NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 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 sheet as of December 31, 2021 included herein was 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 quarter ended March 31, 2022, the Company recorded
a net loss of $5.4 million and
used cash in operations of $5.2
million. As of March 31, 2022, the Company had a cash and short-term investments balance of $26.7
million, working capital of $17.7 million and
stockholders’ equity of $17.8 million.
Management anticipates that the $26.7 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 March 31, 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 three months ended March 31, 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 March 31, 2022 total cash and cash equivalents, which consist
of cash and money market funds, amounted to approximately $7.3
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 March 31, 2022 total short-term investments amounted to approximately $19.5 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 $120,000 at March 31, 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 a 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 March 31, 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
| |
March 31 2022 (Unaudited) | | |
March 31 2021 (Unaudited) | |
Options to purchase common stock | |
| 302,500 | | |
| - | |
Warrants to purchase common stock | |
| 2,337,274 | | |
| 5,319 | |
Unvested restricted common stock | |
| 681,270 | | |
| 1.596,659 | |
Total anti-dilutive
securities | |
| 3,321,044 | | |
| 1,601,978 | |
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.
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
| |
March 31, 2022 (Unaudited) | |
| |
| | |
Unrealized | | |
Unrealized | | |
Fair | |
| |
Cost | | |
Gains | | |
Losses | | |
Value | |
Cash and cash equivalents | |
$ | 7,286 | | |
$ | — | | |
$ | — | | |
$ | 7,286 | |
Short-term investments | |
| 19,496 | | |
| — | | |
| (42 | ) | |
| 19,454 | |
Total | |
$ | 26,782 | | |
$ | — | | |
$ | (42 | ) | |
$ | 26,740 | |
| |
December 31, 2021 | |
| |
| | |
Unrealized | | |
Unrealized | | |
Fair | |
| |
Cost | | |
Gains | | |
Losses | | |
Value | |
Cash and cash equivalents | |
$ | 8,968 | | |
$ | — | | |
$ | — | | |
$ | 8,968 | |
Short-term investments | |
| 23,040 | | |
| — | | |
| (29 | ) | |
| 23,011 | |
Total | |
$ | 32,008 | | |
$ | — | | |
$ | (29 | ) | |
$ | 31,979 | |
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
| |
Fair Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
March 31, 2022 (Unaudited) | |
| |
Fair Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Money market funds | |
$ | 6,299 | | |
$ | 6,299 | | |
$ | — | | |
$ | — | |
Corporate notes and commercial paper | |
| 19,454 | | |
| — | | |
| 19,454 | | |
| — | |
Total financial assets | |
$ | 25,753 | | |
$ | 6,299 | | |
$ | 19,454 | | |
$ | — | |
| |
Fair Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
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 March 31, 2022, the fair value of the derivative liability amounted
to $120,000. The details of derivative liability transactions for the three months ended March 31, 2022 and 2021, are as follows:
Schedule
of Derivative Liability Transactions
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
| (Unaudited) | | |
| (Unaudited) | |
Beginning balance | |
$ | 138,000 | | |
$ | 383,000 | |
Fair value upon issuance of warrants | |
| - | | |
| - | |
Change in fair value | |
| (18,000 | ) | |
| (21,000 | ) |
Extinguishment | |
| - | | |
| - | |
Ending balance | |
$ | 120,000 | | |
$ | 362,000 | |
Note
4 – Accounts Payable
Accounts
payable consisted of the following (in thousands):
Schedule of Accounts Payable
| |
March 31,
2022 | | |
December 31,
2021
| |
| |
(Unaudited) | | |
| |
Accounts payable to a third-party manufacturer | |
$ | 7,423 | | |
$ | 6,335 | |
Other accounts payable | |
| 690 | | |
| 1,885 | |
Total accounts payable | |
$ | 8,113 | | |
$ | 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.
As of March 31, 2022 the Company was indebted $7.4 million of accounts payable to this vendor.
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.
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 Sheet 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
| |
March 31 | | |
December 31 | |
| |
2022
| | |
2021
| |
| |
(Unaudited) | | |
| |
Stock Price | |
$ | 2.88 | | |
$ | 3.05 | |
Risk-free interest rate | |
| 2.42 | % | |
| 1.26 | % |
Expected volatility | |
| 127 | % | |
| 129 | % |
Expected life (in years) | |
| 3.3 | | |
| 3.6 | |
Expected dividend yield | |
| - | | |
| - | |
| |
| | | |
| | |
Fair Value of Warrants | |
$ | 120,000 | | |
$ | 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.
During
the three months ended March 31, 2022, the Company recognized a gain of $18,000
to account for the change in fair value of the
derivative liability between the reporting periods in accordance with ASC 842.
Note
7 – Stockholders’ Equity
The
Company’s authorized capital as of March 31, 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 three months period ended March 31, 2022.
Cancellation of common stock
During the period ended March 31, 2022, the Company
cancelled and returned to authorized capital 290,999 previously issued shares of common stock.
Equity
compensation to officers, employees, and board of 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 board of 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% will vest 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 board of 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 March 31, 2021, the Company
recognized $14.3 million of stock compensation expense related to vesting of shares to officers, employees and board of directors.
During the period ended March 31, 2022, the Company
recognized $447,000 of stock compensation expense related to vesting of shares to officers, employees and board of directors. The
fair value of the remaining 291,700
unvested shares of common stock to officers,
employees and board of directors at March 31, 2022 was $1.4
million and will be recognized as stock compensation
expense in future periods.
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 period ended March 31, 2021, the Company
recognized $8.5 million of stock compensation expense related to the issuance of 1,957,374 shares of common stock and the vesting of
shares to these consultants.
During
the period ended March 31, 2022, the Company recognized
$872,000
of stock compensation expense related to the
issuance of 46,500
shares of common stock and the vesting of 116,247
shares of common stock issued to consultants
for services in fiscal 2022. The fair value of the 389,570
unvested shares of common stock to consultants
at March 31, 2022 was $1.3
million and will be recognized as stock compensation
expense in future periods.
Preferred
Stock
Series
C Preferred Stock
At
March 31, 2022 and March 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 March 31, 2022 and 2021.
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 March 31, 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 three months ended March 31, 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 March 31, 2022 | |
| 2,337,274 | | |
$ | 5.30 | |
Warrants exercisable at March 31, 2022 | |
| 2,337,274 | | |
$ | 5.30 | |
As
of March 31, 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 three
months ended March 31, 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 March 31, 2022 | |
| 302,500 | | |
$ | 3.05 | |
Options exercisable at March 31, 2022 | |
| 111,215 | | |
$ | 3.05 | |
At
March 31, 2022, there were 191,285 unvested options with a grant date fair value of $511,115 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 March 31, 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
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. The Company recorded expense
of $1.1 million through March 31, 2022.
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 March 31 2022, the Company’s commitments in relation
to these Statements of Work and any related Change Orders totaled approximately $13.0 million, of which $8.4 million was incurred at
that date and an additional $4.6 million is in process during fiscal year 2022.
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.
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.
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.
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
| |
March 31, 2022 (Unaudited) | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
Operating cash flows from operating leases | |
$ | 20,000 | |
Right-of-use assets obtained in exchange for lease liabilities: | |
| | |
Operating leases | |
$ | 260,000 | |
Weighted-average remaining lease term (in years): | |
| | |
Operating leases | |
| 2.5 | |
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
| |
March 31, 2022 (Unaudited)
| |
| |
| |
Within one year | |
$ | 90,000 | |
After one year and within two years | |
| 122,000 | |
After two years and within three years | |
| 65,000 | |
Thereafter | |
| - | |
Total future minimum lease payments | |
$ | 277,000 | |
Less – discount | |
| (30,000 | ) |
Lease liability | |
$ | 247,000 | |
Note
9 - Subsequent Events
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 common stock in full and final settlement of all its claims against the Officer. The common stock certificates
were received by the Company on May 2, 2022 and the common shares were subsequently cancelled.