|
|
|
6,130,004
|
|
|
Warrants
|
|
|
42,737,500
|
|
|
|
18,152,500
|
|
|
Potentially dilutive securities
|
|
|
100,853,766
|
|
|
|
44,519,588
|
|
Stock-Based
Compensation
The
Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement
and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements
of operations.
For
stock options issued to employees and members of the Board of Directors (the “Board”) for their services, the Company
estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option
pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the
Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock.
For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based
compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period,
which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant
and revised.
Pursuant
to ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, the Company
accounts for stock options issued to non-employees for their services in accordance with ASC 718. The Company uses valuation methods
and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above.
For
warrants issued in connection with fund raising activities, the Company estimates the grant date fair value of each warrant using the
Black-Scholes pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to
the expected term of the warrant, the expected volatility of the Common Stock consistent with the expected life of the warrant, risk-free
interest rates and expected dividend yields of the Common Stock. If the warrants are issued upon termination or cancellation of prior
issued warrants, then the Company estimates the grant date fair value of the new warrants using the Black-Scholes pricing model and evaluates
whether the new warrants are deemed as equity instruments or liability instruments. If the warrants are deemed to be equity instruments,
the Company records stock compensation expense and an addition to additional paid in capital. If however, the warrants are deemed to
be liability instruments, then the fair value is treated as a deemed dividend and credited to additional paid in capital.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the
forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined
to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets
of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature
of the assets. For the three and nine months ended September 30, 2021 and 2020, there were no impairment losses recognized for long-lived
assets.
Intangible
Assets
The
Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. The Company reviews
the intangible assets for impairment on an annual basis or if events or changes in circumstances indicate it is more likely than not
that they are impaired. These events could include a significant change in the business climate, legal factors, a decline in operating
performance, competition, sale or disposition of a significant portion of the business, or other factors. If the review indicates the
impairment, an impairment loss would be recorded for the difference of the value recorded and the new value. For the three and nine months
ended September 30, 2021 and 2020, there were no impairment losses recognized for intangible assets.
Goodwill
Goodwill
represents the excess of the purchase price of acquired business over the estimated fair value of the identifiable net assets acquired.
Goodwill is not amortized but is tested for impairment at least once annually, at the reporting unit level or more frequently if events
or changes in circumstances indicate that the asset might be impaired. The goodwill impairment test is applied by performing a qualitative
assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered not more
likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment
would not be required. Otherwise, goodwill impairment is tested using a two-step approach.
The
first step involves comparing the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit is
determined to be greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is determined
to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. The second step involves
calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill,
of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in
this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of
the goodwill, an impairment loss equivalent to the difference is recorded. For the three and nine months ended September 30, 2021 and
2020, there were no impairment losses recognized for Goodwill.
Derivative
Financial Instruments Indexed to the Company’s Common Stock
We
have generally issued derivative financial instruments, such as warrants, in connection with our equity offerings. We evaluate the terms
of these derivative financial instruments in order to determine their accounting treatment in our financial statements. Key considerations
include whether the financial instruments are freestanding and whether they contain conditional obligations. If the warrants are freestanding,
do not contain conditional obligations and meet other classification criteria, we account for the warrants as an equity instrument. However,
if the warrants contain conditional obligations, then we account for the warrants as a liability until the conditional obligations are
met or are no longer relevant. Because no established market prices exist for the warrants that we issue in connection with our equity
offerings, we must estimate the fair value of the warrants, which is as inherently subjective as it is for stock options, and for similar
reasons as noted in the stock-based compensation section above. For financial instruments which are accounted for as a liability, we
report any changes in their estimated fair values as gains or losses in our Consolidated Statement of Operations.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives
and Hedging”.
ASC
815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and
account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and
risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported
in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional
as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from
their host instruments) in accordance with ASC 470-20 “Debt – Debt with Conversion and Other Options.” Accordingly,
the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Original issue discounts under these arrangements are amortized over the term of the
related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of
conversion options embedded in preferred shares based upon the differences between the fair value of the underlying Common Stock at the
commitment date of the note transaction and the effective conversion price embedded in the note.
ASC
815-40 “Derivatives and Hedging – Contracts in Entity’s Own Equity” provides that, among other things, generally,
if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an
asset or a liability.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
Under
ASU 2014-9, the Company recognizes revenue when its customers obtain control of the promised good or services, in an amount that reflects
the consideration which the Company expects to receive in exchange for those goods or services. The Company applies the following five-step:
(i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the
Company satisfies a performance obligation.
At
contract inception, once the contract is determined to be within the scope of ASU 2014-09, the Company identifies the performance obligation(s)
in the contract by assessing whether the goods or services promised within each contract are distinct. The Company then recognizes revenue
for the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation
is satisfied.
The
Company anticipates generating revenues from rendering services to other third party customers for the development of certain drug products
and/or in connection with certain out-licensing agreements. In the case of services rendered for development of the drugs, revenue is
recognized upon the achievement of the performance obligations or over time on a straight-line basis over the extended service period.
In the case of out-licensing contracts, the Company records revenues either upon achievement of certain pre-defined milestones, when
there is no obligation of the Company achieve any performance obligations in connection with the said pre-defined milestones, or upon
achievement of the performance obligations if the milestones require the Company to provide the performance obligations.
The
Company occasionally collects advance payments from customers toward commitments to provide services or performance obligations, in which
case the advance payment is recorded as a liability until the obligations are fulfilled and revenue is recognized.
Research
Service Agreement between GMP and Oncotelic /Oncotelic Inc. (“Oncotelic Entities”)
In
February 2020, Oncotelic Inc. and GMP entered into a research and services agreement (the “Agreement”) memorializing
their collaborative efforts to develop and test COVID-19 antisense therapeutics. In March 2020, the Company reported the positive anti-viral
activity results of OT-101 (the “Product”) in an in vitro antiviral testing performed by an independent laboratory
to GMP, at which time, the Oncotelic Entities and GMP entered into a supplement to the Agreement (the “Supplement”)
to confirm the inclusion of the Product within the scope of the Agreement, pending positive confirmatory testing against COVID-19. In
consideration for the financial support provided by GMP for the research, pursuant to the terms of the Agreement (as amended by the Supplement)
GMP was entitled to obtain certain exclusive rights to the use of the Product in the COVID field on a global basis, and an economic interest
in the use of the Product in the COVID field including 50/50 profit sharing. GMP paid the Company total fees of $1.2 million for the
Agreement and Supplement during the nine months ended September 30, 2020. The Company also recorded approximately $40 thousand for reimbursement
of actual costs incurred.
Agreement
with Autotelic BIO (“ATB”)
Oncotelic
Inc. had entered into a license agreement in February 2018 (the “ATB Agreement”) with ATB. The ATB Agreement licensed
the use of OT-101 in combination with Interleukin-2 (the “Combined Product”), and granted to ATB an exclusive license
under the Oncotelic Inc. technology to develop, make, have made, use, sell, offer for sale, import and export the Combined Product, and
the Combination Product only, in the field, throughout the entire world (excluding the United States of America and Canada) as the territory,
on the terms and subject to the conditions of the ATB Agreement. The ATB Agreement requires ATB to be responsible for the development
of the Combination Product. Oncotelic Inc. was responsible to provide to ATB the technical know-how and other pertinent information on
the development of the Combination Product. ATB paid Oncotelic Inc. a non-refundable milestone payment in consideration for the rights
and licenses granted to ATB under the ATB Agreement, and ATB was to pay Oncotelic Inc. $500,000 within sixty days from the successful
completion of the in vivo efficacy studies. This payment was made after the successful completion of the in-vivo study and, as such,
the Company recorded the revenue. In addition, ATB is to pay Oncotelic Inc.: (i) $500,000 upon Oncotelic Inc.’s completion of the
technology know how and Oncotelic Inc.’s technical assistance and regulatory consultation to ATB, as determined by the preparation
of a Current Good Regulation Practices audit or certification by the Food and Drug Administration, with a mutual goal to obtain marketing
approval of the Combined Product developed by ATB in the aforementioned territory; (ii) $1,000,000 upon receiving marketing approval
of the Combined Product in Japan, China, Brazil, Mexico, Russia, or Korea; and (iii) $2,000,000 from receiving marketing approval of
the Combined Product in Germany, France, Spain, Italy, or the United Kingdom. The Company recorded $500,000 as revenue under the ATB
Agreement for the successful completion of the in-vivo study during the nine months ended September 30, 2020.
Research
& Development Costs
In
accordance with ASC 730-10-25 “Research and Development”, research and development costs are charged to expense as and when
incurred.
Prior
Period Reclassifications
Certain
amounts in prior periods may have been reclassified to conform with current period presentation.
Recent
Accounting Pronouncements
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04, Intangibles –
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance requires only a one-step quantitative
impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting period unit’s carrying amount
over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step
goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s
goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for annual periods beginning after December 15, 2019. Early
adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption
of ASU 2017-04 had no material impact on the Company’s consolidated financial statements and related disclosures.
In
August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers
the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 became effective on January 1, 2018. The ASU also requires
expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments,
and assets recognized from the costs to obtain or fulfill a contract. The Company adopted ASU 2015-14 during the three months ended March
31, 2020 as till then, no revenue was earned by the Company.
In
August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40)” which simplifies the accounting for convertible instruments. The guidance removes
certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either
a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard.
Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently evaluating the
potential impact of the update on its consolidated financial statements.
All
other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
NOTE
3 - INTANGIBLE ASSETS AND GOODWILL
The
Company completed a merger with Oncotelic, which gave rise to Goodwill of $4,879,999.
Further, the Company added goodwill of $16,182,456
upon the completion of the merger with
PointR. In general, the goodwill is tested on an annual impairment date of December 31. However, since both assets are currently being
developed for various cancer and COVID-19 therapies, and the Company is contemplating other collaboration efforts for both products and
the other products that the Company owns, the Company does not believe the there are any factors or indications that the goodwill is
impaired.
Assignment
and Assumption Agreement with Autotelic, Inc.
In
April 2018, Oncotelic Inc. entered into an Assignment and Assumption Agreement (the “Assignment Agreement”) with Autotelic
Inc., an affiliate company, and Autotelic LLC, an affiliate company, pursuant to which Oncotelic acquired the rights to all intellectual
property (“IP”) related to a patented product. As consideration for the Assignment Agreement, Oncotelic Inc. issued
204,798 shares of its Common Stock for a value of $819,191. The Assignment Agreement also provides that Oncotelic Inc. shall be responsible
for all costs related to the IP, including development and maintenance, going forward.
Intangible
Asset Summary
The
following table summarizes the balances as of September 30, 2021 and December 31, 2020, of the intangible assets acquired, their useful
life, and annual amortization:
SCHEDULE OF INTANGIBLE ASSETS
|
|
|
Sept 30, 2021
|
|
|
Remaining
Estimated
Useful Life
(Years)
|
|
|
Intangible asset – Intellectual Property
|
|
$
|
819,191
|
|
|
|
16.25
|
|
|
Intangible asset – Capitalization of license cost
|
|
|
190,989
|
|
|
|
16.25
|
|
|
|
|
|
1,010,180
|
|
|
|
|
|
|
Less Accumulated Amortization
|
|
|
(175,497
|
)
|
|
|
|
|
|
Total
|
|
$
|
834,683
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Remaining
Estimated
Useful Life (Years)
|
|
|
Intangible asset – Intellectual Property
|
|
$
|
819,191
|
|
|
|
18.00
|
|
|
Intangible asset – Capitalization of license cost
|
|
|
190,989
|
|
|
|
18.00
|
|
|
|
|
|
1,010,180
|
|
|
|
|
|
|
Less Accumulated Amortization
|
|
|
(136,974
|
)
|
|
|
|
|
|
Total
|
|
$
|
873,206
|
|
|
|
|
|
Amortization
of identifiable intangible assets for the three months ended September 30, 2021 and 2020 was $12,841 and $12,841, respectively. Amortization
of identifiable intangible assets for the nine months ended September 30, 2021 and 2020 was $38,524 and $38,524, respectively.
The
future yearly amortization expense over the next five years and thereafter are as follows:
SCHEDULE OF AMORTIZATION OF EXPENSE FOR INTANGIBLE ASSETS
|
For the three months and years ending December 31,
|
|
|
|
|
|
|
Remainder of 2021
|
|
$
|
12,841
|
|
|
2022
|
|
|
51,365
|
|
|
2023
|
|
|
51,365
|
|
|
2024
|
|
|
51,365
|
|
|
2025
|
|
|
51,365
|
|
|
Thereafter
|
|
|
616,382
|
|
|
|
|
$
|
834,683
|
|
In-Process
Research & Development (IPR&D) Summary
The
IPR&D assets were acquired in the PointR acquisition during the year ended December 31, 2019. Since January 2021, the Company has
determined that the IPR&D should be reported as an indefinitely lived asset and therefore will evaluate, on an annual basis, for
any impairment on the IPR&D and will record an impairment if identified. The balance of IPR&D as of September 30, 2021 and December
31, 2020 was $1,101,760.
NOTE
4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expense consists of the following amounts:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,360,233
|
|
|
$
|
1,937,419
|
|
|
Accrued expense
|
|
|
1,046,574
|
|
|
|
798,386
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
4,406,807
|
|
|
$
|
2,735,805
|
|
|
|
|
|
September 30, 2021
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable – related party
|
|
$
|
425,740
|
|
|
$
|
391,631
|
|
NOTE
5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT
As
of September 30, 2021 special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued
interest, if any, consist of the following amounts:
SCHEDULE OF CONVERTIBLE DEBENTURES
|
|
|
September 30, 2021
|
|
|
Convertible debentures
|
|
|
|
|
|
10% Convertible note payable, due April 23, 2022 – Bridge Investor
|
|
|
26,778
|
|
|
10% Convertible note payable, due April 23, 2022 – Related Party
|
|
|
125,458
|
|
|
10% Convertible note payable, due August 6, 2022 – Bridge Investor
|
|
|
183,313
|
|
|
|
|
|
335,549
|
|
|
Fall 2019 Notes
|
|
|
|
|
|
5% Convertible note payable – Stephen Boesch
|
|
|
117,708
|
|
|
5% Convertible note payable – Related Party
|
|
|
273,108
|
|
|
5% Convertible note payable – Dr. Sanjay Jha (Through his family trust)
|
|
|
272,628
|
|
|
5% Convertible note payable – CEO, CTO & CFO
|
|
|
89,332
|
|
|
5% Convertible note payable – Bridge Investors
|
|
|
183,022
|
|
|
|
|
|
935,798
|
|
|
Geneva Notes
|
|
|
|
|
|
Geneva notes
|
|
|
313,472
|
|
|
|
|
|
|
|
|
August 2021 Convertible Notes
|
|
|
|
|
|
5% Convertible note – Autotelic Inc
|
|
|
251,952
|
|
|
5% Convertible note – bridge investors
|
|
|
376,416
|
|
|
5% Convertible note - CFO
|
|
|
75,586
|
|
|
|
|
|
703,954
|
|
|
|
|
|
|
|
|
Other Debt
|
|
|
|
|
|
Short term debt from CEO
|
|
|
20,000
|
|
|
Short term debt – bridge investors
|
|
|
258,185
|
|
|
Short term debt from CFO
|
|
|
45,050
|
|
|
Short term debt – Autotelic Inc.
|
|
|
20,000
|
|
|
|
|
|
343,235
|
|
|
Total of debentures, notes and other debt
|
|
$
|
2,632,008
|
|
As
of December 31, 2020, convertible debentures and notes, net of debt discount, consist of the following amounts:
|
|
|
December 31, 2020
|
|
|
Convertible debentures
|
|
|
|
|
|
10% Convertible note payable, due April 23, 2022 - TFK
|
|
|
39,065
|
|
|
10% Convertible note payable, due April 23, 2022 – Related Party
|
|
|
14,256
|
|
|
10% Convertible note payable, due April 23, 2022 – Bridge Investor
|
|
|
69,848
|
|
|
10% Convertible note payable, due August 6, 2022 – Bridge Investor
|
|
|
168,421
|
|
|
|
|
|
291,590
|
|
|
Fall 2019 Notes
|
|
|
|
|
|
5% Convertible note payable – Stephen Boesch
|
|
|
213,046
|
|
|
5% Convertible note payable – Related Party
|
|
|
263,733
|
|
|
5% Convertible note payable – Dr. Sanjay Jha (Through his family trust)
|
|
|
263,253
|
|
|
5% Convertible note payable – CEO, CTO & CFO
|
|
|
86,257
|
|
|
5% Convertible note payable – Bridge Investors
|
|
|
176,722
|
|
|
|
|
|
1,003,011
|
|
|
Other Debt
|
|
|
|
|
|
Short term debt from CFO
|
|
|
25,000
|
|
|
Short term debt from CEO
|
|
|
20,000
|
|
|
Other short term debt – Bridge Investor
|
|
|
50,000
|
|
|
|
|
|
95,000
|
|
|
Total of debentures, notes and other debt
|
|
$
|
1,389,601
|
|
Convertible
Debentures
The
gross principal balances on the convertible debentures listed above totaled $1,000,000 and included an initial debt discount totaling
$800,140, resulting from the recording of the original issue discount, the related financing costs, the beneficial conversion feature
for the intrinsic value of the non-bifurcated conversion option and the restricted shares issued contemporaneously with the convertible
notes.
Total
amortization expense related to these debt discounts was $110,528 and $611,681 for the nine months
ended September 30, 2021, and 2020, respectively. In addition, during the nine months ended September 30, 2021 and 2020, we recorded
additional and accelerated amortization of debt discounts, which was created from the bifurcation of the conversion option related the
host hybrid instruments, of $24,491 and $262,556, respectively upon the partial and/or full conversion of debt by Peak One and TFK to
shares of the Company’s common stock. The total unamortized debt discount at September 30, 2021 and December 31, 2020, was approximately
$64,452, respectively.
All
the above notes issued to Peak One, TFK, our CEO and the bridge investors reached the 180 days during the year ended December 31, 2020.
As such, all the note holders had the ability to convert that debt into equity at the variable conversion price of 65% of the Company’s
lowest traded price after the first 180 days or at the lower of the Fixed Price or 55% of the Company’s traded stock price under
certain circumstances. This gave rise to a derivative feature within the debt instrument. As of December 31, 2020, we had a derivative
liability of approximately $777,000. The Company decrease the fair value of the derivative liability by approximately $241,000 during
the nine months ended September 30, 2021. The Company also extinguished approximately $145,000 of derivative liability following the
conversion of certain notes to the Company’s common stock in the nine months ended September 30, 2021.
The
Company recorded additional derivative liability of approximately $870,000 during the nine months ended September 30, 2020 since the
conversion option attached to certain notes became convertible into a variable number of shares of our common stock. The Company also
extinguished approximately $574,000 of derivative liability following the conversion of certain notes to the Company’s common stock
in the nine months ended September 30, 2020. Following the recognition as derivative liability of the embedded conversion options, the
Company fully amortized the remaining unamortized beneficial conversion feature for approximately $232,000, recorded an initial $258,070
from the initial recognition of the debt discount following the bifurcation of the embedded conversion option. As of September 30, 2020,
the Company had a derivative liability of approximately $776,000 and a change in fair value of approximately $60,500.
Bridge
Financing
Peak
One Financing
On
April 17, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Peak One
Opportunity Fund, L.P. (the “Buyer”, “Peak One”), for a commitment to purchase convertible notes
in the aggregate amount of $400,000, pursuant to which, for an aggregate purchase price of $400,000, the Buyer purchased (a) Tranche
#1 in the form of a Convertible Promissory Note in the principal amount of $200,000 (the “Convertible Note”) and (b)
350,000 restricted shares of the Company’s Common Stock (the “Shares”) (the “Purchase and Sale Transaction”).
The Company used the net proceeds from the Purchase and Sale Transaction for working capital and general corporate purposes.
The
Convertible Note has a principal balance of $200,000, including a 10%$ OID of $20,000 and $5,000 in debt issuance costs, receiving net
proceeds of $175,000, with a maturity date of April 23, 2022. Upon the occurrence of certain events of default, the Buyer, amongst other
remedies, has the right to charge a penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under the Convertible
Note may also be converted into shares (the “Tranche #1 Conversion Shares”) of the Company’s Common Stock at
any time, at the option of the holder, at (i) a conversion price, during the first 180 days, of $0.10 per share (the “Fixed Price”),
and then (2) at the lower of the Fixed Price or 65% of the Company’s lowest traded price after the first 180 days or at the lower
of the Fixed Price or 55% of the Company’s traded stock price under certain circumstances. The Company has agreed to at all times,
reserve and keep available out of its authorized Common Stock a number of shares equal to at least two times the full number of the Tranche
#1 Conversion Shares. The Company may redeem the Convertible Note at rates of 110% to 140% over the principal balance dependent on certain
events and redeem the value with accrued interest thereon, if any.
The
issuance of the Convertible Note resulted in a discount from the beneficial conversion feature totaling $84,570, including $52,285 related
to the beneficial conversion feature and a discount from the issuance of restricted stock of 350,000 shares for $32,285. Total amortization
of these OID and debt issuance cost discounts totaled $0 for the 3 months ended September 30, 2021. Total unamortized discount on this
note was $0 and $0 at September 30, 2021 and December 31, 2020, respectively.
On
June 12, 2019, the Company entered into an amendment of the Purchase Agreement (“Amendment #1”) in connection with
the draw-down of the second tranche, and to provide for additional borrowing capacity under that agreement. Amendment #1 increased the
borrowing amount up to $600,000, adding the ability to borrow an additional $200,000 in a third tranche.
On
June 12, 2019, the Buyer purchased Convertible Note Tranche #2 (“Tranche #2”) totaling $200,000, including a 10% OID
of $20,000 and a $1,000 debt issuance cost, receiving net proceeds of $179,000 against the April 17, 2019, Purchase Agreement with Peak
One, with a maturity date of June 12, 2022. Amounts due under Tranche #2 are convertible at the same terms as Tranche #1 above.
The
issuance of Tranche #2 resulted in a discount from the beneficial conversion feature totaling $180,000, including $132,091 related to
the conversion feature and a discount from the issuance of restricted stock of 350,000 shares for $47,909. Total amortization of these
OID and debt issuance cost discounts totaled $0 for the 3 months ended September 30, 2021. Total unamortized discount on this note was
$0 as of September 30, 2021.
On
November 5, 2019, the Company and Peak One amended the Convertible Note under Tranche #1 to extend the date of conversion of the Convertible
Note into Common Stock of the Company at 65% of the traded price of the Company’s Common Stock until January 8, 2020. This amendment
put a temporary hold on Peak One to convert the debt under Tranche 1. This restriction did not apply if Peak One opted to convert the
Convertible Note at $0.10. The Company compensated Peak One 300,000 shares of the Company’s Common Stock for delaying the conversion
until January 18, 2020. Such shares were issued to Peak One on November 14, 2019. Non-cash compensation expense of $60,000 was recorded
for such issuance.
Peak
One converted $200,000 of Tranche #1 out of their total debt into 2,581,945 shares of the Company during the year ended December 31,
2020. Further, Peak One converted $200,000 of Tranche #2 of their total debt into 2,000,000 shares of the Company during the year ended
December 31, 2020. As such, the total outstanding debt for Peak One was $0 as of September 30, 2021.
TFK
Financing
On
April 23, 2019, the Company, entered into a Convertible Note (the “TFK Note”) with TFK Investments, LLC (“TFK”).
The TFK Note has a principal balance of $200,000,
including a %
OID of $20,000
and $5,000
in debt issuance costs, receiving net proceeds
of $175,000,
with a maturity date of April
23, 2022. Upon
the occurrence of certain events of default, the Buyer, amongst other remedies, has the right to charge a penalty in a range of 18% to
40% dependent on the specific default event. Amounts
due under the Convertible Note may also be converted into shares (the “TFK Conversion Shares”) of the Company’s
Common Stock at any time, at (i)
a conversion price, during the first 180 days, of $0.10 per share (the “Fixed Price”), and then (2) at the lower of the Fixed
Price or 65% of the Company’s lowest traded price after the first 180 days or at the lower of the Fixed Price or 55% of the Company’s
traded stock price under certain circumstances. The Company has agreed to at all times reserve and keep available out of its authorized
Common Stock a number of shares equal to at least two times the full number of the TFK Conversion Shares. The Company may redeem the
Convertible Note at rates of 110% to 140% rates over the principal balance dependent on certain events and redeem the value with accrued
interest thereon, if any.
The
issuance of the TFK Note resulted in a discount from the beneficial conversion feature totaling $84,570, including $52,285 related to
the beneficial conversion feature and a discount from the issuance of restricted, stock of 350,000 shares for $32,285. Total amortization
of these OID and debt issuance cost discounts totaled $0 for the three months ended September
30, 2021. Total unamortized discount on this note was $0 and $3,589 as of September 30, 2021 and September 30, 2020 respectively.
On
November 5, 2019, the Company and TFK amended the TFK Convertible Note to extend the date of conversion of the Convertible Note into
Common Stock of the Company at 65% of the traded price of the Company’s Common Stock until January 8, 2020. This restriction did
not apply if TFK wished to convert the Convertible Note at $0.10 per share. The Company compensated TFK 300,000 shares of the Company’s
Common Stock for delaying the conversion until January 8, 2020. Such shares were issued to TFK on November 14, 2019. Non-cash compensation
expense of $60,000 was recorded for such issuance.
TFK
converted $133,430 of their total debt into 1,950,000 shares of common stock of the Company during the year ended December 31, 2020.
As such, the total gross outstanding debt for TFK was approximately $67,000 as of December 31, 2020. TFK had a balance of approximately
$109,000 related to the derivative liability as of December 31, 2020. The Company recorded approximately $38,000 as an increase in fair
value for the derivative liability, and hence the TFK had a balance of approximately $145,000 of derivative liability. The Company extinguished
the $145,000 of derivative liability and approximately $67,000 of the value of the debt, totaling approximately $210,000 following the
conversion of the notes to the Company’s common stock during the nine months ended September 30, 2021 for a total of 657,200 shares
of common stock of the Company and recorded a loss on the conversion of approximately $2,000 for the nine months ended September 30,
2021. As such, TFK’s debt as of September 30, 2021 was $0.
Notes
with Officer and Bridge Investor
On
April 17, 2019, the Company entered into a Securities Purchase Agreement (the “Bridge SPA”) with our CEO and the Bridge
Investor with a commitment to purchase convertible notes in the aggregate of $400,000.
On
April 23, 2019, the Company entered into a convertible note with our Chief Executive Officer, Vuong Trieu, Ph. D. (the “Trieu
Note”). The Trieu Note has a principal balance of $164,444, including a 10% OID of $16,444, resulting in net proceeds of $148,000,
with a maturity date of April 23, 2022. Upon the occurrence of certain events of default, the Buyer, amongst other remedies, has the
right to charge a penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under the Convertible Note may
also be converted into shares (the “Trieu Conversion Shares”) of the Company’s Common Stock at any time, at the option
of the holder, at a conversion price of $0.10 per share (the “Fixed Price”), at the lower of the Fixed Price or 65% of the
Company’s lowest traded price after the 180th day or at the lower of the Fixed Price or 55% of the Company’s traded
stock price under certain circumstances. The Company has agreed to at all times reserve and keep available out of its authorized Common
Stock a number of shares equal to at least two times the full number of Conversion Shares. The Company may redeem the Convertible Note
at rates of 110% to 140% rates over the principal balance dependent on certain events and redeem the value with accrued interest thereon,
if any.
The
issuance of the Trieu Note resulted in a discount from the beneficial conversion feature totaling $131,555 related to the conversion
feature. Total amortization of the 10% OID discount and beneficial conversion feature totaled $2,743 and $5,486 for the nine months ended
September 30, 2021, and 2020, respectively. Total unamortized discount on this note was $1,713 as of September 30, 2021.
On
April 23, 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #1 (“Tranche #1”) with
the Bridge Investor. Tranche #1 has a principal balance of $35,556, an OID of $3,556, resulting in net proceeds of $32,000, with a maturity
date of April 23, 2022. Upon the occurrence of certain events of default, the Buyer, among other remedies, has the right to charge a
penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under Tranche #1 may also be converted into shares
(the “Bridge SPA Conversion Shares”) of the Company’s Common Stock at any time, at (i) a conversion price, during
the first 180 days, of $0.10 per share (the “Fixed Price”), and then (2) at the lower of the Fixed Price or 65% of the Company’s
lowest traded price after the first 180 days or at the lower of the Fixed Price or 55% of the Company’s traded stock price under
certain circumstances. The Company may redeem the Convertible Note at rates of 110% to 140% rates over the principal balance dependent
on certain events and redeem the value with accrued interest thereon, if any.
The
issuance of the note resulted in a discount from the beneficial conversion feature totaling $28,445. Total amortization of the OID and
discount totaled $1,407 for the nine months ended September 30, 2021. Total unamortized discount on this note was $14 as of September
30, 2021.
On
August 6, 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #2 (“Tranche #2”)
with the Bridge Investor. Tranche #2 has a principal balance of $200,000,
an OID of $20,000
and debt issuance costs of $5,000,
resulting in net proceeds of $175,000,
with a maturity date of August
6, 2022. Upon
the occurrence of certain events of default, the Buyer, among other remedies, has the right to charge a penalty in a range of 18% to
40% dependent on the specific default event. Amounts
due under Tranche #1 may also be converted into Bridge Conversion Shares of the Company’s Common Stock at any time, at the
option of the holder, at a conversion price equal to the Fixed Price, at the lower of the Fixed Price or 65% of the Company’s
lowest traded price after the 180th day or at the lower of the Fixed Price or 55% of the Company’s traded stock
price under certain circumstances. The Company may redeem the Convertible Note at rates of 110%
to 140%
rates over the principal balance dependent on certain events and redeem the value with accrued interest thereon, if
any.
The
issuance of the note resulted in a discount from the beneficial conversion feature totaling $175,000. Total amortization of the OID and
discount totaled $6,279 at September 30, 2021. Total unamortized discount on this note was $7,036 as of September 30, 2021.
All
the above notes issued to TFK, our CEO and the bridge investors reached the 180 days prior to the end of the three months ended March
31, 2020. As such, all the note holders had the ability to convert that debt into equity at the variable conversion price of 65% of the
Company’s lowest traded price after the first 180 days or at the lower of the Fixed Price or 55% of the Company’s traded
stock price under certain circumstances. This gave rise to a derivative feature within the debt instrument. As of September 30, 2021,
Peak One and TFK had fully converted their notes.
Fall
2019 Debt Financing
In
December 2019, the Company closed its Fall 2019 Debt Financing, raising an additional $500,000 bringing the gross proceeds of all debt
financings under the Fall 2019 Debt Financing to $1,000,000. The Company entered into those certain Note Purchase Agreements (the “Fall
2019 Note Purchase Agreements”) with certain accredited investors and the officers of the Company for the sale of convertible
promissory notes (the “Fall 2019 Notes”). The Company completed the initial closing under the Fall 2019 Note Purchase
Agreements in November 2019. The Company issued Fall 2019 Notes in the principal amount of $250,000 to each of Dr. Vuong Trieu, the Company’s
Chief Executive Officer, and Stephen Boesch, in exchange for gross proceeds of $500,000. In connection with the second and final closing
of the Fall 2019 Debt Financing, the Company issued Fall 2019 Notes to additional investors including $250,000 to Dr. Sanjay Jha, through
his family trust, the former CEO of Motorola and COO/President of Qualcomm. The Company also offset certain amounts due to Dr. Vuong
Trieu, the Company’s Chief Executive Officer, Chulho Park, the Company’s Chief Technology Officer, and Amit Shah, the Company’s
Chief Financial Officer and converted such amounts due into the Fall 2019 Notes. $35,000 due to Dr. Vuong Trieu, $27,000 due to Chulho
Park and $20,000 due to Amit Shah were converted into debt. The Company also issued the Fall 2019 Notes of $168,000 to two unaffiliated
accredited investors. The balance of the Fall 2019 Notes was $850,000 and $950,000 as of September 30, 2021, and December 31, 2020, respectively.
All
the Fall 2019 Notes provided for interest at the rate of 5% per annum and were unsecured. All amounts outstanding under the Fall 2019
Notes became due and payable upon the approval of the holders of a majority of the principal amount of outstanding Fall 2019 Notes (the
“Majority Holders”) on or after (a) November 23, 2020, or (b) the occurrence of an event of default (either, the “Maturity
Date”). The Company may prepay the Fall 2019 Notes at any time. Events of default under the Fall 2019 Notes include failure
to make payments of any part of the principal or unpaid accrued interest under the Fall 2019 Notes for more than thirty (30) days after
the maturity date, failure to observe of the Fall 2019 Note Purchase Agreement or Fall 2019 Notes which is not cured within thirty (30)
days of notice of the breach, bankruptcy, or a change in control of the Company (as defined in the Fall 2019 Note Purchase Agreement).
The
Majority Holders have the right, at any time not more than five (5) days following the Maturity Date, to elect to convert all, and not
less than all, of the outstanding accrued and unpaid interest and principal on the Fall 2019 Notes. The Fall 2019 Notes may be converted,
at the election of the Majority Holders, either (a) into shares of the Company’s Common Stock at a conversion price of $0.18 per
share, or (b) into shares of common stock of the Edgepoint, at a conversion price of $5.00 (based on a $5.0 million pre-money valuation)
of Edgepoint and 1,000,000 shares outstanding.
The
issuance of the Fall 2019 notes resulted in a discount from the BCF totaling $222,222 related to the conversion feature. Total amortization
of the discount totaled $0 and $111,112 for the nine months ended September 30, 2021, and 2020, respectively. Total unamortized discount
on this note was $0 as of September 30, 2021.
Further,
the Company recorded interest expense of $10,625 and $12,500 on these Fall 2019 Notes for the three months ended September 30, 2021,
and 2020, respectively. The Company recorded interest expense of $32,787 and $37,500 on these Fall 2019 Notes for the nine months ended
September 30, 2021, and 2020, respectively.
The
total amount outstanding under the Fall 2019 Notes, net of discounts and including accrued interest thereon, as of September 30, 2021,
and December 31, 2020, was $935,799 and $1,003,011, respectively.
Geneva
Notes
In
May and June 2021, the Company entered into Securities Purchase Agreement with Geneva Roth Remark Holdings Inc. (“Geneva”),
whereby the Company issued two convertible notes in the aggregate principal amount of $307,500 convertible into shares of common stock
of the Company with additional tranches of financing of up to $1,200,000 in the aggregate term of the note. The convertible notes carry
a six (6%) percent coupon and a default coupon of 22%, and both mature one year from issuance. Geneva has the right from time to time,
and at any time during the period beginning on the date which is one hundred eighty (180) days following issuance date and ending on
the maturity date to convert all or any part of the outstanding and unpaid amount of the note into the Company’s common stock at
a conversion price established at sixty five (65%) percent multiplied by the lowest two (2) daily volume weighted average price over
the fifteen (15) consecutive trading days. The convertible notes carry a put feature, at the option of Geneva, whereby upon the occurrence
of certain events of default, the convertible notes repayment should be accelerated, in the amount of principal plus accrued but unpaid
interest plus default interest, in cash with premium.
The
total amount outstanding under the Geneva Notes, including accrued interest thereon, as of September 30, 2021, and December 31, 2020,
was $313,472 and $0, respectively.
Paycheck
Protection Program
In
April 2020, the Company received loan proceeds in the amount of $250,000
under the Paycheck Protection Program (“1st
PPP”) which was established under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act
and is administered by the Small Business Administration (“SBA”). The
1st PPP provides loans to qualifying businesses in amounts up to 2.5 times the average monthly payroll expenses and was designed
to provide direct financial incentive to qualifying businesses to keep their workforce employed during the Coronavirus crisis. The
Payment Protection Plan loans (“PPP Loans”) are uncollateralized and guaranteed by the SBA and forgivable after
a “covered period” (8 weeks or 24 weeks) as long as the borrower maintained its payroll levels and uses the loan
proceeds for eligible expenses, including payroll, benefits, mortgage interest, rent and utilities. The forgiveness amount would be reduced
if the borrower terminated employees or reduced salaries and wages more than 25% during the covered period. Any unforgiven portion was
payable over 2 years if issued before, or 5 years if issued after, June 5, 2020 at an interest rate of 1%
with payments deferred until the SBA remits the borrowers loan forgiveness amount to the lender, or if the borrower did not apply for
forgiveness, 10 months after the covered period. PPP
loans provide for customary events of default, including payment defaults, breach of representations and warranties, and insolvency events
and may be accelerated upon occurrence of one or more of these events of default. Additionally, the PPP Loans do not include prepayment
penalties.
The
Company met the 1st PPP loan forgiveness requirements and on August 7, 2021 applied for forgiveness. On Aug 17, 2021, the
Company received the 1st PPP loan forgiveness approval from the lender and wrote off the loan outstanding amount inclusive
of interest accrued, in the amount of $253,347.
The Company recorded the amount forgiven as forgiveness income within the other income (expense) section of its statement of operations.
The
SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after the forgiveness has been granted. In accordance
with the CARES Act, all borrowers are required to maintain their PPP loan documentation for six years after the loan was forgiven or
repaid in full and to provide that documentation to the SBA upon request.
The
balance outstanding on 1st PPP loan, inclusive of accrued interest, was $0 and $251,733 on September 30, 2021 and December
31, 2020, respectively.
In
July 2021, the Company’s wholly owned subsidiary, PointR, received loan proceeds in the amount of $92,995
under the PPP (“2nd PPP”).
The 2nd PPP was at terms similar to the 1st PPP. The balance outstanding on the 2nd PPP loan was
$92,995 and $0 on September 30, 2021 and December 30, 2020, respectively.
GMP Notes
In
June 2020, the Company secured $2 million in debt financing, evidenced by a one-year convertible note (the “GMP Note”)
from GMP, to conduct a clinical trial evaluating OT-101 against COVID-19 bearing 2% annual interest, and is personally guaranteed by
Dr. Vuong Trieu, the Chief Executive Officer of the Company. The GMP Note is convertible into the Company’s Common Stock upon the
GMP Note’s maturity one year from the date of the GMP Note, at the Company’s Common Stock price on the date of conversion
with no discount. GMP does not have the option to convert prior to the GMP Note’s maturity at the end of one year. Such financing
will be utilized solely to fund the clinical trial.
The
Company’s liability under GMP Note commenced to accrue when GMP first began to pay for services related to the clinical trial to
our third-party clinical research organization, up to a maximum of $2 million. As of September 30, 2021, GMP has been invoiced by the
clinical research organization for the full $2 million and as such the Company has recognized the liability as a convertible debt.
The
balance outstanding on the GMP Note, inclusive of accrued interest, was $2,050,411 and $2,000,000 on September 30, 2021 and December
31, 2020, respectively.
In
September 2021, the Company secured a further $1.5 million in debt financing, evidenced by a one-year convertible note (the “GMP
Note 2”) from GMP, to fund the same clinical trial evaluating OT-101 against COVID-19 bearing 2% annual interest. The GMP Note
is convertible into the Company’s Common Stock upon the GMP Note 2’s maturity one year from the date of the GMP Note 2, at
the Company’s Common Stock price on the date of conversion with no discount. GMP does not have the option to convert prior to the
GMP Note 2’s maturity at the end of one year. Such financing will be utilized solely to fund the clinical trial.
As of September 30, 2021,
GMP was invoiced by the clinical research organization for $0.5 million. GMP paid the clinical trial organization the first tranche of
$0.5 million in October 2021.
In
October 2021, the Company entered into an Unsecured Convertible Note Purchase Agreement (the “October Purchase Agreement”)
with GMP, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $0.5 million (the “October
2021 Note”), which October 2021 Note is convertible into shares of the Company’s Common Stock.
The
October 2021 Note carries an interest rate of 2% per annum and matures on the earlier of (a) the one-year anniversary of the date of
the October Purchase Agreement, or (b) the acceleration of the maturity of the October 2021 Note by GMP upon occurrence of an Event of
Default (as defined below). The October 2021 Note contains a voluntary conversion mechanism whereby GMP may convert the outstanding principal
and accrued interest under the terms of the October 2021 Note into shares of Common Stock (the “Conversion Shares”),
at the consolidated closing bid price of the Company’s Common Stock on the applicable OTC Market as of the date the Company receives
a Notice of Conversion (as defined in the October 2021 Note) from GMP. Prepayment of the October 2021 Note may be made at any time by
payment of the outstanding principal amount plus accrued and unpaid interest. The October Note contains customary events of default (each
an “Event of Default”). If an Event of Default occurs, at GMP’s election, the outstanding principal amount of
the October 2021 Note, plus accrued but unpaid interest, will become immediately due and payable in cash. The October Purchase Agreement
requires the Company to use of the proceeds received under the October 2021 Note to support the clinical development of OT-101, including
payroll and has been made in continuation of the relationship between the Company and GMP.
August
2021 Convertible Notes
In
August 2021, the Company entered into Note Purchase Agreements with related party, affiliate entity, and accredited investors (the “August
2021 investors”), whereby the Company issued four convertible notes in the aggregate principal amount of $698,500 convertible into
shares of common stock of the Company for net proceeds of $690,825. The convertible notes carry a five (5%) percent coupon and mature
one year from issuance. The majority of the August 2021 investors have the right, but not the obligation, not more than five days following
the maturity date, to convert all, but not less than all, the outstanding and unpaid principal plus accrued interest into the Company’s
common stock, at a conversion price of $0.18. The Company determined that the economic characteristics and risks of the embedded conversion
option are not clearly and closely related to the economic characteristics and risks of the debt host instrument. Further, the Company
determined that the embedded conversion feature meets the definition of a derivative but met the scope exception to the derivative accounting
required under ASC 815 for certain contracts involving a reporting entity’s own equity.
As
of September 30, 2021, and December 31, 2020, convertible notes, net of debt discount, consist of the following amounts:
SCHEDULE
OF CONVERTIBLE NOTES
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Related parties convertible note, 5% coupon August 2022
|
|
$
|
251,952
|
|
|
$
|
-
|
|
|
CFO convertible note, 5% coupon August 2022
|
|
|
75,586
|
|
|
|
|
|
|
Accredited investors convertible note, 5% coupon August 2022
|
|
|
376,416
|
|
|
|
-
|
|
|
|
|
$
|
703,954
|
|
|
$
|
-
|
|
During
the three and nine months ended September 30, 2021, the Company recognized approximately $5,400
of interest expense on the August 2021 Investors
notes. No similar expense was recorded on such notes during the
same periods of 2020. At September 30, 2021, accrued interest on these convertible notes totaled approximately $5,400,
of which $2,600
are attributable to related parties.
Other
short-term loans
As of September 30, 2021,
other short term notes consist of the following amounts:
SCHEDULE OF SHORT-TERM LOANS
|
Other Debt
|
|
September
30, 2021
|
|
|
Short term debt from CEO
|
|
|
20,000
|
|
|
Short term debt – bridge investors
|
|
|
258,185
|
|
|
Short term debt from CFO
|
|
|
45,050
|
|
|
Short term debt – Autotelic Inc.
|
|
|
20,000
|
|
|
|
|
|
343,235
|
|
The
Company’s CEO had provided a short term loan of $70,000
to the Company during the year ended December
31, 2020, of which $50,000
was repaid. As such, $20,000
was outstanding at September 30, 2021. During
the three months ended March 31, 2021, Autotelic Inc. provided a short-term funding of $120,000
to the Company, which was repaid after the three
months ended March 31, 2021. On May 18, 2021, Autotelic provided an additional short-term funding of $250,000
to the Company, which was converted into the
August 2021 Notes. Autotelic provided an additional $20,000
short-term loan to the Company, and as such,
$20,000
was outstanding and payable to Autotelic at September
30, 2021.
During
the fourth quarter of the year ended December 31, 2020, the Company’s CFO and the Bridge Investor provided short term loans of
$25,000
and $50,000,
respectively to the Company. Such loans were repaid as of March 31, 2021. During the nine months ended September 30, 2021, the CFO provided
a total of approximately $120,000,
of which $75,000
was converted into the August 2021 Notes.
As such, a balance of approximately $45,000
remained outstanding as a short-term loan as
of September 30, 2021.
During
the nine months ended September 30, 2021, the Company received approximately $630,000 primarily from two bridge investors, of which $373,500
was converted into the August 2021 Notes, and approximately $258,000 was outstanding as a short-term loan as of September 30, 2021.
NOTE
6 - PRIVATE PLACEMENT AND JH DARBIE FINANCING
During
the period from July 2020 to September 30, 2021, the Company entered into subscription agreements with certain accredited investors pursuant
to the JH Darbie Financing, whereby the Company issued and sold a total of 100 Units, for total gross proceeds of approximately $5 million,
pursuant to the JH Darbie Placement Agreement, with each Unit consisting of:
|
|
■
|
25,000
shares of Edge Point Common stock for a price of $1.00 per share of Edge Point Common stock.
|
|
|
■
|
One
convertible promissory note, convertible up to 25,000 shares of Edge Point Common stock, at a conversion price of $1.00 per share
or up to 138,889 shares of the Company’s common stock, at a conversion price of $0.18 per share.
|
|
|
■
|
50,000
warrants to purchase an equivalent number of shares of Edge Point Common stock at $1.00 per share or an equivalent number of shares
of the Company’s common stock at $0.20 per share with a three-year expiration date.
|
As
September30, 2021, funds received under the JH Darbie Financing, net of debt discount, consist of the following amounts:
SCHEDULE OF FUNDS RECEIVED UNDER THE SUBSCRIPTION AGREEMENT
|
|
|
September 30, 2021
|
|
|
Convertible promissory notes
|
|
|
|
|
|
Subscription agreements - accredited investors
|
|
$
|
2,073,480
|
|
|
Subscription agreements – related party
|
|
|
101,115
|
|
|
Total convertible promissory notes
|
|
$
|
2,174,595
|
|
The
Company incurred approximately $0.64 million of issuance costs, including legal costs of approximately $39,000, that are incremental
costs directly related to the issuance of the various instruments bundled in the offering.
Concurrently
with the sale of the Units, JH Darbie was granted a warrant, exercisable over a five-year period, to purchase 10% of the number of Units
sold in the JH Darbie Financing. As such, the Company granted 10 Units to JH Darbie pursuant to the JH Darbie Placement Agreement.
The
terms of convertible notes are summarized as follows:
|
|
■
|
Term:
Through June 30, 2021 (extended to March 31, 2022).
|
|
|
■
|
Coupon:
16%.
|
|
|
■
|
Convertible
at the option of the holder at any time in the Company’s Common Stock or Edgepoint Common Stock.
|
|
|
■
|
The
conversion price is initially set at $0.18 per share for the Company’s Common Stock or $1.00 for
Edgepoint
Common Stock, subject to adjustment.
|
The
Company allocated the proceeds among the freestanding financial instruments that were issued in the single transaction using the relative
fair value method, which affects the determination of each financial instrument initial carrying amount. The Company utilized the relative
fair value method as none of the freestanding financial instruments issued as part of the single transaction are measured at fair value.
Under the relative fair value method, the Company made separate estimates of the fair value of each freestanding financial instrument
and then allocated the proceeds in proportion to those fair value amounts. The Company recorded non-controlling interests of approximately
$1 million in Edgepoint. Non-controlling interests represent the portion of net assets in consolidated entities that are not owned by
the Company and are reported as a component of equity in the consolidated balance sheets.
As
of the multiple closings of the Company during the three months ended March 31, 2021, under the private placement memorandum with JH
Darbie, the estimated volume weighted grant date fair value of approximately $0.23 per share associated with the warrants to purchase
up to 2,035,000 shares of common stock issued in this offering, or a total of approximately $ 0.5 million, was recorded to additional
paid-in capital on a relative fair value basis. All warrants sold in this offering had an exercise price of $0.20 per share of the Company
stock or $1.00 per share of Edge Point, subject to adjustment, are exercisable immediately and expire three years from the date of issuance.
The fair value of the warrants was estimated using a Black Scholes valuation models using the following input values:
SCHEDULE OF FAIR VALUE WARRANTS ESTIMATED USING BLACK SCHOLES VALUATION MODEL
|
Expected
Term
|
|
|
1.5
years
|
|
|
Expected
volatility
|
|
|
152.3%-164.8
|
%
|
|
Risk-free
interest rates
|
|
|
0.09%-0.11
|
%
|
|
Dividend
yields
|
|
|
0.00
|
%
|
As
of the multiple closings of the Company through December 31, 2020, under the private placement memorandum with JH Darbie, the estimated
grant date fair value of approximately $0.18 per share associated with the warrants to purchase up to 3,465,000 shares of common stock
issued in this offering, or a total of approximately $0.6 million, was recorded to additional paid-in capital on a relative fair value
basis. All warrants sold in this offering had an exercise price of $0.20 per share of the Company stock or $1.00 per share of Edge Point,
subject to adjustment, are exercisable immediately and expire three years from the date of issuance. The fair value of the warrants was
estimated using a Black Scholes valuation models using the following input values.
The
Company recorded an initial debt discount of approximately $0.7 million representing the intrinsic value of the non-bifurcated conversion
option embedded in the convertible debt instrument based upon the difference between the fair value of the underlying common stock at
the commitment date of the note transaction and the effective conversion price.
The
Company recognized amortization expense related to the debt discount and debt issuance costs of $942,160 and $162,267 for the nine months
ended June 30, 2021, and June 30, 2020, respectively, which is included in interest expense in the statements of operations.
In
June 2021, the Company executed amendment #4 to the private placement
memorandum. At the time of the original PPM, the Company had inadvertently made an error in the PPM. Originally, the investor was granted
50,000
of the Company’s warrants to purchase an
equivalent number of shares of the Company’s common stock at a strike price of $0.20
or 50,000
warrants to purchase an equivalent number of
Edgepoint’s common share at strike price of $1.00.
However, the PPM was incorrectly written in that the investor could only invest in $10,000
(50,000
shares of common stock at $0.20
per share) of common stock of the Company) or
$50,000
(50,000
shares of common stock in Edgepoint AI, Inc.
at $1.00
per share). In conjunction with amendment #4
and to correct the error in the PPM, the Company approved the issuance of further 20,000,000
warrants to purchase shares of common stock of
the Company to the investors in the 100
Units and 2,000,000
warrants to purchase shares of common stock of
the Company to the Placement Agent at the same terms and conditions of the PPM. To clarify further, each unit will receive additional
200,000 warrants
to purchase an equivalent number of shares of the Company’s common stock at $0.20
per share, so as to make it overall 250,000 warrants
to buy an equivalent number of shares of the Company’s common stock, for which the investor would pay a total of $50,000
per unit invested upon exercise.
In
connection with the additional warrants issued by the Company in connection with the amendment #4, the Company recorded a stock-based
compensation fair value expense of $2,023,522 during the nine months ended September 30, 2021. No similar expense was recorded during
the same period of 2020. The fair value of the warrants was estimated using a Black Scholes valuation models using the following input
values.
NOTE
7 - RELATED PARTY TRANSACTIONS
Master
Service Agreement with Autotelic Inc.
In
October 2015, Oncotelic entered into a Master Service Agreement (the “MSA”) with Autotelic Inc., a related party that
is partly-owned by the Company’s CEO Vuong Trieu, Ph.D. Dr. Trieu, a related party, is a control person in Autotelic Inc. Autotelic
Inc. currently owns less than 10% of the Company. The MSA stated that Autotelic Inc. will provide business functions and services to
the Company and allowed Autotelic Inc. to charge the Company for these expenses paid on its behalf. The MSA includes personnel costs
allocated based on amount of time incurred and other services such as consultant fees, clinical studies, conferences and other operating
expenses incurred on behalf of the Company. The MSA requires a 90-day written termination notice in the event either party requires to
terminate such services.
Expenses
related to the MSA were $15,801 for the three months ended September 30, 2021 as compared to $6,011 for the same period of 2020. Expenses
related to the MSA were $51,039 for the nine months ended September 30, 2021 as compared to $291,887 for the same period of 2020.
Licensing
Agreement with Autotelic Inc.
In
September 2021, the Company entered into an exclusive License Agreement (the “Agreement”) with Autotelic, Inc. (“Autotelic”),
pursuant to which Autotelic granted Oncotelic, among other things: (i) the exclusive right and license to certain Autotelic Patents (as
defined in the Agreement) and Autotelic Know-How (as defined in the Agreement); and (ii) a right of first refusal to acquire at least
a majority of the outstanding capital stock of Autotelic prior to Autotelic entering into any transaction that is a financing collaboration,
distribution revenues, earn-outs, sales, out-licensing, purchases, debt, royalties, merger acquisition, change of control, transfer of
cash or non-cash assets, disposition of capital stock by way of tender or exchange offer, partnership or any other joint or collaborative
venture, research collaboration, material transfer, sponsored research or similar transaction or agreements. In exchange for the rights
granted to Oncotelic, Autotelic would be entitled to earn the following milestone payments (collectively, the “Milestone Payments”).
SCHEDULE
OF RELATED PARTY LICENSE AGREEMENT
|
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.
|
In
addition to the Milestone Payments, Autotelic will be entitled to royalties equal to 15% of the net sales of any products that incorporate
the Autotelic Patents or Autotelic Know-How. The Agreement contains representations, warranties and indemnification provisions of each
of the parties thereto that are customary for transactions of this type.
Note
Payable and Short Term Loan – Related Parties
In
April 2019, the Company issued a convertible note to Dr. Trieu totaling $164,444, including OID of $16,444, receiving net proceeds of
$148,000, which was used by the Company for working capital and general corporate purposes. The Company issued a Fall 2019 Note to Dr.
Trieu in the principal amount of $250,000. Dr. Trieu also offset certain amounts due to him in the amount of $35,000 and was converted
into the Fall 2019 debt. During the year ended December 31, 2020, Dr. Trieu provided additional short-term funding of $70,000 to the
Company, of which the Company repaid $50,000 prior to December 31, 2020. During the year ended December 31, 2020, Dr. Trieu purchased
a total of 5 Units under the private placement for a gross total of $250,000.
During
the three months ended March 31, 2021, Autotelic Inc, provided a short-term loan of $120,000 to the Company, which was repaid in April
2021. During the three months ended June 30, 2021, Autotelic Inc. provided a short-term loan of $250,000 to the Company, which was converted
into a August 2021 Convertible Note. And a short term loan of $20,000.
Artius
Consulting Agreement
On
March 9, 2020, the Company and Artius Bioconsulting, LLC (“Artius”), for which Mr. King is the Managing Member, entered
into an amendment to the Consulting Agreement dated December 1, 2018, under which Artius agreed to serve as a consultant to the Company
for services related to the Company’s business from time to time, effective December 1, 2019 (the “Effective Date”)
(the “Artius Agreement”). In connection with the Artius Agreement, Mr. King also agreed to assist the Company with
strategic advisory services with respect to transactional and operational contracts, budgetary input, among other matters in connection
with the formation of a new business unit to develop AI and Blockchain Driven Vision Systems (“EdgePoint AI”), for
which Mr. King is Chief Executive Officer.
Under
the terms of the Artius Agreement, the Company agreed to grant to Artius, subject to approval by the Company’s Board of Directors
and pursuant to the Company’s 2017 Equity Incentive Plan, 148,837 restricted shares of the Company’s Common Stock, in addition
to a 30% pre-financing ownership stake in EdgePoint AI. The Artius Agreement contemplates that Mr. King will generally provide his services
at a rate of $237 per hour, not to exceed 44 hours per month and payable monthly, and to reimburse Mr. King for reasonable and necessary
expenses incurred by him or Artius in connection with providing services to the Company.
Either
the Company or Artius may terminate the Artius Agreement at any time, for any reason following the Effective Date. The Artius Agreement
will automatically renew one year from the Effective Date, unless the Parties agree to terminate the Artius Agreement at that time.
The
Company recorded an expense of $0 and $106,712 during the nine months ended September 30, 2021 and 2020, respectively, related to this
Agreement.
Maida
Consulting Agreement
Effective
May 5, 2020, the Company and Dr. Maida entered into an independent consulting agreement, commencing April 1, 2020 (the “Maida Agreement”),
under which Dr. Maida will assist the Company in providing medical expertise and advice from time to time in the design, conduct and
oversight of the Company’s existing and future clinical trials.
Pursuant
to the terms of the Maida Agreement, the Company will grant to Dr. Maida 400,000 restricted shares of the Company’s Common Stock
corresponding to $80,000 at the stock value of $0.20 per share, to vest on May 5, 2021. The Company will also pay Dr. Maida $15,000 per
month for a minimum of 20 hours per week, in in addition to reimbursement of reasonable and necessary expenses incurred by Dr. Maida
in connection with his services to the Company.
Either
the Company or Dr. Maida may terminate the Maida Agreement, for any reason, upon 30 days advance written notice.
The
Company recorded an expense of $45,000 each during the three months ended September 30, 2021 and 2020 respectively. The Company recorded
an expense of $135,000 during the nine months ended September 30, 2021 related to this Agreement as compared to $90,000 during the same
period in 2020.
NOTE
8 - EQUITY PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
On
May 3, 2021, the Company entered into an Equity Purchase Agreement (“EPL”) and Registration Rights Agreement with
Peak One Opportunity Fund LP (“Peak One” or the “Investor”). Under the terms of the EPL, the Company
issued 250,000 shares of Common Stock to Peak One. Further, under the terms of the EPL, Peak One agreed to purchase from the Company
up to $10,000,000 of the Company’s Common Stock upon effectiveness of a registration statement on Form S-1 filed with the U.S.
Securities and Exchange Commission and subject to certain limitations and conditions set forth in the Equity Purchase Agreement. The
Registration Rights Agreement provided that the Company would (i) file the Registration Statement with the SEC by July 2, 2021; and (ii)
use its best efforts to have the Registration Statement declared effective by the Commission at the earliest possible date (in any event,
within 90 days after the execution date of the definitive agreements). The Company filed a Registration Statement on Form S-1 with the
Commission on May 24, 2021, and the Form S-1 was declared effective on June 2, 2021.
Following
effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the Equity Purchase Agreement,
the Company shall have the discretion to deliver put notices to the Investor and the Investor will be obligated to purchase shares of
the Company’s Common Stock based on the investment amount specified in each put notice. The minimum amount that the Company shall
be entitled to put to the Investor in each put notice is $20,000 and the maximum amount is up to the lesser of $1.0 million or two hundred
fifty percent (250%) of the average daily trading volume of the Company’s Common Stock defined as the average trading volume of
the Company’s Common Stock in the ten (10) days preceding the date on the put notice multiplied by the lowest closing bid price
in the ten (10) immediately preceding the date of the put notice. Pursuant to the Equity Purchase Agreement, the Investor will not be
permitted to purchase, and the Company may not put shares of the Company’s Common Stock to the Investor that would result in the
Investor’s beneficial ownership of the Company’s outstanding Common Stock exceeding 4.99%. The price of each put share shall
be equal to ninety one percent (91%) of the market price, which is defined as the lesser of (i) closing bid price of the Common stock
on the trading date immediately preceding the respective put date, or (ii) the lowest closing bid price of the Common Stock during the
seven (7) trading days immediately following the clearing date associated with the applicable put notice.
In
connection with the EPL, the Company recorded a non-cash cost of approximately $40,000 during the nine months ended September 30, 2021.
During
the three months ended June 30, 2021, the Company sold a total of 400,000 shares of Common Stock at prices ranging from $0.15 and $0.23
for total gross proceeds of approximately $99,000, including issuance costs of approximately $29,000. In addition, the Company sold a
total of 900,000 shares of Common Stock at prices at prices ranging from $0.11 to $0.12 for total gross proceeds of $110,000, including
issuance costs of $11,000. Approximately $50,000 of the total net proceeds was received by the Company subsequent to September 30, 2021
and is included in the accounts receivable as of September 30, 2021.
NOTE
9 - STOCKHOLDERS’ EQUITY
The
following transactions affected the Company’s Stockholders’ Equity:
Equity
Transactions During the Period Since the Merger with Oncotelic
Issuance
and conversion of Preferred Stock
In
April 2019, pursuant to the Oncotelic merger the Company issued 193,713
shares of Series A Preferred in exchange for
77,154
shares of Oncotelic Common Stock. Further, in
November 2019 the Company issued 84,475
shares of Series A Preferred to PointR in exchange
of 11,135,935
shares of PointR Common Stock upon the consummation
of the PointR merger. In March 2021, 278,188
shares of the Company’s preferred stock
converted to 278,187,847
shares of its Common Stock, effective March 31,
2021.
Issuance
of Common Stock during the nine months ended September 30, 2021
In
January 2021, the Company issued 657,200 shares of its Common Stock to TFK in connection with the part conversion of their convertible
notes payable.
In
March 2021, the Company converted 278,188 shares of our Series A Preferred Stock to 278,187,847 shares of its Common Stock.
In
May 2021, the Company issued 250,000 shares of its Common Stock to Peak One in connection with the EPL and recorded a stock compensation
expense of approximately $70,000.
In
June 2021, the Company sold a total of 400,000 registered shares of Common Stock at prices ranging from $0.15 and $0.23 in connection
with the EPL. The Company received net cash of approximately $70,000 against such sale.
In
July 2021, the Company issued 1,257,952 shares of Common Stock to its employees in lieu of fully vested restricted stock units under
the 2015 Equity Incentive Plan. The Company recorded a stock-based compensation cost of $226,431 related to such issuance.
In
September 2021, the Company issued 310,000 shares of Common Stock to Equity NY in connection with certain services rendered by them and
recorded a non-cash expense of $23,641.
In
September 2021, the Company sold a total of 900,000 registered shares of Common Stock at prices ranging from $0.11 and $0.12 in connection
with the EPL. The Company received net cash of approximately $110,000 against such sale.
Issuance
of Common Stock during the nine months ended September 30, 2020
In
February 2020, the Company issued 500,000 shares of its Common Stock to Peak One in connection with the part conversion of one of their
convertible notes payable.
In
March 2020, the Company issued 750,000 shares of its Common Stock to TFK in connection with the part conversion of their convertible
notes payable.
In
March 2020, the Company issued 500,000 shares of its Common Stock to Peak One in connection with the part conversion of one of their
convertible notes payable.
In
March 2020, the Company issued 1,012,145 shares of its Common Stock to TFK in connection with the part conversion of their convertible
notes payable.
In
February 2020, the Company issued 1,200,000 shares of its Common Stock to Peak One in connection with the part conversion of one of their
convertible notes payable.
In
June 2020, the Company issued 569,800 shares of its Common Stock to Peak One in connection with the full conversion of one of their convertible
notes payable.
In
July 2020, the Company issued 1,000,000 shares of its Common Stock to Peak One in connection with the partial conversion of Tranche 2
of their convertible notes payable.
NOTE
10 – STOCK-BASED COMPENSATION
Options
Pursuant
to the Oncotelic merger, the Company’s Common Stock and corresponding outstanding options survived. The below information
details the Company’s associated option activity.
As
of September 30, 2021, options to purchase Common Stock were outstanding under three stock option plans – the 2017 Equity Incentive
Plan (the “2017 Plan”), the 2015 Equity Incentive Plan (the “2015 Plan”) and the 2005 Stock Plan
(the “2005 Plan”). Under the 2017 Plan, up to 2,000,000 shares of the Company’s Common Stock may be issued pursuant
to awards granted in the form of nonqualified stock options, restricted and unrestricted stock awards, and other stock-based awards.
Under the 2015 and 2005 Plans, taken together, up to 7,250,000 shares of the Company’s Common Stock may be issued pursuant to awards
granted in the form of incentive stock options, nonqualified stock options, restricted and unrestricted stock awards, and other stock-based
awards.
Employees,
consultants, and directors are eligible for awards granted under the 2017 and 2015 Plans. The Company registered an additional total
of 20,000,000 shares of its Common Stock, which may be issued pursuant to the Registrant’s Amended and Restated 2015 Equity Incentive
Plan (the “Plan”). Such additional shares were approved by the shareholders of the Company on August 10, 2020 and
as reported to the Securities and Exchange Commission (the “SEC”) vide a Current Report on Form 8-K on August 14,
2020. As such, the total number of shares of the Company’s Common Stock available for issuance under the 2015 plan is 27,250,000.
After June 30, 2021, the Company issued 1,257,952 of its common shares in lieu of fully vested restricted stock units and 4,244,809 incentive
and non-qualified stock options to purchase its Common Stock to its employees. All these grants had been approved by the Board of Directors
of the Company under the 2015 Plan.
Since
the adoption of the 2015 Plan, no further awards may be granted under the 2005 Plan, although options previously granted remain outstanding
in accordance with their terms.
Compensation
based stock option activity for qualified and unqualified stock options are summarized as follows:
SCHEDULE OF COMPENSATION BASED STOCK OPTION ACTIVITY
|
|
|
|
|
|
Weighted
|
|
|
For the nine months ended September 30, 2021
|
|
|
|
|
Average
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding at January 1, 2021
|
|
|
3,941,301
|
|
|
$
|
0.78
|
|
|
Issued during the three and nine months ended September 30, 2021
|
|
|
11,394,809
|
|
|
|
0.15
|
|
|
Outstanding at September 30, 2021
|
|
|
15,336,110
|
|
|
$
|
0.31
|
|
For
the year ended December 31, 2020
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding at January 1, 2020
|
|
|
6,145,044
|
|
|
$
|
0.75
|
|
|
Expired or canceled
|
|
|
(2,203,743
|
)
|
|
|
0.70
|
|
|
Outstanding at December 31, 2020
|
|
|
3,941,301
|
|
|
$
|
0.78
|
|
The
following table summarizes information about options to purchase shares of the Company’s Common Stock outstanding and exercisable
at September 30, 2021:
SCHEDULE OF OPTIONS TO PURCHASE SHARES OF COMMON STOCK OUTSTANDING AND EXERCISABLE
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise prices
|
|
|
Options
|
|
|
Remaining Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.14
|
|
|
|
7,150,000
|
|
|
|
9.92
|
|
|
$
|
0.14
|
|
|
|
265,000
|
|
|
|
0.16
|
|
|
|
4,244,809
|
|
|
|
9.77
|
|
|
|
0.16
|
|
|
|
4,244,809
|
|
|
|
0.22
|
|
|
|
1,750,000
|
|
|
|
4.84
|
|
|
|
0.22
|
|
|
|
1,750,000
|
|
|
|
0.38
|
|
|
|
900,000
|
|
|
|
4.16
|
|
|
|
0.38
|
|
|
|
900,000
|
|
|
|
0.73
|
|
|
|
762,500
|
|
|
|
3.78
|
|
|
|
0.73
|
|
|
|
762,500
|
|
|
|
1.37
|
|
|
|
150,000
|
|
|
|
2.00
|
|
|
|
1.37
|
|
|
|
150,000
|
|
|
|
1.43
|
|
|
|
300,000
|
|
|
|
3.91
|
|
|
|
1.43
|
|
|
|
300,000
|
|
|
|
11.88
|
|
|
|
2,359
|
|
|
|
0.51
|
|
|
|
11.88
|
|
|
|
2,359
|
|
|
|
15.00
|
|
|
|
75,000
|
|
|
|
3.91
|
|
|
|
15.00
|
|
|
|
75,000
|
|
|
|
19.80
|
|
|
|
1,442
|
|
|
|
0.34
|
|
|
|
19.80
|
|
|
|
1,442
|
|
|
|
|
|
|
|
15,336,110
|
|
|
|
8.37
|
|
|
$
|
0.31
|
|
|
|
8,451,110
|
|
The
compensation expense attributed to the issuance of the options is recognized as they are vested.
The
employee stock option plan stock options are generally exercisable for ten years from the grant date and vest over various terms from
the grant date to three years.
The
aggregate intrinsic value totaled $0 and was based on the Company’s closing stock price of $0.14 as of September 30, 2021, which
would have been received by the option holders had all option holders exercised their options as of that date. Correspondingly, the aggregate
intrinsic value totaled $0 and was based on the Company’s closing stock price of $0.22 as of December 31, 2020, which would have
been received by the option holders had all option holders exercised their options as of that date.
As
of September 30, 2021, there was no future compensation cost as all stock options vested prior to December 31, 2019 and the compensation
was fully expensed prior to the 2019 merger between the Company and Oncotelic, Inc. In August 2019, the Company had entered into
Employment Agreements and incentive compensation arrangements with each of its executive officers, including Dr. Vuong Trieu, the Chief
Executive Officer (“CEO”); Dr. Chulho Park, its prior Chief Technology Officer (“CTO’); and Mr.
Amit Shah, the Chief Financial Officer (“CFO”). The incentive stock options and the restricted stock awards approved
for the Company’s executive officers were granted and issued in July 2021. The Company issued an aggregate of 1,257,952
of its common shares in lieu of fully vested
restricted stock units and 4,244,809
incentive and non-qualified stock options to
purchase its Common Stock to all its employees, including the awards due to the CEO, CFO, the prior CTO and Saran Saund, the Chief Business
Officer of the Company. Further, the Company issued all its employees, including the CEO and CBO, 4,325,000
performance-based stock options that would vest
over two tranches subject to certain corporate goals being achieved, none of which have vested as of September 30, 2021. In addition,
the Company granted its Board of Directors and certain consultants 2,825,000
stock options, which for the Board of Directors
vest over 5 quarters commencing the quarter ended September 30, 2021 and for the consultants on the same basis as the Company’s
employees. Of the options granted to the Board members, 265,000
have vested as of September 30, 2021.
The
Company recorded a fair value stock-based compensation of $299,890 for the vested stock options during the three and nine months ended
September 30,2021. No similar expense was recorded during the same periods in 2020. The fair value of the stock compensation expense,
using a Black Scholes valuation model, was calculated using the following input values.
SCHEDULE OF BLACK SCHOLES VALUATION ALLOWANCE MODEL OF WARRANTS
|
Expected
Term
|
|
1
year
|
|
|
Expected
volatility
|
|
|
97.3
– 110.0
|
%
|
|
Risk-free
interest rates
|
|
|
0.05
|
%
|
|
Dividend
yields
|
|
|
0.00
|
%
|
In addition, the Company recorded
a fair value stock-based compensation of $226,431 for the fully vested restricted stock units issued during the three and nine months
ended September 30,2021, and which had been granted to the employees in August 2019. No similar expense was recorded during the same
periods in 2020. The fair value of the stock compensation expense was calculated using the stock price of the restricted stock units
on the date of the grant as they were fully vested.
Warrants
Pursuant
to the Oncotelic merger, the Company’s Common Stock and corresponding outstanding warrants survived. The below information
represents the Company’s associated warrant activity.
During
the three months ended March 31, 2021, 2,035,000 warrants were issued related to private placement. The fair value of these warrants
on issue date amounted to $467,637 with an expected life of 1.5 years, as calculated using Black Scholes valuation model. Further, during
the three months ended June 30, 2021, and as disclosed in Note 6 above, the Company issued 20,000,000 warrants were issued related to
private placement. The fair value of these warrants on issue date amounted to $2,023,552 with an expected life of 1-2 years, as calculated
using Black Scholes valuation model.
In
February 2020, the Company offered to cancel to all the prior warrants of the warrant holders from the 2018 debt financing and offered
to reissue new warrants to such warrant holders. Out of all the warrant holders, holders of 13,750,000 warrants opted to participate
in the reissuance during the same period in 2020. The company recognized stock-based compensation of $2.1 million as the fair value of
the warrants using a Black Scholes valuation model. No similar expense was recorded for the three months ended March 31, 2021.
The
issuance of warrants to purchase shares of the Company’s Common Stock, including those attributed to debt issuances, as of September
30, 2021 and December 31, 2020 are summarized as follows:
SCHEDULE OF WARRANTS ACTIVITY
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding at January 1, 2021
|
|
|
18,702,500
|
|
|
$
|
0.20
|
|
|
Issued during nine months ended September 30, 2021
|
|
|
24,035,000
|
|
|
|
0.20
|
|
|
Outstanding at September 30, 2021
|
|
|
42,737,500
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
|
For the year ended December 31, 2020
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2020
|
|
|
19,515,787
|
|
|
$
|
0.60
|
|
|
Issued during the year ended December 31, 2020
|
|
|
17,215,000
|
|
|
|
0.20
|
|
|
Expired or cancelled
|
|
|
(18,028,287
|
)
|
|
|
0.63
|
|
|
Outstanding at December 31, 2020
|
|
|
18,702,500
|
|
|
$
|
0.20
|
|
The
following table summarizes information about warrants outstanding and exercisable at September 30, 2021:
SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE
|
|
|
|
|
|
Outstanding and exercisable
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
Remaining Life
|
|
|
|
Exercise
|
|
|
|
Number
|
|
|
|
Exercise Price
|
|
|
|
Outstanding
|
|
|
|
in Years
|
|
|
|
Price
|
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.20
|
|
|
|
1,487,500
|
|
|
|
2.08
|
|
|
$
|
0.20
|
|
|
|
1,487,500
|
|
|
|
0.20
|
|
|
|
41,250,000
|
|
|
|
2.15
|
|
|
|
0.20
|
|
|
|
41,250,000
|
|
|
|
|
|
|
|
42,737,500
|
|
|
|
2.15
|
|
|
$
|
0.20
|
|
|
|
42,737,500
|
|
The
Company issued 24,035,000 warrants during the nine months ended September 30, 2021, of which 22,000,000 warrants issued during the three
months ended June 30, 2021. The Company recorded stock-based compensation of approximately $2.0 million, as fair value of the warrants,
using a Black Scholes valuation model using the following input values. The expense attributed to the issuances of the warrants was recognized
as they vested/earned. These warrants are exercisable for three to five years from the grant date. All the warrants are currently exercisable.
The
Company issued 13,750,000 warrants issued during the nine months ended September 30, 2020 were as recorded stock-based compensation of
$2.1 million as the fair value of the warrants using a Black Scholes valuation model using the following input values. The expense attributed
to the issuances of the warrants was recognized as they vested/earned. These warrants are exercisable for three to five years from the
grant date. All the warrants are currently exercisable.
NOTE
11 – INCOME TAXES
Significant
components of the Company’s deferred tax assets and liabilities for federal and state income taxes as of September 30, 2021 and
December 31, 2020 are as follows in thousands:
SCHEDULE OF COMPONENTS OF NET DEFERRED TAX ASSETS AND LIABILITIES
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
1,164
|
|
|
$
|
1,164
|
|
|
Assets
|
|
|
5,887
|
|
|
|
6,227
|
|
|
Liability accruals
|
|
|
316
|
|
|
|
173
|
|
|
R&D Credit
|
|
|
4,784
|
|
|
|
4,760
|
|
|
Capital Loss
|
|
|
528
|
|
|
|
528
|
|
|
Deferred state tax
|
|
|
(2,200
|
)
|
|
|
(2,086
|
)
|
|
Net operating loss carry forward
|
|
|
57,154
|
|
|
|
56,090
|
|
|
Total gross deferred tax assets
|
|
|
67,633
|
|
|
|
66,856
|
|
|
Less - valuation allowance
|
|
|
(67,633
|
)
|
|
|
(66,856
|
)
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company had gross deferred tax assets of approximately $68.0 million and $66.9 million as of September 30, 2021 and December 31, 2020,
respectively, which primarily relate to net operating loss carryforwards.
As
of September 30, 2021 and December 31, 2020, the Company had gross federal net operating loss carryforwards of approximately $236.3
million and $237.7
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.
At
September 30, 2021 and December 31, 2020, the Company had California state gross operating loss carry-forwards of approximately $76.6
million and $69.8
million which will expire
in various amounts from 2028 through 2040. At
December 31, 2020, the Company had federal research and development tax credits of approximately $3.3
million which will
expire in 2021 and California state research and
development tax credits of approximately $1.4
million which have no
expiration date.
The
Company identified its federal and California state tax returns as “major” tax jurisdictions. The periods out income tax
returns are subject to examination for these jurisdictions are 2017 through 2020. We believe our income tax filing positions and deductions
will be sustained on audit, and we do not anticipate any adjustments that would result in a material change to our financial position.
Therefore, no liabilities for uncertain income tax positions have been recorded. The Company filed its 2020 federal and state corporate
tax returns in October 2021.
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
12 – 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 Contingent Consideration
The
total purchase price of $17,831,427
represented the consideration transferred from
Mateon 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 Merger and includes $2,625,000
of contingent consideration of shares issuable
to PointR shareholders upon achievement of certain milestones.
NOTE
13 – SUBSEQUENT EVENTS
GMP
Notes
In September 2021, the
Company secured $1.5 million in debt financing to fund the clinical trial evaluating OT-101 against COVID-19 bearing 2% annual interest.
As of September 30, 2021, GMP was invoiced by the clinical research organization for $0.5 million. GMP paid the clinical trial organization
the first tranche of $0.5 million in October 2021.
In
October 2021, the Company entered into an Unsecured Convertible Note Purchase Agreement with GMP, pursuant to which the Company issued
a convertible promissory note in the aggregate principal amount of $0.5 million and which October 2021 Note is convertible into shares
of the Company’s Common Stock. GMP paid the Company the $0.5 million in October 2021.