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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, 2022.

 

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

 

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 October 31, 2022, the issuer had 32,557,720 shares of common stock outstanding.

 

 

 

 
 

 

GT Biopharma, Inc. and Subsidiaries

Table of Contents

 

    Page
PART I – FINANCIAL INFORMATION  
Item 1. Financial Statements  
  Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021 3
  Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2022 and 2021 (Unaudited) 4
  Condensed Consolidated Statements of Stockholders’ Equity for the three months and nine months ended September 30, 2022 and 2021 (Unaudited) 5
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (Unaudited) 7
  Condensed Notes to Consolidated Financial Statements (Unaudited) 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risks 20
Item 4. Controls and Procedures 20
     
PART II – OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 6. Exhibits 21
     
SIGNATURES 22

 

2
 

 

GT BIOPHARMA, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares and par value)

 

   September 30   December 31, 
   2022   2021 
    (Unaudited)      
ASSETS          
Current Assets          
Cash and cash equivalents  $2,465   $8,968 
Short-term investments   18,319    23,011 
Prepaid expenses and other current assets   88    190 
Total Current Assets   20,872    32,169 
           
Operating lease right-of-use asset   190    - 
Deposits   9    - 
TOTAL ASSETS  $21,071   $32,169 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable  $3,325   $8,220 
Accrued expenses   1,537    1,901 
Current operating lease liability   106    - 
Derivative liability   57    138 
Total Current Liabilities   5,025    10,259 
           
Non-current operating lease liability   92    - 
Total Liabilities   5,117    10,259 
           
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, 2022 and December 31, 2021, respectively   1    1 
Common stock, par value $0.001, 250,000,000 shares authorized, 32,507,618 shares and 32,061,989 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively  
 
 
 
 
33
 
 
 
 
 
 
 
32
 
 
Common stock issuable zero shares and 327,298 shares at September 30, 2022 and December 31, 2021, respectively   -    1,113 
Additional paid in capital   684,804    674,348 
Accumulated deficit   (668,884)   (653,584)
Total Stockholders’ Equity   15,954    21,910 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $21,071   $32,169 

 

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)

 

                 
   For the three months ended   For the nine months ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenues  $-   $-   $-   $- 
                     
Operating Expenses                    
Research and development (includes $201 and $0 of expense from stock compensation to officers, employees and directors vesting during the three months ended September 30, 2022 and 2021, and $327 and $0 for the nine months ended September 30, 2022 and 2021, respectively)   

2,743

    1,008    5,969    3,287 
Selling, general and administrative (includes $2,743 and $577 of expense from stock compensation granted to officers, employees and directors during the three months ended September 30, 2022 and 2021, and $3,527 and $15,450 for the nine months ended September 30, 2022 and 2021, respectively)   4,280    4,946    9,510    36,050 
                     
Loss from Operations   7,023    5,954    15,479    39,337 
                     
Other (Income) Expense                    
Interest income   (107)   (32)   (151)   (32)
Interest expense   -    -    -    696 
Change in fair value of derivative liability   (58)   (502)   (81)   (43)
Unrealized loss on marketable securities   23    33    53    33 
Total Other (Income) Expense   (142)   (501)   (179)   654 
                     
Net Loss  $(6,881)  $(5,453)  $(15,300)  $(39,991)
                     
Net loss per share – basic and diluted  $(0.22)  $(0.17)  $(0.48)  $(1.54)
                     
Weighted average common shares outstanding – basic and diluted   31,380,634    31,381,282    31,723,792    25,945,827 

 

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)

 

For The Three Months Ended September 30, 2022 (Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
   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   -    -    456    

1

    -    

-

    2,943    -    2,944 
                                              
Equity compensation to consultants   -    -    135    -    -    -    1,200    -    1,200 
                                              
Issuance of common shares in settlement of vendor payable   -    -    1,222    1    -    -    3,250    -    3,251 
                                              
Net loss   -    -    -    -    -    -    -    (6,881)   (6,881)
                                              
Balance, September 30, 2022   96   $1    32,507   $33    -   $      -   $684,804   $(668,884)  $15,954 

 

For The Nine Months Ended September 30, 2022 (Unaudited)

 

   Preferred Shares   Common Shares   Common Shares Issuable   Additional Paid   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   in 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 previously issued for services   -    -    (291)   -    -    -    -    -    - 
                                              
Cancellation of common stock previously issued to prior CEO   -    -    (1,845)   (1)   -    -    (222)   -    (223)
                                              
Common stock issued upon conversion of notes payable   -    -    327    

-

 
    (327)   (1,113)   1,113    -    - 
                                              
Equity compensation to officers, employees, and board of directors   -    -    620    1    -    -    3,853    -    3,854 
                                              
Equity compensation to consultants   -    -    412    -    -    -    2,462    -    2,462 
                                              
Issuance of common shares in settlement of vendor payable   -    -    1,222    1    -    -    3,250    -    3,251 
                                              
Net loss   -    -    -    -    -    -    -    (15,300)   (15,300)
                                              
Balance, September 30, 2022   96   $1    32,507   $33    -   $-   $684,804   $(668,884)  $15,954 

  

5
 

 

For The Three Months Ended September 30, 2021 (Unaudited)

 

   Preferred Shares   Common Shares   Common Shares Issuable   Additional Paid in   Accumulated    
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
                                     
Balance, June 30, 2021   96   $1    28,144   $28    3,152   $10,716   $655,655   $(630,109)  $36,291 
                                              
Common shares issued upon mandatory conversion of notes payable and accrued interest   -    -    2,147    2    (2,148)   (7,300)   7,294    -    (4)
                                              
Common shares issued upon exercise of warrants   -    -    26    -    -    -    138    -    138 
                                              
Issuance of common stock for services   -    -    93    -    -    -    327    -    327 
                                              
Equity compensation to officers and board of directors   -    -    98    -    -    -    577    -    577 
                                              
Net loss   -    -    -    -    -    -    -    (5,453)   (5,453)
                                              
Balance, September 30, 2021   96   $1    30,508   $30    1,004   $3,416   $663,991   $(635,562)  $31,876 

  

For The Nine Months Ended September 30, 2021 (Unaudited)

 

   Preferred Shares   Common Shares   Common Shares Issuable   Additional Paid in   Accumulated    
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
                                     
Balance, December 31, 2020   2,450   $3    5,218   $5    -   $-   $566,356   $(595,797)  $(29,433)
                                              
Extinguishment of debt discount upon adoption of ASU 2020-06   -    -    -    -    -    -    (4,745)   226    (4,519)
                                              
Conversion of Preferred Series J-1 to common stock   (2,354)   (2)   692    1    -    -    1    -    - 
                                              
Common shares issued upon mandatory conversion of notes payable and accrued interest   -    -    10,409    10    1,004    3,416    35,373    -    38,799 
                                              
Common shares issued upon exercise of warrants   -    -    3,074    3    -    -    16,430    -    16,433 
                                              
Issuance of common stock in public offering, net of cost   -    -    4,945    5    -    -    24,674    -    24,679 
                                              
Issuance of common stock for research and development agreement   -    -    190    -    -    -    1,355    -    1,355 
                                              
Issuance of common stock for services   -    -    2,142    2    -    -    9,101    -    9,103 
                                              
Equity compensation to officers and board of directors   -    -    3,838    4    -    -    15,446    -    15,450 
                                              
Net loss   -    -    -    -    -    -    -    (39,991)   (39,991)
                                              
Balance, September 30, 2021   96   $1    30,508   $30    1,004   $3,416   $663,991   $(635,562)  $31,876 

 

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)

 

   2022   2021 
   For the nine months ended 
   September 31, 
   2022   2021 
   (Unaudited)   (Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(15,300)  $(39,991)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock based compensation consultants   2,462    10,458 
Stock based compensation - officers, employees and board of directors   3,854    15,450 
Convertible notes payable issued for consulting services   -    720 
Change in fair value of derivative liability   (81)   (43)
Change in operating lease right-of-use assets   70    - 
Unrealized loss on marketable securities   53    - 
Changes in operating assets and liabilities:          
Decrease in prepaid expenses   102    279 
(Increase) in deposits   (9)   - 
(Decrease) Increase in accounts payable and accrued expenses   (2,008)   537 
(Decrease) in operating lease liability   (62)   - 
Increase in accrued interest   -    689 
Net Cash (Used in) Operating Activities   (10,919)   (11,901)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Sales (purchases) of investments   4,639    (26,031)
Net Cash Provided by (Used in) Investing Activities   4,639    (26,031)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from issuance of common stock   -    24,679 
Cancellation of common stock upon settlement with former officer   (223)   - 
Proceeds from exercise of warrants   -    16,433 
Proceeds from issuance of notes payable   -    1,205 
Net Cash (Used in) Provided by Financing Activities   (223)   42,317 
           
Net (Decrease) Increase in Cash   (6,503)   4,385 
Cash at Beginning of Period   8,968    5,297 
Cash at End of Period  $2,465   $9,682 
           
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   $- 
Extinguishment of unamortized debt discount and adjustment to accumulated deficit upon adoption of ASU 2020-06     $ -       $ 4,745   
Common stock issued upon conversion of notes payable and accrued interest  $-   $38,799 
Common stock issued upon settlement of vendor payable  $

3,251

   $- 
Convertible notes payable issued for accrued expenses  $-   $1,525 

 

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, 2022 and 2021

(Unaudited)

 

Note 1 – Organization and Operations

 

In 1965, the corporate predecessor of GT Biopharma Inc. (Company), Diagnostic Data, Inc. was incorporated in the State of California. Diagnostic Data changed its incorporation to the State of Delaware in 1972 and changed its name to DDI Pharmaceuticals, Inc. in 1985. In 1994, DDI Pharmaceuticals merged with International BioClinical, Inc. and Bioxytech S.A. and changed its name to OXIS International, Inc. In July 2017, the Company changed its name to GT Biopharma, Inc.

 

The Company is a clinical stage biopharmaceutical company focused on the development and commercialization of novel immuno-oncology products based on our proprietary Tri-specific Killer Engager (TriKE®) fusion protein immune cell engager technology platform. The Company’s TriKE® platform generates proprietary therapeutics designed to harness and enhance the cancer killing abilities of a patient’s own natural killer cells, or NK cells. Once bound to a natural killer (“NK”) cell, our moieties are designed to enhance the NK cell, and precisely direct it to one or more specifically targeted proteins expressed on a specific type of cancer cell or virus infected cell, resulting in the targeted cell’s death. TriKE®s can be designed to target any number of tumor antigens on hematologic malignancies or solid tumors and do not require patient-specific customization.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Oxis Biotech, Inc. and Georgetown Translational Pharmaceuticals, Inc. All intercompany transactions and balances have been eliminated in consolidation.

 

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 28, 2022 (the “2021 Annual Report”). The consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.

 

Liquidity

 

The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the nine months ended September 30, 2022, the Company recorded a net loss of $15.3 million and used cash in operations of $10.9 million. As of September 30, 2022, the Company had a cash and short-term investments balance of $20.8 million, working capital of $15.8 million and stockholders’ equity of $16.0 million. Management anticipates that the $20.8 million of cash and cash equivalents, and short-term investments are adequate to satisfy the liquidity needs of the Company for at least one year from the date the Company’s condensed consolidated financial statements for the quarter ended September 30, 2022 were issued.

 

Historically, the Company has financed its operations through public and private sales of common stock, issuance of preferred and common stock, issuance of convertible debt instruments, and strategic collaborations.

 

8
 

 

COVID-19

 

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, has adversely affected workforces, customers, economies, and financial markets globally. It has also disrupted the normal operations of many businesses. This outbreak could adversely affect the Company’s operations.

 

While the pandemic has impacted the Company’s operations, during the nine months ended September 30, 2022, the Company believes the COVID-19 pandemic had limited impact on its operating results. The Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial condition, or liquidity.

 

The Company has been following the recommendations of health authorities to minimize exposure risk for its team members, including having team members work remotely. Most vendors have transitioned to electronic submission of invoices and payments.

 

Accounting Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include accruals for potential liabilities, assumptions used in deriving the fair value of derivative liabilities, valuation of equity instruments issued for services and realization of deferred tax assets. Actual results could differ from those estimates.

 

Cash Equivalents and Short-Term Investments

 

The Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents in the accompanying condensed consolidated financial statements. As of September 30, 2022, total cash and cash equivalents which consist of cash and money market funds, amounted to approximately $2.5 million.

 

The Company also invested its excess cash in commercial paper and corporate notes and bonds. Management generally determines the appropriate classification of its investments at the time of purchase. We classify these investments as short-term investments as part of current assets, based upon our ability and intent to use any and all of these investments as necessary to satisfy liquidity requirements that may arise from our businesses. Investments are carried at fair value with the unrealized holding gains and losses reported in the accompanying condensed consolidated statements of operations. As of September 30, 2022, total short-term investments amounted to approximately $18.3 million.

 

Fair Value of Financial Instruments

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10 requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet for which it is practicable to estimate fair value. ASC 820-10 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.

 

The three levels of the fair value hierarchy are as follows:

 

  Level 1 Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
     
  Level 2 Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
     
  Level 3 Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The carrying amount of the Company’s derivative liability of $57,000 at September 30, 2022 and $138,000 at December 31, 2021 was based on Level 2 measurements.

 

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

 

Derivative Financial Instruments

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. The fair value of the embedded derivatives is determined using a Binomial valuation method at inception and on subsequent valuation dates.

 

9
 

 

Stock-Based Compensation

 

The Company accounts for share-based awards to employees, non-employees 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. The risk-free interest rate is estimated using comparable published federal funds rates.

 

Research and Development Costs

 

Costs incurred for research and development are expensed as incurred. The salaries, benefits, and overhead costs of personnel conducting research and development of the Company’s products are included in research and development expenses. Purchased materials that do not have an alternative future use are also expensed.

 

Leases

 

The Company accounts for its leases in accordance with Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”). ASC 842 requires lessees to (i) recognize a right of use asset (“ROU asset”) and a lease liability that is measured at the present value of the remaining lease payments, on the consolidated balance sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis, and (iii) classify lease related cash payments within operating and financing activities. The Company has made an accounting policy election to not recognize short-term leases on the consolidated balance sheets and all non-lease components, such as common area maintenance, were excluded. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments, and the ROU asset is measured as the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs, and the remaining balance of lease incentives received. Both the lease ROU asset and liability are reduced to zero at the end of the lease term.

 

The Company leases office space and equipment. At the lease inception date, the Company determines if an arrangement is, or contains a lease. Some of the Company’s leases include options to renew at similar terms. The Company assesses these options to determine if the Company is reasonably certain of exercising these options based on relevant economic and financial factors. Options that meet these criteria are included in the lease term at the lease commencement date.

 

During the nine months ended September 30, 2022, the Company executed lease agreements for its office space and equipment and as a result, recorded operating lease right-of-use assets and the related lease liabilities of $260,000 pursuant to ASC 842, Leases (see Note 8).

 

Net 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 common 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, 2022 (Unaudited)     September 30, 2021 (Unaudited) 
Options to purchase common stock   1,835,452      - 
Warrants to purchase common stock   2,337,274     2,337,274 
Unvested restricted common stock   295,588     - 
Convertible Series C Preferred Stock    -      7 
Total anti-dilutive securities   4,468,314     2,337,281 

 

Concentration

 

Cash is deposited in one financial institution. The balances held at this financial institution at times may be more than Federal Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250,000.

 

The Company has a significant concentration of expenses incurred and accounts payable from a single vendor. Please see Note 4 for further information.

 

Segments

 

The Company determined its reporting units in accordance with ASC 280, “Segment Reporting”. 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 operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.

 

Recent Accounting Pronouncements

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. An issuer measures the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. Effective January 1, 2022, we adopted ASU 2021-04 using a prospective approach. The adoption of this standard did not have a material impact on the Company’s financial statements or disclosures.

 

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832)—Disclosures by Business Entities about Government Assistance. ASU 2021-10 increases the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU as of January 1, 2022 on a prospective basis. The adoption of this standard did not have any material impact on the Company’s financial statements 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 (in thousands):

 

   September 30, 2022 (Unaudited) 
       Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Short-term investments  $18,372   $   $(53)  $18,319 
Total  $18,372   $   $(53)  $18,319 

 

   December 31, 2021 
       Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Short-term investments  $23,040   $   $(29)  $23,011 
Total  $23,040   $   $(29)  $23,011 

 

11
 

 

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

 

   Fair Value   Level 1   Level 2   Level 3 
   September 30, 2022 (Unaudited) 
   Fair Value   Level 1   Level 2   Level 3 
Money market funds  $2,319   $2,319   $   $ 
Corporate notes and commercial paper   18,319    18,319         
Total financial assets  $20,638   $20,638   $   $ 

 

   Fair Value   Level 1   Level 2   Level 3 
   December 31, 2021 
   Fair Value   Level 1   Level 2   Level 3 
Money market funds  $5,484   $5,484   $   $ 
Corporate notes and commercial paper   23,011    23,011         
Total financial assets  $28,495   $28,495   $   $ 

 

As of September 30, 2022, the fair value of the derivative liability was $57,000. The details of derivative liability transactions for the nine months ended September 30, 2022 and 2021, are as follows:

 

   September 30, 2022   September 30, 2021   September 30, 2022   September 30, 2021 
   Three Months Ending   Nine Months Ending 
   September 30, 2022   September 30, 2021   September 30, 2022   September 30, 2021 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Beginning balance  $115,000   $842,000   $138,000   $383,000 
Issuance of warrants                
Change in fair value  $(58,000)  $(502,000)  $(81,000)  $(43,000)