U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 30, 2018.
☐
For the transition
period from
to
..
Commission File Number 0-8092
GT BIOPHARMA, INC.
(Exact name of small business issuer as specified in its
charter)
Delaware
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94-1620407
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. employer identification number)
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100 South Ashley Street, Suite 600
Tampa, FL 33602
(Address of principal executive offices and zip
code)
(800) 304-9888
(Registrant’s telephone number, including area
code)
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 and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted 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 and post such files).
Yes ☑ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer ☐
|
Accelerated
filer ☐
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Non-accelerated
filer ☐ (Do not check if a smaller reporting
company)
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Smaller
reporting company ☑
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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 ☑
At
August 14, 2018, the issuer had outstanding the indicated number of
shares of common stock: 50,117,977.
GT Biopharma, Inc. and Subsidiaries
FORM 10-Q
For the Six Months Ended June 30, 2018
Table of Contents
PART
I FINANCIAL INFORMATION
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Page
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Item
1. Financial
Statements
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Consolidated
Balance Sheets as of June 30, 2018 (Unaudited) and December 31,
2017
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1
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Consolidated
Statements of Operations for the three months ended June 30,
2018 and 2017 (Unaudited)
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2
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Consolidated
Statements of Cash Flows for the six months ended June 30, 2018 and
2017 (Unaudited)
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3
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Condensed Notes to
Consolidated Financial Statements
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4
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Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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13
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Item
3. Quantitative and
Qualitative Disclosures About Market Risk
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18
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Item
4. Controls and
Procedures
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18
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PART
II OTHER INFORMATION
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Item
1. Legal
Proceedings
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20
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Item
1A. Risk
Factors
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20
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Item
2. Unregistered Sales
of Securities and Use of Proceeds
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20
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Item
3. Defaults Upon
Senior Securities
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21
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Item
4. Mine Safety
Disclosures
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21
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Item
5. Other
Information
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21
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Item
6. Exhibits
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21
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SIGNATURES
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22
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GT Biopharma,
Inc. and Subsidiaries
as of June 30, 2018 and December 31, 2017
Consolidated Balance Sheets
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ASSETS
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Current
Assets:
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Cash
and cash equivalents
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$1,096,000
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$576,000
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Prepaid
expenses
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-
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-
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Total
Current Assets
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1,096,000
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576,000
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Intangible
assets
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253,777,000
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253,777,000
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Loan
costs
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126,000
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-
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Deposits
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9,000
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9,000
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Fixed
assets, net
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6,000
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6,000
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Total
Other Assets
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253,918,000
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253,792,000
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TOTAL
ASSETS
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$255,014,000
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$254,368,000
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current
Liabilities:
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Accounts
payable
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$1,887,000
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$2,546,000
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Accrued
expenses
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178,000
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102,000
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Line
of credit
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31,000
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31,000
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Convertible
debentures, net of discount of $905,000
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6,856,000
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-
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Total
Current Liabilities
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8,952,000
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2,679,000
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Total
liabilities
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8,952,000
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2,679,000
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Stockholders’
Equity:
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Convertible
preferred stock - $0.001 par value; 15,000,000 shares
authorized:
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Series
C - 96,230 and 96,230 shares issued and outstanding at June 30,
2018 and December 31, 2017, respectively
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1,000
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1,000
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Series
J – 1,163,548 shares issued and outstanding at June 30, 2018
and December 31, 2017, respectively
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1,000
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1,000
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Common stock - $0.001 par value; 750,000,000
shares authorized; and 50,117,977 and 50,117,977 shares issued and outstanding at
June 30, 2018 and December 31, 2017,
respectively
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50,000
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50,000
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Additional
paid-in capital
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534,849,000
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521,305,000
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Accumulated
deficit
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(288,670,000)
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(269,499,000)
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Noncontrolling
interest
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(169,000)
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(169,000)
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Total
Stockholders’ Equity
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246,062,000
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251,689,000
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TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
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$255,014,000
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$254,368,000
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The accompanying notes are an integral part of these consolidated
financial statements.
GT BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended June 30, 2018 and 2017
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Three Months
Ended June 30,
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Six Months Ended
June 30,
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Product
revenues
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$-
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$-
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$-
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$-
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License
revenue
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-
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-
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-
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-
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Total
revenue
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-
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-
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-
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-
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Cost of product
revenue
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-
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-
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-
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-
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Gross
profit
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-
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-
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-
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-
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Operating
expenses
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Research and
development
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3,251,000
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241,000
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6,724,000
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385,000
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Selling, general
and administrative expenses
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1,906,000
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1,044,000
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5,593,000
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2,438,000
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Total operating
expenses
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5,157,000
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1,285,000
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12,317,000
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2,823,000
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Loss from
operations
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(5,157,000)
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(1,285,000)
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(12,317,000)
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(2,823,000)
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Other income
(expense)
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Interest
expense
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(3,924,000)
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(1,178,000)
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(6,855,000)
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(4,698,000)
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Total other income
(expense)
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(3,924,000)
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(1,178,000)
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(6,855,000)
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(4,698,000)
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Loss before
minority interest and provision for
income taxes
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(9,081,000)
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(2,463,000)
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(19,172,000)
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(7,521,000)
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Plus: net (income)
loss attributable to the noncontrolling interest
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-
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-
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-
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-
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Loss before
provision for income taxes
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(9,081,000)
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(2,463,000)
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(19,172,000)
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(7,521,000)
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Provision for
income tax
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-
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-
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-
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-
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Net
loss
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(9,081,000)
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(2,463,000)
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(19,172,000)
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(7,521,000)
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Weighted average
common shares outstanding – basis and diluted
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Basic
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50,117,977
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479,053
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50,117,977
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335,450
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Diluted
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50,117,977
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479,053
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50,117,977
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335,450
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Net loss per
share
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Basic
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$(0.18)
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$(5.14)
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$(0.38)
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$(22.42)
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Diluted
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$(0.18)
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$(5.14)
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$(0.38)
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$(22.42)
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The accompanying condensed notes are an integral part of these
consolidated financial statements.
GT Biopharma, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2018 and 2017
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
loss
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$(19,172,000)
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$(7,521,000)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation
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2,000
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1,000
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Stock
compensation expense for options and warrants issued to
employees and non-employees
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6,489,000
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1,524,000
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Amortization
of debt discounts
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6,855,000
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1,376,000
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Note
Allonge
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100,000
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Non-cash
interest expense
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-
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2,197,000
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Amortization
of loan costs
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407,000
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-
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Changes
in operating assets and liabilities:
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Other
assets
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-
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-
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Accounts
payable and accrued liabilities
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(581,000)
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1,282,000
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Net
cash used in operating activities
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(6,000,000)
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(1,041,000)
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Acquisition
of fixed assets
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(2,000)
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-
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Net
cash used by investing activities
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(2,000)
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0
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Proceeds
from notes payable
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7,055,000
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1,061,000
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Loan
costs
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(533,000)
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-
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Repayment
of note payable
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-
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-
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Net
cash provided by financing activities
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6,522,000
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1,061,000
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Minority
interest
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-
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-
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NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
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520,000
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20,000
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CASH
AND CASH EQUIVALENTS - Beginning of period
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576,000
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19,000
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CASH
AND CASH EQUIVALENTS - End of period
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$1,096,000
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$39,000
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Supplemental
disclosures:
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Interest
paid
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$-
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$-
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Income
taxes paid
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$-
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$-
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Supplemental
disclosures:
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Issuance
of common stock upon conversion of convertible notes
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$-
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$2,025,000
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Issuance
of common stock upon conversion of accrued interest
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$-
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$486,000
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The
accompanying condensed notes are an integral part of these
consolidated financial statements.
1.
The Company and Summary of Significant Accounting
Policies
We are
a clinical stage biopharmaceutical company focused on the
development and commercialization of novel immunooncology
products based off our proprietary Trispecific Killer Engager
(TriKE), Tetraspecific Killer Engager (TetraKE) and
bispecific Antibody Drug Conjugate (ADC) technology
platforms. Constructs include bispecific and trispecific scFv
constructs, proprietary drug payloads, bispecific targeted
antibodydrug conjugates, as well as tri and
tetraspecific antibodydirected cellular cytotoxicity,
or ADCC. Our proprietary tri and tetraspecific ADCC
platform engages natural killer cells, or NK cells. NK cells are
cytotoxic lymphocytes of the innate immune system capable of immune
surveillance. NK cells mediate ADCC through the highly potent CD16
activating receptor. Upon activation, NK cells deliver a store of
membrane penetrating apoptosis inducing molecules. Unlike T
cells, NK cells do not require antigen priming.
Also,
we have a CNS portfolio consisting of innovative reformulations
and/or repurposing of existing therapies. We believe these new
therapeutic agents address numerous unmet medical needs that can
lead to improved efficacy while addressing tolerability and safety
issues that tended to limit the usefulness of the original approved
drug. These CNS drug candidates address disease states such as
chronic neuropathic pain, myasthenia gravis and motion
sickness.
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.
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 $289 million and cash of $1.1 million as of June 30, 2018. 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. Management is also implementing cost saving efforts,
including reduction in executive salaries. Management believes that
these ongoing and planned financing endeavors, if successful, will
provide adequate financial resources to continue as a going concern
for at least the next six months from the date the financial
statements are issued. however, there can be no assurance in this
regard. If the Company is unable to secure adequate additional
funding in 2018, 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.
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, 2017. 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 $845,000 of balances in
excess of this limit at June 30, 2018.
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 six months ended June
30, 2018 and 2017, respectively
Impairment of Long Lived Assets
The Company's long-lived assets currently consist of capitalized
patents and other indefinite lived intangible assets. The
Company evaluates its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. If any of the
Company's long-lived assets are considered to be impaired, the
amount of impairment to be recognized is equal to the excess of the
carrying amount of the assets over the fair value of the
assets. There was no impairment of any of the indefinite
lived intangibles during the six months ended June 30,
2018
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 1,695,686 and 1,030,951 as of
June 30, 2018 and 2017, 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.
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 June 30,
2018.
●
Level 3 inputs to
the valuation methodology are unobservable and significant to the
fair value measurement.
Research and Development
Research and development costs are expensed as incurred and
reported as research and development expense. Research and
development costs totaling $6,724,000 and $385,000 for the six
months ended June 30, 2018 and 2017, 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.
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 June 30, 2018, the Company has not generated any
licensing revenue.
On September 1, 2017, the Company entered into an Agreement and
Plan of Merger whereby it acquired 100% of the issued and
outstanding capital stock of Georgetown Translational
Pharmaceuticals, Inc. (GTP). In exchange for the ownership of GTP,
the Company issued a total of 16,927,878 shares of its common
stock, having a share price of $15.00 on the date of the
transaction, to the three prior
owners of GTP which represents 33% of the issued and outstanding
capital stock of the Company on a fully diluted basis.
$253,777,000 of the value of shares issued were allocated to
intangible assets.
As stated in Note 1, Company's long-lived assets currently consist
of capitalized patents and other indefinite lived intangible
assets. The Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. If
any of the Company's long-lived assets are considered to be
impaired, the amount of impairment to be recognized is equal to the
excess of the carrying amount of the assets over the fair value of
the assets. There was no impairment of any of the indefinite
lived intangibles during the six months ended June 30,
2018.
Convertible Notes
On January 22, 2018, the Company entered into a Securities Purchase
Agreement (“SPA”) with the fourteen accredited
investors (individually, a “Buyer” and collectively,
the “Buyers”) pursuant to which the Company has 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”), 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 are subject to an original
issue discount of 10% resulting in proceeds to the Company of
$7,055,000 from the transaction. The Notes are due on July 22,
2018. The Notes are convertible, at the option of the Buyers, at
any time prior to payment in full, into shares of common stock of
the Company at a price of $4.58 per share (“Conversion
Price”). According to the terms of the note agreement, the
Notes 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.
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.
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 June 30, 2018.
Preferred Stock
On September 1, 2017, the Company authorized 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 September 1, 2017 the Company issued a total of 208,224 shares
of Series J Preferred Stock in exchange for the
conversion of debt in the total amount of
$250,000.
On September 1, 2017 the Company issued a total of 700,278 shares
of Series J Preferred Stock in exchange for the
cancellation of debt in the total amount of
$840,000.
On September 1, 2017 the Company issued 5,046 shares of
Series J Preferred Stock upon the exercise of
warrants on a cashless basis.
On September 1, 2017 the Company also issued
600,000 shares
of Series J Preferred
Stock to one entity as
payment for $720,000 of consulting services provided to the
Company.
In December 2017, the Company converted 350,000 Series J shares of
preferred stock into 350,000 shares of common stock.
5.
Stock Options and Warrants
Stock Options
The
following table summarizes stock option transactions for the six
months ended June 30, 2018:
|
|
Weighted Average
Exercise Price
|
Outstanding,
December 31, 2017
|
1,246
|
$1,428.00
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Expired
|
-
|
-
|
Outstanding, June
30, 2018
|
1,246
|
$1,428.00
|
Exercisable, June
30, 2018
|
1,246
|
$1,428.00
|
Common Stock Warrants
Warrant
transactions for the six months ended June 30, 2018 are as
follows:
|
|
Weighted Average
Exercise Price
|
Outstanding at
December 31, 2017:
|
-
|
$-
|
Granted
|
1,694,440
|
4.58
|
Forfeited
|
-
|
-
|
Exercised
|
-
|
-
|
Outstanding at June
30, 2018
|
1,694,440
|
$4.58
|
Exercisable at June
30, 2018
|
1,694,440
|
$4.58
|
6.
Commitments and Contingencies
Leases
On September 1, 2017, the Company has entered into a three-year
lease agreement for its office in Washington, D.C. 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.
This lease was terminated as of June 30, 2018.
Rent expense for the six months ended June 30,
2018 and 2017 was $54,000 and $6,000,
respectively.
Employment Agreements
On February 14, 2018, the Company entered into the First Amendment
to the Employment Agreement with Dr. Clarence-Smith, amending the
Employment Agreement, dated September 1, 2017, between the Company
and Dr. Clarence-Smith. Under the First Amendment, Dr.
Clarence-Smith’s title has been revised to reflect her new
position and she will be paid an annual salary of $500,000, paid in
equal monthly installment. All other terms of her original
Employment Agreement remain unchanged.
On February 14, 2018, the Company entered into a Consultant
Agreement with Mr. Cataldo. The term of the Consultant Agreement
lasts until August 31, 2020 and is terminable at will and is
subject to automatic extension for successive one-year periods. Mr.
Cataldo will be paid $41,666.67 per month during the term of the
Consultant Agreement and will be entitled to participate in the
Company’s bonus plans.
On February 15, 2018, the Company entered into an Executive
Employment Agreement with Mr. Cross, pursuant to which Mr. Cross
will be employed as the Company’s Chief Executive
Officer. The term of the Executive Employment Agreement
is three years and is terminable at will by either the Company or
Mr. Cross and subject to automatic extensions for successive one
year periods. Mr. Cross will be paid an annual salary of
$500,000, paid in equal monthly installment. Mr. Cross is also
entitled to participate in the Company’s bonus plans. Under
the Executive Employment Agreement, the Company has agreed that
it will recommend to the Board that the Company grant Mr.
Cross an option to purchase 2,000,000 shares of the Company’s
common stock at an exercise price equal to the fair market value of
each share as determined by the Board as of the date of the grant.
The stock option grant would vest according to the following
schedule: (i) 34% of the shares on February 15, 2018, (ii) 33% of
the shares on February 15, 2019, and (iii) 33% of the shares on
February 15, 2020. Mr. Cross resigned as the Chief Executive Officer and from the
Board of Directors effective July 2, 2018.
If any
of our executive officers’ employment with us is terminated
involuntarily, or any executive resigns with good reason as a
result of a change in control, the executive will receive (i) all
compensation and benefits earned through the date of termination of
employment; (ii) a lump-sum payment equal to the greater of (a) the
bonus paid or payable to the executive for the year immediately
prior to the year in which the change in control occurred and (b)
the target bonus under the performance bonus plan in effect
immediately prior to the year in which the change in control
occurs; (iii) a lump-sum payment equivalent to the remaining base
salary (as it was in effect immediately prior to the change in
control) due to the executive from the date of involuntary
termination to the end of the term of the employment agreement or
one half of the executive’s base salary then in effect,
whichever is the greater; and (iv) reimbursement for the cost
of medical, life, disability insurance coverage at a level
equivalent to that provided by us for a period expiring upon the
earlier of (a) one year or (b) the time the executive begins
alternative employment where said insurance coverage is available
and offered to the executive.
7.
Change of Accounting Method
Adoption of ASU 2017-11
In connection with the securities purchase agreements and debt
transactions during and previous the year ended December 31, 2017,
the Company issued warrants, to purchase common stock with a
five-year term. Upon issuance of the warrants, the Company
evaluated the note agreement to determine if the agreement
contained any embedded components that would qualify the agreement
as a derivative. The Company identified certain put features
embedded in the warrants that potentially could result in a net
cash settlement in the event of a fundamental transaction,
requiring the Company to classify the warrants as a derivative
liability. The Company changed its method of accounting for the
debt and warrants through the early adoption of ASU 2017-11
during the six months ended June 30, 2018 on a retrospective basis.
Accordingly, the Company recorded the warrant derivative and
conversion option derivative liabilities to additional paid in
capital upon issuance.
The following table provides a summary of the derivative liability
activity as a result of the adoption of ASU 2017-11:
|
Consolidated
Balance Sheet
|
|
|
|
|
|
|
Additional Paid in
Capital
|
$519,702,000
|
$1,603,000
|
$521,305,000
|
Accumulated
Deficit
|
$(267,896,000)
|
$(1,603,000)
|
$(269,499,000)
|
|
Consolidated
Statement of Operations
|
|
For the Three
Months Ended June 30, 2017
|
|
|
|
|
Change in Warrant
Liability
|
$(367,000)
|
$367,000
|
$-
|
Earnings Per
Share
|
$(5.91)
|
$0.77
|
$(5.14)
|
|
Consolidated
Statement of Operations
|
|
For the Six
Months Ended June 30, 2017
|
|
|
|
|
Change in Warrant
Liability
|
$2,376,000
|
$(2,376,000)
|
$-
|
Earnings Per
Share
|
$(15.34)
|
$(7.08)
|
$(22.42)
|
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 has 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.
Also on August 2, 2018, $3,315,141.74 of notes issued on January
22, 2018 were converted into the Debentures at the same terms as
discussed above. In addition, the Company utilized a portion of
these proceeds to repay $4.411 million of the notes issued on
January 12, 2018.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in the Form 10-Q are forward-looking
statements about what may happen in the future. Forward-looking
statements include statements regarding our current beliefs, goals,
and expectations about matters such as our expected financial
position and operating results, our business strategy, and our
financing plans. The forward-looking statements in the Form 10-Q
are not based on historical facts, but rather reflect the current
expectations of our management concerning future results and
events. The forward-looking statements generally can be
identified by the use of terms such as “believe,”
“expect,” “anticipate,”
“intend,” “plan,” “foresee,”
“likely” or other similar words or phrases. Similarly,
statements that describe our objectives, plans or goals are or may
be forward-looking statements. Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may
cause our actual results, performance or achievements to be
different from any future results, performance and achievements
expressed or implied by these statements. We cannot
guarantee that our forward-looking statements will turn out to be
correct or that our beliefs and goals will not change. Our actual
results could be very different from and worse than our
expectations for various reasons. You should review carefully all
information, including the discussion of risk factors under
“Item 1A: Risk Factors” and “Item 7:
Management’s Discussion and Analysis of Financial Condition
and Results of Operations” of the Form 10-K for the year
ended December 31, 2017. Any forward-looking statements
in the Form 10-Q are made only as of the date hereof and, except as
may be required by law, we do not have any obligation to publicly
update any forward-looking statements contained in this Form 10-Q
to reflect subsequent events or circumstances.
Throughout this Quarterly Report on Form 10-Q, the terms
“GTBP,” “we,”
“us,” “our,” “the company”
and “our company” refer to GT Biopharma, Inc., a
Delaware corporation formerly known as Oxis International, Inc.,
DDI Pharmaceuticals, Inc. and Diagnostic Data, Inc, together with
our subsidiaries.
Overview
We are a clinical stage
biopharmaceutical company predominantly focused on the development
and commercialization of immuno-oncology products based off our
proprietary Tri-specific Killer Engager (TriKE), Tetra-specific
Killer Engager (TetraKE) and bi-specific Antibody Drug Conjugate
(ADC) technology platforms. Our TriKE and TetraKE platforms
generate proprietary moieties designed to harness and enhance the
cancer killing abilities of a patient’s own natural killer,
or NK, cells. Once bound to a NK cell, our moieties are designed to
enhance the NK cell and precisely direct it to one or more
specifically-targeted proteins (tumor antigens) expressed on a
specific type of cancer, ultimately resulting in the cancer
cell’s death. TriKEs and TetraKEs are made up of recombinant
fusion proteins, can be designed to target certain tumor antigens
on hematologic malignancies, sarcomas or solid tumors and do not
require patient-specific customization. They are designed to be
dosed in a common outpatient setting similar to modern antibody
therapeutics and are expected to have reasonably low cost of goods.
Our ADC platform can generate product candidates that are
bi-specific, ligand-directed single-chain fusion proteins that, we
believe, represent the next generation of ADCs.
Our most advanced bi-specific ADC, which targets CD19+ and/or CD22+
hematological malignancies, is in the Phase 2 component of a Phase
1/2 Non-Hodgins Lymphoma (NHL)/Acute Lymphocytic Leukemia (ALL)
trial which is an open-label, investigator-led study. We expect to
be in a position to begin a First-in-Class, Phase 1 trial in CD33+
hematologic malignancies for our most advanced TriKE product
candidate in the second half of 2018. We are initially targeting
certain hematologic malignancies as we believe our product
candidates may have certain advantages over existing and other
in-development products. We are also focused on developing TetraKE
product candidates designed to target the larger solid tumor
population and are working towards beginning clinical trials in
2019.
Our TriKE product candidates are single-chain, tri-specific scFv
recombinant fusion proteins composed of the variable regions of the
heavy and light chains (or heavy chain only) of anti-CD16
antibodies, wild-type or a modified form of IL-15 and the variable
regions of the heavy and light chains of an antibody designed to
precisely target a specific tumor antigen. We utilize the NK stimulating cytokine
human IL-15 as a crosslinker between the two scFvs which is
designed to provide a self-sustaining signal leading to the
proliferation and activation of NK cells thus enhancing their
ability to kill cancer cells mediated by antibody-dependent cell-mediated cytotoxicity
(ADCC). Our second TriKE product candidate, OXS-C3550, is a
next-generation version of OXS-3550 containing a modified CD16
component.
Our TetraKE product candidates are single-chain fusion proteins
composed of human single-domain anti-CD16 antibody, wild-type IL-15
and the variable regions of the heavy and light chains of two
antibodies that are designed to target two specific tumor
antigens expressed on specific types of cancer cells. An example of a TetraKE product candidate is
OXS-1615 which is designed to target EpCAM and CD133 positive solid
tumors. EpCAM is found on many solid tumor cells of epithelial
origin and CD133 is a marker for cancer stem cells. OXS-1615 is
designed to enable a patient’s NK cells to kill not only the
heterogeneous population of cancer cells found in many solid tumors
but also kill the cancer stem cells that can be responsible for
recurrences.
Our TriKEs and TetraKEs are designed to act by binding to a
patient’s NK cells and a specific tumor antigen enabling an
immune synapse between the now IL-15-enhanced NK cell and the
targeted cancer cell. The formation of an immune synapse can induce
NK cell activation which can lead to the death of the cancer cell.
We believe the self-sustaining signal caused by our IL-15
cross-linker may enable prolonged and enhanced proliferation and
activation of NK cells similar to the increased proliferation of
T-cells caused by 41BB-L or CD28 intracellular domains in CAR-T
therapy but without the need to enhance the patient’s NK
cells ex vivo.
We are using our TriKE and TetraKE platforms with the intent to
bring to market immuno-oncology products that can treat a range of
hematologic malignancies, sarcoma and solid tumors. The platforms
are scalable and we are putting processes in place to be able to
produce IND-ready moieties in a timely manner after a specific
TriKE or TetraKE conceptual design. After conducting market and
competitive research, specific moieties can then be advanced into
the clinic on our own or through potential collaborations with
larger companies. We are also evaluating, in conjunction with our
Scientific Advisory Board, additional moieties designed to target
different tumor antigens. We believe our TriKEs and TetraKEs may
have the ability, if approved for marketing, to be used on a
stand-alone basis, augment the current monoclonal antibody
therapeutics, be used in conjunction with more traditional cancer
therapy and potentially overcome certain limitations of current
chimeric antigen receptor, or CAR-T, therapy.
OXS-3550 is our first TriKE product candidate. The OXS-3550
IND will focus on AML, the most common form of adult leukemia with
21,000 new cases expected in 2018 alone (American Cancer Society).
These patients typically receive frontline therapy, usually
chemotherapy, including cytarabine and an anthracycline, a therapy
that has not changed in over 40 years. About half will have
relapses and require alternative therapies. In addition, MDS
incidence rates have dramatically increased in the population of
the United States from 3.3 per 100,000 individuals from 2001-2004
to 70 per 100,000 annually, MDS is especially prevalent in elderly
patients that have a median age of 76 years at diagnosis. The
survival of patients with MDS is poor due to decreased eligibility,
as a result of advanced age, for allogeneic hematopoietic cell
transplantation (Allo-HSCT), the only curative MDS treatment (Cogle
CR. Incidence and Burden of the Myelodysplastic Syndromes.
Curr Hematol Malig Rep.
2015; 10(3):272-281). We believe that OXS-3550 could serve as a
relatively safe, cost-effective, and easy-to-use therapy for
resistant/relapsing AML and MDS and could also be combined with
chemotherapy as frontline therapy thus targeting the larger patient
population.
The IND for OXS-3550 was filed in June 2017 by the University of
Minnesota. FDA requested that additional preclinical toxicology be
conducted prior to initiating clinical trials. The FDA also
requested some additional information and clarifications on the
manufacturing (CMC) and clinical packages. The requested additional
information and clarifications have been completed and are being
incorporated by us into the IND in eCTD format. We filed the IND
amendment in June 2018 and expect to be in a position to begin a
Phase 1 clinical trial in the second half of 2018.
We also believe our bi-specific, ligand-directed single-chain
fusion proteins are examples of the next generation of ADCs. We
believe OXS-1550 has certain properties that could result in
competitive advantages over recently approved ADC products
targeting leukemias and lymphomas and/or have utility other niche
populations. In a Phase 1 trial, of nine patients that achieved
adequate blood levels, in two heavily pretreated patients a
continuous partial remission (PR) and complete remission (CR) were
observed. One patient, who had failed multiple previous treatment
regimens, has been in remission since early 2015.
OXS-1550
is being evaluated in a Phase 2 component of an investigator-led
Phase 1/2 clinical trial in relapsed/refractory NHL/ALL patients.
We recently assembled a Bi-Specific ADC Advisory Board to work with
us to assess and interpret the OXS-1550 pre-clinical and clinical
data, including an interim review of the Phase 1/2 study. Eighteen
patients have been enrolled to date, including 12 NHL and six ALL
patients. At the time of the interim review, 13 patients met the
evaluation criteria, including nine NHL and four ALL patients. More
than 50% of patients (seven of 13) exhibited a clinical benefit,
defined as stable disease, partial remission or complete remission
at Day 29. Of the seven patients, one demonstrated a complete
remission (CR), one demonstrated a partial remission (PR) and five
demonstrated stable disease (SD).
The
efficacy signal was more prominent in ALL patients with 75% (three
of four) exhibiting clinical benefit including one CR, one PR and
one SD. In the NHL population, four of nine patients exhibited SD.
Adverse events were mostly grade 1 and 2 and reversible. One
patient had a grade 4 low platelet count, two patients had a grade
3 increase in liver function tests, or LFTs, and one patient had a
grade 3 capillary leak.
The
Company currently expects final data for this trial to be available
in the fourth quarter of 2018 or the first quarter of
2019.
Our initial and ongoing work is being conducted in collaboration
with the Masonic Cancer Center at the University of Minnesota under
research agreements led by Dr. Jeffrey Miller, the Deputy Director
and Dr. Daniel Vallera, Director, Section of Molecular Cancer
Therapeutics. Through
these research agreements we have access to a range of capabilities
and resources such as construct design and functional testing,
early single-chain fusion protein GMP production, scientific and
clinical expertise and experience including early phase human
testing. Dr. Miller is a recognized leader in the field of NK cell
and IL-15 biology and their therapeutic potential. We have
exclusive rights to the TriKE and TetraKE platforms and are
generating additional intellectual property around specific
moieties.
We also have a CNS portfolio of three product candidates consisting
of what we believe are innovative reformulations and/or repurposing
of existing therapies. We believe these therapeutic agents may
address certain unmet medical needs that can lead to improved
efficacy while addressing tolerability and safety issues that may
have limited the usefulness of the original approved drug. Our CNS
drug candidates may address disease states such as chronic
neuropathic pain, myasthenia gravis and motion
sickness.
In January 2018, we completed a study in healthy volunteers for
GTP-004, our product candidate for the treatment for the symptoms
of myasthenia gravis. We also announced the initiation of an
investigator led study in healthy volunteers for GTP-011, for the
prevention of motion sickness, with data expected in the second
half of 2018. We expect to take advantage of our CNS portfolio by
generating what we believe to be proof-of-concept data and/or
achieving other milestones, making what we believe are cost
effective go/no-go decisions, and pursuing strategic transactions
with commercialization-oriented pharmaceutical
companies.
Recent Developments
Financing
In January 22, 2018, the Company entered into a Securities Purchase
Agreement (“SPA”) with the fourteen accredited
investors (individually, a “Buyer” and collectively,
the “Buyers”) pursuant to which the Company has 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”), 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 are subject to an original
issue discount of 10% resulting in proceeds to the Company of
$7,055,000 from the transaction. The Notes are due on July 22,
2018. The Notes are convertible, at the option of the Buyers, at
any time prior to payment in full, into shares of common stock of
the Company at a price of $4.58 per share (“Conversion
Price”). According to the terms of the note agreement, the
Notes 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.
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.
On August 2, 2018, $3,315,141.74 of notes issued on January 22,
2018 were converted into new Debentures and $4,410,748.14 was
repaid in cash.
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 has issued
to the Purchasers 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.
Results of Operations
Comparison of the Three Months Ended June 30, 2018 and
2017
Research and Development Expenses
During the three months ended June 30, 2018 and 2017, we incurred
$3,251,000 and $241,000 of research and development
expenses. Research and development costs increased due
primarily to the addition of new employees, consultant costs and
preclinical and clinical expenses and include $2.9 million of the
expenses related to non-cash compensation. We anticipate our direct
clinical costs to increase in second half of 2018 upon the
initiation of a Phase 1 clinical trial of our most advanced TriKe
product candidate, OXS-3550.
Selling, general and administrative expenses
During the three months ended June 30, 2018 and 2017, we incurred
$1,906,000 and $1,044,000 of selling, general and administrative
expenses. The increase in selling, general and
administrative expenses is primarily attributable to an increase
$.4 million of professional fees and $0.5 million of loan
costs.
Interest Expense
Interest expense was $3,924,000 and $1,178,000 for the three months
ended June 30, 2018 and 2017 respectively. The increase
is primarily due to amortization of the original issue discount and
the value of warrants issued with the January 2018
financing.
Comparison of the Six Months Ended June 30, 2018 and
2017
Research and Development Expenses
During the six months ended June 30, 2018 and 2017, we incurred
$5,593,000 and $2,438,000 of research and development
expenses. Research and development costs increased due
primarily to the addition of new employees, consultant costs and
preclinical and clinical expenses and include $6.0 million of the
expenses related to non-cash compensation. We anticipate our direct
clinical costs to increase in second half of 2018 upon the
initiation of a Phase 1 clinical trial of our most advanced TriKe
product candidate, OXS-3550.
Selling, general and administrative expenses
During the six months ended June 31, 2018 and 2017, we incurred
$6,724,000 and $385,000 of selling, general and administrative
expenses. The increase in selling, general and
administrative expenses is primarily attributable to an increase
$1.3 million of professional fees, $1.2 million of public and
investor relations expenses and $1.0 million of loan
costs.
Interest Expense
Interest expense was $6,855,000 and $4,698,000 for the six months
ended June 30, 2018 and 2017 respectively. The increase
is primarily due to the current interest expense relates to the
amortization of the original issue discount and the value of
warrants issued with the January 2018 financing.
Liquidity and Capital Resources
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
going-concern 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 $289 million and cash of $1.1 million as of June 30, 2018. 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. Management is also implementing cost saving efforts,
including reduction in executive salaries. Management believes that
these ongoing and planned financing endeavors, if successful, will
provide adequate financial resources to continue as a going concern
for at least the next six months from the date the financial
statements are issued; however, there can be no assurance in this
regard. If the Company is unable to secure adequate additional
funding in 2018, its business, operating results, financial
condition and cash flows may be materially and adversely
affected.
Critical Accounting Policies
We consider the following accounting policies to be critical given
they involve estimates and judgments made by management and are
important for our investors’ understanding of our operating
results and financial condition.
Long-Lived Assets
Our long-lived assets include property, plant and equipment,
capitalized costs of filing patent applications and goodwill and
other assets. We evaluate our long-lived assets for
impairment 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. Goodwill and other assets
are not amortized.
Certain Expenses and Liabilities
On an ongoing basis, management evaluates its estimates related to
certain expenses and accrued liabilities. We base our
estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of liabilities that are not readily apparent from
other sources. Actual results may differ materially from
these estimates under different assumptions or
conditions.
Inflation
We believe that inflation has not had a material adverse impact on
our business or operating results during the periods
presented.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements as of June 30,
2018.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
This company qualifies as a smaller reporting company, as defined
in 17 C.F.R. §229.10(f) (1) and is not required to provide
information by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer
evaluated the effectiveness of our “disclosure controls and
procedures” (as such term is defined in Rules 13a-15(e) and
15d-15(e) of the United States Securities Exchange Act of 1934, as
amended), as of June 30, 2018. Based on that evaluation
we have concluded that our disclosure controls and procedures were
not effective as of June 30, 2018.
Management’s Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal
control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) promulgated under the Securities Exchange Act of 1934, as
amended, as a process designed by, or under the supervision of, a
company’s principal executive and principal financial
officers and effected by a company’s board of directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
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●
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Pertain
to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets
of the company;
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●
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Provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company;
and
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●
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Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.
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All internal control systems, no matter how well designed, have
inherent limitations and can provide only reasonable, not absolute,
assurance that the objectives of the control system are
met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within our company have been detected. Therefore, even
those systems determined to be effective can provide only
reasonable assurance with respect to financial statement
preparation and presentation.
As of June 30, 2018, management of the company conducted an
assessment of the effectiveness of the company’s internal
control over financial reporting. In making this
assessment, it used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control—Integrated Framework. In the
course of the assessment, material weaknesses were identified in
the company’s internal control over financial
reporting.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented
or detected on a timely basis.
Management determined that fundamental elements of an effective
control environment were missing or inadequate as of June 30,
2018. The most significant issues identified were: 1)
lack of segregation of duties due to very small staff and
significant reliance on outside consultants, and 2) risks of
executive override also due to lack of established policies, and
small employee staff. Based on the material weaknesses
identified above, management has concluded that internal control
over financial reporting was not effective as of June 30,
2018. As the company’s operations increase, the
company intends to hire additional employees in its accounting
department.
Changes in Internal Control over Financial Reporting
Other than as described above, no changes in our internal control
over financial reporting were made during our most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 23, 2016, we were served with a complaint filed in the
Circuit Court of the 13th Judicial Circuit in and for Hillsborough
County, Florida, Case No. 16-CA-004791, by Lippert/Heilshorn and
Associates, Inc. Lippert/Heilshorn and Associates, Inc. is alleging
it is owed compensation for consulting services provided to us and
is seeking payment of $73,898. We have engaged legal counsel to
answer the complaint.
On February 15, 2017, MultiCell Immunotherapeutics, or MultiCell,
filed an arbitration proceeding against us with the American Health
Lawyers Association, Claim #3821. MultiCell is seeking
$207,783 plus interest and costs of arbitration pursuant to alleged
contract rights against us under a research agreement between
MultiCell and us. Following a hearing held September 1, 2017,
the arbitrator awarded MultiCell the payment amount of
$207,783 plus interest in the amount of $34,699. We have engaged
legal counsel to advise us in connection with this
matter.
Item 1A. Risk Factors
Information regarding risk factors appears under “Risk
Factors” included in Item 1A, Risk Factors, of our Annual
Report on Form 10-K for the year ended December 31, 2017. There
have been no material changes from the risk factors previously
disclosed in the above-mentioned periodic report.
Item 2. Unregistered Sales of Securities and Use of
Proceeds
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 has issued
to the Purchasers 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.
In January 22, 2018, the Company entered into a Securities Purchase
Agreement (“SPA”) with the fourteen accredited
investors (individually, a “Buyer” and collectively,
the “Buyers”) pursuant to which the Company has 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”), 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 are subject to an original
issue discount of 10% resulting in proceeds to the Company of
$7,055,000 from the transaction. The Notes are due on July 22,
2018. The Notes are convertible, at the option of the Buyers, at
any time prior to payment in full, into shares of common stock of
the Company at a price of $4.58 per share (“Conversion
Price”). According to the terms of the note agreement, the
notes 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.
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 notes 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.
On August 2, 2018, $3,315,141.74 of notes issued on January 22,
2018 were converted into new Debentures and $4,410,748.14 was
repaid in cash.
Item 3. Defaults Upon
Senior Securities.
None
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information.
None.
Item 6. Exhibits
Exhibit
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Description
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Herewith
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Form
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SEC File No.
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Filing Date
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Certificate
of Amendment to the Certificate of Incorporation of the Registrant,
effective as of July 19, 2017.
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8-K
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000-08092
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03/15/18
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Securities
Purchase Agreement by and among the Company and the Buyers, dated
January 22, 2018.
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8-K
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000-08092
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01/23/18
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Form of
Registration Rights Agreement by and among the Company and the
Buyers, dated January 22, 2018.
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8-K
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000-08092
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01/23/18
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Form of
Note.
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8-K
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000-08092
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01/23/18
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Form of
Warrant.
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8-K
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000-08092
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01/23/18
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Executive
Employment Agreement, dated as of February 15, 2018, between the
Company and Cross.
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8-K
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000-08092
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02/21/18
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First
Amendment to the Employment Agreement, dated as of February 14,
2018, between the Company and Dr. Clarence-Smith.
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8-K
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000-08092
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02/21/18
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Consultant
Agreement, dated as of February 14, 2018, between the Company and
Mr. Cataldo.
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8-K
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000-08092
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02/21/18
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Form of
10% Senior Convertible Debenture
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8-K
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000-08092
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08/03/18
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Security
Purchase Agreement
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8-K
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000-08092
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08/03/18
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Stock
Pledge Agreement
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X
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Certification
of Principal Executive Officer pursuant to Rule 13a-14 and Rule
15d-14(a), promulgated under the Securities and Exchange Act of
1934, as amended.
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X
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Certification
of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d
14(a), promulgated under the Securities and Exchange Act of 1934,
as amended.
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X
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).
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X
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).
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X
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Exhibit No.
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Description
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101.INS
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XBRL Instance Document.
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101.SCH
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XBRL Taxonomy Extension Schema Document.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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XBRL Taxonomy Extension
Presentation Linkbase Document.
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*
This
certification shall not be deemed “filed” for purposes
of Section 18 of the Securities Act of 1934, or otherwise subject
to the liability of that Section, nor shall it be deemed to be
incorporated by reference into any filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
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GT
Biopharma, Inc.
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Dated: August 14,
2018
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By:
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/s/ Dr. Raymond
Urbanski
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Dr. Raymond
Urbanski
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Chief Executive
Officer and Chairman of the Board
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Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
Name
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Position
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Date
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/s/ Dr.
Raymond Urbanski
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Chief
Executive Officer and Chairman of the Board
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August
14, 2018
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Dr.
Raymond Urbanski
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/s/
Steven Weldon
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Chief
Financial Officer (Principal Financial Officer), and
Director
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August
14, 2018
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Steven
Weldon
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/s/ Dr.
Kathleen Clarence-Smith
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Vice
Chairwoman and Director
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August
14, 2018
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Dr.
Kathleen Clarence-Smith
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/s/Anthony
J. Cataldo
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Director
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August
14, 2018
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Anthony
J. Cataldo
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/s/
Geoffrey Davis
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Director
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August
14, 2018
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Geoffrey
Davis
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/s/ Dr.
John Bonfiglio
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Director
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August
14, 2018
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Dr.
John Bonfiglio
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/s/ Dr.
Peter Kiener
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Director
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August
14, 2018
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Dr.
Peter Kiener
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