| NOTE 5. Notes Payable | As
of September 30, 2018, the outstanding debt of the Company is comprised of senior secured convertible notes due commencing in
2019. The carrying basis (excluding accrued interest) of the notes is reflected in the accompanying balance sheet net of unamortized
discount associated with the valuation of warrants issued in conjunction with the debt and net of the expenses incurred in the
issuance of the debt:
As
of September 30, 2018
Principal
due at maturity,
including 10% bonus $ 7,264,091
Unamortized
issue costs and
discount (1,421,294 )
Carrying
amount in the
accompanying Balance Sheet $ 5,842,797
Accrued
interest payable $ 364,874 Sale
of 2016 Secured Notes During
the second half of 2016, we sold units of a 10% secured note payable (the “2016 Notes”) and a warrant to acquire shares
of Series A Preferred Stock. As of December 31, 2016, we issued $200,000 in principal amount of the 2016 Notes and warrants to
acquire 2,666,700 shares of Series A Preferred Stock at $0.0825 per share. The original maturities of the 2016 Notes were between
March 2017 and May 2017 and the 2016 Notes secured by the assets of Oncolix. The warrants are exercisable through January 2022,
and were assigned a value of $41,365 using a Black-Scholes formula, which was recorded as a discount to the notes. Upon maturity,
if the noteholders were not offered an option to convert the notes into a new equity offering by the Company, the noteholder will
also be entitled to receive an additional 20% of the principal amount of the 2016 Notes. The discount attributable to the value
of the warrants, the 20% premium, and an additional discount related to the fees and expenses of the issuance of the 2016 Notes
of $16,000 was accreted as additional interest expense over the life of the notes. The
2016 Notes had the right to voluntarily convert into the units sold in 2017, as described in the sections below. As a result,
the principal of the 2016 Notes was convertible into Common Stock at the price of $0.075 per Common share. During
March 2017, $100,000 of principal amount of the 2016 Notes was exchanged for a new series of notes being sold in 2017 –
see the following section. The maturity date of the remaining $100,000 of principal of 2016 Notes was extended through May 12,
2017, in exchange for an increase in the interest rate to 18% and the issuance of a warrant to acquire 500,000 shares of Series
A Preferred Stock. The warrant is exercisable at $0.0825 per share and expires if not exercised on or prior to March 14, 2022.
The discount attributable to the value of this additional warrant ($8,465) was being accreted as additional interest expense over
the extended maturity period of the 2016 Note. In May 2017, the maturity of this note was further extended in July 2017, and we
issued a second warrant to acquire 500,000 shares of Series A Preferred Stock. The warrant is exercisable at $0.0825 per share
and expires if not exercised on or prior to May 12, 2022. The discount attributable to the value of this additional warrant ($11,435)
was being accreted as additional interest expense over the extended maturity period of the 2016 Note. During August 2017, the
balance of this debt ($120,000) was paid. During
the three months and nine months ended September 30, 2017, respectively, we recorded $3,256 and $89,222 of interest expense attributable
to the 2016 Notes, of which $1,293 and $77,814 was accretion. No amounts were recorded in 2018. Sale
of Convertible Notes in 2017 During
2017 we sold units consisting of a convertible promissory note (the “2017 Notes”) and a warrant to acquire shares
of Common Stock at $0.0825 per share. The 2017 Notes were secured by the assets of the Company and subordinated to the 2016 Notes.
As of August 3, 2017, we had issued units for $1,185,000 in cash and the exchange for 2016 Notes, with a principal balance of
$1,320,621 and warrants to acquire 17,608,280 shares of Common Stock. We paid fees to the placement agent of $103,500 in cash
and were obligated to issue warrants to acquire 1,580,000 shares of Common Stock. These warrants a were assigned a value of $389,421
using a Black-Scholes formula, and these warrants were exchanged for new warrants in the August debt sale as described below.
In addition, we incurred cash expenses of $93,889. The
maturity of the 2017 Notes was extended to November 2018. At maturity, if we had not offered the noteholders an option to exchange
the 2017 Notes for equity securities in an offering with at least $5 million in gross proceeds, each noteholder would also receive
an additional payment equal to 20% of the principal of the 2017 Note. The discount attributable to the value of the warrants,
the 20% premium, and an additional discount related to the fees and expenses of the issuance of the notes of $197,389 were being
accreted as additional interest expense over the life of the notes. The
2017 Notes could also be converted by each holder into shares of Common Stock at a price of $0.075 per Common Shares. The
2017 Notes and accrued interest were exchangeable at a discount into a new equity offering. Interest of 10% was payable quarterly
in arrears, and could be paid in our Common Stock at $0.075 per share. On March 31, 2017, and June 30, 2017, we elected to pay
accrued interest as of such date by issuing 178,100 and 447,400 shares of our Common Stock, respectively. Such Common Stock was
issued in April 2017 and July 2017, respectively. During
August 2017, all of the 2017 Notes and related warrants were exchanged for a new series of units of convertible debt and warrants.
See below. During
the three months and nine months ended September 30, 2017, respectively, we recorded $269,494 and $646,208 of interest expense
attributable to the 2017 Notes, of which $256,379 and $586,810 is accretion. No amounts were recorded in 2018. Sale
of July 2017 Secured Notes During
July 2017, we sold an $160,000 in principal of secured notes the (“July Notes”) and warrants to acquire 3,200,000
shares of Common Stock at $0.0825 per share. The July Notes were due in February 2018 and the warrants are exercisable through
July 2022. The July Notes were secured by all of the assets of the Company and by Oncolix (Delaware). As noted in the following
paragraph, the July 2017 Notes were exchanged in a subsequent debt offering in August 2017. During
the three months and nine months ended September 30, 2017, respectively, we recorded $103,914 and $103,914 of interest expense
attributable to the 2017 Notes, of which $87,914 and $87,914 is accretion. No interest expense was recorded in 2018 related to
these notes. Sale
of August 2017 Secured Notes On
August 3, 2017, we (i) exchanged $1,561,894 of the outstanding balance of debt plus accrued under the 2017 Notes and the July
Notes and amounts payable under a consulting agreement and (ii) received $2,000,000 cash for an aggregated purchase price of $3,561,894
in consideration for the issuance of a new series of secured notes (the “August 2017 Notes”) with a stated principal
balance of $4,190,463. The August 2017 Notes were issued at a 15% discount as noted. In addition, holders of the 2017 Notes exchanged
warrants to acquire 17,608,280 shares of Common Stock at $0.0825 per share for new Warrants to acquire Common Stock at $0.09 per
share as described below. The total warrants issued were 55,872,836 shares. These warrants to acquire Common Stock have a five-year
term, cashless exercise provisions and anti-dilution protections. During
June 2018, the terms of the August 2017 Notes and the related warrants were modified as described below. The
feature of the August 2017 Notes allowing conversion into Common Stock was not bifurcated and treated separately as a derivative
in the financial statements. This conversion feature, which includes “down round” protection to the noteholders, is
considered linked to our Common Stock under the guidance of ASU 2017-11, which was early-adopted by the Company. This conversion
feature is considered settleable only for Common Stock and would be classified as equity if bifurcated from the August 2017 Notes.
Similarly, the related warrants are also considered linked to our Common Stock under the provisions of ASU 2017-11, and are settleable
only for Common Stock. Accordingly, the warrants are not accounted for as a derivative. We
incurred cash offering costs of $277,289 in connection with the offering, including $164,800 paid to a placement agent. In addition,
the placement agent surrendered its rights to receive warrants in connection with the 2017 Notes and received warrants to acquire
5,587,284 shares at $0.09 per share. These warrants a were assigned a value of $267,422 using a Black-Scholes formula. The closing
Oncolix Common Stock price on the date of issuance was $0.109, and the warrants have a five-year term. Because of the limited
trading history of Oncolix Common Stock, we continue to use 40% as an estimate of volatility rather than use the historical trading
activity of the pre-merger shell (with a volatility of less than 10%). On
the date of issuance, the August 2017 Notes were convertible into Common Stock at $0.075 per share, or at a conversion price below
the closing market price of $0.109. This “discount” is considered a beneficial conversion feature for accounting purposes.
The allocation of carrying basis between the warrants issued and the notes was determined based on relative valuation. The carrying
basis attributable to the warrants to acquire Common Stock was $1,194,934. The discount of the initial conversion price from market
related to the beneficial conversion feature of the debt was approximately $1,822,000, and such amount was recorded as a reduction
of debt and increase in Additional paid-in capital. After deducting offering costs of $544,711 (including the placement agent
warrant), the initial net carrying basis of the August 2017 Notes was reduced to zero. The principal due at maturity ($4,190,463)
plus the 10% bonus payable was being accreted as additional interest over the original life of the notes. In
June 2018, the terms of the August 2017 Notes were modified to change the payment terms, increase the principal amount due at
maturity, and change the conversion price into Common Stock. This modification was accounted for as an extinguishment and reissuance
of debt in accordance with ASC 470-20 and 470-50. The remaining unaccreted discount as of the date of modification, $1,706,733,
was expensed in the accompanying financial statements as a loss on the refinancing of debt. The resulting amount due at maturity
of $4,609,509 (including the 10% bonus payable at maturity) was treated as the face value exchanged for the modified debt. Pursuant
to the terms of the modification, the principal value of the August 2017 Notes was increased by 30% to $5,447,602. The modified
amount due at maturity is $5,992,362 (including the 10% bonus due at maturity). The issue costs related to the modification of
the August 2017 Notes and the issuance of new debt totaled $136,171. The resulting discount of $1,519,023 is being accreted as
additional interest expense over the life of the debt. The
August 2017 Notes bear interest at a rate of 10% per annum, payable monthly commencing on April 1, 2019 until the maturity date
on August 1, 2019. The interest is payable in cash or, at the option of the Company, subject to compliance with certain strict
volume and price conditions, in fully tradable Common Stock at a 25% discount to the average of the five lowest closing bid prices
for the 20 trading days prior to the interest payment date. The final maturity of the August 2017 Notes is August 1, 2019, but
commencing on April 1, 2019 and on the first day of each month thereafter until maturity, we are required to redeem an amount
of the August 2017 Notes equal to 1/5th of the original principal amount, plus 10% of such monthly redemption amount as a bonus.
The principal payments shall be made in cash or, subject to the satisfaction of with certain strict volume and price conditions,
in Common Stock valued at a 25% discount to the average of the five lowest closing bid prices for the 20 trading days prior to
the amortization date. As
modified, the August 2017 Notes are convertible at the option of the holders at a conversion price equal to $0.03 per share of
Common Stock. The August 2017 Notes contain customary anti-dilution protection, including full-ratchet anti-dilution adjustments
in the event of certain dilutive issuances (that adjust both price and share amounts). In
the event of a closing of an $8 million financing in connection with a change in listing of the Common Stock to Nasdaq or the
NYSE, the August 2017 Notes shall be subject to mandatory conversion into Common Stock at a 30% discount to the offering price.
We are required to offer to prepay in cash the aggregate principal amount of the August 2017 Notes at 120% of the principal amount
thereof plus any unpaid accrued interest to the date of repayment, at maturity, on the sale of substantially all of the assets
of the Company, upon a change of control, upon a qualified offering, or upon a “fundamental transaction” of the Company
(such as a reverse merger); in such an event, the holders shall have the right to convert the August 2017 Notes prior to the date
of any such prepayment. The
August 2017 Notes contain standard negative covenants customary for transactions of this type. The events of default are also
customary for transactions of this type, including default in timely payment of principal or interest, failure to observe or perform
any covenant or agreement in the note agreements, the commencement of bankruptcy or insolvency proceedings, failure to timely
deliver conversion shares underlying the August 2017 Notes, failure to timely file Securities and Exchange Commission filings,
and failure to satisfy certain market conditions. The
terms of the warrants to acquire Common Stock issued with the August 2017 Notes were also modified. The exercise price was reduced
to $0.03 per share, and the warrant became exercisable for 176,418,508 shares. Using a Black-Scholes formula, the calculated value
of the modified warrants was $966,691, less than the value calculated for the warrants at issuance. The warrant issued to the
placement agent of the warrants was also modified. Accordingly, the carrying value of the warrants was not modified. The closing
Oncolix Common Stock price on the date of modification was $0.022, and the warrants have a 4.6-year remaining term. Because of
the limited trading history of Oncolix Common Stock, we continue to use 40% as an estimate of volatility rather than use the historical
trading activity of the pre-merger shell (with a volatility of less than 10%). During
August, 2018, the principal amount of $120,000 was converted into 4,000,000 shares of Common Stock by the holders. During
the three months and nine months ended September 30, 2018, we recorded $495,731 and $2,902,948 of interest expense, respectively,
attributable to the August 2017 Notes, of which $357,968 and $2,544,022 is accretion. No amounts were recorded in the comparable
periods in 2017. Sale
of June 2018 Notes During
June 2018 we sold additional senior secured convertible notes (the “June 2018 Notes”) on terms substantially equivalent
to the modified terms of the August 2017 Notes in exchange for $1,084,699 in cash. The June 2018 Notes are convertible into Common
Stock at a price of $0.03 per share. The June 2018 Notes were issued at a 15% discount and have a stated principal value of $1,276,116.
The convertible notes bear interest at a rate of 10% per annum, with accrued interest payable commencing April 1, 2019, then on
the first day of each calendar month thereafter until maturity. The maturity of the convertible notes is August 1, 2019, but commencing
on April 1, 2019 and on the first day of each calendar month thereafter until maturity, the Company is required to redeem an amount
of the convertible notes equal to 1/5th of the original principal amount, plus 10% of such monthly redemption amount as a bonus. In
conjunction with the sale of these notes, we issued warrants to acquire 51,481,332 shares of Common Stock at an exercise price
of $0.036 per share. These warrants to acquire Common Stock have a five-year term, cashless exercise provisions and anti-dilution
protections. An identical warrant was issued to a placement agent for 4,952,055 shares of Common Stock. Using a Black Scholes
formula, the values assigned to the related warrant and the placement agent warrant were $171,110 and $25,290, respectively, resulting
in a recorded value of the June 2018 Notes of $888,299. The related discount of $196,401 is being accreted as additional expense
over the life of the debt. During
the three months and nine months ended September 30, 2018, we recorded $130,568 and $175,841 of interest expense, respectively,
attributable to the June 2018 Notes, of which $98,005 and $132,644 is accretion. No amounts were recorded in the comparable periods
in 2017. |
