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 |
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ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2026
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| In process R&D | ||||||||
| Goodwill, net of impairment | ||||||||
| Investment in equity securities | ||||||||
| Investment in GMP Bio at fair value | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable to 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 | ||||||||
| Deferred income tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 15) | ||||||||
| Stockholders’ equity: | ||||||||
| Convertible preferred stock, $ par value, shares authorized; and issued and outstanding, respectively | ||||||||
| Common stock, $ par value; shares authorized; and issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated equity | ||||||||
| 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 condensed consolidated financial statements.
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ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three AND SIX MONTHS ended JUNE 30, 2026 and 2025
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Service revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Gain on derecognition of non-financial asset | ||||||||||||||||
| Change in fair value equity investment | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative on debt | ||||||||||||||||
| Total other income | ||||||||||||||||
| Net income (loss) before non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) attributable to Oncotelic Therapeutics, Inc. | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Basic and diluted net income (loss) per share attributable to common stock | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Basic and diluted weighted average common stock outstanding | ||||||||||||||||
| Diluted net income (loss) per share attributable to common stock | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Diluted weighted average common stock outstanding | ||||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
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ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non-controlling | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Equity | Interests | Equity | |||||||||||||||||||||||||
| Balance at January 1, 2026 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Preferred shares issued for services | - | |||||||||||||||||||||||||||||||
| Shares and warrants issued in connection with debt conversion | ||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Common shares issued upon conversion of debt | ||||||||||||||||||||||||||||||||
| Common shares issued with debt | ||||||||||||||||||||||||||||||||
| Shares issued in connection with equity purchase agreement | - | |||||||||||||||||||||||||||||||
| Net Income (Loss) | - | - | ( | ) | ||||||||||||||||||||||||||||
| Balance at June 30, 2026 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
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ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non-controlling | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||||||||
| Balance at January 1, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Common shares issued upon partial conversion of debt | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Net Income (Loss) | - | ( | ) | |||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
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ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2026, AND 2025
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of debt discount and deferred finance costs | ||||||||
| Stock-based compensation | ||||||||
| Gain on derecognition of non-financial asset | ( | ) | ||||||
| Change in fair value equity investment | ( | ) | ||||||
| Common shares issued to investors | ||||||||
| Change in fair value of derivative | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaids and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Accounts payable to related party | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sales of common stock under equity purchase agreement | ||||||||
| Net proceeds from convertible debt | ||||||||
| Proceeds from short term loans, others | ||||||||
| Repaid to related party/others | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase 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: | ||||||||
| Common stock issued in connection with debt | $ | $ | ||||||
| Common shares issued upon conversion of debt | $ | $ | ||||||
| Equity investment in exchange for non-financial asset | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
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ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Oncotelic Therapeutics, Inc. (“Oncotelic” or the “Company”) was originally incorporated in the State of New York in 1988 as OXiGENE, Inc. The Company reincorporated in the State of Delaware in 1992, changed its name to Mateon Therapeutics, Inc. (“Mateon”) in 2016, and subsequently changed its name to Oncotelic Therapeutics, Inc. in November 2020. The Company conducts business through Oncotelic and its wholly owned subsidiaries, including Oncotelic, Inc., PointR Data, Inc. (“PointR”), Pet2DAO, Inc. (“Pet2DAO”), and EdgePoint AI, Inc. (“EdgePoint”), a consolidated subsidiary with non-controlling interests. (Collectively, “Oncotelic,” “we,” “our,” or “the Company”). Further detail on prior mergers and corporate history is provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the Securities and Exchange Commission (“SEC”) on April 15, 2026.
The Company is principally focused on the development of immuno-oncology therapeutics, including OT-101, a transforming growth factor-beta (“TGF-β”) inhibitor being advanced for difficult-to-treat cancers and viral respiratory diseases. OT-101 is being developed through our joint venture (“JV”) with Dragon Overseas Capital Limited (“Dragon”) and GMP Biotechnology Limited (“GMP Bio”), affiliates of Golden Mountain Partners (“GMP”).
The
Company entered into a JV with Dragon to form GMP Bio in March 2022. The Company’s ownership interest in GMP Bio is
During
the year ended December 31, 2025, GMP Bio completed an independent third-party valuation by an offshore independent valuation firm, which
preliminarily estimated the potential value of the drug pipeline under development at approximately $
| 8 |
Oncotelic conducted an assessment of the change in fair value and hired the services of a separate, ASC-compliant valuation firm to perform a valuation of GMP Bio under U.S. GAAP standards. The results of this valuation that indicated a change in the value of the Company’s holdings in GMP Bio have been incorporated into this, consistent with the Company’s fair value reporting under U.S. GAAP. The valuation conducted by the independent valuation firm conducted a fair value of GMP Bio based on various methods compliant with US GAAP to derive the fair value. The Company then utilized the fair value of GMP Bio as assessed by the valuation firm, attributed the ownership of the Company in GMP Bio to ascertain the Company’s interest in GMP Bio, and recorded the resulting gain to the investment in GMP Bio at fair value. The Company relied on the inputs by the JV valuation, however, certain parameters like lack of marketability, lack of control discounts and other standard discounts, specific to the Company, have been applied to the independent valuation done by the Company to derive the ASC-compliant valuation. As the circumstances related to the JV have not materially changed since December 31, 2025 till the date of this filing, the Company qualitatively assessed and determined that no additional fair value adjustment was required and hence, the Company has not recorded a change in value of the Company’s interest in the JV. In the future, the Company will appropriately adjust the fair value of the Company’s interest in the JV, at the end of reporting periods, and when key value inflection points are met or the Company observes conditions that require the fair value of the Company’s interest in the JV to be adjusted.
The JV continues preparing for planned Phase 2 and Phase 3 trials for OT-101 in high-grade glioma, pancreatic cancer, and other indications. The JV is also sponsoring investigator-initiated clinical studies in additional oncology applications. In addition, the JV is developing five additional therapeutic candidates, which, if successfully developed and approved, are anticipated to contribute significant revenues, income and meaningful long-term value to both the JV and the Company.
In addition to the development of OT-101 (also referred to as Sapu-002), the JV is advancing the development of five additional therapies:
| a. | Sapu-001 – A paclitaxel-based taxane therapy, which can address cancers like breast cancer, non-small cell lung cancer, pancreatic cancer and ovarian cancer | |
| b. | Sapu-003 – An evorolimus formulation, which can address renal cell cancer, neuroendocrine tumors and tuberous sclerosis complex (renal angiomyolipoma and subependymal giant cell astrocytoma) | |
| c. | Sapu-004 – A carboplatin formulation, which can address small cell lung cancer, head and neck cancer and testicular cancer | |
| d. | Sapu-005 – A palbociclib formulation, which would address HR+, HER2- breast cancer | |
| e. | Sapu-006 – A docetaxel formulation, which can address prostate cancer and gastric cancer. |
Each of these therapies, and the various cancers they address, have shown they are increasing in terms of incidences and that opens up the avenue to be able to generate revenues ranging from several millions of dollars to several hundreds of millions of dollars, if successfully developed and commercialized.
Although no assurances can be given, GMP Bio currently intends 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 Condensed Consolidated Financial Statements.
The Company’s core scientific focus is the development of its proprietary self-immunization protocol (“SIP™”), designed to stimulate a patient’s immune system to recognize and target tumors without requiring tumor extraction or antigen identification. The SIP™ platform is supported by more than three decades of RNA-based research and is being applied initially to oncology, with potential expansion to Duchenne Muscular Dystrophy (“DMD”) and other diseases driven by TGF-β overexpression.
Separately from the JV, the Company plans to develop OT-101 for select animal-health indications and is evaluating the use of digital assets and blockchain-based technologies to support that platform. The Company acquired apomorphine for potential uses in Parkinson’s disease, erectile dysfunction, and female sexual dysfunction. The Company continues to evaluate advancement opportunities for OXi4503 (for acute myeloid leukemia and myelodysplastic syndromes) and CA4P (in combination with checkpoint inhibitors for metastatic melanoma). The development of all these products will be subject to the availability of resources to develop them.
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In April 2026, the Company announced that it had entered into a strategic partnership with TechForce Robotics, Inc. (“TechForce”) to advance the commercialization of its PDAOAI-enabled, GMP-compliant robotics platform. This milestone reflects the culmination of several years of research and development efforts, resulting in an integrated platform designed to combine Oncotelic’s proprietary PDAOAI capabilities with TechForce’s robotics hardware and manufacturing expertise. The system under development is designed to operate within GMP-regulated environments and is intended to enable automated material handling, real-time monitoring, and PDAOAI-enhanced compliance workflows across pharmaceutical manufacturing and related applications. For more information on the partnership with TechForce, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on April 15, 2026.
Agreement and Plan of Merger with Lunai Bioworks Inc.
In April 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lunai Bioworks, Inc. (“Lunai”), a Delaware corporation, Lunai Bioworks IP, Inc., a Delaware corporation and a wholly owned subsidiary of Lunai (“Merger Sub”), Neurobridge IP Holdings Incorporated, a Delaware corporation (“Holdings”). In connection with the Merger Agreement, the Company entered into an IP Assignment Agreement with Holdings, pursuant to which it agreed to contribute and assign certain assets relating to the intellectual property of the Company (collectively, the “Intellectual Property Assets”) to Holdings. For more discussion on the transactions with Lunai, refer to Note 9 of these Notes to Condensed Consolidated Financial Statements.
Fundraising
Pacific Pier June 2026 Note
On
June 23, 2026, the Company entered into a Securities Purchase Agreement (the “2026 Pacific Pier SPA”), with
Pacific Pier Capital II, LP (“Pacific Pier”), pursuant to which Company issued a convertible promissory note in
the aggregate gross principal amount of $
For more information on the Pacific Pier financing of the Company, refer to Note 5 of the Notes to the Condensed Consolidated Financial Statements.
Mast Hill January 2026 Note
In
January 2026, the Company entered into a Securities Purchase Agreement with Mast Hill Fund, L.P. (“Mast Hill”), pursuant
to which the Company issued a 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 unaudited Condensed Consolidated Financial Statements.
Mast Hill July 2025 Note
In
July 2025, the Company entered into a Securities Purchase Agreement with Mast Hill, pursuant to which the Company issued a
convertible promissory note in the aggregate principal amount of approximately $
For more information on the debt financing of the Company, refer to Note 5 of the Notes to the unaudited Condensed Consolidated Financial Statements.
| 10 |
Mast Hill Equity Purchase Agreement
In
August, 2025, the Company entered into an Equity Purchase Agreement (the “Mast EPA”) and a Registration Rights Agreement
(the “Mast Registration Rights Agreement”) with Mast, pursuant to which the Company shall have the right, but not
the obligation, to direct Mast, to purchase up to $
For more information on the Mast EPA, refer to Note 10 of the Notes to the unaudited Condensed Consolidated Financial Statements.
Jefferson Capital Ventures, LLC and Valor Nation, Inc Independent Contractor Agreements
In
August 2025, the Company entered into independent contractor agreements (“ICA”) with Jefferson Capital Ventures, LLC
(“Jefferson”) and Valor Nation, Inc. (“Valor”) for providing certain consulting and advisory services.
The ICAs call for Jefferson and Valor to provide consulting and advisory services including strategic planning meetings, coordination
non-legal support for SEC compliance, balance sheet and income statement optimization strategies, shareholder and investor communication
planning, liaison with investment bankers, analysts, and institutional investors, operational efficiency and cost-saving recommendations
and ancillary strategic services not requiring a license, corporate planning, operations and capital markets advisory services not requiring
licenses. For more information on the Jefferson and Valor ICAs, refer to our Current Report on Form 8-K filed with the SEC on August
12, 2025. Further on December 31, 2025 the Company reported modifying the threshold of the first milestone contained within the ICA with
Jefferson, to earn certain RSAs of shares the Company’s Common Stock upon the achievement of certain corporate milestones. The
amendment modified the Company’s market capitalization exceeded $
Private Placement 3 & JH Darbie Financing
In
December 2025, the Company completed the conversion of the debt of forty-seven (47) accredited investors from the JH Darbie
Financing from our prior private placement (“PPM-2”) into the new subscription agreements under the new financing
(“PPM-3”) in three tranches, which resulted in conversion of approximately $
May 2022 Note
In
May 2022, the Company entered into a Securities Purchase Agreement with Mast Hill, pursuant to which the Company issued a
convertible promissory note in the aggregate principal amount of approximately $
For more information on the debt financing of the Company, refer to Note 5 of the Notes to the unaudited Condensed Consolidated Financial Statements.
| 11 |
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
$
Mosaic ImmunoEngineering, Inc. Term Sheet
In April 2024, the Company entered into a binding term sheet (the “Term Sheet”) with Mosaic Immuno Engineering, 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. In December 2024, the Company and Mosaic further extended the term of the term-sheet to expire at the earlier of (1) the signing of definitive agreements or (2) June 30, 2025. Both Mosaic and the Company are in discussions as to the future of this Term Sheet and how to proceed on this front.
Joint Development, Manufacturing and Licensing Agreement with TechForce Robotics
In March 2026, the Company entered into a Joint Development, Manufacturing, and Licensing Agreement (the “TechForce Agreement”) with TechForce Robotics, Inc. (“TechForce”), a Nevada corporation. The TechForce Agreement establishes a framework for the joint development, and manufacturing of AI-enabled, GMP-compliant robotic systems for use in pharmaceutical and related manufacturing environments. The integrated product to be developed (the “Product”) combines TechForce’s robotic hardware with the Company’s proprietary PDAOAI Platform.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of Oncotelic, its wholly owned subsidiaries, Oncotelic Inc. PointR, and EdgePoint our consolidated non-controlled interest entity. Intercompany accounts and transactions have been eliminated in consolidation. The Company’s investment in GMP Bio is recorded and reported as a minority investment in equity securities.
The Company also holds an equity investment in Lunai. The Company has determined that it does not have a controlling financial interest in Lunai and does not exercise significant influence over its operating or financial policies. Accordingly, the investment is not consolidated and is not accounted for under the equity method. The investment is accounted for in accordance with the applicable guidance for equity securities in ASC 321 and is included in “Investment in equity securities” in the accompanying unaudited condensed consolidated balance sheet.
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements as of June 30, 2026 and for the three and six months ended June 30, 2026, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission including Form 10-Q and Article 8 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2025 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the SEC on April 15, 2026. In management’s opinion, all normal, and recurring adjustments necessary for a fair statement, have been included. The results for the three and six months ended June 30, 2026 are not necessarily indicative of the results for the year ending December 31, 2026.
Liquidity and Going Concern
The
accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a
going concern. Prior to December 31, 2024, the Company incurred net losses of approximately $
| 12 |
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. During the six months ended June 30, 2026, the Company raised an aggregate amount of
$
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 twelve 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 U. S. 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 related valuation allowance, and fair value of financial instruments.
Cash and Restricted Cash
As
of June 30, 2026, and December 31, 2025, the Company held all its cash in banks in the United States of America. The Company
considers investments in highly liquid instruments with a maturity of three months or less to be cash equivalents. The Company did
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.
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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 or liabilities at June 30, 2026 and December 31, 2025.
Investment in equity securities
The Company holds equity investments in GMP Bio and Lunai Bioworks Inc. that do not result in a controlling financial interest or significant influence. The Company has elected the fair value option under ASC 825, Financial Instruments. Consequently, these investment are carried at fair value on the unaudited Condensed Consolidated Balance Sheets, with all subsequent changes in fair value recognized immediately in earnings under ASC 321. Unrealized gains and losses resulting from changes in fair value are reported within other income (expense), net on the unaudited Condensed Consolidated Statements of Operations. Below is the change in the fair value of the Company’s equity investments for the six months ended June 30, 2026 and the Audited Consolidated Statements of Operations for the year ended December 31, 2025:
Beginning Period Fair Value | Adjustment to Fair Value | Ending Period Fair Value | ||||||||||
| June 30, 2026 | ||||||||||||
| Investment in GMP Bio (JV) | $ | $ | $ | |||||||||
| Investment Lunai | ||||||||||||
| Total | $ | $ | $ | |||||||||
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Beginning Period Fair Value | Adjustment to Fair Value | Ending Period Fair Value | ||||||||||
| December 31, 2025 | ||||||||||||
| Investment in GMP Bio (JV) | $ | $ | $ | |||||||||
| 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 June 30, 2026 and December 31, 2025. During the year ended December 31, 2025, there was a change in the long-term value of the Company’s investment in equity securities of GMP Bio and as such has been recorded as above. No similar change in fair value has been recorded in the long-term value of the GMP Bio investment during the six months ended June 30, 2026 as the Company has not observed any qualitative conditions required to record any further changes to the fair value. For more information, see Change in Fair Value of Equity Securities of GMP Bio below.
In
addition, the Company recorded a $
Change in Fair Value of Equity Securities of GMP Bio
On
March 31, 2022, the Company entered into the JV with Dragon, contributing a license agreement for rights to OT-101for the territory
within the United States of America with Sapu Holdings, LLC, a wholly owned subsidiary of GMP Bio and a license agreement for rights
to OT-101 for the rest of the world with GMP Bio. For more information on the JV and the related agreements, refer to our 2022
Annual Report on Form 10-K/A filed with the SEC on April 19, 2023. As of the effective date of the formation of the JV, the Company
received a
The investment in GMP Bio has been accounted for under the fair value method of accounting. Similarly, during the year ended December 31, 2025, the Company determined that a remeasurement of its investment to fair value was appropriate. All the factors described below allowed the Company to form a basis for a triggering event of significant development for the JV and justified the JV, and consequently the Company, to reassess the fair value of the JV.
The JV’s principal activities centered on the commercialization of OT-101 for certain oncology indications in the US and looking at other territories as well. In March 2025, the JV successfully completed a Phase 1 clinical trial evaluating OT-101, in combination with IL-2 for advanced or metastatic solid tumors. These results set the stage for new studies that combine OT-101, an antisense therapeutic targeting Transforming Growth Factor Beta 2 (TGFβ2), with checkpoint inhibitors (“CKIs”) and recombinant IL-2 (aldesleukin) (“IL-2”). The Phase 1 trial (ClinicalTrials.gov ID: NCT04862767) investigated the safety and tolerability of OT-101 in combination with recombinant IL-2 in patients with advanced or metastatic solid tumors. The combination showed a tolerable safety profile at the planned dosing schedule, with no unexpected safety signals identified. Based on the favorable safety data, the JV plans to advance OT-101 plus IL-2 into further clinical studies, exploring synergies with CKIs such as PD-1 blockers. The JV is also sponsoring investigator-initiated studies for OT-101 for other oncology indications including lung cancer (non-small cell lung cancer- NSCLC- and Mesothelioma.- MPM) and has started clinical development for OT-101 for pancreatic cancer. Over ten patent families have been filed exploiting the central role of TGFB2 as prognostic indicator for cancer survival and one patent family for the intracranial delivery device of brain cancer with issued patent in China and Germany.
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In addition to OT-101, the JV has developed a nanoparticle platform (“Nano Platform”) that entails the formulation of products in new nanoparticle sizes. The JV anticipates that the Nano Platform may offer superior platform for the absorption of water insoluble drugs across a broad spectrum of cancers. The JV is working on improved formulations for OT-101 with new nanoparticle sizes. In addition, the JV has identified five additional compounds as product candidates on the Nano Platform, including the following:
| ● | The JV has completed the formulation development of the first product, everolimus for injection. The JV has initiated a global clinical trial for that product, including open patient enrollment in Australia. The JV hopes to complete the Phase 1 trial and to move to a Phase 3 noninferiority trial against Affinitor. Phase 3 trial is slated to initiate within one year with completion and submission for marketing approval no less than three years thereafter. | |
| ● | The JV is developing palbociclib for injection on the Nano Platform and expects to file the investigational new drug (“IND”) and to initiate a Phase 1 trial in 2026. | |
| ● | The JV is developing docetaxel and paclitaxel for injection on the Nano Platform and expects to file the IND to initiate a Phase 1 trial for this product candidate in 2026. These are expected to go through the 505(b)2 bioequivalence pathway which should result in rapid entrance into the market | |
| ● | In addition, the JV has also identified developing carboplatin and intends to begin the development as soon as the other products clinical trials are under way |
The DeciparticleTM platform has proven robust and is being expand to other drug candidates through partnering. The platform is protected by more than 15 patent families covering chemical composition, manufacturing, and method of use.
The JV built a GMP manufacturing facility in San Diego, California (the “San Diego Facility”). In late 2024, the San Diego Facility was issued a Drug Manufacturing License by the State of California Department of Public Health and Food and Drug Branch. A significant portion of the manufacturing for the Nano Platform, including the development of Phase I clinical trial materials, is conducted at the San Diego Facility. Evaluation of larger commercial scale manufacturing is ongoing.
In early 2025, the Company entered into a strategic partnership with Shanghai Medicilon, Inc. (“Medicilon”) to access its industry-leading rapid IND development platform to support up to 20 IND projects, including INDs developed by the JV. All six of the compounds that the JV is developing are planned to be initiated under these INDs, and are focused on next-generation anticancer agents.
During
the year ended December 31, 2025, GMP Bio completed an independent third-party valuation by an offshore independent valuation firm,
which preliminarily estimated the potential value of the drug pipeline under development at approximately $
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The Company then conducted its own independent assessment of the valuation of the JV. The basis for the valuation was reliance on the valuation report of the third party offshore valuation firm, including the financial projection, risks and parameters of assessment as done by the offshore independent valuation firm, and then applying additional independent parameters, like discounts for lack of marketability and lack of control, and other standard discounts, required to adhere to the ASC-compliant standards as generally used in the United States. The Company hired the services of an independent, ASC-compliant valuation firm to review, perform and validate the assumptions considered by the Company and provide an ASC-compliant valuation of the JV under U.S. GAAP standards. The valuation conducted by the independent ASC-compliant valuation firm of the JV was based on various methods compliant with ASC and U. S. GAAP to derive the fair value. The Company then utilized the fair value of GMP Bio, as assessed by the ASC-compliant valuation firm, attributed the ownership percentage of the Company in GMP Bio, to ascertain the Company’s interest in GMP Bio and recorded the resulting gain to the investment in GMP Bio at fair value. As the circumstances related to the JV have not materially changed since December 31, 2025, the Company assessed and determined that no additional fair value adjustment was required during the six months ended June 30, 2026, and hence, the Company has not recorded a change in value of the Company’s interest in the JV. The Company will appropriately adjust the fair value of the interest of the Company’s interest in the JV at the end of future reporting periods and when key value inflection points are met.
As many of the inputs considered for the purpose of the valuation are unobservable inputs including, but not limited to, the potential revenue projections, the probability of success, the conduct of the clinical trials under accelerated timelines of approvals by the territorial regulatory bodies similar to the 505(b)(2) pathway under the US FDA regulations, the timing of completion of the clinical trials and approvals of the products, timing of product launches, estimates for working capital, additional research and development and general and administrative expenses, estimated tax rates, interest rates of potential debt and many others. The fair value of the Company’s investment was determined in accordance with ASC 820 Fair Value Measurement and is classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs. The valuation was performed with the assistance of an independent third-party valuation specialist and utilized an income approach (discounted cash flow method) and market-based approach (guideline public company multiples) and recent transactions, where available, to corroborate the results of the income approach. The final value was then arrived at by calculating the average of the values under the two approaches. The income approach of valuation incorporates assumptions that market participants would use in pricing the asset, including estimates of future financial performance and the selection of an appropriate discount rate. As the circumstances related to the JV have not materially changed since December 31, 2025, and June 30, 2026, the Company assessed and determined that no additional fair value adjustment was required and hence, the Company has not recorded a change in value of the Company’s interest in the JV.
Fair Value Hierarchy – GMP Bio
The Company’s investment in the JV is classified within Level 3 of the fair value hierarchy under ASC 820 Fair Value Measurement due to the use of significant unobservable inputs, including projected cash flows and discount rates.
The fair value measurement was determined on a recurring basis as of June 30, 2026, and December 31, 2025. There were no transfers between Levels 1, 2, or 3 during the period.
The following table presented the fair value of the Company’s investment in the JV by level within the fair value hierarchy as June 30, 2026:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Fair value of investment in JV | $ | $ | ||||||||||||||
Quantitative Information about significant unobservable inputs (Level 3):
| Valuation Technique | Unobservable Input | Range | ||
| Discounted Cash Flow | Revenue growth rate | ( | ||
| Discounted Cash Flow | EBIT margin | ( | ||
| Discounted Cash Flow | Discount rate (WACC) | |||
| Discounted Cash Flow | Terminal growth rate | |||
| Discounted Cash Flow | Product penetration rates |
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The
projected revenue growth rates reflected an initial period of accelerated growth associated with the commercialization and market adoption
of one product followed by additional products, subsequently followed by a gradual decline as the business matures and reaches a more
stable and then stagnant growth phase as generics enter the market. The pharmaceutical industry often exhibits a financial profile characterized
by initially negative EBIT margins, transitioning to high or blockbuster EBIT margins over financial projections. This J-curve trajectory
is driven by extreme R&D costs, long development timelines and regulatory protection for a successful drug. The discount rate of
Sensitivity and Measurement Uncertainty
The
fair value of the Company’s investment in the JV is based on significant unobservable inputs and, as a result, is subject to substantial
measurement uncertainty. Changes in key assumptions could result in a materially different fair value. For example, a 100 basis point
increase in the discount rate could result in a decrease in the estimated fair value of approximately $
| ● | The JV’s ability to successfully execute its business strategy | |
| ● | Market adoption of its products and services | |
| ● | Competitive dynamics within the industry | |
| ● | Changes in macroeconomic conditions and capital markets |
Given the early-stage nature of the JV and the absence of an active market for its equity interests, the fair value measurement is particularly sensitive to changes in key assumptions, including projected revenue growth rates, profitability, and the discount rate. Accordingly, actual results could differ materially from those reflected in the valuation, and such differences could have a material impact on the Company’s financial position and results of operations in future periods. The valuation does not represent a guaranteed realizable value and may differ significantly from amounts that could be realized in an actual transaction.
Restrictions on Transfer
The Company’s ownership interest in the Joint Venture is subject to certain contractual restrictions on transfer under the JV Agreement. In accordance with ASU 2022-03 Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, such restrictions were considered in the determination of fair value.
Concentration of Credit Risk
The Company does not believe that it is exposed to significant concentrations of credit risk related to its investment in the Joint Venture.
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Additional Considerations
The
fair value of the Company’s investment reflects its
Fair Value Hierarchy – Lunai
The
Company’s equity investment in Lunai is classified within Level 3 of the fair value hierarchy under ASC 820 Fair Value
Measurement due to the use of significant unobservable inputs, including lack of marketability and liquidity conditions and
contractual limitation conditions. The fair value of the investment is determined using a market approach that considers the quoted
market price of Lunai’s publicly traded common stock, adjusted to reflect the specific rights, preferences, and restrictions
associated with the Series B preferred stock. Because significant unobservable inputs are used in determining fair value, the
investment is classified as a Level 3 asset within the fair value hierarchy. The Company received convertible preferred stock of Lunai, with a stated
value of $
The fair value measurement was determined as of June 30, 2026 only, as no similar transactions were recorded during the year ended December 31, 2025. There were no transfers between Levels 1, 2, or 3 during the period.
The following table presented the fair value of the Company’s equity investment in Lunai Bioworks by level within the fair value hierarchy as of June 30, 2026:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Fair value of equity investment in Lunai | $ | $ | ||||||||||||||
Quantitative Information about significant unobservable inputs (Level 3)
The Company first attributed a portion of the value of the market capitalization of Lunai common stock, based on a fully diluted basis including the preferred shares and common shares. The market capitalization of Lunai was the only observable input available and used in the fair market value of the Company’s investment in preferred shares of Lunai Bioworks.
The Company then considered the below factors that impacted the liquidity and marketability of the underlying equity interest along with existing contractual restrictions associated with the Lunai Preferred Stock on the date of the closing of the Lunai transaction and then on June 30, 2026.
Sensitivity and Measurement Uncertainty
The
fair value of the Company’s investment in Lunai is based on significant unobservable inputs and, as a result, is subject to substantial
measurement uncertainty. Changes in key assumptions could result in a different fair value. For example, a 10 percent increase in
the discount rate could result in a decrease in the estimated fair value of approximately $
Lack of liquidity and marketability
The
Company’s ownership of the convertible preferred shares of Lunai, even if converted into common shares of Lunai, is faced with
liquidity and marketability limitations. The common stock of Lunai is fairly thinly traded. Further the preferred shares have Rule 144
restrictions and are restricted in book entry form, have no DTC eligibility, require shareholders’ approval prior to conversion amongst
other conditions. The Company attributed a
Contractual Risks
The
Company believes that it is exposed to certain concentrations of credit risk related to its investment in the Lunai preferred
shares, such as beneficial ownership limitation, suspended conversion, cancellation of the shares if there were an IP clawback,
cancellation of shares in the event of indemnification claims among other conditions. The Company attributed a
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Based
on the above limitations, the Company recorded an initial fair value of $
For more information on Lunai, refer to Note 9 – Lunai Bioworks Transactions to these Notes to the unaudited Condensed Consolidated Financial Statements below.
Derivative Liability Related to 2019 Bridge Financing
The Company has certain derivative liabilities associated with its 2019 bridge financing Convertible Notes (see Note 5), consisting of conversion feature derivatives at June 30, 2026 and December 31, 2025, and 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 for the below periods:
| June 30, 2026 Conversion Feature | December 31, 2025 Conversion Feature | |||||||
| Balance at January 1, 2026 and 2025 | $ | $ | ||||||
| Change in fair value | ( | ) | ( | ) | ||||
| Balance at June 30, 2026 and December 31, 2025 | $ | $ | ||||||
As of June 30, 2026 and December 31, 2025, 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 consist, 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 June 30, 2026 and December 31, 2025:
| June 30, 2026 | December 31, 2025 | |||||||
| Risk free interest | % | % | ||||||
| Market price of share | $ | $ | - | |||||
| Life of instrument in years | ||||||||
| Volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
A
contingent consideration liability of $
If and 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 when the transfers occur. For the periods ended June 30, 2026 and June 30, 2025, there were no transfers of financial assets or financial liabilities between the hierarchy levels.
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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 months ended June 30, 2026, we included of Common Stock Equivalents related to the convertible notes, to the weighted average Common Stock, as we reported a gain of approximately $ million during such period. For the three months ended June 30, 2025, we included of Common Stock Equivalents, related to the convertible notes, to the weighted average Common Stock, as we reported a gain of approximately $ million during such period.
For the six months ended June 30, 2026 and 2025, respectively, equivalent shares of the Common Stock were included as the Company incurred losses during the said periods, because addition of such stock equivalents in the computation would have been anti-dilutive.
The Company applies the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and non-employees, including employee stock options, in the statements of operations.
For stock options issued, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.
For warrants issued in connection with fund raising activities, the Company estimates the grant date fair value of each warrant using the Black-Scholes pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the warrant, the expected volatility of the Common Stock consistent with the expected life of the warrant, risk-free interest rates and expected dividend yields of the Common Stock. If the warrants are issued upon termination or cancellation of prior issued warrants, then the Company estimates the grant date fair value of the new warrants using the Black-Scholes pricing model and evaluates whether the new warrants are deemed as equity instruments or liability instruments. If the warrants are deemed to be equity instruments, the Company records stock compensation expense and an addition to additional paid in capital. If 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.
For shares issued in connection with provision of services, the Company estimates the cost of the shares at the price of the Company’s stock on the date of issuance and records that cost as a stock-based compensation cost.
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 six months ended June 30, 2026 and 2025, there were
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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 intangible asset’s carrying amount exceeds its fair value, an impairment
loss is recognized for the difference. For the three and six months
ended June 30, 2026 and 2025, there were
Goodwill
Goodwill represents the excess of the purchase price of an 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 may be initiated by performing an optional qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that it is not more likely than not that the fair value is less than the carrying amount, further quantitative testing is not required. Otherwise, a quantitative impairment test is performed by comparing the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. For the three and six months ended June 30, 2026, and 2025, no impairment was recognized toward goodwill. For more information on goodwill and impairment, refer to Note 3 to these Notes to the unaudited Condensed Consolidated Financial Statements.
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 Condensed Consolidated Statements of Operations.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives and Hedging” (“ASC 815”).
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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 occurs that is not within the entity’s control could or would require net cash settlement, then the contract shall be classified as an asset or a liability.
Variable Interest Entity (VIE) Accounting
The
Company evaluates its ownership, contractual relationships and other interests in entities to determine the nature and extent of the
interests, whether such interests are variable interests and whether the entities are VIEs in accordance with ASC 810,
Consolidations. These evaluations can be complex and involve Management judgment as well as the use of estimates and assumptions
based on available historical information, among other factors. Based on these evaluations, if the Company determines that it is the
primary beneficiary of a VIE, the entity is consolidated into the financial statements. At June 30, 2026 and December 31, 2025, the
Company identified EdgePoint as the Company’s sole VIE. At June 30, 2026 and December 31, 2025, 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 unaudited condensed 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 unaudited Condensed 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.
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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 considerable influence but do not have control. Under the equity method of accounting, our investment in each arrangement is included on our unaudited condensed consolidated balance sheet; however, the assets and liabilities of the joint ventures for which we use the equity method are not included on our unaudited condensed consolidated balance sheet.
When we sell or contribute properties to unconsolidated arrangements and retain a non-controlling ownership interest in such assets, we recognize the difference between the consideration received and the carrying amount of the asset sold or contributed when its derecognition criteria are met. The equity method investment we retain in such partial sale transactions is noncash consideration and is measured at fair value. As a result, the accounting for a partial sale will result in the recognition of a full gain or loss.
When circumstances indicate there may have been a reduction in the value of an equity investment, we evaluate whether the loss in value is other than temporary. If we conclude it is other than temporary, we recognize an impairment charge to reflect the equity investment at fair value.
The Company elected the fair value option under the fair value option Subsection of Section 825-10-15 to account for its equity-method investment as the Company believes that the fair value option is most appropriate for a company in the biotechnology industry, The fair value option is more appropriate for companies that are involved in extensive and usually very expensive research and development efforts, which are not appropriately reflected in the market value or reflective of the true value of the development activities of the Company.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
Under ASC 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 process: (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 ASC 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.
| 24 |
While
the Company entered into the transactions with Lunai and recorded service revenue of approximately $
The Company occasionally collects advance payments from customers toward commitments to provide services or performance obligations, in which case the advance payment is recorded as a liability until the obligations are fulfilled and revenue is recognized.
Research & Development Costs
In accordance with ASC 730-10-25 “Research and Development”, research and development costs are charged to expense as and when incurred.
Recent Accounting Pronouncements
Recently Adopted
In December 2023, the FASB issued ASU 2023-09, “Improvements to Tax Disclosures” (Topic 740). The new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures through changes to the rate reconciliation and the income taxes paid information disclosed. The ASU is effective prospectively for fiscal years beginning after December 15, 2024, with retrospective application and early adoption permitted. The Company adopted this ASU on a prospective basis as of December 31, 2025
Not Yet Adopted
In November 2024 and January 2025, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures” (Subtopic 220-40) “Disaggregation of Income Statement Expenses” and ASU 2025-01 “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures” (Subtopic 220-40): Clarifying the Effective Date”. The new guidance is intended to enhance transparency and disclosures by requiring public business entities to disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The ASU is effective for the first annual reporting periods after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is in the process of evaluating the impact that the adoption of this ASU will have on its financial statements and related disclosures.
All other newly issued, but not yet effective, accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
NOTE 3 - ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS
Goodwill from 2019 Reverse Merger with Oncotelic and Merger with 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 $
| 25 |
Further,
we added goodwill of approximately $
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 have 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. impairment to goodwill was required to be recorded for the year ended December 31, 2025. The Company evaluated if it needed to record any goodwill impairment as of June 30, 2026, based solely on the market capitalization of the Company and concluded that no impairment was required to be recorded for the three and six months ended June 30, 2026.
A summary of our goodwill as of June 30, 2026, and December 31, 2025, is shown below:
| June 30, 2026 | December 31, 2025 | |||||||
| Balance at January 1, 2026 and 2025 | $ | $ | ||||||
| Less: Goodwill impairment due to market capitalization | ||||||||
| Balance at June 30, 2026 and December 31, 2025 | $ | $ | ||||||
Goodwill is tested for impairment annually as of December 31, or more frequently if events or changes in circumstances, such as a sustained decline in our market capitalization, indicate that it is more likely than not that the fair value of a reporting unit is below its carrying amount. If an interim evaluation indicates that an impairment exists, a quantitative test is performed, and any resulting impairment loss is recognized in the period identified
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 June 30, 2026 and December 31, 2025, respectively,
was $
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NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following amounts:
June 30, 2026 | December 31, 2025 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Total accounts payable and accrued liabilities | $ | $ | ||||||
June 30, 2026 | December 31, 2025 | |||||||
| Accounts payable – related party | $ | $ | ||||||
NOTE 5 – CONVERTIBLE DEBENTURES, NOTES AND OTHER DEBT
As of June 30, 2026, and December 31, 2025, special purchase agreements (“SPAs”) with convertible debentures and notes, net of debt discount and including accrued interest, if any, consist of the following amounts:
June 30, 2026 | December 31, 2025 | |||||||
| Current Debt | ||||||||
| Convertible debentures | ||||||||
| 10% Convertible note payable, due April 23, 2022 – Bridge Investor | $ | $ | ||||||
| 10% Convertible note payable, due April 23, 2022 – Related Party | ||||||||
| 10% Convertible note payable, due August 6, 2022 – Bridge Investor | ||||||||
| Fall 2019 Notes | ||||||||
| 5% Convertible note payable – Stephen Boesch | ||||||||
| 5% Convertible note payable – Related Party | ||||||||
| 5% Convertible note payable – Dr. Sanjay Jha (Through his family trust) | ||||||||
| 5% Convertible note payable – CEO & 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 | ||||||||
| 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 | ||||||||
| J.H. Darbie PPM-2 Debt | ||||||||
| Accrued and Unpaid Interest – PPM-2 | ||||||||
| July 2025 Note | ||||||||
| 10% Convertible Note – Accredited Investor | ||||||||
| January 2026 Note | ||||||||
| 10% Convertible Note - Accredited Investor | ||||||||
| Pacific Pier 2026 Note | ||||||||
| 12% Convertible Note – Accredited Investor | ||||||||
| 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 | ||||||||
| Short-term loan from Accredited investor | ||||||||
| Total convertible and short-term debt, net | $ | $ | ||||||
| Total convertible debt and short-term debt – related party, net | $ | $ | ||||||
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June 30, 2026 | December 31, 2025 | |||||||
| Long Term Debt | ||||||||
| 12% convertible note - JH Darbie PPM-3 | ||||||||
| Total convertible long-term debt, net | $ | $ | ||||||
Convertible Debentures
As
of June 30, 2026, the Company had a derivative liability of approximately $
Bridge Financings
Notes with Officer and Bridge Investor
In
April 2019, the Company entered into a Securities Purchase Agreement (the “Bridge SPA”) with our CEO and the Bridge
Investor with a commitment to purchase convertible notes in the aggregate of $
Fall 2019 Debt Financing
In
December 2019, the Company closed its Fall 2019 Debt Financing, raising an additional $
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All
the Fall 2019 Notes provided for interest at the rate of
Forever Prosperity (Formerly GMP) Notes
In
June 2020, the Company secured $
August 2021 Notes
In
August 2021, the Company entered into Note Purchase Agreements with Autotelic - a related party, our CFO – a related party, and
certain accredited investors (the “August 2021 investors”), whereby the Company issued four convertible notes in the
aggregate principal amount of $
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The August 2021 convertible notes, inclusive of accrued interest, consist of the following amounts:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Autotelic - Related party convertible note, 5% coupon December 2024 | $ | $ | ||||||
| CFO - Related party convertible note, 5% coupon December 2024 | ||||||||
| Accredited investors convertible note, 5% coupon December 2024 | ||||||||
| Total August 2021 convertible notes | $ | $ | ||||||
During
the three and six months ended June 30, 2026 and 2025, respectively, the Company recognized approximately $
March 2022 Financing
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 $
The March 2022 Fourth Man convertible note, including accrued interest and net of debt discount, consist of the following amounts:
| June 30, 2026 | December 31, 2025 | |||||||
| Fourth Man Convertible note, 16% coupon March 2023 inclusive of accrued interest and default provision | $ | $ | ||||||
| Unamortized debt discount | ||||||||
| Convertible note, net | $ | |||||||
During
the year ended December 31, 2025, the Company converted approximately $
The
Company recognized approximately $
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May 2022 Mast Financing
In
May 2022, the Company entered into a securities purchase agreement with Mast Hill, whereby the Company issued one convertible note in
the aggregate principal amount of $
During
the year ended December 31, 2025, the Company converted approximately $
In
June 2026, Mast Hill fully converted the balance of their note of approximately $
The May 2022 Mast Financing, net of debt discount, consists of the following amounts:
| June 30, 2026 | December 31, 2025 | |||||||
| Mast Hill Convertible note, 12% coupon inclusive of accrued interest and penalty | $ | $ | ||||||
| Total May 2022 convertible note, net | $ | $ | ||||||
The Company the original debt discount, deferred financing costs, fair value allocated to the warrants during the three and six months ended June 30, 2026, respectively.
July 2025 Mast Financing
In
July of 2025, the Company entered into a securities purchase agreement with Mast Hill, whereby the Company issued a secured
convertible note in the aggregate principal amount of $
| 31 |
The July 2025 Mast Note, net of debt discount, consists of the following amounts:
June 30, 2026 |
December 31, 2025 |
|||||||
| Mast Hill Convertible note, inclusive of accrued interest 12% coupon due January 2027, gross | $ | $ | ||||||
| Less: debt discount recorded | ( |
) | ( |
) | ||||
| Amortization of debt discount | ||||||||
| Convertible notes, net | $ | $ | ||||||
The
Company recognized approximately $
January 2026 Mast Financing
In
January of 2026, the Company entered into a securities purchase agreement with Mast, whereby the Company issued one convertible note
in the aggregate principal amount of $
The convertible note under the 2026 Mast Note, net of debt discount, consists of the following amounts:
June 30, 2026 | December 31, 2025 | |||||||
| Mast Hill Convertible note, inclusive of accrued interest 10% coupon January 2027, gross | $ | $ | ||||||
| Less Debt discount recorded | ( | ) | ||||||
| Amortization debt discount | ||||||||
| Convertible notes, net | $ | $ | ||||||
The
Company recognized approximately $
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Pacific Pier June 2026 Financing
On
June 23, 2026, the Company entered into the 2026 Pacific Pier SPA with Pacific Pier, whereby the Company issued the 2026 Pacific
Pier Note in the aggregate principal amount of $
The 2026 Pacific Pier convertible note, net of debt discounts, consists of the following amounts:
June 30, 2026 | December 31, 2025 | |||||||
| Pacific Pier Convertible note, inclusive of accrued interest 12% coupon, gross | $ | $ | ||||||
| Less Debt discount recorded | ( | ) | ||||||
| Amortization debt discount | ||||||||
| Total Pacific Pier 2016 convertible note, net | $ | $ | ||||||
The
Company recognized approximately $
On August 3, 2026, the Company and Pacific Pier entered into a new note with the exact same terms as the 2026 Pacific Pier SPA and 2026 Pacific Pier Note Refer to our subsequent event disclosure in note 16.
Other short-term advances
Other short-term advances consist of the following amounts obtained from various employees and related parties:
| Other Advances | June 30, 2026 |
December 31, 2025 |
||||||
| Short-term advance from CFO – Related Party | $ | $ | ||||||
| Short-term advances – bridge investors & others | ||||||||
| Short-term advances – Autotelic Inc. – Related Party | ||||||||
| Short-term advance – CEO – Related Party | ||||||||
| Short-term advance – Accredited investor | ||||||||
| $ | $ | |||||||
As
of January 1, 2025, approximately $
As
of January 1, 2025, approximately $
| 33 |
In
December 2023, the Company received $
NOTE 6 – JOINT VENTURE WITH GMP BIO AND AFFILIATES, EQUITY METHOD INVESTMENT
On March 31, 2022, the Company entered into (i) an agreement to form the JV with Dragon, GMP Bio, both affiliates of GMP, (ii) a license agreement for rights to OT-101for the territory within the United States of America with Sapu Holdings, LLC, a wholly owned subsidiary of GMP Bio and (iii) a license agreement for rights to OT-101 for the rest of the world with GMP Bio. For more information on the JV and the related agreements, refer to our 2022 Annual Report on Form 10-K/A filed with the SEC on April 19, 2023.
As
of the effective date of the formation of the JV, the Company received a
The JV has initiated phase 2 and 3 clinical trials for OT-101 in both high-grade glioma and pancreatic cancer. In late 2023, the JV initiated a plan to start evaluating various nanoparticles that could treat various cancers. In this regard, the JV identified a total of 4 compounds, in addition to OT-101, which had the potential of significant revenue generation for the JV. In the same year, the JV signed a lease agreement to set up a GMP manufacturing facility in San Diego (“SD”), California. The main purpose of this facility was to initially commence an aggressive formulation development of newly planned nanoparticle platform (“Nano Platform”). The GMP manufacturing facility was initiated in January 2024. Upon the initiation of this facility by the JV, the JV commenced the development work on two of the four identified compounds, as well as other activities, in tandem with the development of OT-101. The JV has since completed the formulation development of one of the products and is moving to complete the formulation development for the three additional products. The JV is also working on improved formulations for OT-101 with new nanoparticle sizes. The JV also has started clinical development for OT-101 for pancreatic cancer. Significant progress has been made in the development of the products and the JV anticipates to complete the formulation development work in 2026 and pushing to initiate clinical trials for the various compounds. In late 2024, the GMP facility in San Diego was issued a Drug Manufacturing License by the State of California Department of Public Health and Food and Drug Branch. Further, in late 2024, the JV identified a sixth candidate as a compound for development for the JV and has already started to work on the formulation development of that compound as well. All developmental and manufacturing, including for Phase 1 clinical trial materials, will be performed at the SD site.
| 34 |
In
early 2025, the Company announced that it had entered into a strategic partnership with Shanghai Medicilon, Inc. (“Medicilon”)
to access its industry-leading rapid investigational new drug (“IND”) development platform to support up to 20 IND
projects, which the JV can also utilize to support their INDS. All six of our compounds the JV is developing are planned to be these
INDs and are focused on becoming next-generation anticancer agents. The JV anticipates that all these six anticancer agents have the
potential to become significant growth contributors to the JV, which in turn would add substantial value to the Company. The Company
successfully completed a Phase 1 clinical trial evaluating OT-101, in combination with IL-2 for advanced or metastatic solid tumors.
These results set the stage for new studies that combine OT-101, an antisense therapeutic targeting Transforming Growth Factor Beta 2
(TGFβ2), with checkpoint inhibitors (“CKIs”) and recombinant IL-2 (aldesleukin) (“IL-2”). The Phase
1 trial (ClinicalTrials.gov ID: NCT04862767) investigated the safety and tolerability of OT-101 in combination with recombinant IL-2
in patients with advanced or metastatic solid tumors. The combination showed a tolerable safety profile at the planned dosing schedule,
with no unexpected safety signals identified. Based on the favorable safety data, Oncotelic plans to advance OT-101 plus IL-2 into further
clinical studies, exploring synergies with CKIs such as PD-1 blockers. The Company elected the fair value option under subsection of
Section 825-10-15 to account for its equity-method investment as the Company believes that it the most appropriate method to properly
value the Company and record a change in value when and upon conducting a fair value assessment. As of December 31, 2025, as the development
and IPO operations of the JV are proceeding as planned, the Company assessed the fair value of its investment in the JV. The Company
also utilized the services of an ASC-compliant third party valuation firm to validate the Company’s assessment. Based on the Company’s
assessment and report, and considering the Company’s
| June 30, 2026 | December 31, 2025 | |||||||
| Balance at beginning of period | $ | $ | ||||||
| Add: change in fair value of investment in GMP Bio | ||||||||
| Balance at end of period | $ | $ | ||||||
For detailed and more information on the fair value of our investment in GMP Bio, refer to Note 2 to the unaudited Condensed Consolidated Financial Statements: Change in Fair Value of Equity Securities of GMP Bio.
NOTE 7 - PRIVATE PLACEMENT -2 (PPM-2) AND JH DARBIE FUNDING
During
the period between July 2023 to January 2024, the Company entered into a series of subscription agreements with forty-six accredited
investors, whereby the Company issued and converted a total of Units from a previous offering, which resulted in conversion of $
| ● | One
|
| ● | warrants to purchase an equivalent number of shares of the Company’s common stock at a strike price of $ per share. |
In
December 2025, the Company converted the debt of forty-seven accredited investors from PPM-2 into the new subscription agreements under
the new financing (“PPM-3”- See Note 8 below) in three tranches, which resulted in conversion of approximately $
| 35 |
The PPM2 - JH Darbie Financing, net of debt discounts, consisted of the following amounts:
June 30, 2026 | December 31, 2025 | |||||||
| Accrued interest | ||||||||
| Accrued, returned and unpaid interest | $ | $ | ||||||
| Total PPM-2 Darbie Financing, net of discounts | $ | $ | ||||||
As
of December 31, 2025, the Company reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt- Modifications
and Extinguishments and concluded that the terms of the agreements were substantially different and accounted for the transaction
as a debt extinguishment. The transaction related to the debt extinguishment during the year ended December 31, 2024 resulted in a loss
from debt extinguishment of approximately $
| Expected Term | ||||
| Expected volatility | % | |||
| Risk-free interest rates | % | |||
| Dividend | % | |||
The
Company recorded approximately $
NOTE 8 – PRIVATE PLACEMENT -3 (“PPM-3”) AND JH DARBIE FUNDING
In
December 2025, the Company entered into a series of subscription agreements with certain accredited investors pursuant to the JH Darbie
Financing, whereby the Company issued and converted a total of Units from the previous PPM-2, into the current subscription agreements
under the PPM-3, which resulted in conversion of approximately $
| ● | One
| |
| ● | warrants to purchase an equivalent number of shares of the Company’s common stock at a strike price of $ per share (“Oncotelic warrant”) with a contractual term of two years. |
In
December 2025, in a series of three tranches, the Company converted the debt of forty-seven (47) accredited investors from PPM-2 (See
Note 7 above) into the current subscription agreements under the PPM-3, which resulted in conversion of $
| 36 |
In connection with the consummation of the PPM-3 financing, the Company entered into Registration Rights Agreements granting certain registration rights with respect to the shares of the Company’s Common Stock issued in connection with the financing, as well as the shares of the Company’s Common Stock issuable upon exercise of the Warrants. The issuance of the Units is exempt from the registration requirements of the Securities Act, in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506 of Regulation D promulgated thereunder. The shares of common stock and warrants and any shares of common stock issuable upon exercise of the warrants, have not been registered under the Securities Act or any other applicable securities laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act.
The December 2025 JH Darbie Financing, net of debt discounts, consists of the following amounts:
June 30, 2026 | December 31, 2025 | |||||||
| Convertible promissory notes | ||||||||
| Subscription agreements - accredited investors | $ | $ | ||||||
| Total convertible promissory, net of discounts | $ | $ | ||||||
The
Company incurred approximately $
Concurrently with the sale of the Units, JH Darbie was granted a total of stock warrants, exercisable over a two-year period.
The terms of convertible notes are summarized as follows:
| ● | Term: through December 31, 2027 | |
| ● | Coupon:
| |
| ● | Convertible at the option of the holder at any time into the Company’s common stock | |
| ● | Conversion
price is set at $ |
Management
reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments and
concluded that the terms of the agreements were substantially different and accounted for the transaction as a debt extinguishment.
The transaction resulted in a loss from debt extinguishment of approximately $
The
estimated volume weighted grant date fair value of approximately $
| Expected Term | ||||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Dividend | % | |||
| 37 |
The
Company recorded an initial debt discount of approximately $
NOTE 9. LUNAI BIOWORKS TRANSACTIONS
Intellectual Property Development and Services Agreement with Lunai Bioworks, Inc.
On
April 17, 2026, the Company and Lunai Bioworks, Inc., a Delaware corporation (“Lunai”) entered into an
intellectual property development and services agreement (“IP Services Agreement”), whereby the Company was to
perform intellectual property development and business development services relating to a Nose-to-Brain (“N2B”)
delivery platform. This includes applications in biodefense, Alzheimer’s disease (“AD”), and broader
central nervous system (“CNS”) indications and excludes Parkinson’s disease and sexual dysfunction. The
work shall focus on direct-to-CNS delivery to bypass the blood-brain barrier. The scope of services included scientific development,
IP execution, technical data delivery, business development support and broadened biodefense focus. In connection with these
services, Lunai agreed to compensate the Company a total compensation of $,
of which $
Agreement and Plan of Merger with Lunai
On
April 27, 2026, Oncotelic Inc., a wholly owned subsidiary of the Company, entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Lunai, Lunai Bioworks IP, Inc., a Delaware corporation and a wholly owned subsidiary of Lunai (“Merger
Sub”), Neurobridge IP Holdings Incorporated, a Delaware corporation (“Holdings”), and the holders of all
of the issued and outstanding capital stock of Holdings, namely Oncotelic Inc. and Pelerin Therapeutics Inc., a corporation existing
under the laws of the Province of British Columbia, Canada (“Pelerin” and, together with Oncotelic Inc., the “Holders”).
Pursuant to the Merger Agreement, Holdings merged with and into Merger Sub in a triangular merger (the “Merger”),
with Merger Sub continuing as the surviving corporation and as a wholly owned subsidiary of Lunai. The Merger was completed on May 1,
2026. Immediately prior to the effective time of the Merger, all of the issued and outstanding capital stock of Holdings was owned
IP Assignment Agreement
In connection with the Merger Agreement, on April 27, 2026, Oncotelic Inc. entered into an IP Assignment Agreement with Holdings, pursuant to which it agreed to contribute and assign certain assets relating to the intellectual property of the Company (collectively, the “Intellectual Property Assets”) to Holdings. For more information on the Merger Agreement, refer to our Current Report on Form 8-K filed with the SEC on May 5, 2026.
| 38 |
IP Grant-back Agreement
Further, on April 27, 2026, the Company and Holdings entered into an Intellectual Property Assignment and Grant-back Agreement (the “IP Grant-back Agreement”). The IP Grant-back Agreement grants back to the Company a perpetual, irrevocable, royalty-free, exclusive, non-terminable, and non-cancellable license to make, have made, use, offer to sell, sell, and otherwise exploit the Intellectual Property Assets in all fields of use except the Biodefense Field and the Alzheimer’s Disease Field as defined in the IP Grant-back Agreement, giving Holdings exclusive use of the Intellectual Property Assets in those fields. For more information on the Merger Agreement, refer to our Current Report on Form 8-K filed with the SEC on May 5, 2026.
Asset Transfer Agreement
Further,
on April 30, 2026, Oncotelic Inc. on behalf of the Company, and Autotelic Inc. (“Autotelic”) entered into an asset
transfer agreement (the “Asset Transfer Agreement”) pursuant to which Autotelic agreed to transfer all the rights,
title and interest to certain assets (“Assets”), described below and owned by Autotelic to Oncotelic Inc. This Asset
Transfer Agreement was entered into by both parties to effectuate the Merger Agreement. Dr. Trieu, Chairman and CEO of Oncotelic Therapeutics,
Inc., is a partial owner and control person in Autotelic Inc. Autotelic Inc. currently owns less than 10% of the Company. The Assets
transferred pursuant to the Asset Transfer Agreement include Peptide Y (including all variants, analogs, derivatives); Parathyroid Hormone
(“PTH”), including PTH 1-34, PTH 1-84, and derivatives; Insulin (including intranasal and other formulations); Apomorphine
(including intranasal and other formulations); Carbetocin (including intranasal and other formulations); any associated combination therapies,
including multi-agent CNS, AD, metabolic, endocrine, or biodefense applications; and all delivery platforms, including nasal, injectable,
and device-based systems and includes all patents, patent applications, know-how, trade secrets, data, formulations, manufacturing processes,
regulatory filings, and all related rights associated with the Assets. In consideration for the transfer of the Assets, the Company shall
issue equity of ten percent (
The consideration payable to Autotelic is contingent on the Company uplisting its Common Stock to a nationally recognized stock exchange. Such shares of the Company have not been issued to Autotelic as of the date of this filing and are not legally due to be issued until the uplisting of the Company’s stock onto a nationally recognized stock exchange. If the uplisting does not occur, then the shares would not be issuable, and neither would the transaction with Lunai be invalidated.
Even
though the Company received the Series B Preferred Stock from Lunai with a stated value of $
NOTE 10 - RELATED PARTY TRANSACTIONS
Master Service Agreement with Autotelic Inc.
In October 2015, Oncotelic entered into a Master Service Agreement (the “MSA”) with Autotelic Inc., a related party that is partly owned by the Company’s CEO Vuong Trieu, Ph.D. Dr. Trieu, a related party, is a control person in Autotelic Inc. Autotelic Inc. currently owns less than 10% of the Company. The MSA stated that Autotelic Inc. would provide business functions and services to the Company and allowed Autotelic Inc. to charge the Company for these expenses paid on its behalf. The MSA includes personnel costs allocated based on amount of time incurred and other services such as consultant fees, clinical studies, conferences and other operating expenses incurred on behalf of the Company. The MSA requires a 90-day written termination notice in the event either party requires to terminate such services.
| 39 |
Expenses
related to the MSA were approximately $
License Agreement with Autotelic Inc.
In September 2021, the Company entered into an exclusive License Agreement with Autotelic. For more information on the exclusive license Agreement with Autotelic, refer to our 2025 Annual Report on Form 10-K filed with SEC on April 15, 2026.
Notes Payable and Short-Term Loan – Related Parties
In
April 2019, the Company issued a convertible note to Dr. Trieu totaling $
In November 2025, the Company entered into a restricted stock agreement (the “RSA-1”) with Dr. Trieu, to provide incentive compensation for his extra-ordinary efforts and time to raise capital and successful achievement of certain milestones. The RSA-1 provides for a grant of up to shares of our unissued Series A Convertible preferred stock (“Preferred Stock”), subject to achievement of certain milestones. Each share of Preferred Stock is convertible into shares of the Company’s Common Stock and votes with the Common Stock on an as converted basis.
In January 2026, the Company entered into another restricted stock agreement (the “RSA-2”) with Dr. Trieu, to provide incentive compensation for his extra-ordinary efforts and time to raise capital and successful achievement of certain milestones. The restricted stock agreement provides for a grant of up to shares of our Preferred Stock, subject to achievement of certain milestones. Each share of Preferred Stock is convertible into shares of the Company’s Common Stock and votes with the Common Stock on an as converted basis.
As of December 31, 2025, Dr. Trieu had earned shares of Preferred Stock. As of June 30, 2026, Dr. Trieu earned an additional shares of Preferred Stock.
As
of January 1, 2025, approximately $
Contingent shares issuable to Autotelic
The Company is contingently obligated to issue equity of ten percent (10%) of the fully diluted outstanding shares of the Company, issuable on an uplisting of its capital stock to NASDAQ. No cash was paid for the Asset Transfer Agreement. For more information, refer to Note 9 – Lunai Bioworks Transactions: Asset Transfer Agreement and Note 15 – Commitment and Contingencies: Autotelic Asset Transfer Consideration.
Artius Consulting Agreement
In March 2020, the Company and Artius Bioconsulting, LLC (“Artius”), for which Mr. King is the Managing Member, entered into an amendment to the Consulting Agreement dated December 1, 2018, under which Artius agreed to serve as a consultant to the Company for services related to the Company’s business from time to time. For more information on this Agreement, refer to our 2025 Annual Report on Form 10-K filed with the SEC on April 15, 2026.
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Mosaic ImmunoEngineering, Inc.
In
April 2024, the Company entered into a Term Sheet with Mosaic. For more information on the Term Sheet, refer to Note 1 of this Quarterly
Report. Steven King, our Board member, is the CEO of Mosaic. The Company had advanced $
Maida Consulting Agreement
Effective May 5, 2020, the Company and Dr. Maida entered into an independent consulting agreement, commencing April 1, 2020, under which Dr. Maida will assist the Company in providing medical expertise and advice from time to time in the design, conduct and oversight of the Company’s existing and future clinical trials. For more information on this Agreement, refer to our 2025 Annual Report on Form 10-K filed with the SEC on April 15, 2026.
Effective April 1, 2022, Dr. Maida’s compensation has been borne by the JV. No expense was recorded during the three and six months ended June 30, 2026, and 2025 related to this Agreement.
NOTE 11 - EQUITY PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT (MAST HILL)
In
August of 2025, the Company entered into an Equity Purchase Agreement (“EPA”) and Registration Rights Agreement
with Mast Hill. Under the terms of the EPA, the Company issued warrants to purchase
Following
effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the Equity Purchase Agreement,
the Company shall have the discretion to deliver put notices to the Investor and the Investor will be obligated to purchase shares of
the Company’s Common Stock based on the investment amount specified in each put notice.
In
connection with the EPA, the Company issued
During
the three months ended June 30, 2026, the Company sold a total of
shares of Common Stock at $
for total gross proceeds of $
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NOTE 12 - STOCKHOLDERS’ EQUITY
The following transactions affected the Company’s Stockholders’ Equity:
Issuance of Common Stock during the six months ended June 30, 2026
In January 2026, the Company issued of the Company’s Common Stock as commitment shares to Mast Hill in connection with a Note purchase agreement.
In April 2026, the Company issued shares to Fourth Man in exchange for one time waiver of their right to adjustment of conversion price of their March 2022 note.
In May 2026, the Company sold registered shares of Common Stock at $ to Mast Hill in connection with EPA.
In June 2026, the Company issued shares of Common Stock to Mast Hill in connection with the note conversion of their May 2022 Note.
In June 2026, the Company issued shares of Common Stock to Pacific Pier in connection with the new Pacific Pier Note.
Issuance of Common Stock during the six months ended June 30, 2025
In
March 2025, Fourth Man partially converted approximately $
NOTE 13 – PREFERRED STOCK
The Company has authorized shares of Convertible Preferred Stock, par value $ per share, of which, shares have been designated as Series A Convertible Preferred Stock (the “Preferred Stock”).
In November 2025, the Company entered into RSA-1 with Dr. Vuong Trieu, our CEO, and granted him shares of our Preferred Stock, which were subject to a vesting schedule upon achievement of certain corporate milestones and subject to forfeiture if any or all the milestones were not achieved. As of December 31, 2025, shares of the Company’s Preferred Stock were issued to Dr. Trieu, but Dr. Trieu would earn the Preferred Shares as and when he achieved certain milestones. As of December 31, 2025, Dr. Trieu had earned shares of Preferred Stock. As of June 30, 2026, Dr. Trieu earned an additional shares of Preferred Stock. Each share of Preferred Stock is convertible into shares of the Company’s Common Stock, and votes with the Common Stock on an as converted basis.
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In January 2026, the Company entered into RSA-2 with Dr. Trieu, to provide incentive compensation for his extraordinary efforts and time to raise capital and successful achievement of certain milestones. The restricted stock agreement provides for a grant of up to shares of our Preferred Stock, subject to achievement of certain milestones. Each share of Preferred Stock is convertible into shares of the Company’s Common Stock upon conversion and votes with the Common Stock on an as converted basis. Dr. Trieu achieved the first milestone and earned shares of Preferred Stock.
| Shares | Amount | |||||||
| Balance at January 1, 2026 | $ | |||||||
| Issuance of preferred stock | ||||||||
| Balance at June 30, 2026 | $ | |||||||
| Shares | Amount | |||||||
| Balance at January 1, 2025 | $ | |||||||
| Issuance of preferred stock | ||||||||
| Balance at December 31, 2025 | $ | |||||||
For
the January 2026 grant, The Company calculated the grant date fair value of the Preferred Stock for the RSA issued to Dr. Trieu as approximately
$
The
Company calculated the grant date fair value of the Preferred Stock for the RSA issued to Dr. Trieu in 2025 as approximately $
Compensation for services
In
August 2025, the Company issued shares of Common stock as service fees of approximately $
In
August 2025, the Company issued shares of Common stock as service fee of approximately $
In
December 2025, the Company issued shares of Common stock as service fee of approximately $
Options
Pursuant to the Merger, the Company’s Common Stock and corresponding outstanding options survived. The information below details the Company’s associated option activity pre and post-merger.
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As of June 30, 2026, the Company had options to purchase Common Stock that were outstanding under three stock option plans – the 2017 Equity Incentive Plan (the “2017 Plan”), the 2015 Equity Incentive Plan (the “2015 Plan”) and the 2005 Stock Plan (the “2005 Plan”). No further awards may be granted under the 2005 Plan, although options previously granted remain outstanding in accordance with their terms. Under the 2017 Plan, up to shares of the Company’s Common Stock may be issued to directors, officers, employees or consultants pursuant to awards granted in the form of non-qualified stock options, restricted and unrestricted stock awards, and other stock-based awards. Under the 2015 and 2005 Plans, taken together, up to shares of the Company’s Common Stock may be issued pursuant to awards granted in the form of incentive stock options, non-qualified stock options, restricted and unrestricted stock awards, and other stock-based awards.
| Weighted | ||||||||
| Average | ||||||||
| For the six months ended June 30, 2026 | Options | Exercise Price | ||||||
| Outstanding at January 1, 2026 | $ | |||||||
| Expired or cancelled | ( | ) | ||||||
| Outstanding at June 30, 2026 | ||||||||
| Exercisable at June 30, 2026 | $ | |||||||
| Exercise prices | Outstanding Options | Weighted- Average Remaining Life (In Years) | Weighted- Average Exercise Price | Exercisable Options | |||||||||||
| $ | to $ | $ | | ||||||||||||
| to $ | |||||||||||||||
| to $ | |||||||||||||||
| $ | |||||||||||||||
The compensation expense attributed to the issuance of the options is recognized as they vest. The employee stock option plan stock options are generally exercisable for from the grant date and vest over various terms from the grant date to .
As of June 30, 2026, there was unamortized stock compensation cost related to the stock options granted during the year ended December 31, 2023. The Company amortized $ stock compensation expense during the three and six months ended June 30, 2026 and 2025 on the 2021 and 2022 grants. For more information on the stock options, refer to 2025 Annual Report on Form 10-K filed with the SEC on April 15, 2026.
Warrants
The Company has issued warrants in connection with the various financings conducted by the Company. For more information on the warrant issuances, refer to our 2025 Annual Report on Form 10-K filed with the SEC on April 15, 2026.
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The issuance of warrants to purchase shares of the Company’s Common Stock, including those attributed to debt issuances, as of June 30, 2026 and 2025, respectively are summarized as follows:
| Average | ||||||||
| For the six months ended June 30, 2026 | Shares | Exercise Price | ||||||
| Outstanding at January 1, 2026 | $ | |||||||
| Issued | ||||||||
| Exercised / cancelled | ||||||||
| Outstanding at June 30, 2026 | $ | |||||||
| Average | ||||||||
| For the six months ended June 30, 2025 | Shares | Exercise Price | ||||||
| Outstanding at January 1, 2025 | $ | |||||||
| Issued | ||||||||
| Exercised / cancelled | ||||||||
| Outstanding at June 30, 2025 | $ | |||||||
The following table summarizes information about warrants outstanding and exercisable at June 30, 2026:
| Outstanding and exercisable | ||||||||||||||||||
| Exercise Price | Number Outstanding | Weighted- Average Remaining Life in Years | Weighted- Average Exercise Price | Number Exercisable | ||||||||||||||
| $ | $ | |||||||||||||||||
| $ | - | $ | ||||||||||||||||
| $ | $ | |||||||||||||||||
| $ | $ | |||||||||||||||||
| $ | $ | |||||||||||||||||
| $ | ||||||||||||||||||
NOTE 15– COMMITMENTS AND CONTINGENCIES
Leases
Currently, the Company is leasing the office located at 29397 Agoura Road, Suite 107, Agoura Hills, CA 91301 on a month-to-month basis until such time a new office is identified. The Company believes the office is sufficient for its current operations.
PointR Merger Consideration
The
total purchase price in the PointR Merger of $
Autotelic Asset Transfer Consideration
As noted in Note 9 – Lunai Bioworks Transactions, Oncotelic Inc. on behalf of the Company, and Autotelic entered into the Asset Transfer Agreement, pursuant to which Autotelic agreed to transfer all the rights, title and interest to certain Assets In consideration for the transfer of the Assets, the Company shall issue equity of ten percent (10%) of the fully diluted outstanding shares of the Company, issuable on an uplisting of its capital stock to NYSE/NASDAQ. Such shares of the Company have not been issued to Autotelic as of the date of this filing and are not due to be issued till the uplisting of the Company’s stock onto a nationally recognized stock exchange. If the uplisting does not occur, then the shares would not be issuable and neither would the transaction with Lunai be invalidated. For more information, refer to Note 9 – Lunai Bioworks Transactions.
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Other claims
From time to time, the Company may become involved in in legal proceedings, claims and regulatory matters arising in the ordinary course of business. Such matters are subject to uncertainties, and outcomes are not predictable with assurance. As of June 30, 2026, the Company was not a party to any legal proceedings, and management is not aware of any pending or threatened claims or contingencies that, individually or in the aggregate, are probable of resulting in a material loss to the Company’s unaudited condensed consolidated financial statements. Accordingly, no accrual for loss contingencies has been recorded as of June 30, 2026.
NOTE 16 – SUBSEQUENT EVENTS
Grant of RSU to directors, officers and to certain employees and advisors
On July 10, 2026, the board of directors (the “Board”) of the Company approved the granting of certain restricted stock units (“RSUs”) to the Company’s directors and officers; and to certain employees and advisors, that are employed by the Company or affiliates of the Company, pursuant to the terms of Restricted Stock Unit Award Agreements (the “RSU Agreements”). In the aggregate RSUs were awarded, including the RSUs issued to the Company’s directors and officers.
The RSUs will vest if the Company’s Common Stock is uplisted onto a national stock exchange on or before June 30, 2027, or such period as extended by the Board, subject to the recipient’s continuing to remain in service with the Company or its affiliated entity for a period six months after such uplisting. Each RSU will be settled by delivery of Preferred Stock immediately upon vesting. If the uplisting does not occur by June 30, 2027, or such period as extended by the Board, or, the recipient’s continuous service terminates before six months following the uplisting, then the RSUs would expire and automatically be forfeited.
| Name of the person | Director or Officer | Number of RSUs granted | ||
| Vuong Trieu, Ph.D. | Director, Chairman of the Board and Chief Executive Officer | |||
| Anthony E. Maida III, Ph.D., M.A., M.B.A. | Director and Chief Medical Officer – Translation Medicine | |||
| Steven W. King | Director | |||
| Seymour Fein, M.D. | Chief Medical Officer and Chief Regulatory Officer | |||
| Saran Saund | Chief Business Officer | |||
| Amit Shah | Chief Financial Officer |
The RSUs have been granted at no cost to all the recipients and are subject to the terms and conditions of the RSU Agreement between the Company and the recipient.
The issuance of the RSUs is exempt from the registration requirements of the Securities Act of 1933, as amended (“Securities Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act.
New SPA and Note with Pacific Pier
On
August 3, 2026,
Uplisting of the Company’s Common Stock to Nasdaq
The Company filed a listing application for the Company’s Common Stock with Nasdaq on July 28, 2026. The Company has received a request for additional information from Nasdaq and the Company is in the process of responding to the request.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q for the period ended June 30, 2026 (this “Quarterly Report” or “Report”) contains statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Any statements contained in or incorporated by reference into this Quarterly Report, that are not statements of historical fact are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “assumption” or the negative of these terms or other comparable terminology. Statements concerning: our expectations on the timing, success of the JV’s product approvals, commercialization of the JVs products and results of operations of the JV: our expectations on the timing, success, or valuation our JV’s planned initial public offering; the timing, success or continuing valuation of our equity interest in the JV; our ability to secure future debt or equity financing needed to meet operating costs; the timing, costs and other limitations involved in obtaining regulatory approval for any product candidate; the expected efficacy of our product candidates compared to competitive products; anticipated results of our research and development programs as well as preclinical and clinical trials; expected market size, market acceptance for our product candidates; our ability to enter into future partnerships, joint ventures or other corporate transactions, ability of us being able to obtain additional resources, including debt or equity funding, and the expected benefits to be derived from those transactions; the anticipated impact of regulatory and legislative changes in the United States and foreign countries on our product candidates and operations; anticipated trends in revenues, operating expenses or financial position and results of operations; and our estimates regarding anticipated operating income or losses, future performance, future revenues and projected expense; are all forward-looking statements.
Forward-looking statements reflect current views about future events and are based on our currently available financial, economic and competitive data and on current business plans. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed or implied in the forward-looking statements. Factors that might cause such differences include, but are not limited to, the factors included in “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on April 15, 2026 and the other registration statements and reports that we file with the Securities and Exchange Commission (“SEC”).
The forward-looking statements contained in this Quarterly Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. We undertake no obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Readers should consider the inherent limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements.
Corporate History
Oncotelic Therapeutics, Inc. (“Oncotelic”), was formed in the State of New York in 1988 as OXiGENE, Inc., was reincorporated in the State of Delaware in 1992, and changed its name to Mateon Therapeutics, Inc. in 2016, and Oncotelic Therapeutics, Inc. in November 2020. Oncotelic conducts business activities through Oncotelic and its wholly owned subsidiaries, Oncotelic, Inc., a Delaware corporation, PointR Data, Inc. (“PointR”), a Delaware corporation, 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, 2025 Annual Report on Form 10-K filed with the SEC on April 15, 2026.
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Company Overview
The Company is a clinical stage biopharmaceutical company developing drugs for the treatment of cancer. 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 and others. OT-101, the Company’s lead product candidate, 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.
Since April 2022, the Company has conducted the vast majority of its development efforts for OT-101 through a joint venture (the “JV”), namely GMP Biotechnology Limited (“GMP Bio”), with Dragon Overseas Capital (“Dragon”). In connection with the formation of the JV, the Company contributed license rights OT-101 for both U.S. and the rest of the world, in exchange for a 45% equity interest in GMP Bio, and Dragon agreed to provide approximately $27.6 million of research and development funding in exchange for a 55% ownership stake in GMP Bio. The Company accounts for its holdings in GMP Bio as an equity investment under the fair value option. Accordingly, the Company accounts for only its change in fair value in the Company’s investment in GMP Bio, and the income and expenses of the JV are not consolidated in the Company’s financial statements.
For more information on, refer to Recent Joint Venture Developments below.
Recent Joint Venture Developments
The JV’s principal activities centered on the commercialization of OT-101 for certain oncology indications in the US and looking at other territories as well. In March 2025, the JV successfully completed a Phase 1 clinical trial evaluating OT-101, in combination with IL-2 for advanced or metastatic solid tumors. These results set the stage for new studies that combine OT-101, an antisense therapeutic targeting Transforming Growth Factor Beta 2 (TGFβ2), with checkpoint inhibitors (“CKIs”) and recombinant IL-2 (aldesleukin) (“IL-2”). The Phase 1 trial (ClinicalTrials.gov ID: NCT04862767) investigated the safety and tolerability of OT-101 in combination with recombinant IL-2 in patients with advanced or metastatic solid tumors. The combination showed a tolerable safety profile at the planned dosing schedule, with no unexpected safety signals identified. Based on the favorable safety data, the JV plans to advance OT-101 plus IL-2 into further clinical studies, exploring synergies with CKIs such as PD-1 blockers. The JV is also sponsoring investigator-initiated studies for OT-101 for other oncology indications including lung cancer (non-small cell lung cancer(“NSCLC”) and Mesothelioma (“MPM”) and has started clinical development for OT-101 for pancreatic cancer. Over ten patent families have been filed exploiting the central role of TGFB2 as prognostic indicator for cancer survival and one patent family for the intracranial delivery device of brain cancer with issued patents in China and Germany.
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In addition to OT-101, the JV has developed a nanoparticle platform (“Nano Platform”) that entails the formulation of products in new nanoparticle sizes. The JV anticipates that the Nano Platform may offer superior platform for the absorption of water insoluble drugs across a broad spectrum of cancers. The JV is working on improved formulations for OT-101 with new nanoparticle sizes. In addition, the JV has identified five additional compounds as product candidates on the Nano Platform, including the following:
| ● | The JV has completed the formulation development of the first product, everolimus for injection. The JV has initiated a global clinical trial for that product, including open patient enrollment in Australia. The JV hopes to complete the Phase 1 trial and to move to a Phase 3 noninferiority trial against Affinitor. Phase 3 trial is slated to initiate within one year with completion and submission for marketing approval no less than three years thereafter. | |
| ● | The JV is developing palbociclib for injection on the Nano Platform and expects to file the investigational new drug (“IND”) and to initiate a Phase 1 trial in 2026. | |
| ● | The JV is developing docetaxel and paclitaxel for injection on the Nano Platform and expects to file the IND to initiate a Phase 1 trial for this product candidate in 2026. These are expected to go through the 505(b)2 bioequivalence pathway for a more rapid entrance into the market | |
| ● | In addition, the JV has also identified developing carboplatin and intends to begin the development as soon as the other products clinical trials are under way. |
The Nano or DeciparticleTM platform has proven robust and is being expand to other drug candidates through partnering. The platform is protected by more than 15 patent families covering chemical composition, manufacturing, and method of use.
The JV built a GMP manufacturing facility in San Diego, California (the “San Diego Facility”). In late 2024, the San Diego Facility was issued a Drug Manufacturing License by the State of California Department of Public Health and Food and Drug Branch. A significant portion of the manufacturing for the Nano Platform, including the development of Phase I clinical trial materials, is conducted at the San Diego Facility. Evaluation of larger commercial scale manufacturing is ongoing.
In early 2025, the Company entered into a strategic partnership with Shanghai Medicilon, Inc. (“Medicilon”) to access its industry-leading rapid IND development platform to support up to 20 IND projects, including INDs developed by the JV. All six of the compounds that the JV is developing are planned to be initiated under these INDs, and are focused on next-generation anticancer agents.
The JV was initially funded by equity contributions from Dragon under the terms of the joint venture agreement. That equity funding commitment has been fully paid as of June 30, 2025. In May 2025, GMP Bio and Golden Mountain Partners, an affiliate of Dragon, entered into a note purchase agreement and promissory note pursuant to which Golden Mountain Partners agreed to loan funds to the JV sufficient to meet its operating expenses for 2025 and beyond. The loans are made as monthly advances, bear interest at the Wall Street Journal “Prime” rate, and matures on December 31, 2026. Amounts due under the promissory note are convertible into equity of the JV at the election of Golden Mountain Partner at a price equal to 80% of the price for shares issued in connection with an equity financing of $20 million or more, or otherwise at a mutually agreed price.
The JV is planning to conduct an initial public offering on the Hong Kong Stock Exchange in approximately late 2026. In connection with the planned public offering, the JV venture has retained an investment banker and a big four accounting firm as its independent accounting firm to audit the financial statements that would be included in the public filings. The JV also hired a valuation consultant to provide guidance on the potential pricing for the planned IPO. As of June 30, 2026, the Company owns 45% of GMP Bio.
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The JV’s planned public offering is subject to a number of risks and uncertainties, some involving the JV’s ability to execute on its business plan, but others outside the JV’s control including market forces. Consequently, there is no assurance that the planned Hong Kong public offering will take place in late 2026, or at all, and there is no assurance as to what enterprise value would be ascribed to the JV at that time.
Based on the JV’s advances, including the development of the Nano Platform and pipeline and the planned Hong Kong public offering the Company believed that its ownership interest in the JV would be significantly higher than the reported value on its financial statements, which was based on the valuation at the time of its initial investment in the JV in 2022.
The Company announced in November 2025 that the JV obtained a preliminary independent third-party valuation of approximately $2.3 billion for its therapeutic pipeline, assuming and implying an illustrative value of approximately $1 billion based on the Company’s 45% ownership interest in the JV. The Company had previously stated that this valuation was non-binding, forward-looking, and not determinative of fair value under U.S. GAAP, and that a separate ASC-compliant valuation process would be done. Under the fair value option, the Company periodically conducts a fair value assessment and records a change in the value when circumstances warrant reassessing the value of investment in GMP Bio. The Company hired the services of an independent, ASC-compliant valuation firm to review, perform and validate the assumptions considered by the Company and provide an ASC-compliant valuation of the JV under U.S. GAAP standards. The valuation conducted by the independent ASC-compliant valuation firm of the JV was based on various methods compliant with ASC and U. S. GAAP to derive the fair value. The Company then utilized the fair value of GMP Bio, as assessed by the ASC-compliant valuation firm, attributed the ownership percentage of the Company in GMP Bio, to ascertain the Company’s interest in GMP Bio and recorded the resulting gain to the investment in GMP Bio at fair value of approximately $365.4 million. The Company relied on the inputs by the JV valuation, however, certain parameters like lack of marketability and lack of control discounts and other standard discounts, specific to the Company, have been applied to the independent valuation done by the Company to derive the ASC-compliant valuation. The Company will also appropriately adjust the fair value of the interest of the Company’s interest in the JV at the end of reporting periods and when key value inflection points are met. As the circumstances related to the JV have not materially changed since December 31, 2025, the Company assessed and determined that no additional fair value adjustment was required during the three and six months ended June 30, 2026, and hence, the Company has not recorded a change in value of the Company’s interest in the JV.
PDAOAI
PDAOAI is the Company’s proprietary artificial intelligence–enabled knowledge platform, developed to support scientific, translational, and regulatory activities across its oncology pipeline. The platform was initially implemented by Oncotelic Therapeutics to streamline document search, synthesis, and analysis in knowledge-intensive environments, particularly within pharmaceutical research and development. Since its initial deployment, the Company has progressively expanded PDAOAI into a core infrastructure layer supporting research generation, biomarker discovery, and regulatory documentation across multiple programs. Unlike general-purpose artificial intelligence tools, PDAOAI has been designed specifically for pharmaceutical and biotechnology applications, with an emphasis on regulatory-grade documentation, scientific traceability, and reproducibility. The platform is intended to operate as an “evidence-interrogation” system rather than a black-box predictive engine, enabling structured ingestion, semantic indexing, and clustering of large biomedical corpora. This design allows users to query, retrieve, and synthesize information in a manner that is auditable and aligned with regulatory expectations for data provenance and scientific justification. During 2025, the Company significantly expanded the functional scope of PDAOAI and integrated it into its translational research workflow. This included the use of PDAOAI to support the preparation of peer-reviewed manuscripts, development reports, and regulatory documentation, as well as to enable interactive interrogation of scientific literature. The Company introduced interfaces that allow users to query individual publications and their associated reference networks, thereby facilitating deeper exploration of mechanistic hypotheses and clinical correlations within defined therapeutic areas. PDAOAI has also been applied to the assembly and interrogation of multi-omic and clinical datasets, particularly in the context of biomarker-driven oncology research. The platform has been used to identify, prioritize, and validate biomarkers associated with treatment response, disease progression, and survival outcomes. This capability has been most prominently demonstrated in the Company’s work on TGFB2 signaling and tumor microenvironment biology, where PDAOAI has supported analyses across multiple tumor types, including ovarian cancer, breast cancer, pancreatic cancer, hepatocellular carcinoma, and glioblastoma.
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As disclosed in Company press releases, PDAOAI contributed to the generation of at least seven peer-reviewed publications during 2025. These publications collectively span bioinformatic biomarker discovery, tumor microenvironment analysis, nanoparticle drug delivery, and clinical outcome correlations, and include studies demonstrating prognostic and predictive roles of TGFB2 methylation and expression across multiple cancers. The Company believes that this body of work provides validation of PDAOAI’s utility as a research acceleration platform and supports its role in generating clinically relevant insights.
By late 2025, the Company had further evolved PDAOAI into a large-scale knowledge platform built around a comprehensive TGF-β–centric biomedical corpus, comprising over one hundred thousand curated abstracts and associated datasets. Within this framework, PDAOAI enables semantic retrieval, clustering of related concepts, and cross-referencing of molecular, clinical, and literature-derived data. The platform is designed to generate hypotheses that are not only computationally derived but also traceable to underlying evidence, thereby facilitating scientific validation and regulatory acceptance. The Company has now positioned PDAOAI as a cross-program decision-support system integrating molecular biology, pharmacology, clinical outcomes, and regulatory-grade literature. The platform is used to inform multiple aspects of the Company’s operations, including target identification, biomarker strategy, clinical trial design, and regulatory positioning. In particular, PDAOAI is intended to complement the Company’s nanomedicine and biomarker platforms by identifying patient subpopulations most likely to benefit from specific therapeutic approaches and by supporting the development of precision oncology strategies.
The Company believes that PDAOAI represents a differentiating capability within its integrated platform, enabling the convergence of artificial intelligence, molecular biology, and clinical data into a unified framework. By embedding PDAOAI across its discovery and development processes, the Company aims to accelerate insight generation, improve decision-making, and enhance the probability of clinical and commercial success across its pipeline.
On April 2, 2026, the Company announced that it had entered into a strategic partnership with TechForce Robotics, Inc. (“TechForce”) to advance the commercialization of its PDAOAI-enabled, GMP-compliant robotics platform. This milestone reflects the culmination of several years of research and development efforts, resulting in an integrated platform designed to combine Oncotelic’s proprietary PDAOAI capabilities with TechForce’s robotics hardware and manufacturing expertise. The system under development is designed to operate within GMP-regulated environments and is intended to enable automated material handling, real-time monitoring, and PDAOAI-enhanced compliance workflows across pharmaceutical manufacturing and related applications. The key highlights of the commercialization include:
| 1. | Integrated AI + robotics platform, combining the Company’s PDAOAI capabilities with TechForce’s scalable robotics systems to automate critical operational workflows; |
| 2. | Form a GMP-Compliant Design, designed to support regulatory requirements, including data capture, audit readiness, and validation frameworks; | |
| 3. | Improve operational efficiency and compliance, intended to reduce human intervention, minimize contamination risk, and enhance process consistency through real-time monitoring and intelligent automation; and | |
| 4. | Achieve scalable manufacturing capability, intended to leverage TechForce’s hardware expertise and manufacturing network to support commercial deployment and future growth. |
Joint Development, Manufacturing and Licensing Agreement with TechForce Robotics
In March, 2026, the Company entered into a Joint Development, Manufacturing, and Licensing Agreement (the “Joint Development Agreement”) with TechForce Robotics, Inc. (“TechForce”), a Nevada corporation. The Joint Development Agreement establishes a framework for the joint development, and manufacturing of AI-enabled, GMP-compliant robotic systems for use in pharmaceutical and related manufacturing environments. The integrated product to be developed combines TechForce’s robotic hardware with the Company’s proprietary PDAOAI Platform.
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Transactions with Lunai Bioworks
Intellectual Property Development and Services Agreement with Lunai Bioworks, Inc.
On April 17, 2026, the Company and Lunai Bioworks, Inc., a Delaware corporation (“Lunai”) entered into an intellectual property development and services agreement (“IP Services Agreement”), whereby the Company was to perform intellectual property development and business development services relating to a Nose-to-Brain (“N2B”) delivery platform. This includes applications in biodefense, Alzheimer’s disease (“AD”), and broader central nervous system (“CNS”) indications and excludes Parkinson’s disease and sexual dysfunction. The work shall focus on direct-to-CNS delivery to bypass the blood-brain barrier. The scope of services included scientific development, IP execution, technical data delivery, business development support and broadened biodefense focus. In connection with these services, Lunai agreed to compensate the Company a total compensation of $250,000, of which $62,500 was payable upon signing of the IP Services Agreement, $62,500 upon filing of provisional patents and $125,000 payable upon the execution of a biodefense and neurodegenerative platform IP acquisition agreement by Lunai, which was the agreement and plan for merger with Lunai, described below. The Company has completed all its obligations under the IP Services Agreement, has invoiced Lunai for the services and has recognized the revenue under the IP Services Agreement during the three and six months ended June 30, 2026.
During the three and six months ended June 30, 2026, the Company recorded services revenue of approximately $0.3 million in connection with the IP Services Agreement described above. No similar services revenue was recorded in the three and six months ended June 30, 2025.
Agreement and Plan of Merger with Lunai
On April 27, 2026, Oncotelic Inc., a wholly owned subsidiary of the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lunai, Lunai Bioworks IP, Inc., a Delaware corporation and a wholly owned subsidiary of Lunai (“Merger Sub”), Neurobridge IP Holdings Incorporated, a Delaware corporation (“Holdings”), and the holders of all of the issued and outstanding capital stock of Holdings, namely Oncotelic Inc. and Pelerin Therapeutics Inc., a corporation existing under the laws of the Province of British Columbia, Canada (“Pelerin” and, together with Oncotelic Inc., the “Holders”). Pursuant to the Merger Agreement, Holdings merged with and into Merger Sub in a triangular merger (the “Merger”), with Merger Sub continuing as the surviving corporation and as a wholly owned subsidiary of Lunai. The Merger was completed on May 1, 2026. Immediately prior to the effective time of the Merger, all of the issued and outstanding capital stock of Holdings was owned 62.5% by Oncotelic Inc. and 37.5% by Pelerin. The sole assets of Holdings at the effective time of the Merger consisted of a multi-jurisdictional patent portfolio (collectively, and as further defined in the Merger Agreement, the “Patents”), which the Holders had contributed to Holdings prior to the effective time. In consideration for the Merger, on May 1, 2026 Lunai issued to the Holders an aggregate of eight (8) shares of a newly designated series of preferred stock of Lunai, designated as “Series B Convertible Preferred Stock” (the “Series B Preferred Stock”), having an aggregate stated value (the “Stated Value”) of $20,000,000. The Series B Preferred Stock was allocated five (5) shares to Oncotelic Inc. (representing 62.5% of the Series B Preferred Stock and an aggregate Stated Value of $12,500,000). For more information on the Merger Agreement, refer to our Current Report on Form 8-K filed with the SEC on May 5, 2026.
The Company received Series B Preferred Stock from Lunai with a stated Value of $12.5 million in exchange for the Company’s 62.5% equity interest in Neurobridge IP Holdings Incorporated. The transaction was accounted for as a sale of nonfinancial asset under FASB ASC 610-20 since the Company transferred control of the nonfinancial asset. The Series B Preferred Stock received was recorded at its initial fair value of $1.1 million. Because the net book value of the contributed asset was $0, the Company recognized a pre-tax gain on derecognition of non-financial assets of $1.1 million, which is included within “Other Income” in the unaudited Condensed Consolidated Statement of Operations.
The subsequent remeasurement of the Series B Preferred Stock at fair value is governed by FASB ASC 321, Investments – Equity Securities. The Company holds its investment in publicly traded companies that have readily determinable fair value based on quoted market prices. Its investment is carried at fair value on the unaudited Condensed Consolidated balance sheets. Realized and unrealized gains and losses resulting from changes in the fair value are recognized each period in earnings within other income on the unaudited Condensed Consolidated Statements of Operations. The Company recognized $0.3 million changes in fair value of its equity investment during the three and six months ended June 30, 2026.
IP Assignment Agreement
In connection with the Merger Agreement, on April 27, 2026, Oncotelic Inc. entered into an IP Assignment Agreement with Holdings, pursuant to which it agreed to contribute and assign certain assets relating to the intellectual property of the Company (collectively, the “Intellectual Property Assets”) to Holdings. For more information on the Merger Agreement, refer to our Current Report on Form 8-K filed with the SEC on May 5, 2026.
IP Grant-back Agreement
Further, on April 27, 2026, the Company and Holdings entered into an Intellectual Property Assignment and Grant-back Agreement (the “IP Grant-back Agreement”). The IP Grant-back Agreement grants back to the Company a perpetual, irrevocable, royalty-free, exclusive, non-terminable, and non-cancellable license to make, have made, use, offer to sell, sell, and otherwise exploit the Intellectual Property Assets in all fields of use except the Biodefense Field and the Alzheimer’s Disease Field as defined in the IP Grant-back Agreement, giving Holdings exclusive use of the Intellectual Property Assets in those fields. For more information on the Merger Agreement, refer to our Current Report on Form 8-K filed with the SEC on May 5, 2026.
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Asset Transfer Agreement
Further, on April 30, 2026, Oncotelic Inc. on behalf of the Company, and Autotelic Inc. (“Autotelic”) entered into an asset transfer agreement (the “Asset Transfer Agreement”) pursuant to which Autotelic agreed to transfer all the rights, title and interest to certain assets (“Assets”), described below and owned by Autotelic to Oncotelic Inc. This Asset Transfer Agreement was entered into by both parties to effectuate the Merger Agreement. Dr. Trieu, Chairman and CEO of Oncotelic Therapeutics, Inc., is a partial owner and control person in Autotelic Inc. Autotelic Inc. currently owns less than 10% of the Company. The Assets transferred pursuant to the Asset Transfer Agreement include Peptide Y (including all variants, analogs, derivatives); Parathyroid Hormone (“PTH”), including PTH 1-34, PTH 1-84, and derivatives; Insulin (including intranasal and other formulations); Apomorphine (including intranasal and other formulations); Carbetocin (including intranasal and other formulations); any associated combination therapies, including multi-agent CNS, AD, metabolic, endocrine, or biodefense applications; and all delivery platforms, including nasal, injectable, and device-based systems and includes all patents, patent applications, know-how, trade secrets, data, formulations, manufacturing processes, regulatory filings, and all related rights associated with the Assets. In consideration for the transfer of the Assets, the Company shall issue equity of ten percent (10%) of the fully diluted outstanding shares of the Company, issuable on an uplisting of its capital stock to NYSE/NASDAQ. No cash was paid for the Asset Transfer Agreement.
The consideration payable to Autotelic is contingent on the Company uplisting its Common Stock to a nationally recognized stock exchange. Such shares of the Company have not been issued to Autotelic as of the date of this filing and are not due to be issued till the uplisting of the Company’s stock onto a nationally recognized stock exchange. If the uplisting does not occur, then the shares would not be issuable and neither would the transaction with Lunai be invalidated.
Recent Financing Transactions
2026 Pacific Pier Note
In June 2026, the Company entered into a Securities Purchase Agreement (the “2026 Pacific Pier SPA”), with Pacific Pier Capital II, LP (“Pacific Pier”), pursuant to which Company issued a convertible promissory note in the aggregate gross principal amount of $178,410 (the “2026 Pacific Pier Note”). The 2026 Pacific Pier Note is convertible into shares of the Company’s common stock, par value $0.01 per share. For more information on the 2026 Pacific Pier Note, refer to Note 5 of the Notes to the unaudited Condensed Consolidated Financial Statements.
The 2026 Pacific Pier Note has an original issue discount of 12%, carries an interest rate of 12% per annum and matures on the earlier of (a) the one-year anniversary of the date of the 2026 Pacific Pier Purchase Agreement, or (b) the acceleration of the maturity of the 2026 Pacific Pier Note by Pacific Pier upon occurrence of an event of default or (c) on prepayment in full. The 2026 Pacific Pier Note contains a voluntary conversion mechanism whereby Pacific Pier may convert the outstanding principal and accrued interest under the terms of the 2026 Pacific Pier Note into shares of Common Stock (the “Conversion Shares”), following six (6) calendar months after the Issue Date, at a price that is lesser of (i) $0.06 (as adjusted for any stock dividend, stock split, stock combination, rights offerings, reclassification or similar transaction that proportionately decreases or increases the Common Stock) or (ii) 85% of the lowest traded price of the Common Stock on the Principal Market on any Trading Day during the ten (10) Trading Days prior to the respective conversion date, subject to adjustments upon the occurrence of certain corporate events. The Company also issued 500,000 shares of Common Stock as commitment shares. For more information on the 2026 Pacific Pier Note, refer to Note 5 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this report.
In addition, on August 3, 2026, the Company entered into a new SPA and note with Pacific Pier, with the exact same terms and conditions, for an additional approximately $0.2 million. For more information on the new SPA and note, refer to Note 16 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this report.
2026 Mast Hill Note
In January 2026, the Company entered into a Securities Purchase Agreement (the “2026 Mast Hill Purchase Agreement”), with Mast Hill Fund, LP (“Mast Hill”), and the Company issued a convertible promissory note in the aggregate gross principal amount of approximately $398,333 (the “2026 Mast Hill Note”). The 2026 Mast Hill Note is convertible into shares of the Company’s Common Stock. For more information on the 2026 Mast Hill Note, refer to Note 5 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this report.
Short-term loans from related parties / families
As of January 1, 2025, approximately $2 million was outstanding and payable to Autotelic. During the year ended December 31, 2025, Autotelic Inc. provided additional short-term funding of approximately $0.9 million to the Company. In the three and six months ended June 30, 2026, Autotelic Inc. provided additional short-term funding of $17,000 and approximately $58,000 to the Company. As such, approximately $3.1 million was outstanding and payable to Autotelic at June 30, 2026.
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As of January 1, 2025, approximately $76,000 was outstanding and payable to the Company’s CFO. During the year ended December 31, 2025, the CFO provided additional short-term funding of $10,000. As such, approximately $86,000 was outstanding and payable to the Company’s CFO at June 30, 2026.
In December 2023, the Company received $50,000 from the Company’s CEO. In December 2025, the amount due from PPM-2 payable to the CEO of $125,000 was converted into a short-term loan. As such, $175,000 was outstanding to the Company’s CEO at June 30, 2026. As of June 30, 2026, approximately $210,000 was outstanding as short-term advances from certain bridge investors.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of financial statements in accordance with U.S. GAAP 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 condensed financial statements included elsewhere in this Quarterly Report.
We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are the following:
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 over the estimated fair value of the identifiable net assets acquired in a business combination. Goodwill is not amortized but is tested for impairment at least annually, at the reporting unit level, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
We have the option to first perform a qualitative assessment (commonly referred to as “Step 0”) to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, no further quantitative testing is required. If we choose to bypass the qualitative assessment, or if the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a quantitative impairment test. The quantitative test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its estimated fair value, an impairment charge is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
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Fair Value of the Company’s equity investment
The Company accounts for its investment in the Series Preferred stock of Lunai Bioworks in accordance with ASC 321. Because the asset’s underlying common stock has a readily determinable fair value via an active public exchange, the investment is measured at fair value at each reporting date. The investment is measured using an as-converted basis, anchoring to the observable, quoted market price of Lunai’s underlying common stock on the Nasdaq. Because the preferred shares cannot be immediately liquidated on the open market, management applies a Discount for lack of marketability and other valuation discounts to reflect contractual and regulatory holding restrictions.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives and Hedging”.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards.
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with ASC 470-20 “Debt – Debt with Conversion and Other Options.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Original issue discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
ASC 815-40 “Derivatives and Hedging – Contracts in Entity’s Own Equity” provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Derivative Financial Instruments Indexed to the Company’s Common Stock
We have generally issued derivative financial instruments, such as warrants, in connection with our equity offerings. We evaluate the terms of these derivative financial instruments in order to determine their accounting treatment in our financial statements. Key considerations include whether the financial instruments are freestanding and whether they contain conditional obligations. If the warrants are freestanding, do not contain conditional obligations and meet other classification criteria, we account for the warrants as an equity instrument. However, if the warrants contain conditional obligations, then we account for the warrants as a liability until the conditional obligations are met or are no longer relevant. Because no established market prices exist for the warrants that we issue in connection with our equity offerings, we must estimate the fair value of the warrants, which is as inherently subjective as they are 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 Condensed Consolidated Statement of Income.
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Investment - Equity Method (Fair Value Election)
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 unaudited Condensed Consolidated Financial Statements.
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.
The impacts of any of the critical accounting policies and significant judgments and estimates, if applicable, have been reflected in the Notes to the unaudited Condensed Consolidated Financial Statements in this Report.
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Results of Operations
Comparison of the Results of Operations for the Three Months Ended June 30, 2026, to the Three Months Ended June 30, 2025
The following table sets forth key components of our results of operations for the periods indicated:
| June 30, 2026 | June 30, 2025 | Variance | ||||||||||
| Service revenue | $ | 250,000 | $ | - | $ | 250,000 | ||||||
| Total Revenue | 250,000 | - | 250,000 | |||||||||
| Operating expense: | ||||||||||||
| Research and development | 345 | 297 | (48 | ) | ||||||||
| General and administrative | 1,093,220 | 65,672 | (1,027,548 | ) | ||||||||
| Total operating expense | 1,093,565 | 65,969 | (1,027,596 | ) | ||||||||
| Loss from operations | (843,565 | ) | (65,969 | ) | (777,596 | ) | ||||||
| Other income (expense) | ||||||||||||
| Gain on derecognition of non-financial asset | 1,100,000 | - | 1,100,000 | |||||||||
| Interest expense, net | (318,292 | ) | (207,780 | ) | (110,512 | ) | ||||||
| Change in fair value equity investment | 300,000 | - | 300,000 | |||||||||
| Change in fair value of derivatives on debt | 102,868 | 484,198 | (381,330 | ) | ||||||||
| - | - | - | ||||||||||
| Net income before controlling interests | $ | 341,011 | $ | 210,449 | $ | 130,562 | ||||||
Net Income before controlling interests
Net income for the three months ended June 30, 2026, was approximately $0.3 million, a $0.1 million increase from the $0.2 million recorded in the same period of 2025.. The increase was primarily driven by a $1.1 million non-cash gain on derecognition of non-financial asset attributable to the Lunai Series preferred received in exchange for the Company’s equity interest in Neurobridge IP Holdings Incorporated, a gain of $0.3 million from the mark to market of such investment at period end in accordance with ASC 321, and approximately $0.3 million recorded due to services provided to Lunai under the IP Services Agreement (See Transactions with Lunai Bioworks described above). No similar income was recorded during the three months ended June 30, 2025.
The Company recorded higher operating expenses of approximately $1 million, of which approximately $0.7 million related to higher stock-based compensation, approximately $0.4 million of higher legal and professional expenses and approximately $0.1 million of higher other operational expenses during the three months ended June 30, 2026, as compared to the same period of 2025. In addition, the Company recorded higher interest expense of approximately $0.1 million following the additional convertible debts incurred in the period and a lower gain from change in fair value of derivatives by approximately $0.4 million, incurred during the three months ended June 30, 2026, as compared to the same period of 2025.
Service revenue
During the three months ended June 30, 2026, we recorded service revenue of $250,000 as received from Lunai for certain services in connection with the IP Services Agreement. No similar revenues were recorded during the same period in 2025.
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Research and Development Expenses
Research and development (“R&D”) expenses remained similar for the three months ended June 30, 2026 compared to the same period in 2025. The lower R&D cost was primarily related to lower operational costs.
Now that we have formed a joint venture with GMP Bio, whereby we are able to transfer the responsibility of our drug development program related to OT-101 to the JV, we plan to increase research and development activities related to apomorphine, 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 Expenses
General and administrative (“G&A”) expenses increased by approximately $1.0 million for the three months ended June 30, 2026, compared to the same period in 2025, primarily due to an increase in stock-based compensation of approximately $0.7 million, and approximately $0.4 million in legal and professional fee. The higher legal and professional costs are primarily attributed to the Company’s efforts to uplist the Company’s Common Stock to a nationally recognized stock exchange. The higher operating expenses were partially offset by lower operating expenses of approximately $0.1 million incurred during the three months ended June 30, 2026 as compared to the same period of 2025.
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, however, we may see an increase in G&A expenses, subject to our continuing ability to secure sufficient funding to continue planned operations.
Gain on derecognition of non-financial asset and change in value of equity securities of Lunai
During the three months ended June 30, 2026, the Company recorded total non-cash income of $1.4 million related to transactions with Lunai. This income consists of a $1.1 million gain on the derecognition of a non-financial asset, alongside a subsequent $0.3 million upward fair value adjustment on the underlying equity securities received in exchange for the Company’s interest in Neurobridge IP Holdings Incorporated. While the Series B Preferred Stock received from Lunai carries a stated value of $12.5 million, the Company recorded such consideration based on the fair value of these equity securities. No similar income was recorded during the three months ended June 30, 2025. For more information on the fair value of the equity securities in Lunai, refer to Note 2 of the unaudited Condensed Consolidated Financial Statement under “Fair Value Hierarchy – Lunai”.
Interest Expense, Net
We recorded interest expense, including amortization of debt costs, of approximately $0.3 million for the three months ended June 30, 2026 in connection with debt raised from various convertible notes, including the JH Darbie Financing and other debt financings, as compared to $0.2 million for the same period of 2025. For more information on debt raised from convertible notes and the JH Darbie Financing, see Note 5, Note 7 and Note 8 of the unaudited Condensed Consolidated Financial Statements of this Quarterly Report.
Change in Value of Derivatives
During the three months ended June 30, 2026, we recorded a gain of approximately $0.1 million due to change in the value of the derivatives on the notes issued to our CEO and the bridge investors. Correspondingly, we recorded a gain of approximately $0.5 million due to change in value of the derivative on the notes issued to our CEO and a bridge investor in the comparable period in prior year.
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Comparison of the Results of Operations for the Six Months Ended June 30, 2026, to the Six Months Ended June 30, 2025
The following table sets forth key components of our results of operations for the periods indicated:
| June 30, 2026 | June 30, 2025 | Variance | ||||||||||
| Service Revenue | $ | 250,000 | $ | - | $ | 250,000 | ||||||
| Total Revenue | 250,000 | - | 250,000 | |||||||||
| Operating expense: | ||||||||||||
| Research and development | 1,140 | 594 | (546 | ) | ||||||||
| General and administrative | 2,945,810 | 166,472 | (2,779,338 | ) | ||||||||
| Total operating expense | 2,946,950 | 167,066 | (2,779,884 | ) | ||||||||
| Loss from operations | (2,696,950 | ) | (167,066 | ) | (2,529,884 | ) | ||||||
| Other income (expense) | ||||||||||||
| Gain on derecognition of non-financial asset | 1,100,000 | - | 1,100,000 | |||||||||
| Interest expense, net | (614,103 | ) | (411,579 | ) | (202,524 | ) | ||||||
| Change in fair value equity investment | 300,000 | - | 300,000 | |||||||||
| Change in the value of derivatives on debt | 12,788 | 424,830 | (412,042 | ) | ||||||||
| Net loss before controlling interests | $ | (1,898,265 | ) | $ | (153,815 | ) | $ | (1,744,450 | ) | |||
Net Loss before controlling interests
We recorded a net loss of approximately $1.9 million for the six months ended June 30, 2026, as compared to a net loss of approximately $0.2 million for the six months ended June 30, 2025.
The higher net loss, of approximately $1.7 million, for the six months ended June, 2026 as compared to the same period of 2025, was primarily due to recording a $1.1 million non-cash gain on derecognition of non-financial asset and $0.3 million of change in fair value of the Company’s equity securities as a result of the Series B Preferred Shares of Lunai received by the Company, and approximately $0.3 million recorded due to services provided to Lunai under the IP Services Agreement (See Transactions with Lunai Bioworks described in Note 9 of the unaudited Condensed Consolidated Financial Statements). No similar income was recorded during the six months ended June 30, 2025.
The Company also recorded higher operating expense of approximately $2.8 million, of which approximately $2.4 million relates to higher stock-based compensation, approximately $0.4 million of higher legal and professional costs. The Company also recorded higher interest expense of approximately $0.2 million, offset by lower gain from the change in value of derivatives on debt of approximately $0.4 million, compared to the same period in 2025.
Service revenue
During the six months ended June 30, 2026, we recorded service revenue of $250,000 as received from Lunai for certain services in connection with the IP Services Agreement. No similar revenues were recorded during the same period ended June 30, 2025.
Research and Development Expenses
Research and development (“R&D”) expenses increased marginally by approximately $500 for the six months ended June 30, 2026 compared to the same period in 2025. The lower R&D cost was primarily related to lower operational costs.
Now that we have formed a joint venture with GMP Bio, whereby we are able to transfer the responsibility of our drug development program related to OT-101 to the JV, we plan to increase research and development activities related to apomorphine, 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.
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General and Administrative Expenses
General and administrative (“G&A”) expenses increased by approximately $2.8 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, primarily due to higher stock-based compensation cost of approximately $2.4 million and higher legal and professional expenses of approximately $0.4 million. The higher legal and professional costs are primarily attributed to the Company’s efforts to uplist the Company’s Common Stock to a nationally recognized stock exchange.
Gain on derecognition of non-financial asset and change in value of equity securities of Lunai
During the six months ended June 30, 2026, the Company recorded total non-cash income of $1.4 million related to transactions with Lunai. This income consists of a $1.1 million gain on the derecognition of a non-financial asset, alongside a subsequent $0.3 million upward fair value adjustment on the underlying equity securities. While the Series B Preferred Stock received from Lunai carries a stated value of $12.5 million, the Company recorded these amounts based on the securities’ estimated fair value. No similar income was recorded during the six months ended June 30, 2025. For more information on the fair value of the equity securities in Lunai, refer to Note 2 of the unaudited Condensed Consolidated Financial Statement under “Fair Value Hierarchy – Lunai”.
Interest Expense, Net
We recorded interest expense, including amortization of debt costs, of approximately $0.6 million for the six months ended June 30, 2026, in connection with debt raised from various convertible notes, including the JH Darbie Financing and other debt financing, as compared to $0.4 million for the six months ended June 30, 2025. Interest expense was higher for the six months ended June 30, 2026, as compared to the same period of 2025, due to two additional notes. For more information on debt raised from convertible notes and the JH Darbie Financing, see Note 5 and Note 7 of the unaudited Condensed Consolidated Financial Statements of this Quarterly Report.
Change in Value of Derivatives
During the six months ended June 30, 2026, we recorded approximately $13 thousand gain in value of derivatives on the notes issued to our CEO and the bridge investors. Correspondingly, we recorded a gain of approximately $0.4 million during the same period of 2025. The change in the gain is a direct result of changes to the input to the option pricing model used to value the Company’s derivatives.
Liquidity, Financial Condition and Capital Resources ($s in ‘000’s)
June 30, 2026 | December 31, 2025 | |||||||
| Cash, including restricted cash | $ | 206 | $ | 109 | ||||
| Working capital | $ | (16,446 | ) | $ | (16,945 | ) | ||
| Total Oncotelic Therapeutics, Inc. Stockholders’ Equity | $ | 264,561 | $ | 262,761 | ||||
Historically the Company has experienced net losses every year since inception barring a few years. Since inception, and at the end of the year ending December 31, 2024, the Company had an accumulated deficit of approximately $38 million. As of December 31, 2025, after giving effect to the re-valuation of the Company’s interest in the JV, the Company recorded net income of approximately $249 million after recording deferred taxes of $111.6 million, and as such had positive total stockholders’ equity, before non-controlling interests, of approximately $262.8 million. The Company incurred a net loss before non-controlling interest of approximately $1.9 million during the six months ended June 30, 2026.
As of June 30, 2026, the Company had positive total stockholders’ equity, before non-controlling interests, of approximately $264.6 million, approximately $0.2 million in cash, approximately $1.3 million of prepaid and other current assets; and current liabilities of approximately $18 million, of which approximately $1.3 million are net assumed liabilities of the Company as part of the Oncotelic Inc. reverse merger, $12 million of short term debt including accrued interest, and $2.6 million is contingent liability to issue common shares of the Company to PointR shareholders upon achievement of certain milestones.
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As of June 30, 2026 and December 31, 2025, the Company also had approximately $1.9 million and approximately $1.7 million, respectively, of long-term debt on account of the PPM-3 financing through J.H. Darbie, and $111.6 million of deferred income taxes. Management expects to incur significantly lower costs and losses, especially due to the transfer of costs over to the JV since April 2022, in the foreseeable future but also recognizes the need to raise capital to remain viable. The Company’s limited capital resources, history of recurring losses and uncertainties as to whether the Company’s operations will become profitable raise substantial doubt about its ability to continue as a going concern. The financial statements contained in this report do not include any adjustments related to the recoverability of assets or classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
During the past few years, the principal source of the Company’s working capital deficit has been from short term loans provided by related parties, officers and certain insiders, and 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 its product candidates. The Company is evaluating the options to further the development of the Company’s product candidates, AL-101, Artemisinin for COVID-19, developing AI technologies to support the COVID-19 therapies; in addition to evaluating the development pathway of its product candidates; OXi4503 and/or CA4P. The Company is also planning to develop OT-101 for certain animal health indications and contemplating using crypto currencies for that platform. The Company has been developing OT-101 for various cancers, as well as a nanoparticle platform through the JV. Substantial development on that front has occurred during the past year and continues to occur. The Company also received cash of approximately $0.3 million upon the recording of income on rendering services to Lunai under the IP Services Agreement (See Transactions with Lunai Bioworks above) during the three and six months ended June 30, 2026.
The Company anticipates raising substantial additional capital through the sale of equity securities and/or debt, but no new financing arrangements are in place at this time.
If the Company is unable to access additional funds when needed, it may not be able to continue the development of these investigational drugs and the Company could be required to delay, scale back or eliminate some or all of its development programs and operations. Any additional equity financing, if available, would be dilutive to the current stockholders and may not be available on favorable terms. Additional debt financing, if available, may involve restrictive covenants and could also be dilutive. The Company’s ability to access capital is not assured and, if access is not achieved on a timely basis, would materially harm the Company’s financial condition, the value of its common stock and its business prospects.
Cash Flows
| Six months ended June 30, | ||||||||
| ($s in ‘000’s) | 2026 | 2025 | ||||||
| Net cash used in operating activities | $ | (434 | ) | $ | (293 | ) | ||
| Net cash provided by financing activities | $ | 531 | $ | 295 | ||||
| Increase in cash | $ | 97 | $ | 2 | ||||
Operating Activities
Net cash used in operating activities was approximately $0.4 million for the six months ended June 30, 2026. This was due to the net loss of approximately $1.9 million and the recording of a non-cash gain of $1.1 million from the derecognition of non-financial asset and a $0.3 million gain from the change in fair value of its equity securities in Lunai (See Transactions with Lunai Bioworks described above). This was offset by an increase in operating assets and liabilities of approximately $0.1 million, non-cash amortization of debt discounts and deferred financing costs of approximately $0.3 million, non-cash stock-based compensation of approximately $2.37 million, and a non-cash cost of stock issued to investors of approximately $0.1 million.
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Net cash used in operating activities was approximately $0.3 million for the six months ended June 30, 2025. This was due to the net loss of approximately $0.2 million, approximately $0.4 million gain in changes in fair value of derivative, and primarily offset by approximately $0.1 million due to amortization of debt discounts and deferred financing costs and changes in operating assets and liabilities of approximately $0.2 million.
Financing Activities
For the six months ended June 30, 2026, net cash provided by financing activities was approximately $0.5 million, primarily from net cash receipts from the aggregate issuance of two convertible notes to Mast Hill and Pacific Pier.
For the six months ended June 30, 2025, net cash provided by financing activities was approximately $0.3 million, primarily due to a receipt of a short-term loan from a related party.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
Contractual Obligations
Our current drug development programs are based on a series of compounds called combretastatins, which we have exclusively licensed from Arizona State University, or ASU. If our current drug candidates are approved, we will be required to pay low to mid-single-digit royalties on future net sales of products associated with the ASU patent rights until these patent rights expire.
We also have an exclusive license from Bristol-Myers Squibb, or BMS, for certain patent rights to particular combretastatins, including CA4P. If CA4P is approved, we will be required to pay low-single-digit royalties on future net sales of products associated with the BMS patent rights until these patent rights expire.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our cash is maintained in U.S. dollar accounts. We have adopted a policy for the cash that we hold, and also for any cash equivalents and investments that we may hold, the primary objective of which is to preserve principal, while also maintaining liquidity to meet our operating needs and maximize yields to the extent possible. Although our investments can be subject to credit risk, we follow procedures to limit the amount of credit exposure in any single issue, issuer or type of investment. Our investments are also subject to interest rate risk and would be likely to decrease in value if market interest rates increase. However, due to the generally conservative nature of our investments and relatively short duration, we believe that interest rate risk is mitigated.
Although we may from time-to-time manufacture drugs and conduct preclinical or clinical trials outside of the United States, we believe our exposure to foreign currency risk to be immaterial. We do not use any type of hedging arrangement to mitigate any foreign currency risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
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As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our CEO and our CFO each concluded that our disclosure controls and procedures are not effective at that time as a result of certain material weaknesses in our internal control over financial reporting discussed below.
Material Weaknesses in Internal Control over Financial Reporting
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2026, based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Registrant’s internal control over financial reporting as of June 30 2026 was not effective as a result of certain material weaknesses.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which are observed in many small companies with a small number of accounting and financial reporting staff:
| ● | Lack of adequate independent directors on the Company’s board of directors and committees to oversee financial reporting responsibilities; |
| ● | Inadequate or lack of segregation of duties; |
| ● | Lack of dedicated resources and experienced personnel to design and implement internal control procedures to support financial reporting objectives; |
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner. |
Management’s Plan to Remediate the Material Weaknesses
Management continues to implement measures, subject to the availability of resources required to design and maintain such controls, designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The implementation and remediation measures are planned, subject to the availability of financial and therefore human resources. The remediation actions planned include:
| ● | Continue to search for, evaluate and recruit qualified independent outside directors; |
| ● | Once independent directors are on Board, to augment or replace the non-independent directors to the Audit Committee and other committees. |
| ● | Identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; and |
| ● | Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. |
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Changes in Internal Control over Financial Reporting
During the six months ended June 30, 2026, we continued limited work on our planned implementation and remediation actions which are all intended to strengthen our overall control environment, within the limited resources available to us. Due to lack of resources, we have not made any substantial progress in our planned remediation efforts, however, we are optimistic that the Company to complete its planned execution of internal controls over financial reporting upon the availability of resources.
We are committed to maintaining a strong internal control environment and believe that these remediation efforts will represent significant improvements in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. As of June 30, 2026, we are not involved in any legal proceedings. Historically, the outcome of all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial condition, results of operations or liquidity.
Item 1A. Risk Factors
For information about the risks and uncertainties related to our business, please see the risk factors described in our 2025 Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on April 15, 2026, and other SEC filings. The risks described below and in our 2025 Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds
In January 2026, the Company issued 1,600,446 shares of Common Stock to Mast Hill as additional consideration in connection with the issuance of a $398,333 senior secured promissory note.
In April 2026, the Company issued 300,000 shares to Fourth Man in exchange for one time waiver of their right to adjustment of conversion price of their March 2022 note.
In June 2026, the Company issued 11,877,507 shares of Common Stock to Mast Hill in connection with the note conversion of their May 2022 Note.
In June 2026, the Company issued 500,000 shares of Common Stock to Pacific Pier in connection with the new Pacific Pier Note.
In August 2026, the Company issued 500,000 shares of Common Stock to Pacific Pier in connection with the second Pacific Pier Note.
Item 3. Defaults upon Senior Securities
As of June 30, 2026, the Company was in default under the Forever Prosperity Notes (formerly GMP Notes) for failure to pay the outstanding principal and interest under the Forever Prosperity Notes at their maturity date. The total principal outstanding on all the Forever Prosperity Notes, inclusive of accrued interest, was approximately $5.0 million as of June 30, 2026. Forever Prosperity, the current holder of the notes, is an affiliate of Dragon, the other party in the Company’s JV, and has not called for the repayment of the debt. For additional information on the Forever Prosperity Notes see Note 5 of the unaudited condensed consolidated financial statements included in this report.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
In reviewing the agreements included as exhibits to this Quarterly Report, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:
| ● | should not, in all instances, be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
| ● | have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; | |
| ● | may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and | |
| ● | were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
The following exhibits are included as part of this Quarterly Report and should not be considered as a complete list of exhibits. A more complete list of previously filed Exhibits can be found with our 2025 Annual Report on Form 10-K filed with the SEC on April 15, 2026:
| Incorporated by Reference | ||||||||||
| Exhibit Number | Description | Form | Filing Date | Exhibit Number | Filed Herewith | |||||
| 2.1 | Agreement and Plan of Merger | 8-K | 05/05/2026 | 2.1 | ||||||
| 10.1 | Joint Development, Manufacturing and Licensing Agreement | 8-K | 04/02/2026 | 10.1 | ||||||
| 10.3 | Intellectual Property Assignment | 8-K | 05/05/2026 | 10.1 | ||||||
| 10.4 | Intellectual Property Assignment and Grant-back Agreement | 8-K | 05/05/2026 | 10.2 | ||||||
| 10.5 | Asset Transfer Agreement | 8-K | 05/05/2026 | 10.3 | ||||||
| 10.6 | Securities Purchase Agreement | 8-K | 06/29/2026 | 10.1 | ||||||
| 10.7 | Convertible Promissory Note | 8-K | 06/29/2026 | 10.2 | ||||||
| 10.8 | Form of Restricted Stock Unit Grant Agreement | 8-K | 07/14/2026 | 10.1 | ||||||
| 10.9 | Securities Purchase Agreement | 8-K | 08/04/2026 | 10.1 | ||||||
| 10.10 | Convertible Promissory Note | 8-K | 08/04/2026 | 10.2 | ||||||
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a). | X | ||||||||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a). | X | ||||||||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. | X | ||||||||
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. | X | ||||||||
| 101.1 | Interactive Data Files for the quarterly period ended June 30, 2026 | X | ||||||||
| 101.INS | Inline XBRL Instance Document | X | ||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||
| 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2026 has been formatted in Inline XBRL (Inline Extensible Business Reporting Language) | X | ||||||||
| * | Confidential treatment has been granted for portions of this Exhibit. Redacted portions filed separately with the Securities and Exchange Commission. |
| + | Management contract or compensatory plan or arrangement. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ONCOTELIC THERAPEUTICS INC. | ||
| By: | /s/ Vuong Trieu | |
| Vuong Trieu, Ph.D. | ||
| Chief Executive Officer and Director (Principal Executive Officer) | ||
| Date: | August 13, 2026 | |
| By: | /s/ Amit Shah | |
| Amit Shah | ||
Chief Financial Officer (Principal Financial and Accounting Officer) |
||
| Date: | August 13, 2026 | |
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