NOTE PAYABLE - FUNDRAISING ACTIVITIES

3 Months Ended

Mar. 31, 2017

Note C. NOTE PAYABLE – FUNDRAISING ACTIVITIES

As disclosed above, management has determined that the Company will require additional capital above its current cash and working capital balances to further develop AEM-28 and its analogs and to continue operations. Accordingly, the Company has reduced its development activities. The Company’s corporate strategy is to raise funds either by the Company, or directly in its joint venture, by possibly engaging in a strategic/merger transaction, or conducting a private or public offering of debt or equity securities for capital.

On December 11, 2015, we entered into a Securities Purchase Agreement (the “Agreement”) with Biotechnology Value Fund affiliated entities Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., Biotechnology Value Trading Fund OS, L.P., Investment 10, LLC, and MSI BVF SPV, LLC (the "Lenders"), to provide short-term funding for our operations. A portion of the funds have been advanced to JV to initiate preclinical development activities for our lead commercial drug candidate, AEM-28-14. The Lenders, at March 31, 2017 and December 31, 2016, owned in the aggregate, approximately 19% of our outstanding Common Stock.

Pursuant to the Agreement, the Lenders funded an aggregate of $1,000,000 of loans to us, evidenced by Convertible Promissory Notes (the “Notes”) dated December 11, 2015 and due April 30, 2017. On April 28, 2017 the Lenders agreed to extend the maturity of the Notes to June 15, 2017. The Notes bear interest at 5% per annum and are secured by a security interest in all of our assets.

The unpaid principal amount of the Notes will convert automatically upon the closing of a Qualified Equity Financing, which is defined in the Agreement as an offering of equity securities with aggregate gross proceeds of at least $5,000,000 including the principal of any converted Notes. Such conversion will be into the same securities and on the same terms as provided for the other investors in the Qualified Equity Financing.

As a Qualified Equity Financing was not consummated by March 31, 2016, the unpaid principal amount of the Notes may be converted, at the election of the Lenders, into shares of Common Stock, at a conversion price (the "Optional Conversion Price") equal to the trailing 10-day weighted average trading price of the Common Stock, but not be less than $.135 or more than $.18 per share. Upon a change in control of the Company, the Lenders may elect to accelerate the Notes or convert them into Common Stock at a conversion price equal to the Optional Conversion Price.

Under the Agreement, the Lenders have the right to elect to acquire, upon conversion of the Notes, convertible preferred stock rather than Common Stock, such preferred stock to vote with the Common Stock and to be convertible into the equivalent number of shares of Common Stock as would have been originally issued if the Notes conversion had been into Common Stock. Such preferred shares would have no preferential liquidation or distribution rights and would not have any dividend or preferred return rights.