CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
1.
The Company and Summary of Significant Accounting
Policies
Business
In
1965, the corporate predecessor of GT Biopharma, 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.
We are a clinical stage biopharmaceutical company focused on the
development and commercialization of novel immuno-oncology products
based off our proprietary Tri-specific Killer Engager
(TriKE™), Tetra-specific Killer Engager (TetraKE™) and
bi-specific ligand-directed single-chain fusion protein technology
platforms. Our TriKE and TetraKE platforms generate 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, ultimately resulting in the
targeted cell’s death. TriKEs and TetraKEs are made up of
recombinant fusion proteins, can be designed to target any number
of tumor antigens on hematologic malignancies, sarcomas or solid
tumors and do not require patient-specific
customization.
Going Concern
The
Company’s current operations have focused on business
planning, raising capital, establishing an intellectual property
portfolio, hiring, and conducting preclinical studies and clinical
trials. The Company does not have any product candidates approved
for sale and has not generated any revenue from product sales. The
Company has sustained operating losses since inception and expects
such losses to continue over the foreseeable future.
The
financial statements of the Company have been prepared on a
goingconcern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. Accordingly, the financial statements do not include any
adjustments that might be necessary should the Company be unable to
continue in existence.
The
Company has incurred substantial losses and negative cash flows
from operations since its inception and has an accumulated deficit
of $569 million and cash of $5 thousand as of March 31, 2020 The
Company anticipates incurring additional losses until such time, if
ever, that it can generate significant sales of its products
currently in development. Substantial additional financing will be
needed by the Company to fund its operations and to commercially
develop its product candidates. These factors raise substantial
doubt about the Company’s ability to continue as a going
concern.
Management is currently evaluating different strategies to obtain
the required funding for future operations. These strategies may
include but are not limited to: public offerings of equity and/or
debt securities, payments from potential strategic research and
development, and licensing and/or marketing arrangements with
pharmaceutical companies. If the Company is unable to secure
adequate additional funding, its business, operating results,
financial condition and cash flows may be materially and adversely
affected.
Use of Estimates
The financial statements and notes are representations of the
Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America, and
have been consistently applied in the preparation of the financial
statements. The preparation of financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities revenues and expenses and
disclosures of contingent assets and liabilities at the date of the
financial statements. Actual results could differ from those
estimates.
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
Basis of Consolidation and Comprehensive Income
The accompanying consolidated financial statements include the
accounts of GT Biopharma, Inc. and its subsidiaries. All
intercompany balances and transactions have been eliminated. The
Company's financial statements are prepared using the accrual
method of accounting.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the U.S. (“U.S. GAAP”)
and the rules and regulations of the U.S. Securities and Exchange
Commission (“SEC”). Certain information and disclosures
required by U.S. GAAP for complete consolidated financial
statements have been condensed or omitted herein. The interim
condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Form 10-K for the year
ended December 31, 2019 filed with the SEC on March 27, 2020. The
unaudited interim condensed consolidated financial information
presented herein reflects all normal adjustments that are, in the
opinion of management, necessary for a fair statement of the
financial position, results of operations and cash flows for the
periods presented. The Company is responsible for the unaudited
interim consolidated financial statements included in this report.
The results of operations of any interim period are not necessarily
indicative of the results for the full year.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash
equivalents.
Concentrations of Credit Risk
The Company's cash and cash equivalents, marketable securities and
accounts receivable are monitored for exposure to concentrations of
credit risk. The Company maintains substantially all of its cash
balances in a limited number of financial institutions. The
balances are each insured by the Federal Deposit Insurance
Corporation up to $250,000. The Company had no balances in excess
of this limit at March 31, 2020.
Stock Based Compensation to Employees
The
Company accounts for its stock-based compensation for employees in
accordance with Accounting Standards Codification
(“ASC”) 718. The Company recognizes in the
statement of operations the grant-date fair value of stock options
and other equity-based compensation issued to employees and
non-employees over the related vesting period.
The
Company granted no stock options during the quarters ended March
31, 2020 and 2019, respectively
Long-Lived Assets
Our
long-lived assets include property, plant and equipment,
capitalized costs of filing patent applications and other
indefinite lived intangible assets. We evaluate our long-lived
assets for impairment, other than indefinite lived intangible
assets, in accordance with ASC 360, whenever events or changes in
circumstances indicate that the carrying amount of such assets may
not be recoverable. Estimates of future cash flows and timing of
events for evaluating long-lived assets for impairment are based
upon management’s judgment. If any of our intangible or
long-lived assets are considered to be impaired, the amount of
impairment to be recognized is the excess of the carrying amount of
the assets over its fair value.
Applicable
long-lived assets are amortized or depreciated over the shorter of
their estimated useful lives, the estimated period that the assets
will generate revenue, or the statutory or contractual term in the
case of patents. Estimates of useful lives and periods of expected
revenue generation are reviewed periodically for appropriateness
and are based upon management’s judgment.
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
Impairment of Long-Lived Assets
The
Company evaluates indefinite lived intangible assets for impairment
at least annually and whenever impairment indicators are present in
accordance with ASC 350. When necessary, the Company records an
impairment loss for the amount by which the fair value is less than
the carrying value of these assets. The fair value of intangible assets other than
goodwill is typically determined using the “relief from
royalty method”, specifically the discounted cash flow
method utilizing Level 3 fair value
inputs. Some of the more significant estimates and
assumptions inherent in this approach include: the amount and
timing of the projected net cash flows, which includes the expected
impact of competitive, legal and/or regulatory forces on the
projections and the impact of technological risk associated with
IPR&D assets, as well as the selection of a long-term growth
rate; the discount rate, which seeks to reflect the various risks
inherent in the projected cash flows; and the tax rate, which seeks
to incorporate the geographic diversity of the projected cash
flows.
The
Company performs impairment testing for all other long-lived assets
whenever impairment indicators are present. When necessary, the
Company calculates the undiscounted value of the projected cash
flows associated with the asset, or asset group, and compares this
estimated amount to the carrying amount. If the carrying amount is
found to be greater, we record an impairment loss for the excess of
book value over fair value.
Income Taxes
The Company accounts for income taxes using the asset and liability
approach, whereby deferred income tax assets and liabilities are
recognized for the estimated future tax effects, based on current
enacted tax laws, of temporary differences between financial and
tax reporting for current and prior periods. Deferred tax assets
are reduced, if necessary, by a valuation allowance if the
corresponding future tax benefits may not be realized.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing the net
loss for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share
is computed by dividing the net loss for the period by the weighted
average number of common shares outstanding during the period, plus
the potential dilutive effect of common shares issuable upon
exercise or conversion of outstanding stock options and warrants
during the period. The weighted average number of potentially
dilutive common shares excluded from the calculation of net income
(loss) per share totaled in 87,120,470 and 22,731,781 as of
March 31, 2020 and 2019, respectively.
Patents
Acquired patents are capitalized at their acquisition cost or fair
value. The legal costs, patent registration fees and models and
drawings required for filing patent applications are capitalized if
they relate to commercially viable technologies. Commercially
viable technologies are those technologies that are projected to
generate future positive cash flows in the near term. Legal costs
associated with patent applications that are not determined to be
commercially viable are expensed as incurred. All research and
development costs incurred in developing the patentable idea are
expensed as incurred. Legal fees from the costs incurred in
successful defense to the extent of an evident increase in the
value of the patents are capitalized.
Capitalized cost for pending patents are amortized on a
straight-line basis over the remaining twenty year legal life of
each patent after the costs have been incurred. Once each patent is
issued, capitalized costs are amortized on a straight-line basis
over the shorter of the patent's remaining statutory life,
estimated economic life or ten years.
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
Fixed Assets
Fixed assets is stated at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets,
which are 3 to 10 years for machinery and equipment and the
shorter of the lease term or estimated economic life for leasehold
improvements.
Fair Value
The carrying amounts reported in the balance sheets for receivables
and current liabilities each qualify as financial instruments and
are a reasonable estimate of fair value because of the short period
of time between the origination of such instruments and their
expected realization and their current market rate of
interest. The three levels are defined as
follows:
●
Level 1 inputs to
the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets. The
Company’s Level 1 assets include cash equivalents, primarily
institutional money market funds, whose carrying value represents
fair value because of their short-term maturities of the
investments held by these funds.
●
Level 2 inputs to
the valuation methodology include quoted prices for similar assets
and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument. The
Company’s Level 2 liabilities consist of liabilities arising
from the issuance of convertible securities and in accordance with
ASC 815-40: a warrant liability for detachable warrants, as well as
an accrued derivative liability for the beneficial conversion
feature. These liabilities are remeasured each reporting period.
Fair value is determined using the Black-Scholes valuation model
based on observable market inputs, such as share price data and a
discount rate consistent with that of a government-issued security
of a similar maturity. There were not such liabilities at March 31,
2020.
●
Level 3 inputs to
the valuation methodology are unobservable and significant to the
fair value measurement. There were no such assets or liabilities as
of March 31, 2020.
Research and Development
Research and development costs are expensed as incurred and
reported as research and development expense. Research and
development costs totaling $.3 million and $.8 million for the
three months ended March 31, 2020 and 2019,
respectively.
Revenue Recognition
License Revenue
License
arrangements may consist of non-refundable upfront license fees,
exclusive licensed rights to patented or patent pending technology,
and various performance or sales milestones and future product
royalty payments. Some of these arrangements are multiple element
arrangements.
Non-refundable,
up-front fees that are not contingent on any future performance by
us, and require no consequential continuing involvement on our
part, are recognized as revenue when the license term commences and
the licensed data, technology and/or compound is
delivered. We defer recognition of non-refundable
upfront fees if we have continuing performance obligations without
which the technology, right, product or service conveyed in
conjunction with the non-refundable fee has no utility to the
licensee that is separate and independent of our performance under
the other elements of the arrangement. In addition, if we have
continuing involvement through research and development services
that are required because our know-how and expertise related to the
technology is proprietary to us, or can only be performed by us,
then such up-front fees are deferred and recognized over the period
of continuing involvement.
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
Payments
related to substantive, performance-based milestones in a research
and development arrangement are recognized as revenue upon the
achievement of the milestones as specified in the underlying
agreements when they represent the culmination of the earnings
process. As of March 31, 2020, the Company has not generated any
licensing revenue.
Convertible Notes
On January 22, 2018, the Company entered into a Securities Purchase
Agreement (“SPA”) with fourteen accredited investors
(individually, a “Buyer” and collectively, the
“Buyers”) pursuant to which the Company agreed to issue
to the Buyers senior convertible notes in an aggregate principal
amount of $7,760,510 (the “Notes”), which Notes shall
be convertible into the Company’s common stock, par value
$0.001 per share (the “Common Stock”) at a price of
$4.58 per share, and five-year warrants to purchase the
Company’s Common Stock representing the right to acquire an
aggregate of approximately 1,694,440 shares of Common Stock (the
“Warrants”).
Pursuant to the terms of SPA the Notes were subject to an original
issue discount of 10% resulting in proceeds to the Company of
$7,055,000 from the transaction.
Upon
the purchase of the Notes, the Buyers received Warrants to purchase
1,694,440 shares of Common
Stock. Such Warrants are exercisable for (5) years from the
date the shares underlying the Warrants are freely saleable. The
initial Exercise Price is $4.58. According to the terms
of the warrant agreement, the Warrants are subject to certain
adjustments depending upon the price and structure of a subsequent
financing, including a qualified financing with gross proceeds of
at least $20 million, as defined in the
agreements.
The issuance of the Notes and Warrants were made in reliance on the
exemption provided by Section 4(a)(2) of the Securities Act of
1933, as amended (the “Securities Act”) for the offer
and sale of securities not involving a public offering, and
Regulation D promulgated under the Securities Act.
Contemporaneously with the execution and delivery of the SPA, the
Company and the Buyers executed and delivered a Registration Rights
Agreement (the “Registration Rights Agreement”)
pursuant to which the Company has agreed to provide certain
registration rights with respect to the Registrable Securities
under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
Senior Convertible Debentures
On August 2, 2018, GT Biopharma, Inc. (the “Company”)
entered into a Securities Purchase Agreement with the purchasers
identified on the signature pages thereto (individually, a
“Purchaser,” and collectively, the
“Purchasers”) pursuant to which the Company issued to
the Purchasers one year 10% Senior Convertible Debentures in an
aggregate principal amount of $5,140,000 (the
“Debentures”), which Debentures shall be convertible
into the Company’s common stock, par value $0.001 per share
(the “Common Stock”), at a price of $2 per share. The
Company used a portion of these proceeds to repay $4.4 million of
the notes issued on January 22, 2018. Additionally, the remaining
$3.3 million of the notes issued on January 22, 2018 were converted
into the Debentures at the same terms discussed above.
On September 7, 2018, GT Biopharma, Inc. (the
“Company”) entered into a Securities Purchase Agreement
with the purchasers identified on the signature pages thereto
(individually, a “Purchaser,” and collectively, the
“Purchasers”) pursuant to which the Company has issued
to the Purchasers one year 10% Senior Convertible Debentures in an
aggregate principal amount of $2,050,000 (the
“Debentures”), which Debentures shall be convertible
into the Company’s common stock, par value $0.001 per share
(the “Common Stock”), at an initial price of $2 per
share.
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
On September 24, 2018, GT Biopharma, Inc. (the
“Company”) entered into a Securities Purchase Agreement
with the purchasers identified on the signature pages thereto
(individually, a “Purchaser,” and collectively, the
“Purchasers”) pursuant to which the Company has issued
to the Purchasers one year 10% Senior Convertible Debentures in an
aggregate principal amount of $800,000 (the
“Debentures”), which Debentures shall be convertible
into the Company’s common stock, par value $0.001 per share
(the “Common Stock”), at an initial price of $2 per
share.
On February 4, 2019, GT Biopharma, Inc. (the “Company”)
entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with the purchasers identified on the signature
pages thereto (individually, a “Purchaser,” and
collectively, the “Purchasers”), pursuant to which the
Company issued to the Purchasers, on February 4, 2019, Secured
Convertible Notes in an aggregate principal amount of $1,352,224
(the “Notes”), consisting of gross proceeds of
$1,052,224 and settlement of existing debt of $300,000, which Notes
shall be convertible at any time after issuance into shares (the
“Conversion Shares”) of the Company’s common
stock, par value $0.001 per share (the “Common Stock”),
at an initial conversion price of $0.60 per share (the
“Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature
on August 2, 2019. Interest on the Notes is payable in cash or, at
a Purchaser’s option, in shares of Common Stock at the
Conversion Price. Upon the occurrence of an event of default,
interest accrues at 18% per annum. The Notes contain customary
default provisions, including provisions for potential
acceleration, and covenants, including negative covenants regarding
additional indebtedness and dividends. The Conversion Price is
subject to adjustment due to certain events, including stock
dividends and stock splits, and is subject to reduction in certain
circumstances if the Company issues Common Stock or Common Stock
equivalents at an effective price per share that is lower than the
Conversion Price then in effect. The Company may only prepay the
Notes with the prior written consent of the respective Purchasers
thereof.
Contemporaneously with the execution and delivery of the Purchase
Agreement, on February 4, 2019, the Company and certain of its
wholly-owned subsidiaries entered into a Security Agreement (the
“Security Agreement”) with Alpha Capital Anstalt, as
collateral agent on behalf of the Purchasers, and with the
Purchasers, pursuant to which the Purchasers have been granted a
first-priority security interest in substantially all of the assets
of the Company and such subsidiaries securing (i) an aggregate
principal amount of $1,352,224 of Notes and (ii) an aggregate
principal amount of $9,058,962 of the Company’s 10% Senior
Convertible Debentures issued on August 2, 2018, September 7, 2018
and September 24, 2018 held by such Purchasers.
The Purchase Agreement contains customary representations,
warranties and covenants, including covenants, subject to certain
exceptions, that the Company, until the date on which less than 10%
of the Notes are outstanding, shall not effect any Variable Rate
Transaction (as defined in the Purchase Agreement) and that, for as
long as a Purchaser holds any Notes or Conversion Shares, the
Company shall amend the terms and conditions of the Purchase
Agreement and the transactions contemplated thereby with respect to
such Purchaser to give such Purchaser the benefit of any terms or
conditions under which the Company agrees to issue or sell any
Common Stock or Common Stock equivalents that are more favorable to
an investor than the terms and conditions granted to such Purchaser
under the Purchase Agreement and the transactions contemplated
thereby.
In addition, the Company entered into a registration rights
agreement (the “Registration Rights Agreement”) with
the Purchasers, pursuant to which the Company has agreed to file,
within 14 days after February 4, 2019, one or more registration
statements on Form S-3 (or, if Form S-3 is not then available to
the Company, such form of registration that is then available to
effect a registration for resale of the subject securities)
covering the resale of all Conversion Shares, subject to certain
penalties set forth in the Registration Rights Agreement. The Form
S-3 was filed by the Company on February 14, 2019.
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
On May 22, 2019, GT Biopharma, Inc. (the “Company”)
entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with the ten purchasers (individually, a
“Purchaser,” and collectively, the
“Purchasers”), pursuant to which the Company issued to
the Purchasers, on May 22, 2019, Secured Convertible Notes in an
aggregate principal amount of $1,300,000 (the “Notes”),
which Notes shall be convertible at any time after issuance into
shares (the “Conversion Shares”) of the Company’s
common stock, par value $0.001 per share (the “Common
Stock”), at an initial conversion price of $0.35 per share
(the “Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature
on November 22, 2019. Interest on the Notes is payable in cash or,
at a Purchaser’s option, in shares of Common Stock at the
Conversion Price. Upon the occurrence of an event of default,
interest accrues at 18% per annum. The Notes contain customary
default provisions, including provisions for potential
acceleration, and covenants, including negative covenants regarding
additional indebtedness and dividends. The Conversion Price is
subject to adjustment due to certain events, including stock
dividends and stock splits, and is subject to reduction in certain
circumstances if the Company issues Common Stock or Common Stock
equivalents at an effective price per share that is lower than the
Conversion Price then in effect. The Company may only prepay the
Notes with the prior written consent of the respective Purchasers
thereof.
The Purchase Agreement contains customary representations,
warranties and covenants, including covenants, subject to certain
exceptions, that the Company, until the date on which less than 10%
of the Notes are outstanding, shall not effect any Variable Rate
Transaction (as defined in the Purchase Agreement) and that, for as
long as a Purchaser holds any Notes or Conversion Shares, the
Company shall amend the terms and conditions of the Purchase
Agreement and the transactions contemplated thereby with respect to
such Purchaser to give such Purchaser the benefit of any terms or
conditions under which the Company agrees to issue or sell any
Common Stock or Common Stock equivalents that are more favorable to
an investor than the terms and conditions granted to such Purchaser
under the Purchase Agreement and the transactions contemplated
thereby.
In addition, the Company entered into a registration rights
agreement (the “Registration Rights Agreement”) with
the Purchasers, pursuant to which the Company has agreed to file,
within 30 days after May 22, 2019, one or more registration
statements on Form S-3 (or, if Form S-3 is not then available to
the Company, such form of registration that is then available to
effect a registration for resale of the subject securities)
covering the resale of all Conversion Shares, subject to certain
penalties set forth in the Registration Rights Agreement. The Form
S-1 was filed by the Company on June 21, 2019 and became effective
on July 12, 2019.
Between July 31 and August 28, 2019, GT Biopharma, Inc. (the
“Company”) entered into a Securities Purchase Agreement
(the “Purchase Agreement”) with the eleven purchasers
(individually, a “Purchaser,” and collectively, the
“Purchasers”), pursuant to which the Company issued to
the Purchasers, Secured Convertible Notes in an aggregate principal
amount of $975,000 (the “Notes”), which Notes shall be
convertible at any time after issuance into shares (the
“Conversion Shares”) of the Company’s common
stock, par value $0.001 per share (the “Common Stock”),
at an initial conversion price of $0.20 per share (the
“Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature
between January 31 and February 28, 2020. Interest on the Notes is
payable in cash or, at a Purchaser’s option, in shares of
Common Stock at the Conversion Price. Upon the occurrence of an
event of default, interest accrues at 18% per annum. The Notes
contain customary default provisions, including provisions for
potential acceleration, and covenants, including negative covenants
regarding additional indebtedness and dividends. The Conversion
Price is subject to adjustment due to certain events, including
stock dividends and stock splits, and is subject to reduction in
certain circumstances if the Company issues Common Stock or Common
Stock equivalents at an effective price per share that is lower
than the Conversion Price then in effect. The Company may only
prepay the Notes with the prior written consent of the respective
Purchasers thereof.
The Purchase Agreement contains customary representations,
warranties and covenants, including covenants, subject to certain
exceptions, that the Company, until the date on which less than 10%
of the Notes are outstanding, shall not effect any Variable Rate
Transaction (as defined in the Purchase Agreement) and that, for as
long as a Purchaser holds any Notes or Conversion Shares, the
Company shall amend the terms and conditions of the Purchase
Agreement and the transactions contemplated thereby with respect to
such Purchaser to give such Purchaser the benefit of any terms or
conditions under which the Company agrees to issue or sell any
Common Stock or Common Stock equivalents that are more favorable to
an investor than the terms and conditions granted to such Purchaser
under the Purchase Agreement and the transactions contemplated
thereby.
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
In addition, the Company entered into a registration rights
agreement (the “Registration Rights Agreement”) with
the Purchasers, pursuant to which the Company has agreed to file,
within 30 days, one or more registration statements on Form S-3
(or, if Form S-3 is not then available to the Company, such form of
registration that is then available to effect a registration for
resale of the subject securities) covering the resale of all
Conversion Shares, subject to certain penalties set forth in the
Registration Rights Agreement. The Form S-1 was filed by the
Company on September 13, 2019 and became effective in October 2,
2019.
On December 19, 2019, GT Biopharma, Inc. (the
“Company”) entered into a Securities Purchase Agreement
(the “Purchase Agreement”) with the one purchaser
(individually, a “Purchaser,” and collectively, the
“Purchasers”), pursuant to which the Company issued to
the Purchasers, on December 19, 2019, Secured Convertible Notes in
an aggregate principal amount of $200,000 (the
“Notes”), which Notes shall be convertible at any time
after issuance into shares (the “Conversion Shares”) of
the Company’s common stock, par value $0.001 per share (the
“Common Stock”), at an initial conversion price of
$0.20 per share (the “Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature
on August 19, 2020. Interest on the Notes is payable in cash or, at
a Purchaser’s option, in shares of Common Stock at the
Conversion Price. Upon the occurrence of an event of default,
interest accrues at 18% per annum. The Notes contain customary
default provisions, including provisions for potential
acceleration, and covenants, including negative covenants regarding
additional indebtedness and dividends. The Conversion Price is
subject to adjustment due to certain events, including stock
dividends and stock splits, and is subject to reduction in certain
circumstances if the Company issues Common Stock or Common Stock
equivalents at an effective price per share that is lower than the
Conversion Price then in effect. The Company may only prepay the
Notes with the prior written consent of the respective Purchasers
thereof.
The Purchase Agreement contains customary representations,
warranties and covenants, including covenants, subject to certain
exceptions, that the Company, until the date on which less than 10%
of the Notes are outstanding, shall not effect any Variable Rate
Transaction (as defined in the Purchase Agreement) and that, for as
long as a Purchaser holds any Notes or Conversion Shares, the
Company shall amend the terms and conditions of the Purchase
Agreement and the transactions contemplated thereby with respect to
such Purchaser to give such Purchaser the benefit of any terms or
conditions under which the Company agrees to issue or sell any
Common Stock or Common Stock equivalents that are more favorable to
an investor than the terms and conditions granted to such Purchaser
under the Purchase Agreement and the transactions contemplated
thereby.
In addition, the Company entered into a registration rights
agreement (the “Registration Rights Agreement”) with
the Purchasers, pursuant to which the Company has agreed to file,
within 30 days after December 19, 2019, one or more registration
statements on Form S-3 (or, if Form S-3 is not then available to
the Company, such form of registration that is then available to
effect a registration for resale of the subject securities)
covering the resale of all Conversion Shares, subject to certain
penalties set forth in the Registration Rights
Agreement.
On January 30, 2020 GT Biopharma, Inc. (the “Company”)
entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with the one purchaser (individually, a
“Purchaser,” and collectively, the
“Purchasers”), pursuant to which the Company issued to
the Purchasers, on January 30, 2020, Secured Convertible Notes in
an aggregate principal amount of $200,000 (the
“Notes”), which Notes shall be convertible at any time
after issuance into shares (the “Conversion Shares”) of
the Company’s common stock, par value $0.001 per share (the
“Common Stock”), at an initial conversion price of
$0.20 per share (the “Conversion Price”).
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
The Notes accrue interest at the rate of 10% per annum and mature
on September 30, 2020. Interest on the Notes is payable in cash or,
at a Purchaser’s option, in shares of Common Stock at the
Conversion Price. Upon the occurrence of an event of default,
interest accrues at 18% per annum. The Notes contain customary
default provisions, including provisions for potential
acceleration, and covenants, including negative covenants regarding
additional indebtedness and dividends. The Conversion Price is
subject to adjustment due to certain events, including stock
dividends and stock splits, and is subject to reduction in certain
circumstances if the Company issues Common Stock or Common Stock
equivalents at an effective price per share that is lower than the
Conversion Price then in effect. The Company may only prepay the
Notes with the prior written consent of the respective Purchasers
thereof.
The Purchase Agreement contains customary representations,
warranties and covenants, including covenants, subject to certain
exceptions, that the Company, until the date on which less than 10%
of the Notes are outstanding, shall not effect any Variable Rate
Transaction (as defined in the Purchase Agreement) and that, for as
long as a Purchaser holds any Notes or Conversion Shares, the
Company shall amend the terms and conditions of the Purchase
Agreement and the transactions contemplated thereby with respect to
such Purchaser to give such Purchaser the benefit of any terms or
conditions under which the Company agrees to issue or sell any
Common Stock or Common Stock equivalents that are more favorable to
an investor than the terms and conditions granted to such Purchaser
under the Purchase Agreement and the transactions contemplated
thereby.
In addition, the Company entered into a registration rights
agreement (the “Registration Rights Agreement”) with
the Purchasers, pursuant to which the Company has agreed to file,
within 30 days after January 30, 2020, one or more registration
statements on Form S-3 (or, if Form S-3 is not then available to
the Company, such form of registration that is then available to
effect a registration for resale of the subject securities)
covering the resale of all Conversion Shares, subject to certain
penalties set forth in the Registration Rights
Agreement.
Financing Agreement
On
November 8, 2010, the Company entered into a financing arrangement
with Gemini Pharmaceuticals, Inc., a product development and
manufacturing partner of the Company, pursuant to which Gemini
Pharmaceuticals made a $250,000 strategic equity investment in the
Company and agreed to make a $750,000 purchase order line of credit
facility available to the Company. The outstanding principal of all
Advances under the Line of Credit will bear interest at the rate of
interest of prime plus 2 percent per annum. There is $31,000 due on
this credit line at March 31, 2020.
Common Stock
In the first quarter of 2020, the Company issued 814,734 shares of
common stock upon conversion of $162,943 in principal and interest
on senior convertible notes.
Preferred Stock
The 96,230 shares of Series C preferred stock are convertible into
111 shares of the Company's common stock at the option of the
holders at any time. The conversion ratio is based on the average
closing bid price of the common stock for the fifteen consecutive
trading days ending on the date immediately preceding the date
notice of conversion is given, but cannot be less than .20 or more
than .2889 common shares for each Series C preferred share. The
conversion ratio may be adjusted under certain circumstances such
as stock splits or stock dividends. The Company has the right to
automatically convert the Series C preferred stock into common
stock if the Company lists its shares of common stock on the Nasdaq
National Market and the average closing bid price of the Company's
common stock on the Nasdaq National Market for 15 consecutive
trading days exceeds $3,000.00. Each share of Series C preferred
stock is entitled to the number of votes equal to .26 divided by
the average closing bid price of the Company's common stock during
the fifteen consecutive trading days immediately prior to the date
such shares of Series C preferred stock were purchased. In the
event of liquidation, the holders of the Series C preferred stock
shall participate on an equal basis with the holders of the common
stock (as if the Series C preferred stock had converted into common
stock) in any distribution of any of the assets or surplus funds of
the Company. The holders of Series C preferred stock are entitled
to noncumulative dividends if and when declared by the Company's
board of directors. No dividends to Series C preferred stockholders
were issued or unpaid through March 31, 2020.
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
On September 1, 2017, the Company designated 2,000,000 shares of
Series J Preferred Stock. Shares of Series J Preferred Stock will
have the same voting rights as shares of common stock with each
share of Series J Preferred Stock entitled to one vote at a meeting
of the shareholders of the Corporation. Shares of Series J
Preferred Stock will not be entitled to receive any dividends,
unless and until specifically declared by our board of directors.
The holders of the Series J Preferred Stock will participate, on an
as-if-converted-to-common stock basis, in any dividends to the
holders of common stock. Each share of the Series J Preferred Stock
is convertible into one share of our common stock at any time at
the option of the holder.
On the same day, the Board issued 1,513, 548 of those shares in
exchange for the cancellation of debt. In the first quarter
of 2019, it was discovered that a certificate of designation with
respect to the Series J Preferred Stock had never been filed with
the Office of the Secretary of State for the State of
Delaware. Legal research determined that despite the fact the
Company had issued shares of Series J Preferred Stock, those shares
had, in fact, never existed.
To remedy the situation, on April 4, 2019, the Company filed a
certificate of designation with the Office of the Secretary State
for the State of Delaware designating a series of preferred stock
as Series J-1 Preferred Stock. On April 19, 2019, the Company
issued 2,353,548 of those shares. The issuance was in lieu of
the preferred stock that should have been issued on September 1,
2017, and in settlement for not receiving preferred stock until 20
months after the debt for which the stock was issued was cancelled.
The Company reflected an expense in general and administrative
costs in the year ended December 31, 2019 totaling
$1,140,000.
The Shares are convertible into shares of common stock of the
Registrant at the rate of $0.20 per share. The issuance was
exempt from the registration requirements of Section 5 of the
Securities Act of 1933 pursuant to Section 4(2) of the same Act
since the issuance of the Shares did not involve any public
offering.
4.
Stock Options and Warrants
Stock Options
The
following table summarizes stock option transactions for the
quarter ended March 31, 2020:
|
|
Weighted Average
Exercise Price
|
Outstanding,
December 31, 2019
|
40
|
$877.50
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Expired
|
-
|
-
|
Outstanding, March
31, 2020
|
40
|
$877.50
|
Exercisable, March
31, 2020
|
40
|
$877.50
|
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
Common Stock Warrants
Warrant
transactions for the quarter ended March 31, 2020 are as
follows:
|
|
Weighted Average
Exercise Price
|
Outstanding at
December 31, 2019:
|
1,813,053
|
$0.20
|
Granted
|
-
|
-
|
Forfeited
|
-
|
-
|
Exercised
|
-
|
-
|
Outstanding at
March 31, 2020
|
1,813,053
|
$0.20
|
Exercisable at
March 31, 2020
|
1,813,053
|
$0.20
|
5.
Commitments and Contingencies
Leases
On October 1, 2018, the Company entered into a three-year lease
agreement for its office in Westlake Village, CA. In addition to
minimum rent, certain leases require payment of real estate taxes,
insurance, common area maintenance charges and other executory
costs. The Company recognizes rent expense under such arrangements
on a straight-line basis over the effective term of each
lease.
The following table summarizes the Company’s future minimum
lease commitments as of March 31, 2020:
Year ending
December 31:
|
|
2020
|
53,000
|
2021
|
61,000
|
Total minimum lease
payments
|
$114,000
|
Rent expense for the quarters ended March 31,
2020 and 2019 was $17,200 and $17,000,
respectively.
Convertible Notes
Between April 20 and May 7, 2020, GT Biopharma, Inc. (the
“Company”) entered into a Securities Purchase Agreement
(the “Purchase Agreement”) with eight purchasers
(individually, a “Purchaser,” and collectively, the
“Purchasers”), pursuant to which the Company issued to
the Purchasers, on January 30, 2020, Secured Convertible Notes in
an aggregate principal amount of $2,067,000 (the
“Notes”), which Notes shall be convertible at any time
after issuance into shares (the “Conversion Shares”) of
the Company’s common stock, par value $0.001 per share (the
“Common Stock”), at an initial conversion price of
$0.20 per share (the “Conversion Price”).
GT BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(UNAUDITED)
The Notes accrue interest at the rate of 10% per annum and mature
between October 20 and November 7, 2020. Interest on the Notes is
payable in cash or, at a Purchaser’s option, in shares of
Common Stock at the Conversion Price. Upon the occurrence of an
event of default, interest accrues at 18% per annum. The Notes
contain customary default provisions, including provisions for
potential acceleration, and covenants, including negative covenants
regarding additional indebtedness and dividends. The Conversion
Price is subject to adjustment due to certain events, including
stock dividends and stock splits, and is subject to reduction in
certain circumstances if the Company issues Common Stock or Common
Stock equivalents at an effective price per share that is lower
than the Conversion Price then in effect. The Company may only
prepay the Notes with the prior written consent of the respective
Purchasers thereof.
The Purchase Agreement contains customary representations,
warranties and covenants, including covenants, subject to certain
exceptions, that the Company, until the date on which less than 10%
of the Notes are outstanding, shall not effect any Variable Rate
Transaction (as defined in the Purchase Agreement) and that, for as
long as a Purchaser holds any Notes or Conversion Shares, the
Company shall amend the terms and conditions of the Purchase
Agreement and the transactions contemplated thereby with respect to
such Purchaser to give such Purchaser the benefit of any terms or
conditions under which the Company agrees to issue or sell any
Common Stock or Common Stock equivalents that are more favorable to
an investor than the terms and conditions granted to such Purchaser
under the Purchase Agreement and the transactions contemplated
thereby.
In addition, the Company entered into a registration rights
agreement (the “Registration Rights Agreement”) with
the Purchasers, pursuant to which the Company has agreed to file,
within 30 days after April 20, 2020, one or more registration
statements on Form S-3 (or, if Form S-3 is not then available to
the Company, such form of registration that is then available to
effect a registration for resale of the subject securities)
covering the resale of all Conversion Shares, subject to certain
penalties set forth in the Registration Rights
Agreement.
Common Stock
In April 2020, the Company issued 250,000 shares of common stock
upon conversion of $50,000 in principal on convertible
notes.
On May 1, 2020, the Company issued 1,086,429 shares of
restricted common stock for consulting services.