NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022 and 2021
(Unaudited)
Note
1 – Organization and Operations
In
1965, the corporate predecessor of GT Biopharma Inc. (Company), Diagnostic Data, Inc. was incorporated in the State of California. Diagnostic
Data changed its incorporation to the State of Delaware in 1972 and changed its name to DDI Pharmaceuticals, Inc. in 1985. In 1994, DDI
Pharmaceuticals merged with International BioClinical, Inc. and Bioxytech S.A. and changed its name to OXIS International, Inc. In July
2017, the Company changed its name to GT Biopharma, Inc.
The
Company is a clinical stage biopharmaceutical company focused on the development and commercialization of novel immuno-oncology products
based on our proprietary Tri-specific Killer Engager (TriKE®) fusion protein immune cell engager technology platform.
The Company’s TriKE® platform generates proprietary therapeutics designed to harness and enhance the cancer killing
abilities of a patient’s own natural killer cells, or NK cells. Once bound to an NK cell, our moieties are designed to enhance
the NK cell, and precisely direct it to one or more specifically targeted proteins expressed on a specific type of cancer cell or virus
infected cell, resulting in the targeted cell’s death. TriKE®s can be designed to target any number of tumor antigens
on hematologic malignancies or solid tumors and do not require patient-specific customization.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Oxis Biotech, Inc. and Georgetown
Translational Pharmaceuticals, Inc. All intercompany transactions and balances have been eliminated in consolidation.
The
accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and
applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting.
Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed
or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2021 filed with the SEC on March 28, 2022 (the “2021 Annual Report”). The consolidated
balance sheets as of December 31, 2021 included herein were derived from the audited consolidated financial statements as of that date.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to
fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all
adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not
necessarily indicative of fiscal year-end results.
Liquidity
The
accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern.
Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six
months ended June 30, 2022, the Company recorded a net loss of $8.4 million and used cash in operations of $8.0 million. As of June 30,
2022, the Company had a cash and short-term investments balance of $23.7 million, working capital of $15.3 million and stockholders’
equity of $15.4 million. Management anticipates that the $23.7 million of cash and cash equivalents, and short-term investments are adequate
to satisfy the liquidity needs of the Company for at least one year from the date the Company’s condensed consolidated financial
statements for the quarter ended June 30, 2022 were issued.
Historically,
the Company has financed its operations through public and private sales of common stock, issuance of preferred and common stock, issuance
of convertible debt instruments, and strategic collaborations.
COVID-19
In
March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has
continued to spread, has adversely affected workforces, customers, economies, and financial markets globally. It has also disrupted the
normal operations of many businesses. This outbreak could adversely affect the Company’s operations.
While
the pandemic has impacted the Company’s operations, during the six months ended June 30, 2022, the Company believes the COVID-19
pandemic had limited impact on its operating results. The Company has not observed any impairments of its assets or a significant change
in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration
or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial
condition, or liquidity.
The
Company has been following the recommendations of health authorities to minimize exposure risk for its team members, including having
team members work remotely. Most vendors have transitioned to electronic submission of invoices and payments.
Accounting
Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant
estimates include accruals for potential liabilities, assumptions used in deriving the fair value of derivative liabilities, valuation
of equity instruments issued for services and realization of deferred tax assets. Actual results could differ from those estimates.
Cash
Equivalents and Short-Term Investments
The
Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents in
the accompanying condensed consolidated financial statements. As of June 30, 2022 total cash and cash equivalents, which consist of cash
and money market funds, amounted to approximately $5.4 million.
The
Company also invested its excess cash in commercial paper and corporate notes and bonds. Management generally determines the appropriate
classification of its investments at the time of purchase. We classify these investments as short-term investments, as part of current
assets, based upon our ability and intent to use any and all of these investments as necessary to satisfy liquidity requirements that
may arise from our businesses. Investments are carried at fair value with the unrealized holding gains and losses reported in the accompanying
condensed consolidated statements of operations. As of June 30, 2022 total short-term investments amounted to approximately $18.4 million.
Fair
Value of Financial Instruments
Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10 requires entities to disclose
the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet for which it
is practicable to estimate fair value. ASC 820-10 defines the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
The
three levels of the fair value hierarchy are as follows:
| |
Level
1 |
Valuations
based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. |
| |
|
|
| |
Level
2 |
Valuations
based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are
observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. |
| |
|
|
| |
Level
3 |
Valuations
based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. |
The
carrying amount of the Company’s derivative liability of $115,000 at June 30, 2022 and $138,000 at December 31, 2021 was based
on Level 2 measurements.
The
carrying amounts of the Company’s other financial assets and liabilities, such as cash, prepaid expense, accounts payable and accrued
expenses approximate their fair values because of the short maturity of these instruments.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded
at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements
of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or
as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as
current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of
the balance sheet date. The fair value of the embedded derivatives is determined using a Binomial valuation method at inception and on
subsequent valuation dates.
Stock-Based
Compensation
The
Company accounts for share-based awards to employees, nonemployees and consultants in accordance with the provisions of ASC 718, Compensation-Stock
Compensation. Stock-based compensation cost is measured at fair value on the grant date and that fair value is recognized as expense
over the requisite service, or vesting period.
The
Company values its equity awards using the Black-Scholes option pricing model, and accounts for forfeitures when they occur. Use of the
Black-Scholes option pricing model requires the input of subjective assumptions including expected volatility, expected term, and a risk-free
interest rate. The Company estimates volatility using its own historical stock price volatility. The expected term of the instrument
is estimated by using the simplified method to estimate expected term. The risk-free interest rate is estimated using comparable published
federal funds rates.
Research
and Development Costs
Costs
incurred for research and development are expensed as incurred. The salaries, benefits, and overhead costs of personnel conducting research
and development of the Company’s products are included in research and development expenses. Purchased materials that do not have
an alternative future use are also expensed.
Leases
The
Company accounts for its leases in accordance with Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic
842) (“ASC 842”). ASC 842 requires lessees to (i) recognize a right of use asset (“ROU asset”) and a lease liability
that is measured at the present value of the remaining lease payments, on the consolidated balance sheets, (ii) recognize a single lease
cost, calculated over the lease term on a straight-line basis, and (iii) classify lease related cash payments within operating and financing
activities. The Company has made an accounting policy election to not recognize short-term leases on the consolidated balance sheets
and all non-lease components, such as common area maintenance, were excluded. At any given time during the lease term, the lease liability
represents the present value of the remaining lease payments, and the ROU asset is measured as the amount of the lease liability, adjusted
for pre-paid rent, unamortized initial direct costs, and the remaining balance of lease incentives received. Both the lease ROU asset
and liability are reduced to zero at the end of the lease term.
The
Company leases office space and equipment. At the lease inception date, the Company determines if an arrangement is, or contains a lease.
Some of the Company’s leases include options to renew at similar terms. The Company assesses these options to determine if the
Company is reasonably certain of exercising these options based on relevant economic and financial factors. Options that meet these criteria
are included in the lease term at the lease commencement date.
During
the period ended June 30, 2022, the Company executed lease agreements for its office space and equipment and as a result, recorded operating
lease right-of-use assets and the related lease liabilities of $260,000 pursuant to ASC 842, Leases (see Note 8).
Net
Earnings (Loss) Per Share
Basic
earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Common stock
issuable is included in our calculation as of the date of the underlying agreement. Diluted earnings (loss) per share is computed using
the weighted-average number of common shares and the dilutive effect of contingent shares outstanding during the period. Potentially
dilutive contingent shares, which primarily consist of convertible notes, stock issuable for the exercise of stock options and warrants
have been excluded from the diluted loss per share calculation because their effect is anti-dilutive.
These
following common stock equivalents were excluded in the computation of the net loss per share because their effect is anti-dilutive:
Schedule of Anti-dilutive Securities
| | |
| | | |
| | |
| | |
June 30, 2022 (Unaudited) | | |
June 30, 2021
(Unaudited) | |
| Options to purchase common stock | |
| 302,500 | | |
| - | |
| Warrants to purchase common stock | |
| 2,337,274 | | |
| 2,365,473 | |
| Unvested restricted common stock | |
| 488,429 | | |
| - | |
| Convertible Series C Preferred Stock | |
| - | | |
| 7 | |
| Total anti-dilutive securities | |
| 3,128,203 | | |
| 2,365,480 | |
Concentration
Cash
is deposited in one financial institution. The balances held at this financial institution at times may be in excess of Federal Deposit
Insurance Corporation (“FDIC”) insurance limits of up to $250,000.
The
Company has a significant concentration of expenses incurred and accounts payable from a single vendor. Please see Note 4 for further
information.
Segments
The
Company determined its reporting units in accordance with ASC 280, “Segment Reporting” (“ASC 280”). Management
evaluates a reporting unit by first identifying its’ operating segments under ASC 280. The Company then evaluates each operating
segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment
that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more
reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines
if the segments are economically similar and, if so, the operating segments are aggregated.
Management
has determined that the Company has one operating segment. The Company’s reporting segment reflects the manner in which its chief
operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating
segment and does not include the aggregation of multiple operating segments.
Recent
Accounting Pronouncements
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting
for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 provides clarification
and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options
(such as warrants) that remain equity classified after modification or exchange. An issuer measures the effect of a modification or exchange
as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification
or exchange. ASU 2021-04 introduces a recognition model that comprises four categories of transactions and the corresponding accounting
treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and
debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications
or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim
period. Effective January 1, 2022, we adopted ASU 2021-04 using a prospective approach. It did not have a material impact on the Company’s
financial statements or disclosures.
In
November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832)—Disclosures by Business Entities about Government
Assistance. ASU 2021-10 increases the transparency of government assistance including the disclosure of (1) the types of assistance,
(2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements.
The ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU as of January 1, 2022 on a prospective
basis. The adoption of this standard did not have any material impact on the Company’s financial statements.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission (the “SEC”) did not or are not believed by management to have a material
impact on the Company’s present or future consolidated financial statements.
Note
3 – Fair Value of Financial Instruments
The
estimated fair values of financial instruments outstanding were (in thousands):
Schedule of Estimated Fair Value of Financial Instrument
| | |
June 30, 2022 (Unaudited) | |
| | |
| | |
Unrealized | | |
Unrealized | | |
Fair | |
| | |
Cost | | |
Gains | | |
Losses | | |
Value | |
| Short-term investments | |
$ | 18,397 | | |
$ | — | | |
$ | (30 | ) | |
$ | 18,367 | |
| Total | |
$ | 18,397 | | |
$ | — | | |
$ | (30 | ) | |
$ | 18,367 | |
| | |
December 31, 2021 | |
| | |
| | |
Unrealized | | |
Unrealized | | |
Fair | |
| | |
Cost | | |
Gains | | |
Losses | | |
Value | |
| Short-term investments | |
$ | 23,040 | | |
$ | — | | |
$ | (29 | ) | |
$ | 23,011 | |
| Total | |
$ | 23,040 | | |
$ | — | | |
$ | (29 | ) | |
$ | 23,011 | |
The
following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) (in thousands):
Schedule of Fair Value Hierarchy Financial Assets
| | |
| | | |
| | | |
| | | |
| | |
| | |
June 30, 2022 (Unaudited) | |
| | |
Fair Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Money market funds | |
$ | 5,339 | | |
$ | 5,339 | | |
$ | — | | |
$ | — | |
| Corporate notes and commercial paper | |
| 18,367 | | |
| — | | |
| 18,367 | | |
| — | |
| Total financial assets | |
$ | 23,706 | | |
$ | 5,339 | | |
$ | 18,367 | | |
$ | — | |
| | |
| | | |
| | | |
| | | |
| | |
| | |
December 31, 2021 | |
| | |
Fair Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Money market funds | |
$ | 5,484 | | |
$ | 5,484 | | |
$ | — | | |
$ | — | |
| Corporate notes and commercial paper | |
| 23,011 | | |
| — | | |
| 23,011 | | |
| — | |
| Total financial assets | |
$ | 28,495 | | |
$ | 5,484 | | |
$ | 23,011 | | |
$ | — | |
As
of June 30, 2022, the fair value of the derivative liability amounted to $115,000. The details of derivative liability transactions for
the six months ended June 30, 2022 and 2021, are as follows:
Schedule of Derivative Liability Transactions
| | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ending | | |
Six Months Ending | |
| | |
June 30, 2022 | | |
June 30, 2021 | | |
June 30, 2022 | | |
June 30, 2021 | |
| | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
| Beginning Balance | |
$ | 120,000 | | |
$ | 362,000 | | |
$ | 138,000 | | |
$ | 383,000 | |
| Fair value upon issuance of warrants | |
| — | | |
| — | | |
| — | | |
| — | |
| Change in fair value | |
$ | (5,000 | ) | |
$ | 480,000 | | |
$ | (23,000 | ) | |
$ | 459,000 | |
| Extinguishment | |
| — | | |
| — | | |
| — | | |
| — | |
| Ending Balance | |
$ | 115,000 | | |
$ | 842,000 | | |
$ | 115,000 | | |
$ | 842,000 | |
Note
4 – Accounts Payable
Accounts
payable consisted of the following (in thousands):
Schedule of Accounts Payable
| | |
| | | |
| | |
| | |
June 30,
2022 | | |
December 31,
2021 | |
| | |
| (Unaudited) | | |
| | |
| Accounts payable to a third-party manufacturer | |
$ | 6,440 | | |
$ | 5,056 | |
| Other accounts payable | |
| 823 | | |
| 3,164 | |
| Total accounts payable | |
$ | 7,263 | | |
$ | 8,220 | |
The
Company relies on a third-party contract manufacturing operation to produce and/or test our compounds used in our potential product
candidates. The Company’s accounts payable to this vendor were $6.4
million as of June 30, 2022 and $5.1 million as of December 31, 2021.
Note
5 – Convertible Notes Payable
Notes
Payable Issued for Cash
As
part of the Company’s financing activities, the Company issued convertible notes payable totaling $25.3 million between August
1, 2018 and January 26, 2021. On February 16, 2021, in accordance with the terms of the note agreements upon completion of the equity
offering, these notes were mandatorily converted at a conversion rate of $3.40 per share into 7,438,235 shares of the Company’s
common stock.
Notes
Payable Issued for Settlement Agreements
In
fiscal 2019 and 2020, the Company issued its convertible notes payable in the amount of $2.5 million to resolve claims and disputes pertaining
to certain debt and equity instruments issued by the Company in prior years. On February 16, 2021 in accordance with the note agreements
upon completion of the equity offering, these notes were mandatorily converted at a conversion rate of $3.40 per share into 743,529 shares
of the Company’s common stock.
Notes
Payable Issued for Forbearance Agreements
On
June 23, 2020, the Company entered into Standstill and Forbearance Agreements (collectively, the “Forbearance Agreements”)
with the holders of $13.2 million aggregate principal amount of the Convertible Notes (the “Default Notes”), which were in
default. Pursuant to the Forbearance Agreements, the holders of the Default Notes agreed to forbear from exercising their rights and
remedies under the Default Notes (including declaring such Default Notes (together with any default amounts and accrued and unpaid interest)
immediately due and payable) until the earlier of (i) the date that the Company completes a future financing in the amount of $15 million
and, in connection therewith, commences listing on NASDAQ (collectively, the “New Financing”) or (ii) January 31, 2021 (the
“Termination Date”).
On
February 16, 2021 in accordance with the note agreements upon completion of the equity offering, these notes, in the amount of $3.8 million,
were mandatorily converted at a conversion rate of $3.40 per share into 1,132,059 shares of the Company’s common stock.
Notes
Payable issued for Consulting Agreements
In
prior years, the Company issued its convertible notes payable in exchange for consulting services in the amount of $1.6 million.
On
February 16, 2021 in accordance with the note agreements upon completion of the equity offering, these notes in the aggregate amount
of $1.6 million were mandatorily converted at a conversion rate of $3.40 per share into 472,059 shares of the Company’s common
stock.
Notes
Payable issued for Accrued Interest
In
prior years, the Company recorded accrued interest of $5.6 million
related to all notes payable. On February 16, 2021, in accordance with the note agreements upon completion of the equity offering,
the accrued interest was mandatorily converted at a conversion rate of $3.40 per
share into 1,627,440 shares
of the Company’s common stock. The Company did not incur interest expense for the three months and six months
ended June 30, 2022, and $0 and $0.7 million for the three months and six months ended June 30, 2021.
Adoption
of ASU 2020-06
In
fiscal 2020, the Company recorded a note/debt discount of $4.7 million to account for the beneficial conversion feature that existed
on the date of issuance for the above convertible notes payable. The debt discount was being amortized to interest expense over the term
of the corresponding convertible notes payable.
On
January 1, 2021 the Company chose to adopt ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity. As a result of the adoption of ASU 2020-06, the Company extinguished the previously recorded debt discount of $4.7 million
by charging the opening additional paid in capital at January 1, 2021. In addition, the Company also adjusted accumulated deficit to
account for the derecognition of the $0.2 million interest expense due to the amortization of the debt discount that was recorded in
fiscal 2020. As a result of these adjustments, the unamortized debt discount of $4.5 million was extinguished.
Note
6 – Derivative Liability
During
the year ended December 31, 2020, the Company issued certain warrants that contained a fundamental transaction provision that could give
rise to an obligation to pay cash to the warrant holder upon occurrence of certain change in control type events. In accordance with
ASC 480, the fair value of these warrants is classified as a liability in the Condensed Consolidated Balance Sheets and will be re- measured
at the end of every reporting period with the change in value reported in the statement of operations.
The
derivative liabilities were valued using a Binomial pricing model with the following average assumptions:
Schedule of Derivative Liabilities Assumptions
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
| (Unaudited) | | |
| | |
| Stock Price | |
$ | 2.99 | | |
$ | 3.05 | |
| Risk-free interest rate | |
| 2.99 | % | |
| 1.26 | % |
| Expected volatility | |
| 118 | % | |
| 129 | % |
| Expected life (in years) | |
| 3.1 | | |
| 3.6 | |
| Expected dividend yield | |
| - | | |
| - | |
| Derivative liability, measurement input | |
| - | | |
| - | |
| | |
| | | |
| | |
| Fair Value of Warrants | |
$ | 115,000 | | |
$ | 138,000 | |
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its
common stock to estimate the future volatility for its common stock. The expected life of the derivative securities was determined by
the remaining contractual life of the derivative instrument. The expected dividend yield was based on the fact that the Company has not
paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
The Company recognized a gain of $5,000
and $23,000 to account for the
change in fair value of the derivative liability between the reporting periods for the three months and six months ended June 30, 2022.
The Company recognized an expense of $480,000
and $459,000 to account
for the change in the fair value of the derivative liability between the reporting periods for the three months and six months ended June 30, 2021.
Note
7 – Stockholders’ Equity
The
Company’s authorized capital as of June 30, 2022 was 750,000,000 shares of common stock, par value $0.001 per share, and 15,000,000
shares of preferred stock, par value $0.01 per share.
Common
Stock
Common
Stock Issuable
On
February 16, 2021, as a result of the mandatory conversion of the notes payable and accrued interest in the aggregate amount of $38.8
million, the Company issued a total of 11,413,322 shares of common stock to the respective noteholders, of which 11,086,024 were already
issued as of December 31, 2021. The remaining 327,298 common shares issuable at December 31, 2021 valued at $1.1 million, were issued
during the six months period ended June 30, 2022.
Cancellation
of common stock
During
the six months ended June 30, 2022, the Company cancelled and returned to authorized capital 290,999 previously issued shares of common
stock.
Equity
compensation to officers, employees and directors
As
part of employment agreements with its former CEO and its former CFO (“Officers”), the Officers received a fully vested stock
grant equal to an aggregate of 10% and 1.5% of the fully diluted shares of common stock of the Company (calculated with the inclusion
of the current stock holdings of the CEO) upon conversion of options, warrants and Convertible Notes in association with a national markets
qualified financing as consideration for entering into the Agreement (with such stock to vest and be delivered within 30 days after the
national markets qualified financing). In addition, the Company also granted similar equity compensation to members of the Company’s directors wherein these directors received stock grants equal to 1% and 1.25% of the fully diluted shares of common stock of
the Company. Pursuant to the agreement, approximately 33% of the common stock to be issued vested immediately while the remaining 67% vests over a period of two years.
On
February 16, 2021, the Company completed its equity offering and listed its shares of common stock on the Nasdaq Capital Market. As such,
4,379,407 shares of its common stock were granted to these Officers, employees and directors, which had a fair value of $18.6
million. Since the grant of the common stock is subject to milestone or performance conditions, the Company measured the fair value of
the common stock on the respective date of the agreement, and such awards were recorded as compensation expense as the milestone or performance
condition is met and in accordance with its vesting terms.
During
the period ended June 30, 2022, the Company recognized $783,000
of stock compensation expense related to vesting of shares to officers and directors. The fair value of the remaining 213,268
unvested shares of common stock to officers, employees and directors at June 30, 2022 was $1.0
million and will be recognized as stock compensation expense in future periods pursuant to its vesting term.
During the period ended June 30, 2021, the Company
recognized $14.9
million of stock compensation expense related to vesting of shares to officers and directors.
Issuance
of common shares for services
As
part of consulting agreements with certain consultants, the Company agreed to grant these consultants common stock equal to 1% and 3%
of the fully diluted shares of common stock of the Company upon conversion of options, warrants and Convertible Notes in association
with a national markets qualified financing as consideration for entering into the Agreement (with such stock to vest and be delivered
within 30 days after the national markets qualified financing).
On
February 16, 2021, the Company completed its equity offering and listed its shares of common stock on the Nasdaq Capital Market. As a
result of this offering, the Company agreed to issue to these consultants 2,850,090 shares of common stock with a grant date fair value
of $10.7 million, of which 1,934,817 shares of common stock vested immediately while the remaining 915,273, shares of common stock vests
over two years. Pursuant to current accounting guidelines, as the grant of the common stock is subject to milestone or performance conditions,
the Company measured the fair value of the common stock on the respective date of the agreement, and then such award is being recorded
as compensation expense based upon the vesting term of the grant.
During
the three months and six months ended June 30, 2021, the Company recognized stock compensation expense of $327,000 and
$8.5 million
related to the issuance and vesting of 2,050,060 shares
of common stock issued to consultants for services.
During
the three months and six months ended June 30, 2022, the Company recognized $390,000
and $1.3
million of stock compensation expense related
to the issuance and vesting of 277,156 shares of common stock issued to consultants for services in fiscal 2022.
As of June 30, 2022, there are a total of
275,161
unvested shares of common stock to consultants
with a fair value of $941,000
that will be recognized as stock compensation
expense in future periods based upon its vesting term.
Settlement
of common stock with a former Officer
On
April 29, 2022, the Company entered into a settlement agreement with its former Chief Executive Officer (“Officer”) and
received 1,845,000
shares of its previously issued common stock in full and final settlement of all its claims against the Officer. The common stock
was subsequently cancelled. In addition, the Company incurred legal and professional expenses of $223,000.
Pursuant to current accounting guidelines, this amount was accounted as costs of the acquisition of the common stock and recorded as
a reduction to additional paid in capital. Both the Company and the Officer released each other from claims under the settlement
agreement.
Preferred
Stock
Series
C Preferred Stock
At
June 30, 2022 and December 31, 2021, there were 96,230 shares of series C preferred stock, par value $0.01 per share (the “Series
C Preferred Stock”) issued and outstanding.
As
a result of reverse stock splits in previous years and the agreement terms for adjusting the rights of the related shares, the 96,230
shares of Series C Preferred Stock are not currently convertible, have no voting rights, and in the event of liquidation, the holders
of the Series C Preferred Stock would not participate in any distribution of the assets or surplus funds of the Company. The holders
of Series C Preferred Stock also are not currently entitled to any dividends if and when declared by the Company’s board of directors
(the “Board”). No dividends to holders of the Series C Preferred Stock were issued or unpaid through June 30, 2022 and 2021,
respectively.
Series
K Preferred Stock
On
February 16, 2021, the Board designated 115,000 shares of Series K preferred stock, par value $.01. (the “Series K Preferred Stock”).
Shares
of the Series K Preferred Stock are convertible at any time, at the option of the holders, into shares of the Company’s common
stock at an effective conversion rate of 100 shares of common stock for each share of Series K Preferred. Shares of the Series K Preferred
Stock have the same voting rights as the shares of the Company’s common stock, with the holders of the Series K Preferred Stock
entitled to vote on an as-converted-to-common stock basis, subject to the beneficial ownership limitation, together with the holders
of the Company’s common stock on all matters presented to the Company’s stockholders. The Series K Preferred Stock are not
entitled to any dividends (unless specifically declared by the Board) but will participate on an as-converted-to-common-stock basis in
any dividends to the holders of the Company’s common stock. In the event of the Company’s dissolution, liquidation or winding
up, the holders of the Series K Preferred Stock will be on parity with the holders of the Company’s common stock and will participate,
on a on an as-converted-to-common stock basis, in any distribution to holders of the Company’s common stock.
As
of June 30, 2022 and December 31, 2021, there were no shares of Series K Preferred stock issued and outstanding.
Warrants
and Options
Common
Stock Warrants
Stock
warrant transactions for the six months ended June 30, 2022:
Schedule of Warrant Activity
| | |
Number of | | |
Weighted Average | |
| | |
Warrants | | |
Exercise Price | |
| Outstanding at December 31, 2021: | |
| 2,337,274 | | |
$ | 5.30 | |
| Granted | |
| - | | |
| - | |
| Forfeited/canceled | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | |
| Warrants outstanding at June 30, 2022 | |
| 2,337,274 | | |
$ | 5.30 | |
| Warrants exercisable at June 30, 2022 | |
| 2,337,274 | | |
$ | 5.30 | |
| | |
| | | |
| | |
As
of June 30, 2022, all issued and outstanding warrants are fully vested, and have no intrinsic value as the exercise price of these warrants
was greater than the market price.
Common
Stock Options
Stock
option transactions for the six months ended June 30, 2022:
Schedule of Options Activity
| | |
Number of | | |
Weighted Average | |
| | |
Options | | |
Exercise Price | |
| Options outstanding at December 31, 2021: | |
| 302,500 | | |
$ | 3.05 | |
| Granted | |
| - | | |
| - | |
| Forfeited/canceled | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | |
| Options outstanding at June 30, 2022 | |
| 302,500 | | |
$ | 3.05 | |
| Options exercisable at June 30, 2022 | |
| 141,306 | | |
$ | 3.05 | |
During
the period ended June 30, 2022, the Company recorded stock compensation of $127,000
to account for the fair value of stock options that vested. At June 30, 2022, there were 161,194
unvested options with a grant date fair value of $430,710
which will be recognized as stock compensation in future periods based upon the remaining vesting term of the applicable
grants.
There
was no intrinsic value of the outstanding options as of June 30, 2022 as the exercise price of these options was greater than the market
price.
Note
8 – Commitments and Contingencies
Litigation
The
Company is involved in certain legal proceedings that arise from time to time in the ordinary course of our business. Except for income
tax contingencies, we record accruals for contingencies to the extent that our management concludes that the occurrence is probable and
that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred.
There is no current or pending litigation of any significance with the exception of the matters that have arisen under, and are being
handled in, the normal course of business.
On
August 28, 2019, a complaint was filed in the Superior Court of California, County of Los Angeles, West Judicial District, Santa Monica
Courthouse, Unlimited Civil Division by Jeffrey Lion, an individual (“Lion”), and by Daniel Vallera, an individual (“Vallera”).
Lion and Vallera are referred to jointly as the “Plaintiffs.” The complaint was filed against GT Biopharma, Inc. and its
subsidiary Oxis Biotech, Inc. (either of them or jointly, the “Company”). The Plaintiffs alleged breach of a license agreement
between the Plaintiffs and the Company entered into on or about September 3, 2015. A settlement of the case was reached on February 7,
2022 in the amount of $425,000. This amount was fully accrued at December 31, 2021. The settlement amount was subsequently paid on March
4, 2022.
Significant
Agreements
Research
and Development Agreements
| |
a. |
The Company is a party to a scientific research agreement with
the Regents of the University of Minnesota, effective June 16, 2021. This scientific research agreement aims to work with the Company
with three major goals in mind: (1) support the Company’s TriKE® product development and GMP manufacturing efforts;
(2) TriKE® pharmacokinetics optimization in humans; and (3) investigation of the patient’s native NK cell population
based on insights obtained from the analysis of the human data generated during our GTB-3550 clinical trial. The major deliverables proposed
here are: (1) creation of IND enabling data for TriKE® constructs in support of our product development and GMP manufacturing
efforts; (2) TriKE® platform drug delivery changes to allow transition to alternative drug delivery means and extended
PK in humans; and (3) gain an increased understanding of changes in the patient’s native NK cell population as a result of TriKE®
therapy. Most studies will use TriKE® DNA/amino acid sequences created by us under current UMN/GTB licensing terms.
The term of this agreement shall expire on June 30, 2023. |
| |
|
|
| |
|
The University of Minnesota shall use reasonable efforts to
complete the project for a fixed sum of $2.1
million. For the three months and six months ended June 30,
2022, the Company recorded an expense of $192,000
and $383,000,
respectively, relating to scientific research agreement. |
| |
|
|
| |
b. |
On
October 5, 2020, GT Biopharma entered into a Master Services Agreement with a third-party product manufacturer to perform biologic development
and manufacturing services on behalf of the Company. Associated with this, the Company has subsequently signed five Statements of Work
for the research and development of products for use in clinical trials. At June 30, 2022, the Company’s commitments in relation
to these Statements of Work and any related Change Orders totaled approximately $13.0 million, of which $9.8 million was incurred at
that date and an additional $3.2 million is in process during fiscal year 2022. |
| |
|
|
| |
|
For the three months and six months ended
June 30, 2022, the Company recorded an expense of $92,000
and $1,180,000,
respectively, relating to the Master Service Agreement. |
Patent
and License Agreements
2016
Exclusive Patent License Agreement
The
Company is party to an exclusive worldwide license agreement with the Regents of the University of Minnesota, (“UofMN”),
to further develop and commercialize cancer therapies using TriKE® technology developed by researchers at the UofMN to
target NK cells to cancer. Under the terms of the 2016 agreement, the Company receives exclusive rights to conduct research and to develop,
make, use, sell, and import TriKE® technology worldwide for the treatment of any disease, state, or condition in humans.
The Company is responsible for obtaining all permits, licenses, authorizations, registrations, and regulatory approvals required or granted
by any governmental authority anywhere in the world that is responsible for the regulation of products such as the TriKE®
technology, including without limitation the FDA and the European Agency for the Evaluation of Medicinal Products in the European Union.
Under the agreement, the UofMN received an upfront payment of $0.2 million, and an annual License Maintenance fee of $0.1 million beginning
in 2021. The agreement also includes 4% royalty fees, (not to exceed 6%) under subsequent license agreements or amendments to this agreement
or minimum annual royalty payments ranging from $0.25 million to $5.0 million. The agreement also includes certain performance milestone
payments totaling $3.1 million, and one-time sales milestone payments of $1.0 million upon reaching $250 million in gross sales, and
$5.0 million upon reaching $500 million dollars in cumulative gross sales of Licensed Products.
For
the three months and six months ended June 30, 2022, the Company did not
incur any research and development expense relating to the 2016 Exclusive Patent License Agreement.
2021
Patent License Agreement
On
March 26, 2021, the Company signed an agreement specific to the B7H3 targeted TriKE®. Under the agreement, the UofMN received
an upfront license fee of $20,000 and will receive an annual License Maintenance fee of $5,000 beginning in 2022, 2.5% to 5% royalty
fees, or minimum annual royalty payments of $0.25 million beginning in the year after the first commercial sales of Licensed Product,
and $2.0 million beginning in the fifth year after the first commercial sale of such Licensed Product. The agreement also includes certain
performance milestone payments totaling $3.1 million, and one-time sales milestone payments of $1.0 million upon reaching $250 million
in gross sales, and $5.0 million upon reaching $500 million dollars in cumulative gross sales of Licensed Products. There is no double
payment intended; if one of the milestone payments has been paid under the 2016 agreement no further payment is due for the corresponding
milestone above.
For
the three months and six months ended June 30, 2022, the Company did not
incur any research and development expense relating to 2021 Patent License Agreement.
Lease
Agreements
On
November 19, 2021 the Company entered into a sublease with Aimmune Therapeutics, Inc. for 4,500 square feet of office space located in
Brisbane, California having a commencement date of January 1, 2022 and maturing on June 30, 2024. Additionally, on February 8, 2022,
the Company entered into a lease of a photocopier, which matures on February 7, 2025.
Rent
expense related to these leases reflected on the Company’s Condensed Consolidated Statements of Operations totaled $29,000
and $58,000 for the three
months and six months ended June 30 2022, respectively.
Other
information related to leases and future minimum lease payments under non-cancellable operating leases were as follows:
Schedule of Other Information Related Leases Under Non-Cancellable
| | |
June 30, 2022 (Unaudited) | |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| Operating cash flows from operating leases | |
$ | 49,000 | |
| Right-of-use assets obtained in exchange for lease liabilities: | |
| | |
| Operating leases | |
$ | 260,000 | |
| Weighted-average remaining lease term (in years): | |
| | |
| Operating leases | |
| 2.25 | |
| Weighted-average discount rate: | |
| | |
| Operating leases | |
| 10 | % |
Future
minimum lease payments under non-cancellable operating leases were as follows:
Schedule of Future Minimum Lease Payments
| | |
Operating leases (Unaudited) | |
| | |
| |
| 2022 (6 months) | |
$ | 59,000 | |
| 2023 | |
| 121,000 | |
| 2024 | |
| 66,000 | |
| Total future minimum lease payments | |
$ | 246,000 | |
| Less – discount | |
| (29,000 | ) |
| Lease liability | |
$ | 217,000 | |
Note
9 - Subsequent Events
On
July 15, 2022, the Compensation Committee of the Board (the “Committee”) authorized the grant of stock awards or stock
options, as applicable, to acquire shares of common stock under the Company’s 2022 Omnibus Incentive Plan. As a result, the
Company granted stock options to consultants, employees, officers and directors to purchase an aggregate of 1,532,952
shares of common stock. The stock options are exercisable at $2.48
per share, vest over a four-year
period, will expire in ten
years from the grant date and have an estimated fair value of $3.4
million. In addition, the Company also granted an aggregate of 398,940
fully vested shares of common stock to consultants and certain officers with a fair value of $989,000
for services.