Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K (the "Annual 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. For a more detailed discussion on our forward-looking
statements, kindly refer to "Forward Looking Statements" prior to Item 1: Part
I: Business contained in this Annual Report.
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 Annual
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;
37
? 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;
? our ability to successfully operate GMP Biotechnology Limited ("GMP Bio"), our
joint venture with Dragon Overseas Limited ("Dragon"), to develop our product
portfolio, or to have a successful IPO for GMP Bio as planned;
? 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.
? building and the success of our nanoparticle platform and the related success
of launching the platform
? the success of the launch of a company with a DAO infrastructure, the success
of the entity and the plans surrounding the pet and animal health, the ability
for the Company to register the tokens of Pet2Dao, the actual filing of a
registration statement and approval of the tokens as registrable securities
with the SEC through a registration statement, the ability of the tokens to be
tradable or any value such tokens may have if they become tradable.
Readers are urged to carefully review and consider the various disclosures made
by us in this Annual Report and in our other reports filed with the SEC. 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 the actual results of
operations or the results of our future activities will not differ materially
from our assumptions.
Corporate History
Oncotelic Therapeutics, Inc. (f/k/a Mateon Therapeutics, Inc.) ("Oncotelic"),
was formed in the State of New York in 1988 as OXiGENE, Inc., was reincorporated
in the State of Delaware in 1992, and changed its name to Mateon Therapeutics,
Inc. in 2016, and Oncotelic Therapeutics, Inc. in November 2020. Oncotelic
conducts business activities through Oncotelic and its wholly-owned
subsidiaries, Oncotelic, Inc., a Delaware corporation, PointR Data, Inc.
("PointR"), a Delaware corporation, Pet2DAO Inc., a Delaware corporation 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 2020 Annual Report on Form 10-K filed
with the SEC on April 15, 2021.
Amendments to Certificate of Incorporation
In March 2021, the Company received approval from the Financial Industry
Regulatory Authority on its notice of corporate action to change the name of the
Company from Mateon Therapeutics, Inc. to Oncotelic Therapeutics, Inc, and the
Company's ticker symbol has changed from "MATN" to "OTLC".
In January 2021, the Company filed an additional amendment to its Certificate of
Incorporation, as amended (the "Charter Amendment"), with the Secretary of State
for the State of Delaware, which Charter Amendment went effective immediately
upon acceptance by the Secretary of State for the State of Delaware. The Charter
Amendment increased the number of authorized shares of Common Stock from
150,000,000 shares to 750,000,000 shares.
In addition, the Company registered an additional total of 20,000,000 shares of
its Common Stock, which may be issued pursuant to the Company's Amended and
Restated 2015 Equity Incentive Plan (the "Plan"). As such, the total number of
shares of the Company's Common Stock available for issuance under the 2015 plan
is 27,250,000.
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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.
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.
In 2020, 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 and 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 the plant Artemisia annua. It can
inhibit TGF-? 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 a further $1.0 million to
the Company to fund operations on the way to complete a JV. In March 2022, the
Company formalized a JV with Dragon to form GMP Bio. For more information on the
JV, refer to Note 6 of the Notes to the Audited Consolidated Financial
Statements for this Annual Report.
In November 2022, the Company formed a Decentralized autonomous organization
("DAO") entity, Pet2DAO, Inc. ("Pet2DAO"), as a wholly owned subsidiary. A DAO
is an emerging form of legal structure, that has no central governing body, and
whose members share a common goal to act in the best interest of the entity.
Pet2DAO is a DAO technology company, integrating the strong governance of
traditional corporations with the innovative DAO architecture. The Company will
look to engage stakeholders, to build value through the DAO, while maintaining
the rigor of traditional corporations, including governance, compliance, and
accountability through a team of veterans in public companies with innovators in
AI, blockchain and Web3. Pet2DAO will initially be looking to develop products
for the animal health space. The Company will initially issue regular tokens and
non-fungible tokens ("NFT" and cumulatively "Tokens") of Pet2DAO called PDAO to
its employees, shareholders, and key opinion leaders ("KOLs') and use the Tokens
to propose and vote on various animal health related programs. In the future,
the Company will evaluate and plan to register these tokens with the SEC to make
such Tokens freely tradable at a future point in time.
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.
39
Research Service Agreement between GMP and the Company
When COVID-19 emerged in China, the Company and GMP contemplated a collaboration
to develop drug candidates for COVID-19. Oncotelic Inc. and GMP entered into a
research and services agreement (the "GMP Research Agreement") in February 2020
memorializing their collaborative efforts to develop and test COVID-19 antisense
therapeutics (the "GMP Agreement Product"). In March 2020, the Company reported
the anti-viral activity of OT-101 - its lead drug candidate currently in phase 3
testing in pancreatic cancer and glioblastoma. In an in vitro antiviral testing
performed by an independent laboratory, OT-101 had an 50% effective
concentration (EC50) of 7.6 µg/mL and is not toxic at the highest dose of 1000
µg/mL giving a safety index (SI) value of >130, which is considered highly
active. Further in March 2020, the Company and GMP entered into a supplement to
the GMP Research Agreement (the "GMP Research Supplement") to confirm the
inclusion of OT-101 within the scope of the GMP Research Agreement as a GMP
Agreement Product, pending positive confirmatory testing against COVID-19. In
April 2020, the Company announced that it had delivered the requisite testing
results to GMP confirming the applicability and potential use of OT-101 for the
treatment of COVID-19. OT-101 exhibited potent activity against both COVID-19
and SARS with a robust safety index of >500. Also, the Company has submitted a
Pre-Investigational New Drug application package to the Food and Drug
Administration.
In consideration for the financial support provided to GMP for the research,
pursuant to the terms of the GMP Research Agreement (as amended by the GMP
Research Supplement), GMP was entitled to obtain certain exclusive rights to the
use of the GMP Agreement Product in the COVID Field on a global basis, and an
economic interest in the use of the GMP Agreement Product in the COVID-19 Field
including profit sharing to be decided. For more information on the
collaborations with GMP, refer to our 2021 Annual Report on Form 10-K filed with
the SEC on April 15, 2022. In March 2022, the Company entered into a JV
transaction with Dragon to form GMP Bio, both entities being affiliates of GMP.
Dragon and the Company will own in a / ratio, respectively, and its principal
activities shall be to research, develop, bring to market and commercialize: (i)
the GMP Agreement Products in the COVID-19 Field on a global basis, (ii) the GMP
Agreement Products in the OT-101 Oncology Field in the territory set forth
above, and if GMP so decides to include (iii) OXi4503 in the territory set forth
above; and (iv) CA4P in the territory set forth above.
In June 2020, the Company secured a $2 million in debt financing, evidenced by a
one-year secured convertible note (the "GMP Note") from GMP, to conduct a
clinical trial evaluating OT-101 against COVID-19 bearing 2% annual interest,
and is personally guaranteed by Dr. Vuong Trieu, the Chief Executive Officer of
the Company. The GMP Note was convertible into the Company's Common Stock upon
the GMP Note's maturity one year from the date of the GMP Note, at the Company's
Common Stock price on the date of conversion with no discount. GMP does not have
the option to convert prior to the GMP Note's maturity at the end of one year.
GMP has extended the maturity of the GMP Note to December 31, 2023, with no
concessions granted to GMP for such extension. Such financing was utilized
solely to fund the clinical trial.
In September 2021, the Company secured a further $1.5 million in debt financing,
evidenced by a one-year unsecured convertible note (the "GMP Note 2") from GMP,
bearing 2% annual interest, to fund the same clinical trial evaluating OT-101
against COVID-19. All the terms of the GMP Notes 2 are the same as the GMP Note.
Such financing will be utilized solely to fund the COVID-19 clinical trial. As
of December 31, 2022, GMP was invoiced by the clinical research organization for
$1.5 million. GMP paid the clinical trial organization $1.0 million against the
billing. GMP has extended the maturity of the GMP Note 2 to December 31, 2023,
with no concessions granted to GMP for such extension. Such financing was
utilized solely to fund the clinical trial.
In October 2021, the Company entered into an Unsecured Convertible Note Purchase
Agreement (the "October Purchase Agreement") with GMP, pursuant to which the
Company issued a convertible promissory note in the aggregate principal amount
of $0.5 million (the "October 2021 Note"), bearing 2% annual interest, which
October 2021 Note is convertible into shares of the Company's Common Stock. The
terms of all the notes are identical to the GMP Note 2. GMP has extended the
maturity of the October 2021 Note to December 31, 2023, with no concessions
granted to GMP for such extension. Such financing was utilized solely to fund
the clinical trial.
40
In January 2022, the Company entered into an Unsecured Convertible Note Purchase
Agreement (the "January Purchase Agreement") with GMP, pursuant to which the
Company issued a convertible promissory note in the aggregate principal amount
of $0.5 million (the "January 2022 Note"), bearing 2% annual interest, which
January 2022 Note is convertible into shares of the Company's Common Stock. The
terms of all the notes are identical to the GMP Note 2. GMP has extended the
maturity of the January 2022 Note to December 31, 2023, with no concessions
granted to GMP for such extension. Such financing was utilized solely to fund
the clinical trial.
Cumulatively, the GMP Note, GMP Note 2, October 2021 Note and January 2022 Note
are referred to as the "GMP Notes".
Joint Venture
On March 31, 2022, the Company entered into (i) a 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 analyzed 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 during the year ended December 31, 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.
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 below.
License Agreement with Autotelic, Inc.
On September 30, 2021, Oncotelic Therapeutics, Inc. (the "Company") entered into
an exclusive License Agreement (the "License Agreement") with Autotelic, Inc.
("Autotelic"), pursuant to which Autotelic granted Oncotelic the exclusive right
and license to certain Autotelic Patents (as defined in the Agreement) and
Autotelic Know-How (as defined in the License Agreement) and a right of first
refusal to acquire at least a majority of the outstanding capital stock of
Autotelic. For more information on the License Agreement, refer to our 2021
Annual Report on Form 10-K filed with the SEC on April 15, 2022.
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Private Placement through JH Darbie & Co., Inc.
Between July 2020 and March 2021, the Company offered and sold certain units
("Units") in a private placement through JH Darbie & Co., Inc. ("JH Darbie"),
with each unit consisting of: (i) 25,000 shares of Edgepoint common stock, par
value $0.01 per share ("Edgepoint Common Stock"), for a price of $1.00 per share
of Edgepoint Common Stock; (ii) one convertible promissory note issued by the
Company (the "Unit Note"), convertible into up to 25,000 shares of EdgePoint
Common Stock at a conversion price of $1.00 per share, or up to 138,889 shares
of the Company's Common Stock, at a conversion price of $0.18 per share; and
(iii) 100,000 warrants (the "Warrants"), consisting of (a) 50,000 warrants to
purchase an equivalent number of shares of EdgePoint Common Stock at $1.00 per
share ("Edgepoint Warrant"), and (b) 50,000 warrants to purchase an equivalent
number of shares of Company Common Stock at $0.20 per share ("Oncotelic
Warrant") (the sale of Units is hereinafter, the "JH Darbie Financing"). In
total, as of December 31, 2021, the Company had issued and sold a total of 100
Units, resulting in gross proceeds of $5 million to the Company. JH Darbie
earned $0.65 million and 10 Units in fees as the private placement agent.
In June 2021, the Company and the Investors agreed to extend the maturity date
of the Notes from June 30, 2021, to March 31, 2022. In addition, the Company and
JH Darbie identified an error in the Oncotelic Warrants and JH Darbie Financing
documents which intended to have the investors purchase $50,000 of shares of
Common Stock or Edgepoint Common Stock. However, the Company only issued 50,000
Oncotelic Warrants, with an aggregate exercise price of $10,000. The error was
corrected by the Company and the Company issued to the Investors an aggregate of
20.0 million additional Oncotelic Warrants, and 2.0 million additional Oncotelic
Warrants to J.H. Darbie, as placement agent. Each Investor was entitled to
receive 200,000 additional Oncotelic Warrants for each Unit purchased.
In February 2022, the Company and 99 units 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 33
million warrants to purchase $50,000 of shares of common stock of the Company in
connection with agreeing to extend the maturity date by one year. The 99 units
were outstanding as of December 31, 2022.
Peak One Equity Purchase Agreement
In May 2021, the Company entered into an Equity Purchase Agreement (the "EPL")
and Registration Rights Agreement (the "Registration Rights Agreement") with
Peak One Opportunity Fund, L.P. ("Peak One"), pursuant to which the Company
shall have the right, but not the obligation, to direct Peak One, to purchase up
to $10.0 million (the "Maximum Commitment Amount") in shares of the Company's
Common Stock. For more information for the 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 to reregister the EPL on April 26,
2022, and the post-effective amendment was found effective by the SEC on May 6,
2022. Since the EPL was made effective in June 2021 till September 30, 2022, the
Company has directed Peak One, on multiple occasions, for an aggregate of 4.7
million shares of Common Stock for aggregate net cash proceeds of approximately
$0.6 million.
Paycheck Protection Program
In April 2020, the Company received loan proceeds in the amount of $250,000
under the Paycheck Protection Program ("1st PPP") which was established under
the Coronavirus Aid, Relief and Economic Security ("CARES") Act and is
administered by the Small Business Administration ("SBA").
The Company met the 1st PPP loan forgiveness requirements and applied for
forgiveness; and the Company received the 1stPPP loan forgiveness approval in
August 2021 from the lender and wrote off the loan outstanding amount inclusive
of interest accrued, in the amount of approximately $0.25 million.
In July 2021, the Company's wholly owned subsidiary, PointR, received loan
proceeds in the amount of $92,995 under the PPP ("2nd PPP"). The 2nd PPP was at
terms similar to the 1st PPP. The Company met the 2nd PPP loan forgiveness
requirements and received the 2nd PPP loan forgiveness approval from the lender
on December 8, 2021 and wrote off the loan outstanding amount inclusive of
interest accrued, in the amount of approximately $0.1 million. For more
information on the PPP loans, refer to Note 5 of the Notes to the Consolidated
Financial Statements.
42
August 2021 Notes
In August 2021, the Company entered into Note Purchase Agreements with
Autotelic, the Company's CFO, and certain other accredited investors. Under the
terms of the Note Purchase Agreements, the Company issued an aggregate of
$698,500 (the "Principal Amount") in debt in the form of unsecured convertible
promissory notes (collectively, the "August 2021 Notes"). For more information
on the August 2021 Notes, refer to Note 5 of the current Notes to the
Consolidated Financial Statements.
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 have the right at any
time following issuance date to convert all or any part of the outstanding and
unpaid amount of the note into the Company's common stock at a conversion price
established at a fixed rate of $0.07. As of December 31, 2022, these notes are
in default and payable immediately. However, the Company has not received
notification of default from the lender. The Company granted a total number of
9,615,385 warrants convertible into an equivalent number of the Company common
shares at a strike price of $0.13 up to five years after issuance. The Placement
agent was also granted a total amount of 125,000 warrants as part of a finder's
fee agreement.
In January 2022, three of the five note holders under the November / December
2021 Notes exercised their warrants to purchase shares of Common Stock of the
Company on a cashless basis. As such, the Company issued the note holders
3,041,958 shares of Common Stock.
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 $0.25 million, which Note is convertible into
shares of the Company's Common Stock. As of December 31, 2022, this note is in
technical default due to cross default provision contained in November /
December 2021 Notes. This Note was undertaken by the Company pursuant to the
Darbie Agreement.
In June 2022, Mast fully converted their November 2021 Note, for which the
company issued 4,025,000 shares of Common Stock.
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.
In October 2022, Fourth Man exercised their warrants to purchase shares of
Common Stock of the Company on a cashless basis. As such, the Company issued the
note holder 912,162 shares of Common Stock.
In December 2022, the Company partially converted $50,000 of Fourth Man Note
into 739,285 shares of Common Stock.
In February 2023, the Company partially converted $ 71,750 of Blue Lake Note
into 1,025,000 shares of Common Stock.
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 $0.6 million, which note is convertible into
shares of the Company's Common Stock. As of December 31, 2022, this note is in
technical default due to cross default provision contained in November /
December 2021 Notes. As of December 31, 2022, this note is in technical default
due to cross default provision contained in November / December 2021 Notes. This
note was used to fully repay November 2021 Talos note and the December 2021
First Fire note. $35,000 of the First Fire Note was converted into 500,000
shares of Common Stock and the balance was repaid in cash.
43
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 $0.34 million, which note is convertible into
shares of the Company's Common Stock. As of December 31, 2022, this note is in
technical default due to cross default provision contained in November /
December 2021 Notes. This note was utilized for corporate expenses.
Short-term loans
During the year ended December 31, 2021, the Company's CFO, a related Party,
provided short term advances of approximately $45,000. $20,000 was repaid to the
CFO in January 2022. As such approximately $25,000 was outstanding at December
31, 2022.
During the fourth quarter of the year ended December 31, 2020, the Company's CFO
and the Bridge Investor provided short term loans of $25,000 and $50,000,
respectively to the Company. Such loans were repaid as of March 31, 2021. During
the year ended December 31, 2021, the CFO provided a total of approximately
$120,000, of which $75,000 was converted into the August 2021 Notes. During the
year ended December 31, 2021, the Company received approximately $630,000
primarily from two bridge investors, of which $373,500 was converted into the
August 2021 Notes, and $20,000 was repaid. Approximately $243,000 was
outstanding as short-term advances to bridge investors as of December 31, 2022.
During the year ended December 31, 2021, Autotelic Inc. provided a short-term
funding of $120,000 to the Company, which was repaid in 2021. In May 2021,
Autotelic provided an additional short-term funding of $250,000 to the Company,
which was converted into the August 2021 Notes. Autotelic provided an additional
$20,000 short-term loan to the Company. During the year ended December 31, 2022,
Autotelic provided an additional $100,000 short term loan to the company and as
such, $120,000 was outstanding and payable to Autotelic at December 31, 2022.
Pet2DAO
In November 2022, the Company formed a Decentralized autonomous organization
("DAO") entity, Pet2DAO, Inc. ("Pet2DAO"), as a wholly owned subsidiary. A DAO
is an emerging form of legal structure, that has no central governing body, and
whose members share a common goal to act in the best interest of the entity.
Pet2DAO is a DAO technology company, integrating the strong governance of
traditional corporations with the innovative DAO architecture. The Company will
look to engage stakeholders, to build value through the DAO, while maintaining
the rigor of traditional corporations, including governance, compliance, and
accountability through a team of veterans in public companies with innovators in
AI, blockchain and Web3. Pet2DAO will initially be looking to develop products
for the animal health space. The Company will initially issue regular tokens and
non-fungible tokens ("NFT" and cumulatively "Tokens") of Pet2DAO, called PDAO,
to its employees, shareholders, and key opinion leaders ("KOLs') and use the
Tokens to propose and vote on various animal health related programs. In the
future, the Company will evaluate and plan to register these tokens with the SEC
to make such Tokens freely tradable at a future point in time.
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 considering
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 financial statements included elsewhere in
this Annual 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:
44
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. The 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.
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.
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.
45
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.
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 of 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 reviewed 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.
46
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.
Research and Development Expense
Research and development expense consists 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
expenses, 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.
47
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.
Results of Operations
Years Ended December 31, 2022, and 2021.
A comparison of the Company's operating results for the year ended December 31,
2022, and 2021, respectively, is as follows.
2022 2021 Variance
Operating expense:
Research and development $ 756,910 $ 3,658,617 $ (2,901,707 )
General and administrative 4,853,664 5,467,266 (613,602 )
Goodwill impairment 4,111,079 - 4,111,079
Total operating expense 9,721,653 9,125,883 (595.770 )
Loss from operations (9,721,653 ) (9,125,883 ) 595,770
Interest expense, net (2,971,046 ) (2,002,813 ) (968,233 )
PPP loan forgiveness - 346,761 (346,761 )
Reimbursement for expenses - related
party 533,485 - 533,485
Gain on derecognition of
non-financial asset 16,951,477 - 16,951,477
Loss on debt conversion (257,810 ) (27,504 ) (230,306 )
Change in the value of derivatives
on debt 142,150 292,149 (149,999 )
Net income (loss) before controlling
interests $ 4,676,603 $ (10,517,290 ) $ 15,193,894
Net Loss
We recorded a net income of approximately $4.7 million for the year ended
December 31, 2022, compared to a net loss of approximately $10.5 million for the
same period in 2021. The lower loss of approximately $15.2 million for the year
ended December 31, 2022, as compared to the same period of 2021 was primarily
due to recording a non-cash gain of $16.9 million in connection with
derecognition of non-financial asset related to the JV, reimbursement for
expenses from a related party of $0.5 million, lower operational expenses of
approximately $3.5 million, excluding goodwill impairment, and lower change in
value of derivatives on debt. This gain was offset by recording an impairment of
approximately $4.1 million on goodwill, which was created upon the acquisition
of PointR, due the lower market capitalization of our Company as compared to our
net assets (see Notes 2 and 3 to the Consolidated Financial Statements), higher
interest expense by approximately $1.0 million, lower PPP loan forgiveness of
approximately $0.3 million and approximately $0.2 million of a higher loss
recorded on conversion of debt.
48
Research and Development Expense
Research and Development ("R&D") expense decreased by approximately $2.9
million, to approximately $0.76 million for the year ended December 31, 2022, as
compared to approximately $3.7 million for the year ended December 31, 2021. The
reduction in the R&D activities cost is primarily due to reduced clinical trial
costs of $1.8 million for the trials for OT-101 and Artemisinin, decreased
compensation cost of approximately $1 million and $0.17 million for lower
operational costs as these costs have been borne by our JV.
Now that we have formed a joint venture with GMP Bio, whereby we are able to
transfer the responsibility of our drug development program to the JV, we expect
to increase research and development activities related to apomorphine,
including the initiation of new clinical trials for our other oncology
indications as well continuing or expanding on the trials and development of AI
based tools and applications for OT-101 and Artemisinin for COVID-19 and other
epidemics, and therefore believe that research and development expense may
increase in the future, subject to our continuing ability to secure sufficient
funding to continue planned operations.
General and Administrative Expense
General and administrative ("G&A") expense decreased by approximately $0.6
million, to approximately $4.8 million for the year ended December 31, 2022, as
compared to approximately $5.5 million for the same period of 2021. The decrease
in G&A expenses was primarily due to an increase of approximately $0.7 million
of non-cash stock-compensation expenses, offset by lower compensation costs of
approximately $0.8 million and lower legal and professional costs of
approximately $0.5 million.
Now that we have formed a joint venture with GMP Bio, we may be able to transfer
the responsibility of some or most of our G&A expenses to the joint venture, we
may see an increase in G&A expenses, subject to our continuing ability to secure
sufficient funding to continue planned operations.
Goodwill Impairment
We recorded a goodwill impairment of approximately $4.1 million on the
approximately $16.2 million goodwill, which we recorded upon our acquisition of
PointR, for the year ended December 31, 2022. No similar impairment was recorded
for the same period of 2021.
During the third and fourth quarters of 2022, we concluded that the steep
decline of our stock price, the market capitalization of our Company, and the
general economic conditions, which adversely impacted the majority of the
pharmaceutical and biotechnology industry, were indicative of a potential
impairment of our goodwill. While we evaluated and concluded that the AI
technologies related to the PointR acquisition are not adversely impacted, and
the Company continues to develop other AI technologies, the significant
reduction of our market capitalization required us to record an impairment on
the goodwill to the extent of the difference between the net assets of the
Company over the fair value based on the market capitalization.
Interest Expense
We recorded interest expense, including amortization of debt costs, of
approximately $3.0 million for the year ended December 31, 2022, in connection
with debt raised from the various convertible notes and a private placement
memorandum as compared to $2.0 million on convertible notes and a portion of the
private placement memorandum for the same period of 2021.
PPP Loan Forgiveness
During the year ended December 31, 2021, we recorded a PPP Loan Forgiveness of
approximately $0.35 million. No similar forgiveness was recorded during the year
ended December 31, 2022.
Reimbursement of expenses
The Company was reimbursed approximately $0.5 million, by Autotelic Inc. a
related party, during the year ended December 31, 2022 for expenses incurred by
the Company on behalf of our JV. No similar reimbursement was made during the
year ended December 31, 2021.
Gain on Derecognition of Non-financial Asset
During the year ended December 31, 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. No similar gain was recorded during the year ended December 31, 2021.
49
Loss on Conversion of Debt
During the year ended December 31, 2022, we recorded a loss on conversion of
debt of approximately $0.3 million related to the difference in fair value to
the price at which the debt was converted. We had recorded a similar loss of $28
thousand for the debt conversion by Peak One and TFK in 2021.
Change in value of derivatives
During the year ended December 31, 2022, we recorded a gain of $0.1 million due
to the change in value of derivatives on the notes issued to our CEO and the
bridge investors. Correspondingly, during the year ended December 31, 2021, we
recorded a gain of $0.3 million due to the change in value of derivatives on the
notes issued to our CEO and the bridge investors.
Liquidity, Financial Condition and Capital Resources ($s in '000's)
December 31, 2022 December 31, 2021
Cash, including restricted cash $ 261 $ 589
Working capital (16,620 ) (14,828 )
Stockholders' Equity 19,193 8,158
The Company has experienced net losses every year since inception and as of
December 31, 2022, had an accumulated deficit of approximately $25.9 million,
including approximately $4.1 million goodwill impairment recorded during the
fourth quarter of 2022. As of December 31, 2022, the Company had approximately
$0.3 million in cash and current liabilities of approximately $16.9 million, of
which approximately $1.3 million are net assumed liabilities of the Company as
part of the Oncotelic Inc. reverse merger, $4.1 million of debt related to debt
for conducting clinical trials for OT-101 from GMP and $2.6 million is
contingent liability to issue common shares of the Company to PointR
shareholders upon achievement of certain milestones. The Company does not expect
to generate any meaningful revenue from product sales or licensing in the near
future and expects to incur additional operating losses over the next several
years, primarily as a result of the Company's plans to continue clinical trials
for its investigational drugs. Since the Company successfully formed the joint
venture with Dragon Overseas and GMP Bio, all costs associated with developing
the assets licensed to the JV and a substantial portion of the G&A expenses will
shift over to the JV and hence the Company may be able to reduce its expenses.
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. 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 lead product candidate, Apomorphine for Parkinsons Disease,
erectile dysfunction, and female sexual dysfunction; OT-101 for both cancer and
COVID-19, 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 anticipates raising substantial additional capital through the sale
of equity securities and/or debt, but no new 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 favorable 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.
50
Cash Flows ($s in '000s)
Year ended December 31,
2022 2021
Net cash used in operating activities $ (1,453 ) $ (4,434 )
Net cash provided by financing activities 1,125
4,529
Increase/ (decrease) in cash $ (327 ) $ 95
Operating Activities
Net cash used in operating activities was approximately $1.5 million for the
year ended December 31, 2022. This was due to the net income of approximately
$4.7 million, primarily reduced by approximately $17 million due to a non-cash
gain recorded upon the derecognition of our non-financial assets and
approximately $0.1 million due to a change in fair value of derivatives, and
primarily increased by approximately $4.1 million of goodwill impairment,
approximately $2.0 million of amortization of debt and finance discounts,
approximately $2.9 million of non-cash stock based expense on issuance of
warrants, approximately $0.9 million of stock compensation, approximately $0.3
million of loss on conversion of debt and approximately $0.8 million due to
changes in operating assets and liabilities.
Net cash used in operating activities was approximately $4.4 million for the
year ended December 31, 2021. This was due to the net loss of approximately
$10.5 million, which was partially offset by a $1.5 million of R&D cost paid
through debt from GMP, non-cash amortization of debt discounts and deferred
financing costs of $1.4 million, non-cash stock-based compensation of $0.8
million, amortization and depreciation of intangibles and development equipment
of $0.1 million, non-cash gain on conversion of debt and change in fair value of
derivatives of $0.3 million, forgiveness of the PPP Loan of $0.3 million and
changes in operating assets and liabilities of approximately $0.2 million.
Financing Activities
For the year ended December 31, 2022, net cash provided by financing activities
was approximately $1.1 million. Net cash provided was due to approximately $0.2
million raised from sale of common stock under the equity purchase agreement
with Peak One and approximately $1.0 million raised through issuance of
convertible debt.
For the year ended December 31, 2021, net cash provided by financing activities
was approximately $4.5 million. Net cash provided was due to approximately $1.6
million raised from the JH Darbie Financing, $0.1 million received under the
Payroll Protection Plan, $0.4 million raised from sale of common stock under the
equity purchase agreement with Peak One, $2.8 million raised through issuance of
convertible debt, repayment of $0.4 million of convertible debt due to Geneva
and repayment of $0.2 million of other notes.
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.
51
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.
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