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”). The Company is evaluating
the further development of its product candidates OXi4503 as a treatment for acute myeloid leukemia and myelodysplastic syndromes and
CA4P in combination with a checkpoint inhibitor for the treatment of advanced metastatic melanoma.
In
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 pharma 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 developing
OT-101 for the various epidemics and pandemics, similar to the current corona virus (“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 $0.3 million
as revenue during the 3 months ended March 31, 2020 and $0.9 million was recorded as revenue during the three months ended
June 30, 2020, upon completion of all performance obligations under the agreement. Further, in June 2020, the Company secured
$2 million in debt financing from GMP to conduct a clinical trial evaluating OT-101 against COVID-19.
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. This was a global study, with India to contribute at least 120 patients to the total aggregate of 3000 patients. ARTI-19
in India was conducted by Windlas Biotech Private Limited, 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 available 6-8 weeks thereafter.
Upon completion of the trial results, 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.
Consent
Solicitation
On
June 25, 2020, the Company commenced a solicitation of shareholder consents (the “Consent Solicitation”), pursuant
to a consent solicitation statement (the “Consent Solicitation Statement”), to the holders (the “Stockholders”)
of its Common Stock and Preferred Stock, to approve the following actions:
(1)
changing the name of the Company and changing the Company’s ticker symbol (the “Name Change”);
(2)
amending the Company’s Amended and Restated 2015 Equity Incentive Plan (the “2015 Plan”) to increase the number
of shares of Common Stock available for issuance from 7.25 million shares to 27.25 million shares, and increasing the maximum number
of stock awards that may be issued in any fiscal year from 500,000 to 1,000,000 shares (the “Plan Amendment”);
(3)
increasing the authorized number of shares of Common Stock from 150,000,000 to 750,000,000 (the “Capital Increase”);
and
(4)
amending and restating the certificate of incorporation for the Company (the “Amended and Restated Certificate”) to
give effect to the Name Change, Capital Increase and forum selection provision.
The
Stockholders approved the Name Change, the Plan Amendment, the Capital Increase, and the Amended and Restated Certificate. In November
2020, the Company filed an amendment to its Certificate of Incorporation with the Secretary of State for the State of Delaware changing
its name from “Mateon Therapeutics, Inc.” to “Oncotelic Therapeutics, Inc.” Further, in February 2021, the Company
filed an amendment to its Certificate of Incorporation to increase the number of authorized shares of Common Stock from 150,000,000 shares
to 750,000,000 shares. The Company has converted its 278,188 preferred stock to 278,187,847 common stock effective March 31, 2021.
The
Company registered an additional total of 20,000,000 shares of its common stock, $0.01 par value per share (“Common Stock”),
which may be issued pursuant to the Registrant’s Amended and Restated 2015 Equity Incentive Plan (the “Plan”)
filed with the SEC along with our form S-8 on April 19, 2021. Such additional shares were approved by the shareholders of the Company
on August 10, 2020 and reported to the Securities and Exchange Commission (the “SEC”) vide a Current Report on Form
8-K on August 14, 2020.
A
notice of corporate action had been filed with the Financial Industry Regulatory Authority (“FINRA”), requesting approval
to change its name and ticker symbol. On March 29, 2021, the Company received approval from FINRA on its notice of corporate action,
and effective March 30, 2021, the Company’s ticker symbol has changed from “MATN” to “OTLC”.
Entry
into MOU and Agreement with Windlas
In
August 2020, the Company executed a memorandum of understanding (the “MOU”) with Windlas Biotech Private
Limited (“Windlas”) for the development and commercialization of Artemisinin as a therapeutic pharmaceutical,
nutraceutical and herbal supplement against COVID-19. In September 2020, the Company executed the final MOU with Windlas
regarding the development and commercialization of Artemisinin as therapeutic pharmaceutical, nutraceutical and herbal supplement
against COVID-19.
The
ARTI-19 trial was cleared by India regulatory authorities for initiation, and registered under CTRI, and three sites had been selected.
The trial was fully enrolled in December 2020.
The
Company and Windlas entered into a License, Development and Commercialization Agreement, dated November 10, 2020 (the “Commercialization
Agreement”), which formalized the terms set forth in the MOU. Pursuant to the Commercialization Agreement, Windlas shall be
responsible for developing, manufacturing, and supplying Artemisinin within India and eventually expanding worldwide, excluding China,
and its territories and the Americas. Windlas will also be responsible to market Artemisinin and its variants in India. Under the terms
of the Commercialization Agreement, Windlas and the Company will evenly split all profits derived from commercialization of Artemisinin
within India. For all other territories, which excludes China and its territories and the Americas, the profit-split ratio is to be determined
and negotiated on a country-by-country basis.
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 $24.4 million since inception of Oncotelic Inc., as the
Company’s historical financial statements before the Merger have been replaced with the historical financial statements
of Oncotelic Inc. The Company also has a negative working capital of $12.1 million at March 31, 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. The Company has negative cash flows from operations for the three months ended March 31, 2021
of $1.3 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, through
either technology transfer or product sales, to cover its anticipated expenses. Until the Company is able to generate sufficient revenues
from its current pipeline, the Company plans on funding its operations through the sale of equity and/or the issuance of debt, combined
with or without warrants or other equity instruments.
Between
July 2020 and March 2021, the Company raised gross proceeds of $5 million, through JH Darbie. 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 has 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.
During
the three months ended March 31, 2020, the Company recorded a total of approximately $0.3 million in service revenues from GMP. No similar
revenues were recorded during the similar period 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 March 31, 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
March 31, 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 March 31, 2020. The derivative liabilities associated with
its 2019 bridge financing Convertible Notes (see Note 5), consisted of conversion feature derivatives at March 31, 2021,
are Level 3 fair value measurements.
The
table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3
as of March 31, 2021 and 2020:
|
|
March 31, 2021
Conversion Feature
|
|
|
March 31, 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
|
)
|
|
|
(368,811
|
)
|
Change in fair value
|
|
|
536,345
|
|
|
|
736,298
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021 and 2020
|
|
$
|
1,168,784
|
|
|
$
|
1,778,272
|
|
As
of March 31, 2021, and March 31, 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 March 31, 2021 and 2020:
|
|
March 31, 2021 Key Assumptions for fair value of conversions
|
|
|
March 31, 2020 Key Assumptions for fair value of conversions
|
|
Risk free interest
|
|
|
0.07% to 0.12
|
%
|
|
|
0.23% to 2.26
|
%
|
Market price of share
|
|
$
|
0.36
|
|
|
$
|
0.17
|
|
Life of instrument in years
|
|
|
1.06 – 1.35
|
|
|
|
2.06 - 2.35
|
|
Volatility
|
|
|
148.79
|
%
|
|
|
150.65
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
When
the Company changes its valuation inputs for measuring financial liabilities at fair value, either due to changes in current market conditions
or other factors, it may need to transfer those liabilities to another level in the hierarchy based on the new inputs used. The Company
recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended March 31, 2021 and March
31, 2020, there were no transfers of financial assets or financial liabilities between the hierarchy levels.
Net
Loss Per Share
Basic
net loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the
period. Diluted net loss per share includes the effect of Common Stock equivalents (notes convertible into Common Stock, stock options
and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. The following
number of shares have been excluded from diluted loss since such inclusion would be anti-dilutive:
|
|
Three
Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Convertible
notes
|
|
|
35,388,901
|
|
|
|
12,084,300
|
|
Stock
options
|
|
|
3,941,301
|
|
|
|
6,135,284
|
|
Warrants
|
|
|
20,737,500
|
|
|
|
15,237,500
|
|
Potentially
dilutive securities
|
|
|
60,067,702
|
|
|
|
33,457,084
|
|
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 months ended March 31, 2021 and year ended December 31, 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 months ended
March 31, 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 months ended March 31, 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 Income.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives
and Hedging”.
ASC
815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and
account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and
risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported
in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional
as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from
their host instruments) in accordance with ASC 470-20 “Debt – Debt with Conversion and Other Options.” Accordingly,
the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Original issue discounts 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 fees of $0.3 million for the Agreement
and $0.9 million for the Supplement, respectively. 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 three months ended March 31, 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 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, we added goodwill of $16,182,456 upon
the completion of the Merger with PointR. In general, the goodwill is tested on an annual impairment date of December 31. However, since
both assets are currently being developed for various cancer and COVID-19 therapies, the Company does not believe the there are any factors
or indications that the goodwill is impaired.
Assignment
and Assumption Agreement with Autotelic, Inc.
In
April 2018, Oncotelic Inc. entered into an Assignment and Assumption Agreement (the “Assignment Agreement”) with Autotelic
Inc., an affiliate company, and Autotelic LLC, an affiliate company, pursuant to which Oncotelic acquired the rights to all intellectual
property (“IP”) related to a patented product. As consideration for the Assignment Agreement, Oncotelic Inc. issued
204,798 shares of its Common Stock for a value of $819,191. The Assignment Agreement also provides that Oncotelic Inc. shall be responsible
for all costs related to the IP, including development and maintenance, going forward.
Intangible
Asset Summary
The
following table summarizes the balances as of March 31, 2021 and December 31, 2020, of the intangible assets acquired, their useful life,
and annual amortization:
|
|
March 31, 2021
|
|
|
Remaining
Estimated
Useful Life
(Years)
|
|
Intangible asset – Intellectual Property
|
|
$
|
819,191
|
|
|
|
16.75
|
|
Intangible asset – Capitalization of license cost
|
|
|
190,989
|
|
|
|
16.75
|
|
|
|
|
1,010,180
|
|
|
|
|
|
Less Accumulated Amortization
|
|
|
(149,815
|
)
|
|
|
|
|
Total
|
|
$
|
860,365
|
|
|
|
|
|
|
|
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 March 31, 2021 and 2020 was $12,841 and $12,841, respectively.
The
future yearly amortization expense over the next five years and thereafter are as follows:
For the years ended December 31,
|
|
|
|
2021
|
|
$
|
38,524
|
|
2022
|
|
|
51,365
|
|
2023
|
|
|
51,365
|
|
2024
|
|
|
51,365
|
|
2025
|
|
|
51,365
|
|
Thereafter
|
|
|
616,381
|
|
|
|
$
|
860,365
|
|
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 March 31, 2021 and December 31, 2020 was $1,106,760.
NOTE
4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expense consists of the following amounts:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,782,013
|
|
|
$
|
1,937,419
|
|
Accrued expense
|
|
|
812,247
|
|
|
|
798,386
|
|
|
|
$
|
3,594,260
|
|
|
$
|
2,735,805
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Accounts payable – related party
|
|
$
|
365,323
|
|
|
$
|
391,631
|
|
NOTE
5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT
As of March 31, 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:
|
|
March 31, 2021
|
Convertible debentures
|
|
|
|
|
10% Convertible note payable, due April 23, 2022 – Related Party
|
|
|
18,323
|
|
10% Convertible note payable, due April 23, 2022 – Bridge Investor
|
|
|
87,906
|
|
10% Convertible note payable, due August 6, 2022 – Bridge Investor
|
|
|
173,364
|
|
|
|
|
279,593
|
|
Fall 2019 Notes
|
|
|
|
|
5% Convertible note payable – Stephen Boesch
|
|
|
165,130
|
|
5% Convertible note payable – Related Party
|
|
|
266,858
|
|
5% Convertible note payable – Dr. Sanjay Jha (Through his family trust)
|
|
|
266,378
|
|
5% Convertible note payable – CEO, CTO & CFO
|
|
|
87,282
|
|
5% Convertible note payable – Bridge Investors
|
|
|
178,822
|
|
|
|
|
964,470
|
|
Other Debt
|
|
|
|
|
Short term debt from CEO
|
|
|
20,000
|
|
Other short term debt
|
|
|
120,000
|
|
|
|
|
140,000
|
|
Total of debentures, notes and other debt
|
|
$
|
1,384,063
|
|
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 June 12, 2022 – Peak One
|
|
$
|
-
|
|
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
|
|
The
gross principal balances on the convertible debentures listed above totaled $1,000,000 and included an initial debt discounts totaling
$800,140, resulting from the recording of the original issue discount, the related financing costs, the beneficial conversion feature
(“BCF”) for the intrinsic value of the non-bifurcated conversion option and the restricted shares issued contemporaneously
with the convertible notes.
Total
amortization expense related to these debt discounts was $ 54,572 and $359,971 for the three months ended March 31, 2021 and 2020,
respectively. In addition, during the year ended March 31, 2021 we recorded additional and accelerated amortization of debt discounts,
which was created from the bifurcation of the conversion option related the host hybrid instruments, of $24,491 and $163,855,
respectively upon the partial and/or full conversion of debt by TFK to shares of the Company’s common stock. The total unamortized
debt discount at March 31, 2021 and December 31, 2020 was approximately $120,000 and $200,000, respectively.
All
the above notes issued to Peak One, TFK, our CEO and the bridge investors reached the 180 days prior to the end of the three months 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 recorded additional derivative liability from the change in
fair value of $536,346 during the three months ended March 31, 2021. The Company also extinguished $144,585
of derivative liability following the conversion of certain notes to the Company’s common stock in the three months ended March
31, 2021.
The
Company had recorded an additional derivative liability of approximately $870,000 during the three months ended March 31, 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 $369,000 of derivative liability following the conversion of certain notes to the Company’s common
stock in the three months ended March 31, 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.
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 March 31, 2021. Total unamortized
discount on this note was $0 and $0 at March 31, 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 March 31, 2021. Total unamortized discount on this note was $0
as of March 31, 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 March 31, 2021.
TFK
Financing
On
April 23, 2019, the Company, entered into a Convertible Note (the “TFK Note”) with TFK Investments, LLC (“TFK”).
The TFK Note has a principal balance of $200,000, including a 10% OID of $20,000 and $5,000 in debt issuance costs, receiving net proceeds
of $175,000, with a maturity date of April 23, 2022. Upon the occurrence of certain events of default, the Buyer, amongst other remedies,
has the right to charge a penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under the Convertible
Note may also be converted into shares (the “TFK Conversion Shares”) of the Company’s Common Stock at any time,
at (i) a conversion price, during the first 180 days, of $0.10 per share (the “Fixed Price”), and then (2) at the lower of
the Fixed Price or 65% of the Company’s lowest traded price after the first 180 days or at the lower of the Fixed Price or 55%
of the Company’s traded stock price under certain circumstances. The Company has agreed to at all times reserve and keep available
out of its authorized Common Stock a number of shares equal to at least two times the full number of the TFK Conversion Shares. The Company
may redeem the Convertible Note at rates of 110% to 140% rates over the principal balance dependent on certain events and redeem the
value with accrued interest thereon, if any.
The
issuance of the TFK Note resulted in a discount from the beneficial conversion feature totaling $84,570, including $52,285 related to
the beneficial conversion feature and a discount from the issuance of restricted, stock of 350,000 shares for $32,285. Total amortization
of these OID and debt issuance cost discounts totaled $3,015 for the three months ended March 31, 2021. Total unamortized discount on
this note was $0 as of March 31, 2021.
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 as of March
31, 2021. The Company extinguished the $145,000 of derivative liability and the $65,000 of the value of the debt, totaling approximately
$210,000 following the conversion of the notes to the Company’s common stock during the three months ended March 31, 2021for
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
three months ended March 31, 2021. As such, TFKs debt as of March 31, 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 OID and the discount totaled $18,058 for the 3 months ended March 31, 2021. Total unamortized discount
on this note was $76,538 as of March 31, 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 $4,066 at March 31, 2021. Total unamortized discount on this note was $17,233 as of March 31, 2021.
On
August 6, 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #2 (“Tranche #2”) with
the Bridge Investor. Tranche #2 has a principal balance of $200,000, an OID of $20,000 and debt issuance costs of $5,000, resulting in
net proceeds of $175,000, with a maturity date of August 6, 2022. Upon the occurrence of certain events of default, the Buyer, among
other remedies, has the right to charge a penalty in a range of 18% to 40% dependent on the specific default event. Amounts due under
Tranche #1 may also be converted into Bridge Conversion Shares of the Company’s Common Stock at any time, at the option of the
holder, at a conversion price equal to the Fixed Price, at the lower of the Fixed Price or 65% of the Company’s lowest traded price
after the 180th day or at the lower of the Fixed Price or 55% of the Company’s traded stock price under certain circumstances.
The Company may redeem the Convertible Note at rates of 110% to 140% rates over the principal balance dependent on certain events and
redeem the value with accrued interest thereon, if any.
The
issuance of the note resulted in a discount from the beneficial conversion feature totaling $175,000. Total amortization of the OID and
discount totaled $4,943 at March 31, 2021. Total unamortized discount on this note was $26,636 as of March 31, 2021.
All
the above notes issued to Peak One, 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.
Fall
2019 Debt Financing
In
December 2019, the Company closed its Fall 2019 Debt Financing raising an additional $500,000 for gross proceeds of $1.0 million. The
Company entered into Note Purchase Agreements (the “Note Purchase Agreements”) with certain accredited investors for
the sale of convertible promissory notes (the “Fall 2019 Notes”). The Company completed the initial closing under
the Note Purchase Agreements on November 23, 2019, issuing a $250,000 principal amount Fall 2019 Note 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 the Company issued the 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 was converted into debt. The Company also issued the Fall 2019 Notes of $168,000 to two unaffiliated
accredited investors.
All
the Fall 2019 Notes provide for interest at the rate of 5% per annum and are unsecured. All amounts outstanding under the Fall 2019 Notes
become 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
under the Fall 2019 Notes within thirty (30) days of the date due, failure to observe of the 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 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 beneficial conversion feature totaling $222,222 related to the conversion
feature. Total amortization of the discount totaled $0 and $55,556 for the three months ended March 31, 2021 and 2020, respectively.
Total unamortized discount on this note was $0 as of March 31, 2021.
Further,
the Company recorded interest expense of $11,458 on these Fall 2019 Notes for the three months ended March 31, 2021. The total amount
outstanding under the Fall 2019 Notes, including accrued interest thereon, as of March 31, 2021 was $964,470 and at December 31, 2020
was $1,003,011.
Paycheck
Protection Program
In
April 2020, the Company received loan proceeds in the amount of $250,000 under the Paycheck Protection Program (“PPP”)
which was established under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and is administered by
the Small Business Administration (“SBA”). The 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. PPP Loans are uncollateralized and guaranteed by the SBA and are forgivable after a “covered
period” (8 weeks or 24 weeks) as long as the borrower maintains its payroll levels and uses the loan proceeds for eligible expenses,
including payroll, benefits, mortgage interest, rent and utilities. The forgiveness amount will be reduced if the borrower terminates
employees or reduces salaries and wages more than 25% during the covered period. Any unforgiven portion is 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 does 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 believes it met the PPP’s loan forgiveness requirements but has not yet applied for forgiveness. When legal release is
received from the SBA or lender, the Company will record the amount forgiven as forgiveness income within the other income section of
its statement of operations. If any portion of the PPP loan is not forgiven, the Company will be required to repay that portion, plus
interest, through the maturity date.
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 PPP loan, inclusive of accrued interest, was $252,349 and $251,733 on March 31, 2021 and December 31, 2020, respectively.
GMP
Note
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. GMP has been invoiced by the clinical research organization
for the full $2 million as of December 31, 2020 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 $2,030,356 and $2,000,000 on March 31, 2021 and December 31,
2020, respectively.
Other
short-term loans
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. In addition, the Company’s CFO and the Bridge Investor provided short term loans of $25,000
and $50,000, respectively to the Company during the fourth quarter of the year ended December 31, 2020. Such loans were repaid as of
March 31, 2021.
NOTE
6 - PRIVATE PLACEMENT AND JH DARBIE FINANCING
During
the period from July 2020 to March 31, 2021 the Company entered into subscription agreements with certain accredited investors pursuant
to the JH Darbie Financing, whereby the Company issued and sold a total of 100 Units, for total gross proceeds of approximately $5 million,
pursuant to the JH Darbie Placement Agreement, with each Unit consisting of:
|
■
|
25,000
shares of Edgepoint Common Stock for a price of $1.00 per share of Edgepoint Common Stock.
|
|
■
|
One
convertible promissory note, convertible into up to 25,000 shares of Edgepoint Common Stock, at a conversion price of $1.00 per share
or up to 138,889 shares of the Company’s Common Stock, at a conversion price of $0.18 per share.
|
|
■
|
50,000
warrants to purchase an equivalent number of shares of Edgepoint Common Stock at $1.00 per share or an equivalent number of shares
of the Company’s Common Stock at $0.20 per share with a three-year expiration date.
|
As
March 31, 2021 funds received under the JH Darbie Financing, net of debt discount, consist of the following amounts:
|
|
March 31, 2021
|
|
Convertible promissory notes
|
|
|
|
|
Subscription agreements - accredited investors
|
|
$
|
1,520,720
|
|
Subscription agreements – related party
|
|
|
85,664
|
|
Total convertible promissory notes
|
|
$
|
1,606,384
|
|
The
Company incurred approximately $0.65 million of issuance costs, including legal costs of approximately $39,000, that are incremental
costs directly related to the issuance of the various instruments bundled in the offering.
Concurrently
with the sale of the Units, JH Darbie was granted a warrant, exercisable over a five-year period, to purchase 10% of the number of Units
sold in the JH Darbie Financing. As such, the Company granted 10 Units to JH Darbie pursuant to the JH Darbie Placement Agreement.
The
terms of convertible notes are summarized as follows:
|
■
|
Term:
Through March 31, 2022.
|
|
■
|
Coupon:
16%.
|
|
■
|
Convertible
at the option of the holder at any time in the Company’s Common Stock or Edgepoint Common Stock.
|
|
■
|
The
conversion price is initially set at $0.18 per share for the Company’s Common Stock or $1.00 for Edgepoint Common Stock, subject
to adjustment.
|
The
Company allocated the proceeds among the freestanding financial instruments that were issued in the single transaction using the relative
fair value method, which affects the determination of each financial instrument initial carrying amount. The Company utilized the relative
fair value method as none of the freestanding financial instruments issued as part of the single transaction are measured at fair value.
Under the relative fair value method, the Company made separate estimates of the fair value of each freestanding financial instrument
and then allocated the proceeds in proportion to those fair value amounts. The Company recorded non-controlling interests of approximately
$1 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 grant date fair value of approximately $0.20 per share associated with the warrants to purchase up to 2,035,000
shares of common stock issued in this offering, or a total of approximately $ 0.7 million, was recorded to additional paid-in capital
on a relative fair value basis. All warrants sold in this offering had an exercise price of $0.20 per share of the Company stock or $1.00
per share of Edge Point, subject to adjustment, are exercisable immediately and expire three years from the date of issuance. The fair
value of the warrants was estimated using a Black Scholes valuation models using the following input values:
Expected Term
|
|
|
1.5 years
|
|
Expected volatility
|
|
|
152.3%-164.8
|
%
|
Risk-free interest rates
|
|
|
0.09%-0.11
|
%
|
Dividend yields
|
|
|
0.00
|
%
|
As
of the multiple closings of the Company through December 31, 2020, under the private placement memorandum with JH Darbie, the estimated
grant date fair value of approximately $0.20 per share associated with the warrants to purchase up to 3,465,000 shares of common stock
issued in this offering, or a total of approximately $0.4 million, was recorded to additional paid-in capital on a relative fair value
basis. All warrants sold in this offering had an exercise price of $0.20 per share of the Company stock or $1.00 per share of Edge Point,
subject to adjustment, are exercisable immediately and expire three years from the date of issuance. The fair value of the warrants was
estimated using a Black Scholes valuation models using the following input values.
Expected Term
|
|
|
1.5 years
|
|
Expected volatility
|
|
|
168.5%-191.9
|
%
|
Risk-free interest rates
|
|
|
0.12%-0.15
|
%
|
Dividend yields
|
|
|
0.00
|
%
|
The
Company recorded an initial debt discount of approximately $0.7 million representing the intrinsic value of the conversion option embedded
in the convertible debt instrument based upon the difference between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note.
The
Company recognized amortization expense related to the debt discount and debt issuance costs of $373,949 and $0 for the three months
ended March 31, 2021 and March 31, 2020 respectively, which is included in interest expense in the statements of operations.
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 $77,000 for the three months ended March 31, 2021 as compared to $232,806 for the same period of 2020.
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. Such loan was repaid in
April 2021.
Artius
Consulting Agreement
On
March 9, 2020, the Company and Artius Bioconsulting, LLC (“Artius”), for which Mr. King is the Managing Member, entered into
an amendment to the Consulting Agreement dated December 1, 2018, under which Artius agreed to serve as a consultant to the Company for
services related to the Company’s business from time to time, effective December 1, 2019 (the “Effective Date”) (the
“Artius Agreement”). In connection with the Artius Agreement, Mr. King also agreed to assist the Company with strategic advisory
services with respect to transactional and operational contracts, budgetary input, among other matters in connection with the formation
of a new business unit to develop AI and Blockchain Driven Vision Systems (“EdgePoint AI”), for which Mr. King is Chief Executive
Officer.
Under
the terms of the Artius Agreement, the Company agreed to grant to Artius, subject to approval by the Company’s Board of Directors
and pursuant to the Company’s 2017 Equity Incentive Plan, 148,837 restricted shares of the Company’s common stock, par value
$.01 per share (“Common Stock”), in addition to a 30% pre-financing ownership stake in EdgePoint AI. The Artius Agreement
contemplates that Mr. King will generally provide his services at a rate of $237 per hour, not to exceed 44 hours per month and payable
monthly, and to reimburse Mr. King for reasonable and necessary expenses incurred by him or Artius in connection with providing services
to the Company.
Either
the Company or Artius may terminate the Artius Agreement at any time, for any reason following the Effective Date. The Artius Agreement
will automatically renew one year from the Effective Date, unless the Parties agree to terminate the Artius Agreement at that time.
No
expense was recorded during the three months ended March 31, 2021 related to this Agreement.
Maida
Consulting Agreement
Effective
May 5, 2020, the Company and Dr. Maida entered into an independent consulting agreement, commencing April 1, 2020 (the “Maida Agreement”),
under which Dr. Maida will assist the Company in providing medical expertise and advice from time to time in the design, conduct and
oversight of the Company’s existing and future clinical trials.
Pursuant
to the terms of the Maida Agreement, the Company 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 during the three months ended March 31, 2021 related to this Agreement. No similar expense was
recorded during the same period in 2020.
NOTE
8 - STOCKHOLDERS’ EQUITY
The
following transactions affected the Company’s Stockholders’ Equity:
Equity
Transactions During the Period Since the Merger
Issuance
and conversion of Preferred Stock
In
April 2019, pursuant to the 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 three months ended March 31, 2021
In
January 2021, the Company issued 657,200 shares of its common stock to TFK in connection with the part conversion of their convertible
notes payable.
In
March 2021, the Company converted 278,188 shares of our Series A Preferred Stock to 278,187,847 shares of its common stock.
Issuance
of Common Stock during the three months ended March 31, 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.
NOTE
9 – STOCK-BASED COMPENSATION
Options
Pursuant
to the Merger, the Company’s Common Stock and corresponding outstanding options survived. The below information details the Company’s
associated option activity.
As
of March 31, 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, $0.01 par value per share (“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.
Since
the adoption of the 2015 Plan, no further awards may be granted under the 2005 Plan, although options previously granted remain outstanding
in accordance with their terms.
Compensation
based stock option activity for qualified and unqualified stock options are summarized as follows:
|
|
|
|
|
Weighted
|
|
For the three months ended March 31, 2021
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding at January 1, 2021
|
|
|
3,941,301
|
|
|
$
|
0.78
|
|
Outstanding at March 31, 2021
|
|
|
3,941,301
|
|
|
$
|
0.78
|
|
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 March 31, 2021:
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercise
|
|
|
Number
|
|
Exercise prices
|
|
|
Options
|
|
|
Remaining Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.22
|
|
|
|
1,750,000
|
|
|
|
7.22
|
|
|
$
|
0.22
|
|
|
|
1,750,000
|
|
|
0.38
|
|
|
|
900,000
|
|
|
|
5.79
|
|
|
|
0.38
|
|
|
|
900,000
|
|
|
0.73
|
|
|
|
762,500
|
|
|
|
4.97
|
|
|
|
0.73
|
|
|
|
762,500
|
|
|
1.37
|
|
|
|
150,000
|
|
|
|
4.30
|
|
|
|
1.37
|
|
|
|
150,000
|
|
|
1.43
|
|
|
|
300,000
|
|
|
|
4.16
|
|
|
|
1.43
|
|
|
|
300,000
|
|
|
11.88
|
|
|
|
2,359
|
|
|
|
0.76
|
|
|
|
11.88
|
|
|
|
2,359
|
|
|
15.00
|
|
|
|
75,000
|
|
|
|
4.16
|
|
|
|
15.00
|
|
|
|
75,000
|
|
|
19.80
|
|
|
|
1,442
|
|
|
|
0.59
|
|
|
|
19.80
|
|
|
|
1,442
|
|
|
|
|
|
|
3,941,301
|
|
|
|
6.05
|
|
|
$
|
0.78
|
|
|
|
3,941,301
|
|
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 $0.36 as of March 31, 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 March 31, 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 Merger and no new options have been granted since then.
In
August 2019, the Company entered into Employment Agreements and incentive compensation arrangements with each of its executive
officers, including Dr. Vuong Trieu, the Chief Executive Officer; Dr. Fatih Uckun, the Chief Medical Officer; Dr. Chulho Park,
its Chief Technology Officer; and Mr. Amit Shah, the Chief Financial Officer. Details of the agreements and the incentive compensation
is described in detail in Note 11 – Commitments & Contingencies under “Employment Agreements”. The
incentive stock options or the restricted stock awards granted to the Company’s executive officers have not been granted
as of the date of this filing.
Warrants
Pursuant
to the Merger, the Company’s Common Stock and corresponding outstanding warrants survived. The below information represents the
Company’s associated warrant activity.
During
the three months ended March 31, 2021, 2,035,000 warrants were issued related to private placement. 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.
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 March
31, 2021 and December 31, 2020 are summarized as follows:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding at January 1, 2021
|
|
|
18,702,500
|
|
|
$
|
0.20
|
|
Issued during three months ended March 31, 2021
|
|
|
2,035,000
|
|
|
|
0.20
|
|
Outstanding at March 31, 2021
|
|
|
20,737,500
|
|
|
$
|
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 March 31, 2021:
|
|
Outstanding
and exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
|
Remaining
Life
|
|
|
Exercise
|
|
|
Number
|
|
Exercise
Price
|
|
Outstanding
|
|
|
in
Years
|
|
|
Price
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.20
|
|
1,487,500
|
|
|
2.08
|
|
|
$
|
0.20
|
|
|
1,487,500
|
|
|
0.20
|
|
|
19,250,000
|
|
|
|
2.15
|
|
|
|
0.20
|
|
|
|
19,250,000
|
|
|
|
|
|
20,737,500
|
|
|
|
2.15
|
|
|
$
|
0.20
|
|
|
|
20,737,500
|
|
13,750,000
warrants issued during the three months ended March 31, 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.
Expected Term
|
|
|
3 years
|
|
Expected volatility
|
|
|
140.5
|
%
|
Risk-free interest rates
|
|
|
1.40
|
%
|
Dividend yields
|
|
|
0.00
|
%
|
NOTE
10 – INCOME TAXES
Significant
components of the Company’s deferred tax assets and liabilities for federal and state income taxes as of March 31, 2021 and December
31, 2020 are as follows in thousands:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
1,164
|
|
|
$
|
1,164
|
|
Assets
|
|
|
6,154
|
|
|
|
6,227
|
|
Liability accruals
|
|
|
239
|
|
|
|
173
|
|
R&D Credit
|
|
|
4,768
|
|
|
|
4,760
|
|
Capital Loss
|
|
|
528
|
|
|
|
528
|
|
Deferred state tax
|
|
|
(2,139
|
)
|
|
|
(2,086
|
)
|
Net operating loss carry forward
|
|
|
55,542
|
|
|
|
56,090
|
|
Total gross deferred tax assets
|
|
|
66,256
|
|
|
|
66,856
|
|
Less - valuation allowance
|
|
|
(66,256
|
)
|
|
|
(66,856
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company had gross deferred tax assets of approximately $66.3 million and $66.9 million as of March 31, 2021 and December
31, 2020, respectively, which primarily relate to net operating loss carryforwards.
As
of March 31, 2021 and December 31, 2020, the Company had gross federal net operating loss carryforwards of approximately $232.3 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
March 31, 2021 and December 31, 2020, the Company had California state gross operating loss carry-forwards of approximately $72.6
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 2016 through 2019. 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. As of the date of this filing, the Company has not filed
its 2019 and 2020 federal and state corporate income tax returns. The Company expects to file these documents as soon as practical.
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
11 – 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 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
12 – SUBSEQUENT EVENTS
Peak
One Equity Purchase Agreement
On
May 3, 2021, the Company entered into an Equity Purchase Agreement (the “Agreement”) 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 Company’s common stock, par value $0.01 per share (“Common Stock”).
Under the Agreement and subject to the Maximum Commitment Amount, the Company has the right, but not the obligation, to submit Put Notices
(as defined in the Agreement) to Peak One (i) in a minimum amount not less than $20,000.00 and (ii) in a maximum amount up to the lesser
of (a) $1.0 million or (b) 250% of the Average Daily Trading Value (as defined in the Agreement).
In
exchange for Peak One entering into the Agreement, the Company agreed, among other things, to (A) issue Peak One and Peak One Investments,
LLC, an aggregate of 250,000 shares of Common Stock, and (B) file a registration statement registering the Common Stock issued or issuable
to Peak One under the Agreement for resale (the “Registration Statement”) with the Securities and Exchange Commission
within 60 calendar days of the Agreement, as more specifically set forth in the Registration Rights Agreement.
The
obligation of Peak One to purchase the Company’s Common Stock shall begin on the date of the Agreement, and ending on the earlier
of (i) the date on which Peak One shall have purchased Common Stock pursuant to this Agreement equal to the Maximum Commitment Amount,
(ii) twenty four (24) months after the initial effectiveness of the Registration Statement , (iii) written notice of termination by the
Company to Peak One (subject to certain restrictions set forth in the Agreement), (iv) the Registration Statement is no longer effective
after the initial effective date of the Registration Statement, or (v) the date that the Company commences a voluntary case or any person
commences a proceeding against the Company, a custodian is appointed for the Company or for all or substantially all of its property
or the Company makes a general assignment for the benefit of its creditors (the “Commitment Period”).
During
the Commitment Period, the purchase price to be paid by Peak One for the Common Stock under the Agreement shall be 91% of the Market
Price, which is defined as the lesser of the (i) closing bid price of the Common Stock on the trading day immediately preceding the respective
Put Date (as defined in the Agreement), or (ii) lowest closing bid price of the Common Stock during the Valuation Period (as defined
in the Agreement), in each case as reported by Bloomberg Finance L.P or other reputable source designated by Peak One.