Oncotelic Therapeutics, Inc 10-Q for FY2022 Q3
Oncotelic Therapeutics, Inc. (OTLC)
About this 10-Q
Oncotelic Therapeutics, Inc filed this 10-Q on November 18, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $777.94K
- compared with a net loss of $1.56M a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Quarterly Period Ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from _________ to _________
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| None | OTLC | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 14, 2022, there were shares of the registrant’s common stock outstanding.
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Prepaid & other current assets | ||||||||
| Total current assets | ||||||||
| Intangibles, net of accumulated amortization of $ | ||||||||
| In process R&D | ||||||||
| Goodwill | ||||||||
| Investment in GMP Bio at fair value | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Contingent consideration | ||||||||
| Derivative liability on notes | ||||||||
| Convertible and short-term debt, net of costs | ||||||||
| Convertible debt and short-term debt - related party, net of costs | ||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity: | ||||||||
| Convertible preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Common stock, $ par value; shares authorized; and issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Oncotelic Therapeutics, Inc. stockholders’ equity | ||||||||
| Non-controlling interests | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements.
| 3 |
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PPP loan forgiveness | ||||||||||||||||
| Gain on derecognition of non-financial asset | ||||||||||||||||
| Reimbursement for expenses - related party | ||||||||||||||||
| Change in fair value of derivative on debt | ||||||||||||||||
| Loss on debt conversion | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) before non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) attributable to Oncotelic Therapeutics, Inc. | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Basic net loss per share attributable to common stock | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Basic weighted average common stock outstanding | ||||||||||||||||
| Diluted net loss per share attributable to common stock | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Diluted weighted average common stock outstanding | ||||||||||||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements.
| 4 |
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
Consolidated STATEMENT of STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(Unaudited)
| Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non controlling | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Common shares issued upon cashless exercise of warrants | ( | ) | ||||||||||||||||||||||||||||||
| Common shares issued for cash | ||||||||||||||||||||||||||||||||
| Stock compensation expense | - | - | ||||||||||||||||||||||||||||||
| Warrants issued in connection with note extension | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Beneficial Conversion Feature on convertible debt | - | - | ||||||||||||||||||||||||||||||
| Warrants issued in connection with debt issuance | - | - | ||||||||||||||||||||||||||||||
| Common shares issued for cash | - | |||||||||||||||||||||||||||||||
| Common shares issued in connection with debt conversion | - | |||||||||||||||||||||||||||||||
| Common shares issued upon cashless exercise of warrants | - | ( | ) | |||||||||||||||||||||||||||||
| Stock compensation expense | - | - | ||||||||||||||||||||||||||||||
| Contribution from shareholder for payment of liabilities | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ( | ) | ||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Common shares issued for cash | ||||||||||||||||||||||||||||||||
| Common shares issued in connection with debt conversion | ||||||||||||||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||||||
| Net loss | - | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements.
| 5 |
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non controlling | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Common shares issued upon conversion of Preferred Stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common shares issued upon conversion of debt | - | |||||||||||||||||||||||||||||||
| Beneficial Conversion Feature on convertible debt | - | - | ||||||||||||||||||||||||||||||
| Warrants issued in connection with private placement | - | - | ||||||||||||||||||||||||||||||
| Increase in non-controlling interest from issuance of additional Edgepoint stock | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||
| Warrants issued in connection with private placement | - | - | ||||||||||||||||||||||||||||||
| Common shares issued in lieu of services | - | |||||||||||||||||||||||||||||||
| Common shares issued for cash | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of June 30, 2021 | ( | ) | ||||||||||||||||||||||||||||||
| Common shares issued in lieu of services | - | |||||||||||||||||||||||||||||||
| Common shares issued for cash | ||||||||||||||||||||||||||||||||
| Common shares issued in lieu of restricted stock units | - | |||||||||||||||||||||||||||||||
| Stock Compensation Expense | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements.
| 6 |
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
Consolidated STATEMENTS OF CASH FLOWS
(Unaudited)
| 2022 | 2021 | |||||||
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Gain on derecognition of non-financial asset | ( | ) | $ | |||||
| Amortization of debt discount and deferred finance costs | ||||||||
| Amortization of intangible assets | ||||||||
| Warrants issued in connection with private placement | ||||||||
| Common shares issued in lieu of restricted stock units | ||||||||
| Stock compensation expense | ||||||||
| Depreciation on development equipment | ||||||||
| Change in fair value of derivative | ( | ) | ( | ) | ||||
| Loss on debt conversion | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable to related party | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from / (repayment to) private placement | ( | ) | ||||||
| Proceeds from sales of common stock | ||||||||
| Proceeds from convertible debt | ||||||||
| Proceeds from convertible notes and short term loans, others | ||||||||
| Repaid to note holders | ( | ) | ( | ) | ||||
| Repaid to others | ( | ) | ( | ) | ||||
| Proceeds from Payroll Protection Plan | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash and restricted cash - beginning of period | ||||||||
| Cash and restricted cash - end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Warrants issued in connection with private placement | $ | $ | ||||||
| Common shares issued upon partial conversion of debt | $ | $ | ||||||
| Common shares issued in lieu of services | $ | $ | ||||||
| Common shares issued in lieu of restricted stock units | $ | $ | ||||||
| Non-cash cost upon sale of common stock | $ | $ | ||||||
| Beneficial Conversion Feature on convertible debt and restricted common shares | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Oncotelic Therapeutics, Inc. (“Oncotelic”), was formed in the State of New York in 1988 as OXiGENE, Inc., was reincorporated in the State of Delaware in 1992, and changed its name to Mateon Therapeutics, Inc. in 2016, and Oncotelic Therapeutics, Inc. in November 2020. Oncotelic conducts business activities through Oncotelic and its wholly owned subsidiaries, Oncotelic, Inc., a Delaware corporation, PointR Data, Inc. (“PointR”), a Delaware corporation: and EdgePoint AI, Inc. (“Edgepoint”), a Delaware Corporation for which there are non-controlling interests, (Oncotelic, Oncotelic Inc., PointR and Edgepoint are collectively called the “Company” or “We”). The Company completed a reverse merger with Oncotelic Inc in April 2019, a merger with PointR in November 2019 and formed a subsidiary Edgepoint in February 2020. For more information on these mergers, refer to our 2020 Annual Report on Form 10-K filed with the SEC on April 15, 2021.
The Company is currently developing OT-101, through its joint venture (“JV”) with Dragon Overseas Capital Limited (“Dragon”) and GMP Biotechnology Limited (“GMP Bio”), both affiliates of Golden Mountain Partners (“GMP”), for various cancers and COVID-19, Artemisinin for COVID-19 and AI technologies for clinical development and manufacturing. The Company is also independently planning to develop OT-101 for certain animal health indications and contemplating using crypto currencies for that platform. The Company has acquired apomorphine for Parkinson’s Disease, erectile dysfunction and female sexual dysfunction. In addition, the Company is evaluating the further development of its product candidates OXi4503 as a treatment for acute myeloid leukemia and myelodysplastic syndromes and CA4P in combination with a checkpoint inhibitor for the treatment of advanced metastatic melanoma.
The
Company is primarily 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 are expected to 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. 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. The JV 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, for human
pharmaceutical needs. The Company is evaluating the further development of its product candidates OXi4503 as a treatment for acute myeloid
leukemia and myelodysplastic syndromes and CA4P in combination with a checkpoint inhibitor for the treatment of advanced metastatic melanoma.
The JV is also 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 GMP for a total of $
| 8 |
Fundraising
J.H. Darbie Financing Notes & Issuance of Oncotelic Warrants
Between July 2020 and March 2021, the Company issued and sold a total of units (“Units”). For more information on the JH Darbie Financing, refer to our Annual Report on Form 10-K filed with the SEC on April 15, 2022 and Note 7 to these Financial Statements.
In
February 2022, the Company and 99 out of 100 of the Investors agreed to extend the maturity date of the notes connected to the Units
from March 31, 2022, to March 31, 2023. In addition, the Company issued approximately million warrants to purchase $
Equity Purchase Agreement
In
May 2021, the Company entered into an Equity Purchase Agreement (the “EPL”) and Registration Rights Agreement (the
“Registration Rights Agreement”) with Peak One Opportunity Fund, L.P. (“Peak One”), pursuant to
which the Company shall have the right, but not the obligation, to direct Peak One to purchase up to $
August 2021 Notes
In
August 2021, the Company issued Note Purchase Agreements with Autotelic Inc., a related party, the Company’s Chief Financial Officer
(“CFO”), and certain other accredited investors. Under the terms of the Note Purchase Agreements, the Company issued
an aggregate of $
November/December 2021 and March 2022 Notes
In
November and December 2021, the Company entered into various securities purchase agreements with Talos Victory Fund, LLC (the (“Talos”),
Mast Hill Fund, LP (“Mast”), FirstFire Global Opportunities Fund, LLC (“FirstFire”), Blue Lake
Partners, LLC (“Blue Lake”) and Fourth Man, LLC (“Fourth Man”), (collectively called the “Purchase
Agreements”), pursuant to which the Company issued convertible promissory notes in the aggregate principal amount of $
The
Purchase Agreements were entered into as part of a convertible note financing round with aggregate gross proceeds to the Company of up
to $
In January 2022, three of the five note holders under the November and December 2021 Notes exercised their warrants to purchase shares of Common Stock of the Company on a cashless basis. As such, the Company issued the note holders shares of Common Stock.
In
March 2022, the Company entered into a Securities Purchase Agreement with Fourth Man, pursuant to which the pursuant to which the Company
issued convertible promissory note in the aggregate principal amount of $
| 9 |
In
August 2022, the Company converted $
For more information on the notes, refer to Note 6: November – December 2021 Financing of these Notes to the Unaudited Consolidated Financial Statements.
May 2022 Note
In
May 2022, the Company entered into a Securities Purchase Agreement with Mast, pursuant to which the Company issued convertible
promissory notes in the aggregate principal amount of $
In June 2022, Mast fully converted their November 2021 Note, for which the company issued shares of Common Stock.
June 2022 Note
In
June 2022, the Company entered into a Securities Purchase Agreement with Blue Lake, pursuant to which the Company issued convertible
promissory notes in the aggregate principal amount of $
Joint Venture with GMP Bio
In March 2022, the Company formalized a joint venture (“JV”) with Dragon Overseas Capital Limited (“Dragon”) and GMP Biotechnology Limited (“GMP Bio”), both affiliates of GMP. Although no assurances can be given, the Company and GMP currently intend to conduct an initial public offering of the JV, at a future date, on either the Hong Kong Exchange or other stock exchange. For more information on the JV, refer to Note 6 of the Notes to these Financial Statements and our Current Report on Form 8-K filed with the SEC on April 6, 2022.
The Company also entered into certain note purchase agreements and notes with GMP in September 2021, October 2021 and January 2022. For information on the GMP notes, refer to our 2021 Annual Report on Form 10K filed with the SEC on April 15, 2022 and Note 6 to the Notes to these Financial Statements.
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.
| 10 |
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 $
The Company’s long-term plans include continued development of its current pipeline of products, in addition to continue the development of OT-101 which is exclusively out-licensed to the JV and the JV will be responsible for the funding required to support the development in entirety, to generate sufficient revenues, through either technology transfer or product sales, or raise additional financing 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.
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/or 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 favourable terms or at all. As such, management does not believe the Company has sufficient cash for 12 months from the date of this report. If adequate funds are not available on acceptable terms, or at all, the Company will need to curtail operations, or cease operations completely.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expense during the reporting period. Actual results could materially differ from those estimates.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the valuation of goodwill and intangible assets for impairment, deferred tax asset and valuation allowance, and fair value of financial instruments.
Cash
As of September 30, 2022, and December 31, 2021 the Company held all its cash in banks. The Company considers investments in highly liquid instruments with a maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2022 and December 31, 2021, respectively. Restricted cash consists of certificates of deposits held at banks as collateral for various purposes.
Debt issuance Costs and Debt discount
Issuance costs are specific incremental costs that are (1) paid to third parties and (2) directly attributable to the issuance of a debt or equity instrument. The issuance costs attributable to the initial sale of the instrument are offset against the associated proceeds in the determination of the instrument’s initial net carrying amount.
Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying balance sheets if related to the issuance of debt or presented as a reduction of additional paid in capital if related to the issuance of an equity instrument. The Company applies the relative fair value to allocate the issuance costs among freestanding instruments that form part of the same transaction.
| 11 |
If the Company amends the terms of its convertible notes, the Company reviews and applies the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments, evaluates and concludes whether the terms of the agreements were or were not substantially different as of a particular reporting date and accounts the transaction as a debt modification or a troubled debt restructuring.
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. |
Investment in equity securities
The following table summarizes the cumulative gross unrealized gains and losses and fair values for long-term investments accounted for at fair value under the fair value option, with the unrealized gains and losses reported within earnings on the Condensed Consolidated Statements of Operation as of September 30, 2022. No similar investments were held by the Company at December 31, 2021:
SCHEDULE OF UNREALIZED GAINS AND LOSSES
| Initial Book Value | Cumulative Gross Unrealized Gains | Cumulative Gross Unrealized Losses | Fair Value | |||||||||||||
| September 30, 2022 | ||||||||||||||||
| Investment in GMP Bio (equity securities) | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 12 |
The table below sets forth a summary of the recording of the initial value of the long-term value of investment in equity securities of GMP Bio, based on a third-party valuation report, and changes in the fair value of such equity securities, if such change occurs, as a Level 3 fair value as of September 30, 2022. The Company did not own similar long-term investments as of September 30, 2021:
SUMMARY OF CHANGES IN FAIR VALUE OF LONG-TERM INVESTMENT IN EQUITY SECURITIES
| September 30, 2022 Fair Value | ||||
| Balance at January 1, 2022 | $ | |||
| Contribution at cost basis | ||||
| Gain on derecognition of non-financial asset | ||||
| Change in fair value | ||||
| Balance at September, 2022 | $ | |||
Derivative Liability
The Company has certain derivative liabilities associated with its 2019 bridge financing Convertible Notes (see Note 5), consisted of conversion feature derivatives at September 30, 2022 and 2021, are Level 3 fair value measurements.
The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 as of September 30, 2022 and 2021:
SUMMARY OF CHANGES IN FAIR VALUE OF DERIVATIVE LIABILITIES
| September 30, 2022 Conversion Feature | September 30, 2021 Conversion Feature | |||||||
| Balance at January 1, 2022 and 2021 | $ | $ | ||||||
| New derivative liability | ||||||||
| Reclassification to additional paid in capital from conversion of debt to common stock | ( | ) | ||||||
| Change in fair value | ( | ) | ( | ) | ||||
| Balance at September, 2022 and 2021 | $ | $ | ||||||
As of September 30, 2022, and December 31, 2021, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on assumptions used in the Black-Scholes valuation model. The key valuation assumptions used consists, in part, of the price of the Company’s Common Stock, a risk-free interest rate based on the yield of a Treasury note and expected volatility of the Company’s Common Stock all as of the measurement dates. The Company used the following assumptions to estimate fair value of the derivatives as of September 30, 2022:
SUMMARY OF ESTIMATE FAIR VALUE OF DERIVATIVE LIABILITIES
| September 30, 2022 Key Assumptions for fair value of conversions | ||||
| Risk free interest | ||||
| Market price of share | $ | - | ||
| Life of instrument in years | ||||
| Volatility | ||||
| Dividend yield | % | |||
When the Company changes its valuation inputs for measuring financial liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended September 30, 2022 and 2021, respectively, there were no transfers of financial assets or financial liabilities between the hierarchy levels.
| 13 |
The
$
Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share includes the effect of Common Stock equivalents (notes convertible into Common Stock, stock options and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. The Company has excluded from diluted loss per share the dilutive shares, since such inclusion would be anti-dilutive.
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, members of the Board of Directors (the “Board”) and consultants 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.
For warrants issued in connection with fund raising activities, the Company estimates the grant date fair value of each warrant using the Black-Scholes pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the warrant, the expected volatility of the Common Stock consistent with the expected life of the warrant, risk-free interest rates and expected dividend yields of the Common Stock. If the warrants are issued upon termination or cancellation of prior issued warrants, then the Company estimates the grant date fair value of the new warrants using the Black-Scholes pricing model and evaluates whether the new warrants are deemed as equity instruments or liability instruments. If the warrants are deemed to be equity instruments, the Company records stock compensation expense and an addition to additional paid in capital. If, however, the warrants are deemed to be liability instruments, then the fair value is treated as a deemed dividend and credited to additional paid in capital.
Impairment of Long-Lived Assets
The
Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the
forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined
to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets
of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature
of the assets. For the three and nine months ended September 30, 2022 and the year ended December 31, 2021, there were
| 14 |
Intangible Assets
The
Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. The Company reviews
the intangible assets for impairment on an annual basis or if events or changes in circumstances indicate it is more likely than not
that they are impaired. These events could include a significant change in the business climate, legal factors, a decline in operating
performance, competition, sale or disposition of a significant portion of the business, or other factors. If the review indicates the
impairment, an impairment loss would be recorded for the difference of the value recorded and the new value. For the three and nine months
ended September 30, 2022 and the year ended December 31, 2021, there were
Goodwill
Goodwill represents the excess of the purchase price of acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least once annually, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered not more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment would not be required. Otherwise, goodwill impairment is tested using a two-step approach.
The
first step involves comparing the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit is
determined to be greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is determined
to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. The second step involves
calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill,
of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in
this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of
the goodwill, an impairment loss equivalent to the difference is recorded. For the three and nine months ended September 30, 2022 and
the year ended December 31, 2021 there were
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.
| 15 |
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.
Variable Interest Entity (VIE) Accounting
The
Company evaluates its ownership, contractual relationships and other interests in entities to determine the nature and extent of the
interests, whether such interests are variable interests and whether the entities are VIEs in accordance with ASC 810, Consolidations.
These evaluations can be complex and involve Management judgment as well as the use of estimates and assumptions based on available historical
information, among other factors. Based on these evaluations, if the Company determines that it is the primary beneficiary of a VIE,
the entity is consolidated into the financial statements. At September 30, 2022 and December 31, 2021, the Company identified EdgePoint
to be the Company’s sole VIE. At September 30, 2022 and December 31, 2021, the Company’s ownership percentage of EdgePoint
was
Investments - Equity Method
The Company accounts for equity method investments at cost, adjusted for the Company’s share of the investee’s earnings or losses, which are reflected in the consolidated statements of operations. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Investment in GMP Bio represents the investment into equity securities for which the Company elected the fair value option pursuant to ASC 825-10-15 and subsequent fair value changes in the GMP Bio shares shall be included in the result from other income. Refer to Note 6 to these Notes to the Consolidated Financial Statements.
| 16 |
Joint Venture agreement
We have equity interest in unconsolidated arrangement that is primarily engaged in the business of drug discovery, development, and commercialization, including but not limited to development and commercialization of TGF-beta therapeutics as well as establishing and operating contract development and manufacturing organization (“CDMO”) facilities and capabilities. The Company first reviews the arrangement to determine if it meets the definition of an accounting joint venture pursuant to ASC 323-10-20. In order to meet the definition of a joint venture, the arrangement must have all of the following characteristics, (i) the arrangement is organized within a separate legal entity, (ii) the entity is under the joint control of the venturers, (iii) the venturers must be able to exercise joint control through their equity investments, (iv) the qualitative characteristics of the entity, including its purpose and design must be consistent with the definition of a joint venture.
We consolidate arrangements that are considered to be VIEs where we are the primary beneficiary. We analyze our investments in joint ventures to determine if the joint venture is considered a VIE and would require consolidation. We (i) evaluate the sufficiency of the total equity investment at risk, (ii) review the voting rights and decision-making authority of the equity investment holders as a group and whether there are limited partners (or similar owning entities) that lack substantive participating or kick out rights, guaranteed returns, protection against losses, or capping of residual returns within the group and (iii) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this VIE determination.
To the extent that we own interests in a VIE and we (i) have the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) have the obligation or rights to absorb losses or receive benefits that could potentially be significant to the VIE, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent that we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.
To the extent that our arrangements do not qualify as VIEs, they are consolidated if we control them through majority ownership interests or if we are the managing entity (general partner or managing member) and our partner does not have substantive participating rights. Control is further demonstrated by our ability to unilaterally make significant operating decisions, refinance debt, and sell the assets of the joint venture without the consent of the non-managing entity and the inability of the non-managing entity to remove us from our role as the managing entity.
We use the equity method of accounting for those arrangements where we exercise significant influence but do not have control. Under the equity method of accounting, our investment in each arrangement is included on our consolidated balance sheet; however, the assets and liabilities of the joint ventures for which we use the equity method are not included on our consolidated balance sheet.
When we sell or contribute properties to unconsolidated arrangements and retain a non-controlling ownership interest in such assets, we recognize the difference between the consideration received and the carrying amount of the asset sold or contributed when its derecognition criteria are met. The equity method investment we retain in such partial sale transactions is noncash consideration and is measured at fair value. As a result, the accounting for a partial sale will result in the recognition of a full gain or loss.
When circumstances indicate there may have been a reduction in the value of an equity investment, we evaluate whether the loss in value is other than temporary. If we conclude it is other than temporary, we recognize an impairment charge to reflect the equity investment at fair value.
The Company elected the fair value option under the fair value option Subsection of Section 825-10-15 to account for its equity-method investment as the Company believes that the fair value option is most appropriate for a company in the biotechnology industry, The fair value option is more appropriate for companies that are involved in extensive and usually very expensive research and development efforts, which are not appropriately reflected in the market value or reflective of the true value of the development activities of the company
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606).
Under Topic 606, the Company recognizes revenue when its customers obtain control of the promised good or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company applies the following five-step: (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.
| 17 |
At contract inception, once the contract is determined to be within the scope of Topic 606, the Company identifies the performance obligation(s) in the contract by assessing whether the goods or services promised within each contract are distinct. The Company then recognizes revenue for the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company anticipates generating revenues from rendering services to other third-party customers for the development of certain drug products and/or in connection with certain out-licensing agreements. In the case of services rendered for development of the drugs, revenue is recognized upon the achievement of the performance obligations or over time on a straight-line basis over the extended service period. In the case of out-licensing contracts, the Company records revenues either 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 & Development Costs
In accordance with ASC 730-10-25 “Research and Development”, research and development costs are charged to expense as and when incurred.
Recent Accounting Pronouncements
In August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”) which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition was permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is evaluating the impact of implementation on its financial statements, if any.
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
Prior Period Reclassifications
Certain amounts in prior periods may have been reclassified to conform with current period presentation, if any.
NOTE 3 - INTANGIBLE ASSETS AND GOODWILL
Goodwill from 2019 Reverse Merger with Oncotelic and PointR
The Company completed the merger with Oncotelic Inc. (“Merger”) in April 2019. The Company completed the merger with PointR Data Inc (“PointR Merger”) in November 2019. For more details on the two mergers, refer to our 2020 Annual Report on Form 10-K for the year ended December 31, 2020 filed by the Company on April 15, 2021.
The
Oncotelic merger gave rise to Goodwill of $
| 18 |
Upon
the non-financial sale of our asset as contribution to our equity method investment we derecognized the balance of the carrying value
of our goodwill of approximately $
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
shares of its Common Stock for a value of $
Intangible Asset Summary
The following table summarizes the balances as of September 30, 2022 and December 31, 2021, of the intangible assets acquired, their useful life, and annual amortization:
SCHEDULE OF INTANGIBLE ASSETS
| September 30, 2022 | Remaining Estimated | |||||||
| Intangible asset – Intellectual property | $ | |||||||
| Intangible asset – Capitalization of license cost | ||||||||
| Less Accumulated Amortization | ( | ) | ||||||
| Less: Derecognition of carrying value upon transfer of non-financial asset | ( | ) | ||||||
| Total | $ | |||||||
| December 31, 2021 | Remaining Estimated | |||||||
| Intangible asset – Intellectual property | $ | |||||||
| Intangible asset – Capitalization of license cost | ||||||||
| Less Accumulated Amortization | ( | ) | ||||||
| Total | $ | |||||||
Amortization
of identifiable intangible assets for the three months ended September 30, 2022 and 2021 was $
There will be no future yearly amortization expense related to our intangibles.
In-Process Research & Development (“IPR&D”) Summary
The
IPR&D assets were acquired in the PointR Merger during the year ended December 31, 2019. Since January 2021, the Company has determined
that the IPR&D should be reported as an indefinitely lived asset and therefore will evaluate, on an annual basis, for any impairment
on the IPR&D and will record an impairment if identified. The balance of IPR&D as of September 30, 2022 and December 31, 2021
was $
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| September 30, 2022 | ||||
| Intangible asset – Intellectual property | $ | |||
| Less Accumulated amortization | ( | ) | ||
| Total | $ | |||
December 31, 2021 |
||||
| Intangible asset – Intellectual property | $ | |||
| Less Accumulated amortization | ( |
) | ||
| Total | $ | |||
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expense consists of the following amounts:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| September 30, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued expense | ||||||||
| $ | $ | |||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Accounts payable – related party | $ | $ | ||||||
NOTE 5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT
As of September 30, 2022 special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, consist of the following amounts:
SCHEDULE OF CONVERTIBLE DEBENTURES AND NOTES, NET OF DISCOUNT
| September 30, 2022 | ||||
| Convertible debentures | ||||
| 10% Convertible note payable, due April 23, 2022 – Bridge Investor | $ | |||
| 10% Convertible note payable, due April 23, 2022 – Related Party | ||||
| 10% Convertible note payable, due August 6, 2022 – Bridge Investor | ||||
| Fall 2019 Notes | ||||
| 5% Convertible note payable – Stephen Boesch | ||||
| 5% Convertible note payable – Related Party | ||||
| 5% Convertible note payable – Dr. Sanjay Jha (Through his family trust) | ||||
| 5% Convertible note payable – CEO, CTO* & CFO – Related Parties | ||||
| 5% Convertible note payable – Bridge Investors | ||||
| August 2021 Convertible Notes | ||||
| 5% Convertible note – Autotelic Inc– Related Party | ||||
| 5% Convertible note – Bridge investors | ||||
| 5% Convertible note – CFO – Related Party | ||||
| JH Darbie PPM Debt | ||||
| 16% Convertible Notes - Non-related parties | ||||
| 16% Convertible Notes – CEO – Related Party | ||||
| November/December 2021 & March 2022 Notes | ||||
| 12% Convertible Notes – Accredited Investors | ||||
| Debt for Clinical Trials – GMP | ||||
| 2% Convertible Notes – GMP | ||||
| May and June 2022 Note | ||||
| 12% Convertible Notes – Accredited Investors | ||||
| Other Debt | ||||
| Short term debt – Bridge investors | ||||
| Short term debt from CFO – Related Party | ||||
| Short term debt – Autotelic Inc– Related Party | ||||
| Accrued interest | - | |||
| Total of convertible debentures & notes and other debt | $ | |||
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For information on the special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, as of December 31, 2022, refer to our Annual Report on Form 10-K for the year ended December 31, 2021.
Convertible Debentures
As
of September 30, 2022, the Company had a derivative liability of approximately $
Bridge Financing
Notes with Officer and Bridge Investor
In
April 2019, the Company entered into a Securities Purchase Agreement (the “Bridge SPA”) with our CEO and the Bridge
Investor with a commitment to purchase convertible notes in the aggregate of $
The
issuance of the Trieu Note resulted in a discount from the beneficial conversion feature totaling $
In April 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #1 (“Tranche #1”) with the Bridge Investor. For more information on Tranche #1, refer to our Annual Report on Form 10-K filed with the SEC on April 15, 2022.
The issuance of the note resulted in a discount from the beneficial conversion feature totaling $. Total amortization of the OID and discount totaled approximately $ and $ for the nine months ended September 30, 2022, and 2021, respectively. Total unamortized discount on this note was approximately $ and $ as of September 30, 2022, and December 31, 2021.
On August 6, 2019, pursuant to the Bridge SPA the Company entered into Convertible Note Tranche #2 (“Tranche #2”) with the Bridge Investor. For more information on Tranche #2, refer to our Annual Report on Form 10-K filed with the SEC on April 15, 2022.
| 21 |
The issuance of the note resulted in a discount from the beneficial conversion feature totaling $. Total amortization of the OID and discount totaled approximately $ and approximately $ for the nine months ended September 30, 2022, and 2021, respectively. Total unamortized discount on this note was $ and $ as of September 30, 2022, and December 31, 2021.
Fall 2019 Debt Financing
In
December 2019, the Company closed its Fall 2019 Debt Financing, raising an additional $
The
Company recorded interest expense of $
GMP Notes
In
June 2020, the Company secured $
In
September 2021, the Company secured a further $
In
October 2021, the Company entered into an Unsecured Convertible Note Purchase Agreement (the “October Purchase Agreement”)
with GMP, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $
In
January 2022, the Company entered into an Unsecured Convertible Note Purchase Agreement (the “January Purchase Agreement”)
with GMP, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $
| 22 |
The
GMP Note 2, the October 2021 Note and the January 2022 Note carries an interest rate of
The
total principal outstanding on all the GMP notes, inclusive of accrued interest, was $
During
the nine months ended September 31, 2022, and 2021, the Company incurred approximately $
August 2021 Notes
In
August 2021, the Company entered into Note Purchase Agreements with Autotelic - a related party, our CFO - a related party, and
certain accredited investors (the “August 2021 investors”), whereby the Company issued four convertible notes in the
aggregate principal amount of $
During
the three and nine months ended September 30, 2022, the Company recognized approximately $
During
the three and nine months ended September 30, 2021, the Company recognized approximately $
At
September 30, 2022, and December 31, 2021, accrued interests on these convertible notes totaled approximately $
November – December 2021 and March 2022 Financing
In
November and December 2021, the Company entered into securities purchase agreement with five institutional investors, whereby the Company
issued five convertible notes in the aggregate principal amount of $
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In
March 2022, the Company entered into a Securities Purchase Agreement with Fourth Man, pursuant to which the Company issued convertible
promissory note in the aggregate principal amount of $
During
the nine months ended September 30, 2022, the Company converted the Mast Hill convertible note into shares of the Company’s
common stock, which fully retired the convertible note as of June 30, 2022. Such conversion resulted in a loss from debt conversion of
approximately $
During
the nine months ended September 30, 2022, the Company repaid the Talos Victory and First Fire convertible notes with the proceeds from
the May 2022 Mast Hill convertible note. Such repayment resulted in a loss from debt extinguishment of approximately $
During
the nine months ended September 30, 2022, the Company converted $
During
the nine months ended September 30, 2022, the Company converted $
As of September 30, 2022, and December 31, 2021, convertible notes under the November-December 2021 Financing, net of debt discount, consist of the following amounts:
SCHEDULE OF CONVERTIBLE NOTES, NET OF DISCOUNT
September 30, 2022 | December 31, 2021 | |||||||
| Mast Hill Convertible note, 12% coupon November 21 | $ | $ | ||||||
| Talos Victory Convertible note, 12% coupon November 2021 | ||||||||
| First Fire Convertible note, 12% coupon, December 2021 | ||||||||
| Blue Lake Convertible note, 12% coupon, December 2021 | ||||||||
| Fourth Man Convertible note, 12% coupon December 2021 | ||||||||
| Convertible notes, gross | $ | $ | ||||||
| Less Debt discount recorded | ( | ) | ( | ) | ||||
| Amortization debt discount | ||||||||
| Convertible notes, net | $ | $ | ||||||
The
Company recognized approximately $
The
Company recognized approximately $
The
Company recorded an initial debt discount of approximately $
| 24 |
March 2022 Financing
In
March 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby the Company issued a promissory
note in the aggregate principal amount of $
September 30, 2022 |
||||
| Fourth Man Convertible note, 12% coupon March 2023 | $ | |||
| Debt Discount | ( |
) | ||
| Convertible notes, net | $ | |||
The
Company recognized approximately $
May 2022 Mast Financing
In
May 2022, the Company entered into a securities purchase agreement with one institutional investor, whereby the Company issued one convertible
note in the aggregate principal amount of $
| September 30, 2022 | ||||
| Mast Hill Convertible note, 12% coupon May 2023 | $ | |||
| Convertible notes, gross | $ | |||
| Less Debt discount recorded | ( | ) | ||
| Amortization debt discount | ||||
| Convertible notes, net | $ | |||
The
Company recognized approximately $
| 25 |
June 2022 Financing
In
June 2022, the Company entered into a securities purchase agreement with one institutional investor, whereby the Company issued one convertible
note in the aggregate principal amount of $
| September 30, 2022 | ||||
| Blue Lake Convertible note, 12% coupon June 2023 | $ | |||
| Convertible notes, gross | $ | |||
| Less Debt discount recorded | ( | ) | ||
| Amortization debt discount | ||||
| Convertible notes, net | $ | |||
The
Company recognized approximately $
Other short-term advances
During
the year ended December 31, 2020, the Company’s CEO provided additional funding of $
During
the year ended December 31, 2021, Autotelic Inc. provided a short-term funding of $
During
the year ended December 31, 2021, the Company’s CFO, a related Party, provided short term advances of approximately $
NOTE 6 - JOINT VENTURE WITH GMP BIO AND AFFILIATES, EQUITY METHOD INVESTMENT
On March 31, 2022, the Company entered into (i) a joint venture (the “JV”) agreement with Dragon and GMP Bio, both affiliates of GMP, (and the Company, Dragon and GMP Bio are collectively called the “Parties”) (the “JVA”), (ii) a license agreement for rights to OT-101 (the “US License Agreement”) for the territory within the United States of America (the “US”) with Sapu Holdings, LLC, a subsidiary of GMP Bio and (iii) a license agreement for rights to OT-101 for the rest of the world with GMP Bio (the “Ex-US Rights Agreement”, and the US License Agreement and the Ex-US License Agreement are collectively called the “Agreements”).
| 26 |
Dragon
and the Company entered into the JVA to regulate their relationship and the operation and management of the JV. The JVA contains provisions
for the licensed products and licensed technologies related to OT-101 (the “Licensed products and technologies”).
Pursuant to the JVA the Company is required to transfer to GMP Bio all of the Company’s rights and obligations under the research
and development agreement dated 3 February 2020 between the Company and Golden Mountain Partners, LLC (“GMP”), an
affiliate of Dragon, as amended, varied and/or supplemented by a supplement to research and Services Agreement dated 23 March 2020 between
the Company, Mateon Therapeutics, Inc. (subsequently renamed the Company) and GMP (the “R&D Agreement”).
The Agreements include terms of an exclusive, irrevocable, perpetual, royalty-free, sublicensable license under the Licensed Technology to manufacture, have manufactured, use, import, sell, offer for sale or otherwise exploit the Licensed Products, which is OT-101, in the Field, which is all therapeutic uses in humans, and in the Territories, which is the US and the rest of the world. In addition, the Company grants a non-exclusive, irrevocable, perpetual, royalty-free, non-sublicensable license for its sole use of the Company’s Vision Grid system for monitoring process, man flow, equipment flow, and material flow in contract development and manufacturing organization operations. These have been granted to GMP Bio and Sapu Holdings, LLC as the capital contribution by the Company to GMP Bio. The Agreements include the contributions by the key employees, as defined and included in the Agreements, standard representations and warranties, intellectual property protection, insurance, indemnification, jurisdiction and other customary terms and conditions.
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The
Company determined that the arrangement does not meet the accounting definition of a joint venture. Subsequently, we analyzed our investment
and determined that such investment was not considered a VIE, which would require consolidation because the Company does not have the
power to direct the activities that most significantly impact the economic performance of the JV. The Company does not control the JV
through majority ownership interest or Board participation. As such, the Company followed the guidance in ASC 610-20 regarding the sale
of nonfinancial assets to noncustomers when retaining a non-controlling ownership interest in such assets. The Company is deemed to have
substantially transferred the actual intellectual property related to OT-101 as the investee can benefit from the risk and rewards of
ownership of such intellectual property. This resulted in the derecognition of the carrying amount of our intangible assets for approximately
$
As of the effective date of the formation of the JV, the combined enterprise value of GMP Bio was approximately $50.4 million, comprising of the fair value of the Company’s investment in GMP Bio of approximately $22.7 million and the total original capital contributions by Dragon Overseas of approximately $27.7 million. As of September 30, 2022, the JV had approximately $22.8 million in assets, not including GMP Bio’s capital subscriptions of approximately $24 million; recorded approximately $0.5 million in liabilities and incurred approximately $4.1 million in operational expenses. The Company elected the fair value option under subsection of Section 825-10-15 to account for its equity-method investment as the Company believes that it the most appropriate method to properly value the Company and record a change in value when and upon conducting a fair value assessment. As of September 30, 2022, the Company does not believe the fair value of the JV has changed and hence has not recorded a change in value.
For information on the various notes from GMP, refer to Note 5 – GMP Notes of the Notes to the Consolidated Financial Statements above.
NOTE 7 - PRIVATE PLACEMENT AND JH DARBIE FINANCING
During
the period from July 2020 to March 31, 2021, the Company entered into various subscription agreements with certain accredited investors,
including the CEO, pursuant to the JH Darbie Financing, whereby the Company issued and sold a total of Units, for total gross proceeds
of approximately $
| ■ | shares of Edge Point Common stock for a price of $ per share of Edge Point Common stock. | |
| ■ | One
convertible promissory note, convertible up to shares of Edge Point Common stock, at a conversion price of $ | |
| ■ |
The
Company incurred approximately $
Concurrently
with the sale of the Units, JH Darbie was granted a warrant, exercisable over a five-year period, to purchase
The terms of convertible notes are summarized as follows:
| ■ | Term: Through March 31, 2022, extended further to March 31, 2023 | |
| ■ | Coupon:
| |
| ■ | 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 $ |
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
$
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As
of the multiple closings of the Company during the six months ended June 30, 2021, under the private placement memorandum with JH Darbie,
the estimated volume weighted grant date fair value of approximately $
SCHEDULE OF FAIR VALUE WARRANTS ESTIMATED USING BLACK SCHOLES VALUATION MODEL
| Expected Term | ||||
| Expected volatility | % | |||
| Risk-free interest rates | % | |||
| Dividend yields | % |
In
February 2022, the Company and all except one of the Investors agreed to extend the maturity date of the Notes from March 31, 2022, to
March 31, 2023. In consideration for the extension of the Notes, the Company issued to the Investors an aggregate of
The Company reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments and concluded that the terms of the agreements were substantially different as of June 30, 2022, and, accounted for the transaction as a debt extinguishment. The loss is recognized equal to the difference between the net carrying amount of the original debt and the fair value of the modified debt instrument.
At
March 31, 2022, the Company estimated the fair value of the warrants issued in conjunction with the amendment of the private placement
under the JH Darbie financing based on assumptions used in the Black-Scholes valuation model. The warrants resulted in an aggregate fair
value of approximately $
| Strike price | $ | |||
| Expected Term | ||||
| Expected volatility | % | |||
| Risk-free interest rates | % | |||
| Dividend yields | % |
The
Company recognized amortization expense related to the debt discount and debt issuance costs of approximately $
NOTE 8 - RELATED PARTY TRANSACTIONS
Master Service Agreement with Autotelic Inc.
In
October 2015, Oncotelic entered into a Master Service Agreement (the “MSA”) with Autotelic Inc., a related party that
is partly-owned by the Company’s CEO Vuong Trieu, Ph.D. Dr. Trieu, a related party, is a control person in Autotelic Inc. Autotelic
Inc. currently owns less than
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Expenses
related to the MSA were approximately $
In September 2021, the Company entered into an exclusive License Agreement (the “Agreement”) with Autotelic. For more information on this Agreement, refer to our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022.
Note Payable and Short-Term Loan – Related Parties
In
April 2019, the Company issued a convertible note to Dr. Trieu totaling $
During
the year ended December 2021, Autotelic Inc provided a short-term loan of $
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”). For more information on this Agreement, refer to our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022.
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. For more information on this Agreement, refer to our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022.
The
Company recorded an expense of $
NOTE 9 - EQUITY PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
On May 3, 2021, the Company entered into an Equity Purchase Agreement (“EPL”) and Registration Rights Agreement with Peak One Opportunity Fund LP (“Peak One” or the “Investor”). For further information on EPL, refer to our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022.
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The Company filed a post-effective amendment Registration Statement on Form S-1 with the Commission on April 26, 2022, and the Form S-1 was declared effective on May 6, 2022. The Company filed the prospectus in this connection on May 11, 2022.
During
the nine months ended September 30, 2022, the Company sold a total of million shares of Common Stock to Peak One, at prices ranging
from $ and $, for total gross proceeds of approximately $
Similarly,
during the nine months ended September 30, 2021, the Company sold a total of million shares of Common Stock at prices ranging from
$ and $ for total gross proceeds of approximately $
NOTE 10 - STOCKHOLDERS’ EQUITY
The following transactions affected the Company’s Stockholders’ Equity:
Issuance of Common Stock during the nine months ended September 30, 2022
In January 2022, three of the five investors from the November/December 2021 financing made a cashless exercise for their warrants. In connection with this exercise, the Company issued shares of Common Stock in exchange of approximately million warrants.
In
March 2022, the Company sold shares of its Common Stock to Peak One under the EPL for net proceeds of approximately $
In May 2022, Blue Lake made a cashless exercise for their warrants. In connection with this exercise, the Company issued shares of Common Stock in exchange of warrants.
In
June 2022, the Company sold shares of its Common Stock to Peak One under the EPL for net proceeds of approximately $
In
June 2022, Mast Hill converted their debt of approximately $
In
June 2022, Company issued shares of Common Stock to First Fire under partial repayment of convertible debt of $
In June 2022, First Fire made a cashless exercise for their warrants. In connection with this exercise, the Company issued shares of Common Stock in exchange for warrants.
In
July 2022, the Company sold shares of its Common Stock to Peak One under the EPL for net proceeds of approximately $
In
August 2022, the Company sold shares of its Common Stock to Peak One under the EPL for net proceeds of approximately $
In
August 2022, Fourth Man converted $
In
September 2022, Blue Lake converted $
For further information on Common Stock issuance, refer to our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022.
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NOTE 11 – STOCK-BASED COMPENSATION
Options
Pursuant to the Merger, the Company’s Common Stock and corresponding outstanding options survived. The below information details the Company’s associated option activity.
As of June 30, 2022, options to purchase Common Stock were outstanding under three stock option plans – the 2017 Equity Incentive Plan (the “2017 Plan”), the 2015 Equity Incentive Plan (the “2015 Plan”) and the 2005 Stock Plan (the “2005 Plan”). Under the 2017 Plan, up to 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 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 shares of its Common Stock, which may be issued pursuant to the Registrant’s Amended and Restated 2015 Equity Incentive Plan (the “Plan”). Such additional shares were approved by the shareholders of the Company on August 10, 2020 and as reported to the Securities and Exchange Commission (the “SEC”) vide a Current Report on Form 8-K on August 14, 2020. As such, the total number of shares of the Company’s Common Stock available for issuance under the 2015 plan is . 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.
SCHEDULE OF COMPENSATION BASED STOCK OPTION ACTIVITY
| Weighted | ||||||||
| For the nine months ended September 30, 2022 | Average | |||||||
| Shares | Exercise Price | |||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Expired or cancelled | ( | ) | ||||||
| Issued | ||||||||
| Outstanding at September 30, 2022 | $ | |||||||
Information on compensation-based stock option activity for qualified and unqualified stock options for the year ended December 31, 2021 can be found in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.
SCHEDULE OF OPTIONS TO PURCHASE SHARES OF COMMON STOCK OUTSTANDING AND EXERCISABLE
| Weighted- | Weighted- | |||||||||||||||||
| Average | Average | |||||||||||||||||
| Outstanding | Remaining Life | Exercise | Number | |||||||||||||||
| Exercise prices | Options | In Years | Price | Exercisable | ||||||||||||||
| $ | to | $ | ||||||||||||||||
| $ | ||||||||||||||||||
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The compensation expense attributed to the issuance of the options is recognized as they are vested.
The employee stock option plan stock options are generally exercisable for ten years from the grant date and vest over various terms from the grant date to three years.
The aggregate intrinsic value totaled approximately $ and was based on the Company’s closing stock price of $ as of September 30, 2022, which would have been received by the option holders had all option holders exercised their options as of that date. Information on the aggregate intrinsic value for the year ended December 31, 2021 can be found in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.
The Company granted million stock options to its employees during the three months ended September 30, 2022. of the options vested immediately and the balance will vest at December 31, 2022, based on achievement of certain corporate and individual milestones. At September 30, 2022, the Company estimated the fair value of the options issued based on assumptions used in the Black-Scholes valuation model. The options resulted in an aggregate fair value of approximately $ million. The key valuation assumptions used of the price of the Company’s Common Stock, a risk-free interest rate based on the yield of a Treasury note and expected volatility of the Company’s Common Stock all as of the measurement date. The Company used the following assumptions to estimate fair value of the warrants:
| Strike price | $ | |||
| Expected Term | year | |||
| Expected volatility | % | |||
| Risk-free interest rates | % | |||
| Dividend yields | % |
The Company amortized approximately $ million and $ million of stock compensation expense during the three and the nine months ended September 30, 2022 on the 2021 and 2022 grants. The Company recorded $ million of similar expense during the same periods of 2021 respectively.
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.
In
February 2022,
| Strike price | $ | |||
| Expected Term | year | |||
| Expected volatility | % | |||
| Risk-free interest rates | % | |||
| Dividend yields | % |
The issuance of warrants to purchase shares of the Company’s Common Stock, including those attributed to debt issuances, as of September 30, 2022 are summarized as follows:
SCHEDULE OF WARRANTS ACTIVITY
| Shares | Average Exercise Price | |||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Issued during the nine months ended September 30, 2022 | - | |||||||
| Exercised / cancelled during the nine months ended September 30, 2022 | ( | ) | ||||||
| Outstanding at September 30, 2022 | $ | |||||||
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The following table summarizes information about warrants outstanding and exercisable at September 30, 2022:
SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE
| Outstanding and exercisable | ||||||||||||||||||
| Weighted- | Weighted- | |||||||||||||||||
| Average | Average | |||||||||||||||||
| Number | Remaining Life | Exercise | Number | |||||||||||||||
| Exercise Price | Outstanding | in Years | Price | Exercisable | ||||||||||||||
| $ | $ | |||||||||||||||||
| - | ||||||||||||||||||
| $ | ||||||||||||||||||
NOTE 12 – INCOME TAXES
The
Company had gross deferred tax assets, which primarily relate to net operating loss carry forwards. As of December 31, 2021, the Company
had gross federal and state net operating loss carry forwards of approximately $
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Leases
Currently, the Company is leasing the office located at 29397 Agoura Road, Suite 107, Agoura Hills, CA 91301 on a month-to-month basis until such time a new office is identified. The Company believes the office is sufficient for its current operations.
Legal Claims
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any legal proceedings that it currently believes, if determined adversely to the Company, would individually or taken together have a material adverse effect on the Company’s business, operating results, financial condition or cash flows.
PointR Merger Contingent Consideration
The
total purchase price in the PointR Merger of $
Other claims
From time to time, the Company may become involved in certain claims arising in the ordinary course of business. One of the Company’s ex-employees has made a claim against the Company. The Company is evaluating the validity of the claim, as the Company believes that such claim has limited merits and is hopeful to attain a positive outcome for such claim. Since the Company is still evaluating the claim, we are unable to quantify the amount such claim would be settled at, if at all settled.
NOTE 14 – SUBSEQUENT EVENTS
In October 2022, the Company was awarded a contract with Biomedical Advanced Research and Development Authority (BARDA) for the development of OT-101 therapeutic against long term effects of respiratory distress post COVID-19.
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (the “Quarterly Report” or “Report”) includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. These statements are only predictions and involve known and unknown risks, uncertainties and other factors. Some of these risks are included in the section entitled “Risk Factors” set forth in this Quarterly Report and in other reports that we file with the SEC. The occurrence of any of these risks, or others of which we are currently unaware, may cause our company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and without limitation:
| ● | our ability to successfully commercialize our products and services on a large enough scale to generate profitable operations; |
| ● | our ability to maintain and develop relationships with customers and suppliers; |
| ● | our ability to successfully integrate acquired businesses or new products, or to realize anticipated synergies in connection with acquisitions of businesses or products; |
| ● | expectations concerning our ability to raise additional funding and to continue as a going concern; |
| ● | our ability to successfully implement our business plan; and |
| ● | our ability to avoid, or to adequately address any intellectual property claims brought by third parties; and |
| ● | the anticipated impact of any changes in industry regulation. |
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC, including our Form 8-K/A filed with the SEC on July 8, 2019, which includes the audited financial statements for our subsidiary, Oncotelic, as of and for the years ended December 31, 2018 and 2017. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
Corporate History
Oncotelic Therapeutics, Inc. (“Oncotelic”), was formed in the State of New York in 1988 as OXiGENE, Inc., was reincorporated in the State of Delaware in 1992, and changed its name to Mateon Therapeutics, Inc. in 2016, and Oncotelic Therapeutics, Inc. in November 2020. Oncotelic conducts business activities through Oncotelic and its wholly owned subsidiaries, Oncotelic, Inc., a Delaware corporation, PointR Data, Inc. (“PointR”), a Delaware corporation: and EdgePoint AI, Inc. (“Edgepoint”), a Delaware Corporation for which there are non-controlling interests, (Oncotelic, Oncotelic Inc., PointR and Edgepoint are collectively called the “Company” or “We”). The Company completed a reverse merger with Oncotelic Inc in April 2019, a merger with PointR in November 2019 and formed a subsidiary Edgepoint in February 2020. For more information on these mergers, refer to our 2020 Annual Report on Form 10-K filed with the SEC on April 15, 2021.
Company Overview
We are a clinical stage biopharmaceutical company developing drugs for the treatment of cancer. Our goal is to advance our drug candidates into late-stage pivotal clinical trials and either sell marketing rights to a larger pharmaceutical company or seek FDA approval ourselves.
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The Company is currently developing OT-101, through its joint venture (“JV”) with Dragon Overseas Capital Limited (“Dragon”) and GMP Biotechnology Limited (“GMP Bio”), both affiliates of Golden Mountain Partners (“GMP”), for various cancers and COVID-19, Artemisinin for COVID-19 and AI technologies for clinical development and manufacturing. The Company is also independently planning to develop OT-101 for certain animal health indications and contemplating using crypto currencies for that platform. The Company has acquired apomorphine for Parkinson’s Disease, erectile dysfunction and female sexual dysfunction. In addition, the Company is evaluating the further development of its product candidates OXi4503 as a treatment for acute myeloid leukemia and myelodysplastic syndromes and CA4P in combination with a checkpoint inhibitor for the treatment of advanced metastatic melanoma.
The Company had entered into an agreement and supplemental agreement with GMP for a total of $1.2 million to render services for the development of OT-101 for COVID-19. Such amount was recorded as revenue upon completion of all performance obligations under the agreement. Further, In June 2020, the Company secured $2 million in debt financing from GMP to conduct a clinical trial evaluating OT-101 against COVID-19. The Company discontinued enrollment in its OT-101 clinical trial in patients with COVID-19 in June 2021. In September 2021, the Company secured a further $1.5 million in debt from GMP to complete the study. The trial completed randomization of 32 out of 36 patients planned, on an intent to treat basis. The discontinuance of the trial was due to the continuing rise of more severe variants in Latin America, leading to exhaustion of medical care infrastructure in Latin America.
In 2020 and 2021, the Company was developing Artemisinin as a potential therapy for COVID-19. Artemisinin, purified from a plant Artemisia annua. It can inhibit TGF-β activity and is able to neutralize COVID-19. The Company initially conducted a study and the test results during an in vitro study at Utah State University showed Artemisinin having an EC50 of 0.45 ug/ml, and a Safety Index of 140. For more information on the development of Artemisinin, refer to our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022.
Between October 2021 and January 2022, GMP provided $1.0 million to the Company to fund operations on the way to complete a JV. On March 31, 2022, the Company formalized a JV with Dragon and GMP Bio. For more information on the JV, refer to Note 6 of the Notes to the unaudited Consolidated Financial Statements for this Quarterly Report on Form 10Q.
Since April 2019, we have been operating under significant capital constraints, which has curtailed our ability to achieve meaningful progress in either of the Company’s two clinical programs – one of which is developing OXi4503 as a treatment for acute myeloid leukemia and myelodysplastic syndromes and the other of which is developing CA4P in combination with a checkpoint inhibitor for the treatment of advanced metastatic melanoma. We believe that the merger of Oncotelic and Oncotelic Inc. creates a combined company that has potential to generate shareholder value through a promising pipeline of next generation immunotherapies targeting several significant cancer markets where there is a lack of therapeutic options and lack of an effective immunotherapy protocol.
Joint Venture
On March 31, 2022, the Company entered into (i) a joint venture (the “JV”) agreement with Dragon and GMP Bio (and the Company, Dragon and GMP Bio are collectively called the “Parties”) (the “JVA”), (ii) a license agreement for rights to OT-101 (the “US License Agreement”) for the territory within the United States of America (the “US”) with Sapu Holdings, LLC, a subsidiary of GMP Bio and (iii) a license agreement for rights to OT-101 for the rest of the world with GMP Bio (the “Ex-US Rights Agreement”, and the US License Agreement and the Ex-US License Agreement are collectively called the “Agreements”).
The Company determined that the arrangement does not meet the accounting definition of a joint venture. Subsequently, we analyze our investment and determined that such investment was not considered a VIE, which would require consolidation. Besides, the Company does not have the power to direct the activities that most significantly impact the economic performance of the JV. The Company does not control the JV through majority ownership interest or Board participation. As such, the Company followed the guidance in ASC 610-20 regarding the sale of nonfinancial assets to noncustomers when retaining a non-controlling ownership interest in such assets. The Company is deemed to have substantially transferred the actual intellectual property related to OT-101 as the investee can benefit from the risk and rewards of ownership of such intellectual property. This resulted in the derecognition of the carrying amount of our intangible assets for approximately $0.8 million and goodwill for $4.9 million for an aggregate amount of approximately $5.7 million, recorded its initial investment at its fair value for approximately $22.6 million and which resulted in a non-cash gain on non-financial asset disposal of approximately $17 million, which was reported in other income in the condensed consolidated statements of operations in the three and nine months ended September 30, 2022. The Company elected the fair value option under subsection of Section 825-10-15 to account for its equity-method investment as the Company believes that the fair value option is most appropriate for a company in the biotechnology industry, The fair value option is more appropriate for companies that are involved in extensive and usually very expensive research and development efforts, which are not appropriately reflected in the market value or reflective of the true value of the development activities of the company
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This JV is a significant milestone in the history of the Company. It permits the Company to monetize and develop the assets it holds, by minimal to no shareholder dilution. This transaction allows us to unburden the Company of the high cost of drug development, which the JV will be responsible for, while the Company will participate in its upside through appreciation in the value of its shares in the JV and up to a potential of $50 million on the sale of the RPD voucher following marketing approval of OT-101 for DIPG. Dragon has agreed to invest cash and other assets with a value of approximately $27.6 million for 55% ownership of the JV; and Oncotelic has granted the License to the JV for 45% ownership in the JV for a fair value of about $22.6 million. The cash contributions by Dragon will allow the JV to commence the development of OT-101.
For information on the JV, refer to Note 6 – Joint Venture and GMP of the Notes to the Consolidated Financial Statements above.
November – December 2021 and March 2022 Financing
In November and December 2021, the Company entered into securities purchase agreement with five institutional investors, whereby the Company issued five convertible notes in the aggregate principal amount of $1,250,000 convertible into shares of common stock of the Company. The convertible notes carry a twelve (12%) percent coupon and a default coupon of 16% and mature at the earliest of one year from issuance or upon event of default. Investors has the right at any time following issuance date to convert all or any part of the outstanding and unpaid amount of the note into the Company’s common stock, par value of $0.01 (“Common Stock”) at a conversion price established at a fixed rate of $0.07. The Company granted a total number of 9,615,385 warrants convertible into an equivalent number of the Common Stock at a strike price of $0.13 up to five years after issuance. The Placement agent was also granted a total amount of 961,540 as part of a finder’s fee agreement. In March 2022, the Company entered into a Securities Purchase Agreement with Fourth Man, pursuant to which the pursuant to which the Company issued convertible promissory note in the aggregate principal amount of $0.25 million, which Note is convertible into shares of the Company’s Common Stock. This Note was undertaken by the Company pursuant to that certain Finder’s Fee Agreement between the Company and JH Darbie, dated October 26, 2021 (the “Agreement”).
In January 2022, three of the five investors made a cashless exercise for their warrants. In this connection, the Company issued 3,041,958 million shares of the Common Stock in exchange of approximately 5,761,231 million warrants. In May 2022, November 2021 Talos note and the December 2021 First Fire note were fully repaid, including repaying $35,000 of the First Fire note by issuance of 500,000 shares of our Common Stock. In June 2022, Mast converted their Note from November 2021 for which the company issued 4,025,000 shares of Common Stock. Further, in June 2022, First Fire exercised their warrant to purchase shares of Common Stock of the Company on a cashless basis. In August 2022, the Company converted $140,000 of Fourth Man Note into 2,025,000 shares of common stock. In September 2022, the Company converted $68,250 of Blue Lake note into 1,428,571 shares of common stock.
May 2022 Financing
In May 2022, the Company entered into a Securities Purchase Agreements with Mast, pursuant to which the Company issued convertible promissory notes in the aggregate principal amount of $0.6 million. This Note is convertible into shares of the Company’s common stock, par value $0.01 per share (“Common Stock”). This note was used to fully repay the November 2021 Talos note and partially repay the December 2021 First Fire note.
June 2022 Financing
In June 2022, the Company entered into a Securities Purchase Agreements with Blue Lake, pursuant to which the Company issued convertible promissory notes in the aggregate principal amount of $0.34 million. This Note is convertible into shares of the Company’s common stock, par value $0.01 per share (“Common Stock”). This note was utilized for corporate expenses.
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Equity Purchase Agreement
On May 3, 2021, the Company entered into an Equity Purchase Agreement (“EPL”) and Registration Rights Agreement with Peak One Opportunity Fund LP (“Peak One” or the “Investor”). For further information on EPL, refer to our 2021 Annual Report on Form 10-K filed with the SEC on April 15, 2022. The Company filed a post-effective amendment Registration Statement on Form S-1 with the Commission on April 26, 2022, and the Form S-1 was declared effective on May 6, 2022. The Company filed the prospectus in this connection on May 11, 2022. During the nine months ended September 30, 2022, the Company sold a total of 1.3 million shares of Common Stock to Peak One under the EPL, at price ranging from $0.09 and $0.25, for total gross proceeds of approximately $0.2 million, net of issuance costs.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expense during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time we make such estimates. Actual results and outcomes may differ materially from our estimates, judgments and assumptions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate. Our significant accounting policies are more fully described in Note 2 to our Unaudited Consolidated Financial Statements included elsewhere in this Quarterly Report.
We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are the following:
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 nine months ended September 30, 2022 and 2021, there were no impairment losses recognized for long-lived assets.
Intangible Assets
The Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. The Company reviews the intangible assets for impairment on an annual basis or if events or changes in circumstances indicate it is more likely than not that they are impaired. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors.
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.
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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.
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.
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.
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.
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Variable Interest Entity (VIE) Accounting
We evaluate our ownership, contractual relationships and other interests in entities to determine the nature and extent of the interests, whether such interests are variable interests and whether the entities are VIEs in accordance with ASC 810, Consolidations. These evaluations can be complex and involve Management judgment as well as the use of estimates and assumptions based on available historical information, among other factors. Based on these evaluations, if the Company determines that it is the primary beneficiary of a VIE, the entity is consolidated into the financial statements.
Investments - Equity Method
The Company accounts for equity method investments at cost, adjusted for the Company’s share of the investee’s earnings or losses, which are reflected in the consolidated statements of operations. The Company periodically reviews the investments for other than temporary declines in fair value below cost and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
The Investment in GMP Bio represents the investment into equity securities for which the Company elected the fair value option pursuant to ASC 825-10-15 and subsequent fair value changes in the GMP Bio shares are included in the result from continuing operations. Refer to Note 6 to these Notes to the Consolidated Financial Statements.
Joint Venture agreement
We have equity interest in unconsolidated arrangement that is primarily engaged in the business of drug discovery, development, and commercialization, including but not limited to development and commercialization of TGF-beta therapeutics as well as establishing and operating contract development and manufacturing organization (CDMO) facilities and capabilities. The Company first review the arrangement to determine if it meets the definition of an accounting joint venture pursuant to ASC 323-10-20. In order to meet the definition of a joint venture, the arrangement must have all of the following characteristics, (i) the arrangement is organized within a separate legal entity, (ii) the entity is under the joint control of the venturers, (iii) the venturers must be able to exercise joint control through their equity investments, (iv) the qualitative characteristics of the entity, including its purpose and design must be consistent with the definition of a joint venture
We consolidate arrangements that are considered to be VIEs where we are the primary beneficiary. We analyze our investments in joint ventures to determine if the joint venture is considered a VIE and would require consolidation. We (i) evaluate the sufficiency of the total equity investment at risk, (ii) review the voting rights and decision-making authority of the equity investment holders as a group and whether there are limited partners (or similar owning entities) that lack substantive participating or kick out rights, guaranteed returns, protection against losses, or capping of residual returns within the group and (iii) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this VIE determination.
To the extent that we own interests in a VIE and we (i) have the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) have the obligation or rights to absorb losses or receive benefits that could potentially be significant to the VIE, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent that we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.
To the extent that our arrangements do not qualify as VIEs, they are consolidated if we control them through majority ownership interests or if we are the managing entity (general partner or managing member) and our partner does not have substantive participating rights. Control is further demonstrated by our ability to unilaterally make significant operating decisions, refinance debt, and sell the assets of the joint venture without the consent of the non-managing entity and the inability of the non-managing entity to remove us from our role as the managing entity.
We use the equity method of accounting for those arrangements where we exercise significant influence but do not have control. Under the equity method of accounting, our investment in each arrangement is included on our consolidated balance sheet; however, the assets and liabilities of the joint ventures for which we use the equity method are not included on our consolidated balance sheet.
When we sell or contribute properties to unconsolidated arrangements and retain a non-controlling ownership interest in such assets, we recognize the difference between the consideration received and the carrying amount of the asset sold or contributed when its derecognition criteria are met. The equity method investment we retain in such partial sale transactions is noncash consideration and is measured at fair value. As a result, the accounting for a partial sale will result in the recognition of a full gain or loss.
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When circumstances indicate there may have been a reduction in the value of an equity investment, we evaluate whether the loss in value is other than temporary. If we conclude it is other than temporary, we recognize an impairment charge to reflect the equity investment at fair value.
The Company elected the fair value option under the fair value option Subsection of Section 825-10-15 to account for its equity-method investment.
Research and Development Expense
Research and development expense consist of costs we incur for the development of our investigational drugs and, to a lesser extent, for preclinical research activities. Research and development costs are expensed as incurred. Research and development expense include clinical trial costs, salaries and benefits of employees, including associated stock-based compensation, payments to clinical investigators, drug manufacturing costs, laboratory supplies and facility costs. Clinical trial costs are a significant component of our research and development expense, and these can be difficult to accurately estimate. Included in clinical trial costs are fees paid to other entities that conduct certain research and development activities on our behalf, such as clinical research organizations, or CROs. We estimate clinical trial expense based on the services performed pursuant to contracts with research institutions such as CROs and the actual clinical investigators. These estimates are based on actual time and expenses incurred by the CRO and the clinical investigators. Also included in clinical trial expense are costs based on the level of patient enrollment into the clinical trial and the actual services performed under the related clinical trial agreement. Changes in clinical trial assumptions, such as the length of time estimated to enroll all patients, rate of screening failures, patient drop-out rates, number and nature of adverse event reports and the total number of patients enrolled can impact the average and expected cost per patient and the overall cost of the clinical trial. Based on patient enrollment reports and services provided, we may periodically adjust estimates for the clinical trial costs. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed, the length of time for these services or the costs of these services, our actual expenses could differ from our estimates.
Share-Based Compensation
We record the estimated fair value of all share-based payments issued to employees and other service providers. Our share-based payments consist primarily of stock options. The valuation of stock options is an inherently subjective process, since market values are not available for any stock options in our equity securities. Market values are also not available on long-term, non-transferable stock options in other equity securities. With no market values on options to trade in our common stock and no comparable market values on any long-term non-transferable stock options, the process of valuing our stock options is even more uncertain and subjective. Accordingly, we use a Black-Scholes option pricing model to derive an estimated fair value of the stock options which we issue. The Black-Scholes option pricing model requires certain input assumptions, including the expected term of the options and the expected volatility of our common stock. Changes in these assumptions could have a material impact on the estimated fair value that we record for share-based payments that we issue. We determine the term of the options based on the simplified method, which averages the vesting period and the contractual life of the stock option. We determine the expected volatility based on the historical volatility of our common stock over a period commensurate with the option’s expected term. The Black-Scholes option pricing model also requires assumptions for risk-free interest rates and the expected dividend yield of our common stock, but we feel that these values are more objective and note that changes in these values do not have a significant impact on the estimated value of the options when compared to the volatility and term assumptions.
We are also required to estimate the level of award forfeitures expected to occur and record compensation expense only for those awards that are ultimately expected to vest. Accordingly, we perform a historical analysis of option awards that are forfeited prior to vesting, and record total stock option expense that reflects this estimated forfeiture rate.
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Results of Operations
Comparison of the Results of Operations for the three Months Ended September 30, 2022 to the three Months Ended September 30, 2021
A comparison of the Company’s operating results for the three months ended September 30, 2022 and 2021, respectively, is as follows.
| September 30, 2022 | September 30, 2021 | Variance | ||||||||||
| Operating expense: | ||||||||||||
| Research and development | 1,700 | 621,927 | (620,227 | ) | ||||||||
| General and administrative | 593,739 | 1,187,035 | (593,296 | ) | ||||||||
| Total operating expense | 595,439 | 1,808,962 | (1,213,523 | ) | ||||||||
| Loss from operations | (595,439 | ) | (1,808,962 | ) | 1,213,523 | |||||||
| Reimbursement for expenses – related party | 237,165 | - | 237,165 | |||||||||
| Interest expense, net | (606,824 | ) | (445,363 | ) | (161,461 | ) | ||||||
| PPP loan forgiveness | - | 253,347 | (253,347 | ) | ||||||||
| Change in the value of derivatives on debt | 105,662 | 145,449 | (39,787 | ) | ||||||||
| Net income (loss) before controlling interests | $ | (859,436 | ) | $ | (1,855,529 | ) | $ | 996,093 | ||||
Net Loss
We recorded a net loss of approximately $0.9 million for the three months ended September 30, 2022, compared to a net loss of approximately $1.9 million for the three months ended September 30, 2021. The lower loss of approximately $1.0 million for the three months ended September 30, 2022 as compared to the same period of 2021 was primarily due to reduced operating expenses of approximately $1.2 million, reimbursement of expenses by a related party of approximately $0.2 million; offset by higher interest expense by approximately $0.2 million, PPP loan forgiveness of approximately $0.3 million from the three months ended September 30, 2021 and change in the value of derivatives on debt of approximately $40 thousand.
Research and Development Expenses
Research and development (“R&D”) expenses decreased by approximately $0.6 million for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to lower personnel expenses of approximately $0.3 million and lower clinical trial expenses related to OT-101 of approximately $0.3 million.
As a result of our JV, we expect our R&D expense to remain steady or reduce for the remainder of the year 2022, specifically for activities related to OT-101, including the initiation of new clinical trials. Any other development expenses will be subject to our continuing ability to secure sufficient funding to continue planned operations.
General and Administrative Expenses
General and administrative (“G&A”) expenses decreased by approximately $0.6 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to reduced compensation expense of approximately $0.6 million, which was borne by the JV, during the three months ended September 30, 2022 as compared to same period in 2021.
As a result of our JV, we expect our G&A activities to reduce, and therefore believe that G&A expenses will decrease for the remainder of 2022. Any other G&A expenses will be subject to our continuing ability to secure sufficient funding to continue planned operations.
Reimbursement of expenses
The Company was reimbursed approximately $0.25 million, by Autotelic Inc. a related party, during the three months ended September 30, 2022 on behalf of our JV.
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Interest Expense, Net
We recorded interest expense, including amortization of debt costs, of approximately $0.6 million for the three months ended September 30, 2022 primarily in connection with debt raised from convertible notes and the JH Darbie Financing, November/December 2021 Financing and May/June 2022 financing as compared to approximately $0.45 million for the same period of 2021, in connection with debt raised from convertible notes and JH Darbie during 2021. For more information on debt raised from convertible notes and the JH Darbie Financing, see Note 5 and Note 6 of the Unaudited Consolidated Financial Statements of this Quarterly Report.
PPP Loan Forgiveness
We recorded a PPP loan forgiveness of approximately $0.3 million during the three months ended September 30, 2021. No similar amount was recorded during the same period in 2022.
Change in Value of Derivatives
During the three months ended September, 2022, we recorded approximately $0.1 million due to a change in value upon conversion of certain debt to liabilities as a derivative on the convertible promissory notes issued to our CEO and a bridge investor (collectively, the “Convertible Notes”). The Company recorded approximately $0.15 million change during the same period in 2021. For more information on value of derivatives, refer to the Note 2 of the Unaudited Consolidated Financial Statements of this Quarterly Report.
Comparison of the Results of Operations for the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021
A comparison of the Company’s operating results for the nine months ended September 30, 2022 and 2021, respectively, is as follows.
| September 30, 2022 | September 30, 2021 | Variance | ||||||||||
| Operating expense: | ||||||||||||
| Research and development | 690,705 | 3,135,413 | (2,444,708 | ) | ||||||||
| General and administrative | 4,505,256 | 4,475,642 | (29,614 | ) | ||||||||
| Total operating expense | 5,195,961 | 7,611,055 | (2,415,094 | ) | ||||||||
| Loss from operations | (5,195,961 | ) | (7,611,055 | ) | 2,415,094 | |||||||
| Reimbursement for expenses – related party | 484,657 | - | 484,657 | |||||||||
| Interest expense, net | (1,999,164 | ) | (1,400,249 | ) | (598,915 | ) | ||||||
| Gain on derecognition of non-financial asset | 16,951,477 | - | 16,951,477 | |||||||||
| PPP loan forgiveness | - | 253,347 | (253,347 | ) | ||||||||
| Change in the value of derivatives on debt | 37,740 | 239,278 | (201,538 | ) | ||||||||
| Loss on conversion of debt | (257,810 | ) | (27,504 | ) | (230,306 | ) | ||||||
| Net income (loss) before controlling interests | $ | 10,020,939 | $ | (8,546,183 | ) | $ | 18,567,122 | |||||
Net Income
We recorded a net income of approximately $10 million for the nine months ended September 30, 2022, compared to a net loss of approximately $8.5 million for the nine months ended September 30, 2021. The higher net income of approximately $18.6 million for the nine months ended September 2022 as compared to the same period of 2021, was primarily due to due to gain on the derecognition of a non-financial asset of approximately $17 million, lower operating expense of approximately $2.4 million, increased reimbursement for expenses of approximately $0.5 million, higher loss on conversion of debt of approximately $0.2 million, and higher interest expense of $0.6 million and lower forgiveness of the PPP loan from the nine months ended September 30, 2021 of $0.25 million.
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Research and Development Expenses
Research and development (“R&D”) expenses decreased by approximately $2.4 million for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to reduced compensation cost of $0.8 million, reduced clinical trial cost of approximately $1.5 million and lower operational and other expenses of approximately $0.2 million. As a result of our JV with Dragon and GMP Bio, the JV has absorbed most of the compensation costs as well as some of the operational costs during the six months ended September 30, 2022.
As a result of our JV, we expect our R&D expense to remain steady or decrease for the remainder of the year 2022, specifically for activities related to OT-101, including the initiation of new clinical trials. Any other development expenses will be subject to our continuing ability to secure sufficient funding to continue planned operations.
General and Administrative Expenses
General and administrative (“G&A”) expenses marginally increased by approximately $0.1 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to higher stock-based compensation expense of approximately $ 0.9 million, offset by lower compensation costs of approximately $0.6 million, lower legal costs of approximately $0.1 million and lower operational costs of $0.1 million.
As a result of our JV, we expect our G&A activities to reduce, and therefore believe that G&A expenses will decrease for the remainder of 2022. Any other G&A expenses will be subject to our continuing ability to secure sufficient funding to continue planned operations.
Interest Expense, Net
We recorded interest expense, including amortization of debt costs, of approximately $2 million for the nine months ended September 30, 2022 primarily in connection with debt raised from convertible notes, JH Darbie Financing, November/December 2021 and March 2022 Financing and May/June 2022 Financing, as compared to approximately $1.4 million for the same period of 2021, in connection with debt raised from convertible notes during 2019 and JH Darbie Financing.
Reimbursement of expenses
The Company was reimbursed approximately $0.5 million, by Autotelic Inc. a related party, during the nine months ended September 30, 2022 on behalf of our JV.
Gain on Derecognition of Non-financial Asset
During the nine months ended September 30, 2022, we recorded a gain of approximately $16.9 million on the sale of our non-financial asset upon the transfer of OT-101 as our capital contribution for the JV. We adopted the fair value measurements under the equity method and the gain was net of the fair value of the asset of approximately $22.6 million as reduced by the removal of the value of the intangibles of approximately $0.8 million for OT-101 and the value of the goodwill of $4.9 million recorded at the time of the 2019 Merger with Oncotelic Inc.
PPP Loan Forgiveness
We recorded a PPP loan forgiveness of approximately $0.3 million during the nine months ended September 30, 2021. No similar amount was recorded during the same period in 2022.
Change in Value of Derivatives
During the nine months ended September, 2022, we recorded approximately $38 thousand due to a change in value upon conversion of certain debt to liabilities as a derivative on the convertible promissory notes issued to our CEO and a bridge investor (collectively, the “Convertible Notes”). The Company recorded approximately $0.24 million change during the same period in 2021. For more information on value of derivatives, refer to the Note 2 of the Unaudited Consolidated Financial Statements of this Quarterly Report.
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Loss on Conversion of Debt
During the nine months ended September 30, 2022, we recorded a loss of $0.25 million on conversion of debt as compared to a loss of $27 thousand related to the difference in fair value to the price at which the debt was converted.
Liquidity, Financial Condition and Capital Resources ($s in ‘000’s)
September 30, 2022 | December 31, 2021 | |||||||
| Cash, including restricted cash of $20 | $ | 274 | $ | 589 | ||||
| Negative working capital | (15,898 | ) | (14,828 | ) | ||||
| Stockholders’ Equity, after non-controlling interests | 24,026 | 8,158 | ||||||
The Company has incurred net accumulated losses of approximately $20.6 million, negative working capital of approximately $15.9 million and negative cash flow from operations of approximately $1.4 million at September 30, 2022. Management expects to incur significantly lower costs losses, especially due to the transfer of costs over to the JV, especially in connection with the development of OT-10, in the foreseeable future but also recognizes the need to raise capital to remain viable. The Company’s limited capital resources, history of recurring losses and uncertainties as to whether the Company’s operations will become profitable raise substantial doubt about its ability to continue as a going concern. The financial statements contained in this report do not include any adjustments related to the recoverability of assets or classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
The principal source of the Company’s working capital deficit to date has been the issuance of convertible notes, a substantial part of which has been provided by officers and certain insiders, and sale of equity under the EPA with Peak One. The Company will need to raise additional capital in order to fund its operations and continue development of product candidates. The Company is evaluating the options to further the development of the Company’s product candidates, AL-101, Artemisinin for COVID-19, developing AI technologies to support the COVID-19 therapies; in addition to evaluating the development pathway of its product candidates; OXi4503 and/or CA4P. The Company is also independently planning to develop OT-101 for certain animal health indications and contemplating using crypto currencies for that platform.
The Company anticipates raising substantial additional capital through the sale of equity securities and/or debt, but no financing arrangements are in place at this time.
If the Company is unable to access additional funds when needed, it may not be able to continue the development of these investigational drugs and the Company could be required to delay, scale back or eliminate some or all of its development programs and operations. Any additional equity financing, if available, would be dilutive to the current stockholders and may not be available on favourable terms. Additional debt financing, if available, may involve restrictive covenants and could also be dilutive. The Company’s ability to access capital is not assured and, if access is not achieved on a timely basis, would materially harm the Company’s financial condition, the value of its Common Stock and its business prospects.
Cash Flows ($ in ‘000’s)
| Nine month ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (1,372 | ) | $ | (3,367 | ) | ||
| Net cash provided by financing activities | 1,057 | 2,971 | ||||||
| Increase (decrease) in cash | $ | (315 | ) | $ | (396 | ) | ||
Operating Activities
Net cash used in operating activities was approximately $1.4 million for the nine months ended September 30, 2022. This was due to the net income of approximately $10.0 million, primarily offset by non-cash gain on the sale of its non-financial asset of approximately $17 million, non-cash amortization of debt discounts and deferred financing costs of $1.1 million, non-cash stock compensation costs of $0.3 million, fair value of the warrants issued during the nine months ended September 30, 2022 of $2.9 million, non-cash loss on debt conversion of approximately $0.5 million and changes in operating assets and liabilities of approximately $0.1 million.
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Net cash used in operating activities was approximately $3.4 million for the nine months ended September 30, 2021. This was due to the net loss of approximately $8.5 million, primarily offset by non-cash amortization of debt discounts and deferred financing costs of $1.1 million, non-cash stock compensation costs on fair value of the warrants issued during the nine months ended September 30, 2021 of $2.1 million, stock compensation cost recorded on fair value of restricted stocks of approximately $0.2 million, stock compensation on stock options granted during the three months ended September 30, 2021 of approximately $0.3 million; and changes in operating assets and liabilities of approximately $1.7 million.
Financing Activities
For the nine months ended September 30,2022, net cash provided by financing activities was approximately $1.1 million, due to a receipt of cash from sale of shares under the EPA of approximately $0.2 million, a short-term convertible loan GMP of $0.5 million, approximately $1.0 million under the March 2022, May 2022 and June 2022 notes, offset by repayments of debt of approximately $0.5 million to certain note holders and approximately $0.1 million repayments to one of our PPH note holder and certain short term lenders.
For the nine months ended September 30, 2021, net cash provided by financing activities was approximately $3.0 million, due to a receipt of cash from the JH Darbie Financing of $1.6 million, sale of equity of $0.1 million, proceeds of a convertible note of $0.3 million from Geneva and convertible notes and short-term loans from certain related parties, the CFO and bridge investors of $1.0 million, and approximately $0.1 million from the PPP, partially offset by repayments of debt of approximately $0.2 million.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
Contractual Obligations
Our current drug development programs are based on a series of compounds called combretastatins, which we have exclusively licensed from Arizona State University, or ASU. If our current drug candidates are approved, we will be required to pay low to mid-single-digit royalties on future net sales of products associated with the ASU patent rights until these patent rights expire.
We also have an exclusive license from Bristol-Myers Squibb, or BMS, for certain patent rights to particular combretastatins, including CA4P. If CA4P is approved, we will be required to pay low-single-digit royalties on future net sales of products associated with the BMS patent rights until these patent rights expire.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our cash is maintained in U.S. dollar accounts. We have adopted a policy for the cash that we hold, and also for any cash equivalents and investments that we may hold, the primary objective of which is to preserve principal, while also maintaining liquidity to meet our operating needs and maximize yields to the extent possible. Although our investments can be subject to credit risk, we follow procedures to limit the amount of credit exposure in any single issue, issuer or type of investment. Our investments are also subject to interest rate risk and would be likely to decrease in value if market interest rates increase. However, due to the generally conservative nature of our investments and relatively short duration, we believe that interest rate risk is mitigated.
Although we may from time-to-time manufacture drugs and conduct preclinical or clinical trials outside of the United States, we believe our exposure to foreign currency risk to be immaterial.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our CEO and our CFO each concluded that our disclosure controls and procedures are not effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act, (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) is accumulated and communicated to our management, including our CEO and our CFO, as appropriate to allow timely decisions regarding required disclosure.
Material Weaknesses in Internal Control over Financial Reporting
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2022 based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Registrant’s internal control over financial reporting as of September 30, 2022 was not effective as a result of certain material weaknesses.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which are observed in many small companies with a small number of accounting and financial reporting staff:
| ● | Lack of formal policies and procedures; |
| ● | Lack of a functioning audit committee and independent directors on the Company’s board of directors to oversee financial reporting responsibilities; |
| ● | Inadequate or lack of segregation of duties; |
| ● | Lack of dedicated resources and experienced personnel to design and implement internal control procedures to support financial reporting objectives; |
| ● | Lack of qualified accounting personnel to prepare and report financial information in accordance with GAAP; and |
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner. |
Management’s Plan to Remediate the Material Weaknesses
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions planned include:
| ● | Continue to search for, evaluate and recruit qualified independent outside directors; |
| ● | Hire qualified accounting personnel to prepare and report financial information in accordance with GAAP; |
| ● | Identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; and |
| ● | Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. |
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Changes in Internal Control over Financial Reporting
During the nine months ended September 30, 2022, we continued to execute upon our planned remediation actions which are all intended to strengthen our overall control environment. While we have made progress in our planned remediation efforts and we hope to complete its planned execution of internal controls over financial reporting before December 31, 2022, however, our ability to do so would greatly depend on our ability to obtain financial and other resources to complete the remediation.
We are committed to maintaining a strong internal control environment and believe that these remediation efforts, if addressed, will represent significant improvements in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
In addition to the risk factor described below, for information about the risks and uncertainties related to our business, please see the risk factors described in our 2021 Annual Report on Form 10-K for the year ended December 31, 2021 filed on April 15, 2022. The risks described below and in our Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Our business may suffer from the severity or longevity of the COVID-19 Global Outbreak.
The COVID-19 continues impacting countries, communities, supply chains and markets, as well as the global financial markets. To date, COVID-19 has not had a material impact on the Company, other than as set forth above. However, the Company cannot predict whether COVID-19 will have a material impact on our financial condition and results of operations due to understaffing, disruptions in government spending, among other factors. In addition, at this time we cannot predict the impact of COVID-19 on our ability to obtain financing necessary for the Company to fund its working capital requirements. In most respects, it is too early in the COVID-19 pandemic to be able to quantify or qualify the longer-term ramifications on our business, our customers and/or our potential investors.
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds
In January 2022, three of the five investors from the November/December 2021 financing made a cashless exercise for their warrants. In connection with this exercise, the Company issued 3,041,958 shares of Common Stock in exchange of approximately 5,769,231 million warrants.
In May 2022, Blue Lake made a cashless exercise for their warrants. In connection with this exercise, the Company issued 1,403,326 shares of Common Stock in exchange of 1,923,077 warrants.
In June 2022, Mast Hill converted their debt of approximately $0.28 million. In connection with the Note conversion, the Company issued 4,025,000 shares of Common Stock to Mast Hill.
In June 2022, Company issued 500,000 shares of Common Stock to First Fire as a partial repayment of convertible debt of $35,000.
In June 2022, First Fire made a cashless exercise for their warrants. In connection with this exercise, the Company issued 1,183,400 shares of Common Stock in exchange for 1,923,077 warrants.
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In August 2022, Fourth Man converted $0.14 million of their debt of approximately $0.28 million. In connection with the Note conversion, the Company issued 2,025,000 shares of Common Stock to Fourth Man.
In September 2022, Blue Lake converted $0.1 million of their debt of approximately $0.1 million. In connection with the Note conversion, the Company issued 1,428,571 shares of Common Stock to Blue Lake.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
In reviewing the agreements included as exhibits to this Quarterly Report, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:
| ● | should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; | |
| ● | have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; | |
| ● | may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and | |
| ● | were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
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The following exhibits are included as part of this Quarterly Report. A more complete list of previously filed Exhibits can be found with our Annual Report on Form 10K filed with the SEC on April 15, 2022:
| * | Confidential treatment has been granted for portions of this Exhibit. Redacted portions filed separately with the Securities and Exchange Commission. |
| + | Management contract or compensatory plan or arrangement. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ONCOTELIC THERPAEUTICS INC.
| By: | /s/ Vuong Trieu | |
| Vuong Trieu, Ph.D. | ||
| Chief Executive Officer and Director (Principal Executive Officer) | ||
| Date: | November 18, 2022 |
|
| By: | /s/ Amit Shah | |
| Amit Shah | ||
Chief Financial Officer (Principal Financial and Accounting Officer) |
||
| Date: | November 18, 2022 |
| 51 |
Exhibit 31.1
ONCOTELIC THERAPEUTICS, INC.
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Vuong Trieu, Ph.D., certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Oncotelic Therapeutics, Inc. for the period ended September 30, 2022; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By: | /s/ Vuong Trieu | |
| Vuong Trieu, Ph.D. | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| Date: | November 18, 2022 |
Exhibit 31.2
ONCOTELIC THERAPEUTICS, INC.
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Amit Shah, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Oncotelic Therapeutics, Inc. for the period ended September 30, 2022; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By: | /s/ Amit Shah | |
| Amit Shah | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| Date: | November 18, 2022 |
Exhibit 32.1
ONCOTELIC THERAPEUTICS, INC.
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q for the period ended September 30, 2022 of Oncotelic Therapeutics, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| By: | /s/ Vuong Trieu | |
| Vuong Trieu, Ph.D. | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| Date: | November 18, 2022 |
Exhibit 32.2
ONCOTELIC THERAPEUTICS, INC.
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q for the period ended September 30, 2022 of Oncotelic Therapeutics, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| By: | /s/ Amit Shah | |
| Amit Shah | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| Date: | November 18, 2022 |