10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2023.

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________ to ____________.

 

Commission File Number 001-40023

 

GT BIOPHARMA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   94-1620407

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

8000 Marina Blvd, Suite 100

Brisbane, CA 94005

(Address of principal executive offices and zip code)

415-919-4040

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol   Name of exchange on which registered
Common Stock, $0.001 par value per share   GTBP   Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of November 1, 2023, the registrant had 41,418,999 shares of common stock outstanding.

 

 

 

 
 

 

GT BIOPHARMA, INC. AND SUBSIDIARIES

FORM 10-Q

For the Nine Months Ended September 30, 2023

Table of Contents

 

    Page
PART I – FINANCIAL INFORMATION  
Item 1. Financial Statements  
  Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022 3
  Condensed Consolidated Statements of Operations for the Three Months and Nine Months ended September 30, 2023 and 2022 (Unaudited) 4
  Condensed Consolidated Statements of Stockholders’ Equity for the Three Months and Nine Months ended September 30, 2023 and 2022 (Unaudited) 5
  Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2023 and 2022 (Unaudited) 7
  Condensed Notes to Consolidated Financial Statements (Unaudited) 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risks 25
Item 4. Controls and Procedures 25
     
PART II – OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 6. Exhibits 28
     
SIGNATURES 29

 

2
 

 

GT BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares and par value)

 

   September 30,   December 31, 
   2023   2022 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $2,648   $5,672 
Short-term investments   13,366    10,836 
Prepaid expenses and other current assets   38    54 
Total Current Assets   16,052    16,562 
           
Operating lease right-of-use asset   87    165 
Deposits   9    9 
TOTAL ASSETS  $16,148   $16,736 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable  $3,970   $3,140 
Accrued expenses   1,028    1,669 
Current operating lease liability   92    110 
Total Current Liabilities   5,090    4,919 
           
Non-current operating lease liability   -    64 
Warrant liability   1,053    19 
Total Liabilities  6,143   5,002 
           
Stockholders’ Equity          
Convertible Preferred stock, par value $0.01, 15,000,000 shares authorized Series C - 96,230 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively   1    1 
Common stock, par value $0.001, 250,000,000 shares authorized, 41,418,999 shares and 32,722,452           
shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively   42    33 
Additional paid in capital   689,065    686,168 
Accumulated deficit   (679,103)   (674,468)
Total Stockholders’ Equity   10,005    11,734 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $16,148   $16,736 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3
 

 

GT BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

   2023   2022   2023   2022 
   For The Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Revenues  $-   $-   $-   $- 
                     
Operating Expenses:                    
Research and development (including $0 and $201 expense from stock compensation granted to officers, directors and employees during the three months ended September 30, 2023 and 2022, and $13 and $327 for the nine months ended September 30, 2023 and 2022, respectively)   1,364    2,743    5,109    5,969 
                     
Selling, general and administrative (including $0.5 million and $2.7 million expense from stock compensation granted to officers, directors and employees during the three months ended September 30, 2023 and 2022, respectively and $1.8 million and $3.5 million for the nine months ended September 30, 2023 and 2022, respectively)   1,758    4,280    5,299    9,510 
                     
Loss from Operations   (3,122)   (7,023)    (10,408   (15,479)
                     
Other (Income) Expense                    
Interest income   (216)   (107)   (600)   (151)
Interest expense   -    -    213    - 
Change in fair value of derivative liability   (485)   (58)   (4,796)   (81)
Gain on extinguishment of debt   -    -    (547)   - 
Unrealized (gain) loss on short term investments   (5)   23    (43)   53 
Total Other (Income) Expense   (706)   (142)   (5,773)   (179)
                     
Net Loss  $(2,416)  $(6,881)  $(4,635)  $(15,300)
                     
Net Loss Per Share - Basic and Diluted  $(0.06)  $(0.22)  $(0.12)  $(0.48)
                     
Weighted average common shares outstanding - basic and diluted   41,016,075    31,380,634    40,095,945    31,723,792 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4
 

 

GT BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
For The Three Months Ended September 30, 2023 (Unaudited)                        
   Preferred Shares   Common Shares   Common Shares Issuable   Additional Paid in   Accumulated    
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
                                     
Balance, June 30, 2023   96   $1    40,640   $41    -   $-   $688,408   $(676,687)  $11,763 
                                              
Fair value of vested stock options   -    -    -    -    -    -    433    -    433 
                                              
Issuance of common stock to an officer and a board member for services   -    -    400    1    -    -    114    -    115 
                                              
Issuance of common stock in settlement of accounts payable and accrued expenses   -    -    379    -    -    -    110    -    110 
                                              
Net loss   -    -    -    -    -    -    -    (2,416)   (2,416)
                                              
Balance, September 30, 2023   96   $1    41,419   $42    -   $-   $689,065   $(679,103)  $10,005 

 

For The Nine Months Ended September 30, 2023 (Unaudited)                        
   Preferred Shares   Common Shares   Common Shares Issuable   Additional Paid in   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
                                     
Balance, December 31, 2022   96   $1    32,723   $33    -   $-   $686,168   $(674,468)  $11,734 
                                              
Private placement of common stock   -    -    3,600    4    -    -    6,264    -    6,268 
                                              
Initial recognition of fair value of warrant liability   -    -    -    -    -    -    (5,831)   -    (5,831)
                                              
Fair value of vested stock options   -    -    -         -    -    1,337    -    1,337 
                                              
Issuance of common stock to officer and board member for services   -    -    473    -    -    -    430    -    430 
                                              
Issuance of common stock for exercise of Prefunded Warrants   -    -    2,900    3    -    -    (3)   -    - 
                                              
Issuance of common stock in settlement of accounts payable and accrued expenses   -    -    1,723    2    -    -    700    -    702 
                                              
Net loss   -    -    -    -    -    -    -    (4,635)   (4,635)
                                              
Balance, September 30, 2023   96   $1    41,419   $42    -   $-   $689,065   $(679,103)  $10,005 

 

5
 

 

For The Three Months Ended September 30, 2022 (Unaudited)                         
   Preferred Shares   Common Shares   Common Shares Issuable   Additional Paid in   Accumulated    
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
                                     
Balance, June 30, 2022   96   $1    30,694   $31    -   $-   $677,411   $(662,003)  $15,440 
                                              
Equity compensation to officers, employees, and board of directors   -    -    78    -    378    938    2,006    -    2,944 
                                              
Issuance of common shares for services   -    -    135    -    -    -    1,200    -    1,200 
                                              
Issuance of common shares in settlement of vendors payable   -    -    1,222    1    -    -    3,250    -    3,251 
                                              
Net loss   -    -    -    -    -    -    -    (6,881)   (6,881)
                                              
Balance, September 30, 2022   96   $1    32,129   $32    378   $938   $683,867   $(668,884)  $15,954 

 

For The Nine Months Ended September 30, 2022 (Unaudited)                         
   Preferred Shares   Common Shares   Common Shares Issuable   Additional Paid in   Accumulated    
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
                                     
Balance, December 31, 2021   96   $1    32,062   $32    327   $1,113   $674,348   $(653,584)  $21,910 
                                              
Cancellation of common stock upon settlement with former officer   -    -    (1,845)   (1)   -    -    (222)   -    (223)
                                              
Cancellation of common stock   -    -    (291)   -    -    -    -    -    - 
                                              
Common shares issued upon conversion of notes payable   -    -    327         (327)   (1,113)   1,113    -    - 
                                              
Equity compensation to officers, employees, and board of directors   -    -    242    -    378    938    2,916    -    3,854 
                                              
Issuance of common shares for services   -    -    412    -    -    -    2,462    -    2,462 
                                              
Issuance of common shares in settlement of vendors payable   -    -    1,222    1    -    -    3,250    -    3,251 
                                              
Net loss   -    -    -    -    -    -    -    (15,300)   (15,300)
                                              
Balance, September 30, 2022   96   $1    32,129   $32    378   $938   $683,867   $(668,884)  $15,954 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6
 

 

GT BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   2023   2022 
   For The Nine Months Ended 
   September 30, 
   2023   2022 
   (Unaudited)   (Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(4,635)  $(15,300)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock based compensation – common shares for services   430    5,713 
Stock based compensation – vested stock options   1,337    3,854 
Change in fair value of warrant liability   (4,796)   (81)
Gain on extinguishment of debt   (547)   - 
Unrealized (gain) loss on marketable securities   (43)   53 
Changes in operating assets and liabilities:          
Decrease in prepaid expenses   16    102 
Increase in deposits   -    (9)
Decrease in operating lease right of use assets   78    70 
Increase (decrease) in accounts payable and accrued expenses   1,437    (5,259)
(Decrease) in operating lease liability   (82)   (62)
Net Cash Used in Operating Activities   (6,805)   (10,919)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Sales (purchases) of investments   (2,487)   4,639 
Net Cash Provided by (Used in) Investing Activities   (2,487)   4,639 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from issuance of common stock and prefunded warrants   6,268    - 
Cancellation of common stock upon settlement with former officer   -    (223)
Net Cash (Used in) Provided by Financing Activities   6,268    (223)
           
Net Decrease in Cash   (3,024)   (6,503)
Cash at Beginning of Period   5,672    8,968 
Cash at End of Period  $2,648   $2,465 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:          
Cash paid during the year for:          
Interest  $-   $- 
Income taxes paid  $-   $- 
           
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES          
Right-of-use assets exchanged for lease liabilities  $-   $260 
Initial recognition of fair value of warrant liability  $5,831   $- 
Fair value of common stock issued to settle accounts payable and accrued expenses  $700   $- 
Common stock issued upon conversion of notes payable and accrued interest  $-   $1,113 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7
 

 

GT BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023 and 2022

(Unaudited, in thousands, except shares data)

 

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 immune-oncology products based on our proprietary Tri-specific Killer Engager (TriKE®), and Tetra-specific Killer Engager (Dual Targeting TriKE®) platforms. The Company’s TriKE® and Dual Targeting TriKE® platforms generate proprietary therapeutics designed to harness and enhance the cancer killing abilities of a patient’s own natural killer cells (NK cells).

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The consolidated condensed 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 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, 2022, filed with the SEC on March 30, 2023 (the “2022 Annual Report”). The consolidated balance sheets as of December 31, 2022 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 its 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 assumptions contemplate the realization of assets and satisfaction of liabilities in the normal course of business. For the nine months ended September 30, 2023, the Company recorded a net loss of $4.6 million and used cash in operations of $6.8 million. As of September 30, 2023, the Company had a cash and short-term investments balance of $16.0 million, working capital of $11.0 million, and stockholders’ equity of $10.0 million. Management anticipates that the $16.0 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 nine-month period ended September 30, 2023 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. There can be no assurances that the Company will be able to secure additional financing on acceptable terms. In the event the Company does not generate sufficient cash flows from investing and financing activities, the Company will be forced to delay, reduce, or eliminate some or all of its discretionary spending, which could adversely affect the Company’s business prospects, ability to meet long-term liquidity needs or ability to continue its operations.

 

8
 

 

COVID-19

 

The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to our operations and business plans. The Company has closely monitored recent developments, including the lifting of COVID-19 safety measures, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain, raw materials and labor shortages. Thus, the full impact of the COVID-19 pandemic on the business and operations remains uncertain and will vary depending on the pandemic’s future impact on the third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom. The Company has been following the recommendations of health authorities to minimize exposure risk for its team members and may take further actions that alter our operations, including any required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom GT Biopharma does business.

 

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 warrant liabilities, valuation of equity instruments issued for debt and 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. Total cash equivalents, which consist of money market funds, totaled approximately $2.5 million and $5.5 million at September 30, 2023 and December 31, 2022, respectively.

 

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 business. Investments are carried at fair value with the unrealized holding gains and losses reported in the accompanying condensed consolidated statements of operations. Total short-term investments totaled approximately $13.4 million and $10.8 million at September 30, 2023 and December 31, 2022, respectively.

 

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 warrant liability of $1.1 million and $0.02 million at September 30, 2023 and December 31, 2022, respectively, was based on Level 3 measurements.

 

The carrying amounts of the Company’s other financial assets and liabilities such as cash, other current assets, accounts payable and accrued expenses approximate their fair values because of the short maturity of these instruments.

 

Derivatives and Liability-Classified Instruments

 

The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and the guidance provided by the FASB in ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. The fair value of the warrant liability is determined using a Binomial valuation method at inception and on subsequent valuation dates.

 

9
 

 

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 costs. Purchased materials that do not have an alternative future use are also expensed.

 

Leases

 

The Company accounts for its leases in accordance with the guidance of ASC 842, Leases. The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments (see Note 8 – Operating Leases for the Company’s lease disclosures).

 

Net Loss Per Share

 

Basic 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 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 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:

 

  

September 30,

2023

  

September 30,

2022

 
   (Unaudited)   (Unaudited) 
Options to purchase common stock   3,737,952    1,835,452 
Warrants to purchase common stock   9,148,880    2,337,274 
Unvested restricted common stock   -    295,588 
Total anti-dilutive securities   12,886,832    4,468,314 

 

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. From time to time, however, the Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the FDIC limit. To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions.

 

The Company has a significant concentration of expenses incurred and accounts payable from a single vendor (see Note 4 – Accounts Payable 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.

 

10
 

 

Management has determined that the Company has one consolidated 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 June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments (“ASC 326”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 was effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company adopted this standard effective January 1, 2023 and there was no material impact of adopting this standard on the Company’s financial statements and related disclosures.

 

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 was effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, applied prospectively to modifications or exchanges occurring on or after the effective date. 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 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 as follow:

  

   September 30, 2023 (Unaudited) 
       Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Short-term investments  $13,323   $43   $   $13,366 
Total  $13,323   $43   $   $13,366 

 

   December 31, 2022 
       Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Short-term investments  $10,866   $   $(30)  $10,836 
Total  $10,866   $   $(30)  $10,836 

 

11
 

 

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments):

 

   Fair Value   Level 1   Level 2   Level 3 
   September 30, 2023 (Unaudited) 
   Fair Value   Level 1   Level 2   Level 3 
Money market funds  $2,474   $2,474   $   $ 
Corporate notes and commercial paper   13,366    13,366         
Total financial assets  $15,840   $15,840   $   $ 

 

   Fair Value   Level 1   Level 2   Level 3 
   December 31, 2022 
   Fair Value   Level 1   Level 2   Level 3 
Money market funds  $5,505   $5,505   $   $ 
Corporate notes and commercial paper   10,836    10,836         
Total financial assets  $16,341   $16,341   $   $ 

 

As of September 30, 2023, the fair value of the warrant liability amounted to $1,053. The details of warrant liability transactions for the three and six months ended September 30, 2023 and 2022, are as follows:

  

   September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
   Three Months Ending   Nine Months Ending 
   September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Beginning balance  $1,538   $115   $19   $138 
Fair value upon issuance of warrants        5,830    
Change in fair value  (485)  (58)  (4,796)  (81)
Ending balance  $1,053   $57   $1,053   $57 

 

Note 4 – Accounts Payable

 

Accounts payable consisted of the following:

 

   September 30, 2023   December 31, 2022 
   (Unaudited)     
Accounts payable to a third-party manufacturer  $3,144   $2,283 
Other accounts payable   826    857 
Total accounts payable  $3,970   $3,140 

 

The Company relies on a third-party contract manufacturing operation to produce and/or test our compounds used in our potential product candidates.

 

In October 2020, the Company 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 executed a number of Statements of Work for the research and development of products for use in clinical trials.

 

12
 

 

On August 24, 2022, existing agreements with the third-party product manufacturer were amended. As part of the amendment, the third-party manufacturer agreed that services to be rendered in future periods, will be paid or settled at the Company’s discretion, in a combination of cash and issuance of the Company’s common stock. The amendment also eliminated future financial commitments of the Company.

 

During the nine months ended September 30, 2023 the Company incurred $3.7 million in research and development expenses to account for services rendered by the third-party product manufacturer. In addition, the Company paid cash of $1.7 million and issued 1.3 million shares of its common stock with a fair value of $0.59 million in settlement of accounts payable of $1.1 million, which resulted in a gain on settlement of $0.55 million. The shares were valued at the respective date of issuance.

 

The outstanding accounts payable balance due to the third-party product manufacturer totaled $3.1 million and $2.3 million as of September 30, 2023 and December 31, 2022, respectively.

 

Note 5 – Warrant Liability

 

2023 Warrants

 

On January 4, 2023, as part of the private placement offering, the Company issued common stock, warrants to purchase up to an aggregate of 6,500,000 shares of the Company’s common stock (the “Common Warrants”), and placement agent warrants to purchase up to 390,000 shares of the Company’s common stock (the “Placement Agents Warrants” see Note 6 – Stockholders’ Equity).

 

The Purchase Warrant provides for a value calculation for the Purchase Warrant using the Black Scholes model in the event of certain fundamental transactions. The fair value calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined this provision introduces leverage to the holders of the Purchase Warrant that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrant as a liability in its consolidated balance sheet. The classification of the Purchase Warrant, including whether the Purchase Warrant should be recorded as liability or as equity, is evaluated at the end of each reporting period with changes in the fair value reported in other income (expense) in the consolidated statements of operations and comprehensive loss. The Purchase Warrant was initially recorded at a fair value at $5.8 million at the grant date and is re-valued at each reporting date. Upon the closing of placement, the fair value of the Purchase Warrant liability was recorded as a cost of capital.

 

As of September 30, 2023, the fair value of the warrant liability was $1.3 million.

 

All changes in the fair value of the warrant liabilities are recognized as a change in fair value of warrant liability in the Company’s condensed consolidated statements of operations until they are either exercised or expire.

 

The warrant liabilities for the Common Warrants and the Placement Agents Warrants were valued using a Binomial pricing model with the following weighted average assumptions:

 

 

Common Warrants and Placement

Agents Warrants

 
  September 30, 2023   At Inception 
   (Unaudited)   (Unaudited) 
Stock price  $0.24   $1.20 
Risk-free interest rate   4.6%   3.60%
Expected volatility   119.7%   121.5%
Expected life (in years)   4.5    5.0 
Expected dividend yield   -    - 
Fair value of warrants (in thousands)  $1,053   $5,831 

 

2020 Warrants

 

The Company issued certain warrants during the year ended December 31, 2020 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 Condensed Consolidated Statements of Operations.

 

13
 

 

The warrant liabilities for the 2020 Warrants were valued using a Binomial pricing model with the following assumptions:

 

   September 30,   December 31, 
   2023   2022 
   (Unaudited)     
Stock price  $0.24   $0.89 
Risk-free interest rate   4.95%   4.22%
Expected volatility   89%   109%
Expected life (in years)   1.8    2.6 
Expected dividend yield   -    - 
           
Fair value of warrants  $2   $19 

 

During the three months and nine months ended September 30, 2023, the Company recognized a gain of $0.5 million and $4.8 million to account for the change in fair value of the warrant liability between the reporting periods in accordance with ASC 842. During the three months and nine months ended September 30, 2022, the Company recognized a gain of $0.06 million and $0.08 million to account for the change in the fair value of the warrant liability.

 

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 warrant securities was determined by the remaining contractual life of the warrant 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.

 

Note 6 – Stockholders’ Equity

 

The Company’s authorized capital as of September 30, 2023 was 250,000,000 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

 

Private Placement of Common Stock

 

On January 4, 2023, GT Biopharma received gross proceeds of $6.5 million, before deducting placement agent fees and other offering expenses of $232 in relation to a purchase agreement (the “Purchase Agreement”) signed on December 30, 2022, between the Company and an institutional investor (the “Purchaser”) for the issuance and sale, in a registered direct offering (the “Offering”), of 3,600,000 shares of the Company’s common stock, par value $0.001 per share (the “Shares”), pre-funded warrants to purchase up to 2,900,000 shares of the Company’s common stock (the “Pre-Funded Warrants”), warrants to purchase up to an aggregate of 6,500,000 shares of the Company’s common stock (the “Common Warrants”) and placement agent warrants to purchase up to 390,000 of the Company’s common stock (the “Placement Agents Warrants”). The Common Warrants have an exercise price equal to $1.00, will be exercisable commencing six months following issuance, and will have a term of exercise equal to five years following the initial exercise date. The Pre-Funded Warrants have an exercise price of $0.0001 per Share, are immediately exercisable and can be exercised at any time after their original issuance until such Pre-Funded Warrants are exercised in full. The Placement Agents Warrants have an exercise price equal to $1.25, will be exercisable commencing six months following issuance, and will have a term of exercise equal to five years following the initial exercise date. The Shares and Common Warrants were sold at an offering price of $1.00 per Share and accompanying Common Warrant and the Pre-Funded Warrants and Common Warrants were sold at an offering price of $0.9999 per Pre-Funded Warrant and accompanying Common Warrant.

 

The Common Warrants and the Placement Agents Warrants contained a clause not considered to be within the Company’s control. The Company determined that the provision represented a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under ASC 815-40, and thus the Common Warrants and the Placement Agent Warrants are not considered indexed to the Company’s own stock and not eligible for an exception from derivative accounting. Accordingly, the Common Warrants and the Placement Agent Warrants were classified as a warrant liability, and $5.8 million of the initial common stock offering was classified as a warrant liability (see Note 5 – Warrant Liability).

 

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In May 2023, the 2,900,000 Pre-Funded Warrants were exercised. The Company received cash consideration of $0.290 and issued 2,900,000 shares of common stock in exchange for the exercise price of $0.0001 per share.

 

Common Stock Issuable

 

On February 16, 2021, because 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 valued at $1.1 million, were issued during the three months ended March 31, 2022.

 

Cancellation of Common Stock

 

The Company cancelled 290,999 previously issued shares of common stock during the three months ended March 31, 2022.

 

Common Stock Issued for Services

 

During the three and nine months ended September 30, 2023, the Company issued 400 and 473 shares of common stock with a fair value of $115 and $430, respectively to members of the Board of Directors, employees and consultants. The shares were valued at the respective date of the agreements.

 

During the three and nine months ended September 30, 2022, the Company issued 135 and 412 shares of common stock with a fair value of $1,200 and $2,462, respectively to members of the Board of Directors, employees and consultants. The shares were valued at the respective date of the agreements.

 

Common Stock Issued for Accounts Payable

 

During the nine months ended September 30, 2023, the Company issued a total of 1,723,094 shares of common stock with a fair value of $702 to settle accounts payable and accrued expenses of $1.2 million. As a result, the Company recorded a gain of $547 to account for the difference between the fair value of the common stock issued and the account payable settled. The common stock issued were valued at the respective date of their issuance.

 

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Preferred Stock

 

Series C Preferred Stock

 

At September 30, 2023 and December 31, 2022, 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 convertible to common stock, 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 declared or unpaid as of and for the period ended September 30, 2023.

 

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 an as-converted-to-common stock basis, in any distribution to holders of the Company’s common stock.

 

As of September 30, 2023 and December 31, 2022, there were no shares of Series K Preferred stock issued and outstanding.

 

Warrants and Options

 

Common Stock Warrants

 

Common stock warrant transactions for the nine months ended September 30, 2023 were as follows:

 

   Number of   Weighted Average 
   Warrants   Exercise Price 
Warrant outstanding at December 31, 2022:   2,337,274   $5.30 
Granted   9,790,000    0.71 
Forfeited/canceled   (78,394)   3.40 
Exercised   (2,900,000)   0.0001 
Warrants outstanding at September 30, 2023   9,148,880   $2.11 
Warrants exercisable at September 30, 2023   2,258,880   $5.45 

 

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The warrants had an exercise price greater than the market price, which resulted in no intrinsic value.

 

Warrants outstanding as of September 30, 2023 are exercisable as follows:

 

  

   Warrants Outstanding   Warrants Exercisable 
Range of Exercise Price  Number Outstanding   Weighted Average Remaining Contractual Life (Years)   Weighted Average Exercise Price   Number Exercisable  

Weighted Average

Exercise Price

 
$1.001.25   6,890,000    4.8   $1.01    -   $- 
3.405.50   2,258,880    2.4    5.45    2,258,880    5.45 
    9,148,880              2,258,880      

 

Common Stock Options

 

Common stock option transactions for the nine months ended September 30, 2023 were as follows:

 

   Number of   Weighted Average 
   Options   Exercise Price 
Options outstanding at December 31, 2022   1,630,452   $2.57 
Granted   2,500,000    0.75 
Forfeited/canceled   (392,500)   2.81 
Exercised   -    - 
Options outstanding at September 30, 2023   3,737,952   $1.32 
           
Options vested and exercisable at September 30, 2023   2,833,651   $1.52 

 

The Company recognized the corresponding stock compensation expense for options granted to certain consultants, employees, officers and directors based upon their vesting term.

 

On January 27, 2023, the Company granted stock options to employees and members of its board of directors to purchase an aggregate of 2.0 million shares of common stock at an exercise price of $0.85 per share. The stock options expire in 10 years, vest over twelve months and had a fair value of $1.4 million at the date of grant determined using the Black-Scholes Option Pricing model with the following weighted average assumptions.

 

17
 

 

On May 15, 2023, the Company granted stock options to a member of its board of directors to purchase 500,000 shares of common stock at an exercise price of $0.35 per share. The stock options expire in 10 years, vest over twelve months and had a fair value of $150 on at the date of grant determined using the Black-Scholes Option Pricing model.

 

The Company used the following weighted average assumptions in the Black-Scholes Option Pricing model to compute the fair value of the stock options granted during the period ended September 30, 2023.

 

Stock price  $$0.35 - $0.85 
Risk-free interest rate   3.62% - 3.99%
Expected volatility   120.81% - 123.61%
Expected life (in years)   5.3
Expected dividend yield   - 

 

For the three months and nine months ended September 30, 2023, the Company recognized stock compensation expense relating to the vesting of options granted in 2023 and prior years of $433 and $1,337, respectively.

 

Options outstanding as of September 30, 2023 are exercisable as follows:

 

    Options Outstanding   Options Exercisable 
Range of Exercise Price   Number Outstanding   Weighted Average Remaining Contractual Life (Years)  

Weighted Average

Exercise Price

   Number Exercisable  

Weighted Avera