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 _________
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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
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| ☒ | Smaller reporting company | |||
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As of November 18, 2024, 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, 2024
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, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | $ | |||||||
| Accounts receivable | ||||||||
| Prepaid & other current assets | ||||||||
| Total current assets | ||||||||
| In process R&D | ||||||||
| Goodwill, net of impairment | ||||||||
| 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 | ||||||||
| Convertible long-term debt, net of costs | ||||||||
| Convertible long-term debt, related party | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders’ equity: | ||||||||
| 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
For the Three MONTHS AND NINE MONTHS ended SEPTEMBER 30, 2024 and 2023
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Service Revenue | $ | $ | $ | $ | ||||||||||||
| Total Revenue | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Goodwill impairment (See note 2 and 3) | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income/(Loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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, 2024
(Unaudited)
| Additional | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Non-controlling | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Common shares issued upon partial conversion of debt | - | |||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Common shares issued upon partial conversion of debt | ||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | ( | ) | ( | ) | $ | ||||||||||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements.
| 5 |
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
Consolidated STATEMENT of STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(Unaudited)
| Additional | Non | |||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | controlling | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | | $ | ( | ) | $ | ( | ) | $ | | ||||||||||||||||||||
| Adpotion of ASU 2020-06 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common shares issued upon partial conversion of debt | ||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Common shares issued in connection with debt conversion | - | |||||||||||||||||||||||||||||||
| Net income/(loss) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Common shares issued in connection with debt conversion | - | |||||||||||||||||||||||||||||||
| Loss on extinguishment of PPM debt | ||||||||||||||||||||||||||||||||
| Allocation of cost of warrants for PPM Debt | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| In connection with debt debt conversion | - | |||||||||||||||||||||||||||||||
| Net income(loss) | - | - | ( | ) | ||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | ( | ) | ( | ) | $ | ||||||||||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements.
| 6 |
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
Consolidated STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Goodwill impairment | ||||||||
| Amortization of debt discount and deferred finance costs | ||||||||
| 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 convertible notes and short term loans, others | ||||||||
| Repaid to others | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (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 | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Warrants issued in connection with private placement | $ | $ | ||||||
| Common shares issued upon partial conversion of debt | $ | $ | ||||||
| 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; Pet2DAO, Inc (“Pet2DAO”) and EdgePoint AI, Inc. (“Edgepoint”), a Delaware Corporation for which there are non-controlling interests, (Oncotelic, Oncotelic Inc., PointR, Pet2DAO 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 2022 Annual Report on Form 10-K filed with the SEC on April 12, 2024.
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 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 2 and 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 JV may also be sponsoring investigator-initiated studies for OT-101 for other oncology indications.
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 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
Private Placement 2 & JH Darbie Financing
Between
July 2023 and September 2023, the Company entered into a series of subscription agreements with 15 accredited investors which resulted
in a conversion of a gross amount of $
J.H. Darbie Financing Notes & Issuance of Oncotelic Warrants
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
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 $
| 9 |
August 2021 Notes
In
August 2021, the Company issued Note Purchase Agreements with Autotelic Inc., the Company’s Chief Financial Officer (“CFO”),
and certain other accredited investors. Under the terms of the Note Purchase Agreements, the Company issued an aggregate of $
November-December 2021 and March 2022 Notes
In
November / December 2021, the Company entered into various Securities Purchase Agreements with Talos Victory Fund, LLC (the (“Talos”),
Mast Hill Fund, LP (“Mast”), FirstFire Global Opportunities Fund, LLC (“FirstFire”), Blue Lake Partners, LLC
(“Blue Lake”) and Fourth Man, LLC (“Fourth Man”), pursuant to which the Company issued convertible promissory
notes in the aggregate principal amount of $
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 $
For more information on the debt financing of the Company, refer to Note 5 of the Notes to the 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 $
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 $
For more information on the debt financing of the Company, refer to Note 5 of the Notes to the Consolidated Financial Statements.
| 10 |
Forever Prosperity (previously GMP) Note purchase agreements and unsecured notes
Between
June 2020 and January 2022, the Company entered into various purchase agreements and promissory notes with GMP, cumulatively totaling
$
For more information on the GMP debt financing, refer to Note 5 of the Notes to the Consolidated Financial Statements.
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 unaudited Notes to the Consolidated Financial Statements.
Pet2DAO
In November 2022, the Company formed a Decentralized autonomous organization (“DAO”) entity, Pet2DAO LLC (“Pet2DAO”), as a wholly owned subsidiary.
For more information on Pet2DAO, refer to our 2023 Annual Report on Form 10-K filed with the SEC on April 12, 2024.
Mosaic ImmunoEngineering, Inc. Term Sheet
In April 2024, the Company entered into a binding term sheet (the “Term Sheet”) with Mosaic ImmunoEngineering, Inc. (“Mosaic”). For more information on the Term Sheet, refer to the Current Report on Form 8-K filed with the SEC on April 29, 2024. In August 2024, Mosaic and the Company mutually agreed to extend the date of the Term Sheet to expire at the earlier of (1) the signing of definitive agreements or (2) December 31, 2024. This was to allow for both Companies to complete due diligence as well as agree and finalize the definitive agreements.
Licensing Agreement with Autotelic Inc.
In September 2021, the Company entered into an exclusive License Agreement (the “Agreement”) with Autotelic, Inc. (“Autotelic”). For more information on the Agreement, refer to our 2023 10-K filed with the SEC on April 12, 2024.
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-K and Regulation S-X.
| 11 |
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.
The
Company obtained short terms loans of approximately $
Although no assurances can be given as to the Company’s ability to deliver on its revenue plans, or that unforeseen expenses may arise, management believes that the potential equity and debt financing or other potential financing will provide the necessary funding for the Company to continue as a going concern. Also, management cannot guarantee any potential debt or equity financing will be available on favorable terms or at all. As such, management does not believe the Company has sufficient cash for 12 months from the date of this report. If adequate funds are not available on acceptable terms, or at all, the Company will need to curtail operations, or cease operations completely.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expense during the reporting period. Actual results could materially differ from those estimates.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the valuation of goodwill and intangible assets for impairment, deferred tax asset and valuation allowance, and fair value of financial instruments.
Cash
As of September 30, 2024, and December 31, 2023 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, 2024 and December 31, 2023, respectively. Restricted cash consists of certificates of deposits held at banks as collateral.
| 12 |
Debt issuance Costs and Debt discount
Issuance costs are specific incremental costs that are (1) paid to third parties and (2) directly attributable to the issuance of a debt or equity instrument. The issuance costs attributable to the initial sale of the instrument are offset against the associated proceeds in the determination of the instrument’s initial net carrying amount.
Debt issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying balance sheets if related to the issuance of debt or presented as a reduction of additional paid in capital if related to the issuance of an equity instrument. The Company applies the relative fair value to allocate the issuance costs among freestanding instruments that form part of the same transaction.
If the Company amends the terms of its convertible notes, the Company reviews and applies the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments, evaluates and concludes whether the terms of the agreements were or were not substantially different as of a particular reporting date and accounts the transaction as a debt modification or a troubled debt restructuring.
Fair Value of Financial Instruments
The carrying value of cash, accounts payable and accrued expense approximate their fair values based on the short-term maturity of these instruments. As defined in ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
| ● | Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. |
| ● | Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. |
| ● | Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. |
The Company did not have any Level 1 or Level 2 assets and liabilities at September 30, 2024 and December 31, 2023.
| 13 |
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, 2024 and December 31, 2023:
| Initial Book Value | Cumulative Gross Unrealized Gains | Cumulative Gross Unrealized Losses | Fair Value | |||||||||||||
| September 30, 2024 | ||||||||||||||||
| Investment in GMP Bio (equity securities) | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Initial Book Value | Cumulative Gross Unrealized Gains | Cumulative Gross Unrealized Losses | Fair Value | |||||||||||||
| December 31, 2023 | ||||||||||||||||
| Investment in GMP Bio (equity securities) | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The table above 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, 2024 and December 31, 2023. During the nine months ended September 30, 2024, there have been no changes in the long-term value of the investment in equity securities of GMP Bio.
Derivative Liability
The Company has certain derivative liabilities associated with its 2019 bridge financing Convertible Notes (see Note 5), which consisted of conversion feature derivatives at September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023:
September 30, 2024 Conversion Feature | December 31, 2023 Conversion Feature | |||||||
| Balance at January 1, 2024 and 2023 | $ | $ | ||||||
| New derivative liability | ||||||||
| Reclassification to additional paid in capital from conversion of debt to common stock | ||||||||
| Change in fair value | ( | ) | ||||||
| Balance at September 30, 2024 and December 31, 2023 | $ | $ | ||||||
| 14 |
As of September 30, 2024, and December 31, 2023, 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, 2024 and December 31, 2023, respectively:
| September 30, 2024 | December 31, 2023 | |||||||
| Key | Key | |||||||
| Assumptions | Assumptions | |||||||
| for fair value | for fair value | |||||||
| of conversions | 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, 2024 and 2023, respectively, there were no transfers of financial assets or financial liabilities between the hierarchy levels.
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. For the three and nine months ended September 30, 2024 and 2023, no equivalent shares of the Common Stock were excluded as the company has a loss and addition of such stock equivalents in the computation would have been 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 and members of the Board of Directors (the “Board”) for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.
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For warrants issued in connection with fund raising activities, the Company estimates the grant date fair value of each warrant using the Black-Scholes pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the warrant, the expected volatility of the Common Stock consistent with the expected life of the warrant, risk-free interest rates and expected dividend yields of the Common Stock. If the warrants are issued upon termination or cancellation of prior issued warrants, then the Company estimates the grant date fair value of the new warrants using the Black-Scholes pricing model and evaluates whether the new warrants are deemed as equity instruments or liability instruments. If the warrants are deemed to be equity instruments, the Company records stock compensation expense and an addition to additional paid in capital. If, however, the warrants are deemed to be liability instruments, then the fair value is treated as a deemed dividend and credited to additional paid in capital.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. For the three and nine months ended September 30, 2024 and 2023, respectively, there were no impairment losses recognized for long-lived assets.
Intangible Assets
The
Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. The Company reviews
the intangible assets for impairment on an annual basis or if events or changes in circumstances indicate it is more likely than not
that they are impaired. These events could include a significant change in the business climate, legal factors, a decline in operating
performance, competition, sale or disposition of a significant portion of the business, or other factors. If the review indicates the
impairment, an impairment loss would be recorded for the difference of the value recorded and the new value. For the nine months ended
September 30, 2024 and September 30, 2023, 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, 2024, we recorded an impairment loss of approximately $
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Derivative Financial Instruments Indexed to the Company’s Common Stock
We have generally issued derivative financial instruments, such as warrants, in connection with our equity offerings. We evaluate the terms of these derivative financial instruments in order to determine their accounting treatment in our financial statements. Key considerations include whether the financial instruments are freestanding and whether they contain conditional obligations. If the warrants are freestanding, do not contain conditional obligations and meet other classification criteria, we account for the warrants as an equity instrument. However, if the warrants contain conditional obligations, then we account for the warrants as a liability until the conditional obligations are met or are no longer relevant. Because no established market prices exist for the warrants that we issue in connection with our equity offerings, we must estimate the fair value of the warrants based on the price of our Common Stock as of December 31 each year, which is as inherently subjective as it is for stock options, and for similar reasons as noted in the stock-based compensation section above. For financial instruments which are accounted for as a liability, we report any changes in their estimated fair values as gains or losses in our Consolidated Statement of Income.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives and Hedging”.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with ASC 470-20 “Debt – Debt with Conversion and Other Options.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Original issue discounts (“OID”) under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
ASC 815-40 “Derivatives and Hedging – Contracts in Entity’s Own Equity” provides that, among other things, generally, if an event 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.
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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, 2024 and September 30, 2023, the Company identified EdgePoint
to be the Company’s sole VIE. At September 30, 2024 and September 30, 2023, 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.
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.
| 18 |
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.
Embedded debt costs in convertible debt instruments
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 adopted ASU 2020-06 effective January 1, 2023 and has removed the effects of any embedded conversion features from certain of our convertible instruments as of that date.
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.
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.
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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 adopted ASU 2020-06 effective January 1, 2023 and recorded approximately $
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
NOTE 3 - INTANGIBLE ASSETS AND GOODWILL
Goodwill from 2019 Reverse Merger with Oncotelic and PointR
The Company completed the reverse 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 approximately $
Further,
we added goodwill of $
We have one operating segment and reporting unit. Accordingly, our review of goodwill impairment indicators was performed at the entity-wide level. In performing our annual impairment assessment, we determined if we should qualitatively assess whether it was more likely than not the fair value of goodwill was less than its carrying amount (the qualitative impairment test). The factors we considered in the assessment included our market capitalization, general macroeconomic conditions, conditions specific to the industry and market and whether there had been sustained declines in our share price. If we concluded, it was more likely than not, the fair value of the reporting unit was less than its carrying amount, or elected not to use the qualitative impairment test, a quantitative impairment test would be performed.
We
used our market capitalization as an indicator of fair value. While we believe the fair value measurement need not be based solely on
the quoted market price of an individual share of our Common Stock, and that we also could consider the impact of a control premium in
measuring the fair value of its reporting unit. In the absence of any other valuation metrics, the Company believed using a control premium
utilized would not be appropriate under the current circumstances. We also considered some other market comparables’ trends in
our stock price as well as the industry over a period of two successive quarters and prospective quarter to evaluate whether the fair
value of our reporting unit was greater than our carrying amount. As such, we performed a quantitative impairment assessment of goodwill
for our single reporting unit at the end of 2023, due to a sustained decline in our market capitalization and an increase in negative
economic outlook for biotech markets We estimated and reconciled the fair value of our reporting unit utilizing our market capitalization
based on the stock price of our Common Stock as of December 31, 2023. Before completing our goodwill impairment test, we first tested
our indefinite-lived intangible asset then our remaining long-lived assets for impairment. We concluded our indefinite-lived intangible
assets were not impaired. Based on the market capitalization, we further concluded the fair value of our single reporting unit was less
than its carrying value and therefore recognized an impairment charge of $
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A summary of our goodwill as of September 30, 2024 and December 31, 2023 is shown below:
September 30, 2024 | December 31, 2023 | |||||||
| Balance at January 1, 2024 and 2023 | $ | $ | ||||||
| Less: Goodwill impairment due to market capitalization | ( | ) | ( | ) | ||||
| Balance at September 30, 2024 and December 31, 2023 | $ | $ | ||||||
In general, the goodwill is tested on an annual impairment date of December 31, unless we observe any further deterioration in our market capitalization in any interim periods, in which case we may, depending on the materiality of the impairment, record an impairment at the end of other reporting periods, as we did during the course of the year ended December 31, 2023.
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 31, 2024 and December 31, 2023,
respectively, was $
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expense consists of the following amounts:
September 30, 2024 | December 31, 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued expense | ||||||||
| $ | $ | |||||||
September 30, 2024 | December 31, 2023 | |||||||
| Accounts payable – related party | $ | $ | ||||||
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NOTE 5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT
As of September 30, 2024 and December 31, 2023, special purchase agreements (SPAs) with convertible debentures and notes, net of debt discount and including accrued interest, if any, consist of the following amounts:
September 30, 2024 | December 31, 2023 | |||||||
| Current Debt | ||||||||
| Convertible debentures | ||||||||
| 10% Convertible note payable – Bridge Investor | $ | $ | ||||||
| 10% Convertible note payable – Related Party | ||||||||
| 10% Convertible note payable – 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 & 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 | ||||||||
| 16% Convertible Notes – Accredited Investors | ||||||||
| Debt for Clinical Trials – Forever Prosperity ( Formerly GMP) | ||||||||
| 2% Convertible Notes – Forever Prosperity | ||||||||
| May 2022 Note | ||||||||
| 16% 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 | ||||||||
| Short Term Debt from CEO – Related Party | ||||||||
| Total of short term convertible debentures & notes and other debt | $ | |||||||
September 30, 2024 | December 31, 2023 | |||||||
| Long Term Debt | ||||||||
| JH Darbie PPM 2 Debt | ||||||||
| 16% Convertible Notes - Non-related parties | ||||||||
| 16% Convertible Notes – CEO – Related Party | ||||||||
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Convertible Debentures
As
of September 30, 2024, 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 (the “Trieu
Note”) and a 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 $