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Our competition includes fully integrated biotechnology and pharmaceutical companies that have significant advantages over us.
The market for therapeutic immuno-oncology products is highly competitive. We expect that our most significant competitors will be fully integrated and more established pharmaceutical and biotechnology companies or institutions, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. These companies are developing similar products, and they have significantly greater capital resources and research and development, manufacturing, testing, regulatory compliance and marketing capabilities. Many of these potential competitors may be further along in the process of product development and also operate large, company-funded research and development programs. As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product commercialization than we are able to achieve. Competitive products may render any products or product candidates that we develop obsolete.
Many of our competitors have substantially greater financial, technical and other resources than we do, such as larger research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in certain of our competitors. As a result, these companies may be able to obtain regulatory approval more rapidly than we can and may be more effective in selling and marketing their products. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing drug products that are more effective or less costly to produce or purchase on the market than any product candidate we are currently developing or that we may seek to develop in the future. If approved, our product candidates will face competition from commercially available drugs as well as drugs that are in the development pipelines of our competitors.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of or in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA, EMA or other regulatory approval, or discovering, developing and commercializing medicines before we do, which could have a material adverse impact on our business and ability to achieve profitability from future sales of our approved product candidates, if any.
If competitors develop and market products that are more effective, safer or less expensive than our product candidates or offer other advantages, our commercial prospects will be limited.
Our therapeutic immuno-oncology development programs face, and will continue to face, intense competition from pharmaceutical, biopharmaceutical and biotechnology companies, as well as numerous academic and research institutions and governmental agencies engaged in drug discovery activities or funding, both in the United States and abroad. Some of these competitors are pursuing the development of drugs and other therapies that target the same diseases and conditions that we are targeting with our product candidates. According to a recent analysis by InVentiv Health, there are over 800 companies developing approximately 1,500 cancer immunotherapies via 4,000 development projects across 535 targets. According to the Pharmaceutical Manufacturers Research Association Medicines in Development for Cancer 2018 Report, there were 135 drugs in development for the treatment of lymphoma, including non-Hodgkin lymphoma, which accounts for nearly five percent of all new cancer diagnoses.
As a general matter, we also face competition from many companies that are researching and developing cell therapies. Many of these companies have financial and other resources substantially greater than ours. In addition, many of these competitors have significantly greater experience in testing pharmaceutical and other therapeutic products, obtaining FDA and other regulatory approvals, and marketing and selling. If we ultimately obtain regulatory approval for any of our product candidates, we also will be competing with respect to manufacturing efficiency and marketing capabilities, areas in which we have limited or no commercial-scale experience. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources’ being concentrated by our competitors. Competition may increase further as a result of advances made in the commercial applicability of our technologies and greater availability of capital for investment in these fields.
If we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.
We are engaged in activities in the biotechnology field, which is characterized by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to operate profitably could suffer. Research and discoveries by other biotechnology, agricultural, pharmaceutical or other companies may render our technologies or potential products or services uneconomical or result in products superior to those we develop. Similarly, any technologies, products or services we develop may not be preferred to any existing or newly developed technologies, products or services.
We may not be able to obtain third-party patient reimbursement or favorable product pricing, which would reduce our ability to operate profitably.
Our ability to successfully commercialize certain of our proposed products in the human therapeutic field may depend to a significant degree on patient reimbursement of the costs of such products and related treatments at acceptable levels from government authorities, private health insurers and other organizations, such as health maintenance organizations. Reimbursement in the United States or foreign countries may not be available for any products we may develop, and, if available, may be decreased in the future. Also, reimbursement amounts may reduce the demand for, or the price of, our products with a consequent harm to our business. We cannot predict what additional regulation or legislation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future or what effect such regulation or legislation may have on our business. If additional regulations are overly onerous or expensive, or if healthcare-related legislation makes our business more expensive or burdensome than originally anticipated, we may be forced to significantly downsize our business plans or completely abandon our business model.
We may be subject to business litigation that will be costly to defend or pursue and uncertain in its outcome.
Our business may bring us into conflict with our licensees, licensors or others with whom we have contractual or other business relationships, or with our competitors or others whose interests differ from ours. If we are unable to resolve those conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by or against us. That litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our business. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities, or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business.
We are exposed to the risk of liability claims, for which we may not have adequate insurance.
Since we participate in the pharmaceutical industry, we may be subject to liability claims by employees, customers, end users and third parties. We intend to obtain proper insurance, however, there can be no assurance that any liability insurance we purchase will be adequate to cover claims asserted against us or that we will be able to maintain such insurance in the future. We intend to adopt prudent risk-management programs to reduce these risks and potential liabilities, however, we have not taken any steps to create these programs and have no estimate as to the cost or time required to do so and there can be no assurance that such programs, if and when adopted, will fully protect us. We may not be able to put risk management programs in place, or obtain insurance, if we are unable to retain the necessary expertise and/or are unsuccessful in raising necessary capital in the future. Our failure to obtain appropriate insurance, or to adopt and implement effective risk-management programs, as well as any adverse rulings in any legal matters, proceedings and other matters could have a material adverse effect on our business.
Preclinical and clinical trials are conducted during the development of potential products and other treatments to determine their safety and efficacy for use by humans. Notwithstanding these efforts, when our treatments are introduced into the marketplace, unanticipated side effects may become evident. Manufacturing, marketing, selling and testing our product candidates under development or to be acquired or licensed, entails a risk of product liability claims. We could be subject to product liability claims in the event that our product candidates, processes, or products under development fail to perform as intended. Even unsuccessful claims could result in the expenditure of funds in litigation and the diversion of management time and resources, and could damage our reputation and impair the marketability of our product candidates and processes. While we plan to maintain liability insurance for product liability claims, we may not be able to obtain or maintain such insurance at a commercially reasonable cost. If a successful claim were made against us, and we lacked insurance or the amount of insurance were inadequate to cover the costs of defending against or paying such a claim or the damages payable by us, we would experience a material adverse effect on our business, financial condition and results of operations.
WeWe could be subject to product liability lawsuits based on the use of our product candidates in clinical testing or, if obtained, following marketing approval and commercialization. If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to cease clinical testing or limit commercialization of our product candidates.
We could be subject to product liability lawsuits if any product candidate we develop allegedly causes injury or is found to be otherwise unsuitable for human use during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates, if approved. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
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withdrawal of clinical trial participants;
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initiation of investigations by regulators;
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costs to defend the related litigation;
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a diversion of management’s time and our resources;
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substantial monetary awards to trial participants or patients;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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loss of revenues from product sales; and
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the inability to commercialize our product candidates.
Our inability to retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the clinical testing and commercialization of products we develop. We may wish to obtain additional such insurance covering studies or trials in other countries should we seek to expand those clinical trials or commence new clinical trials in other jurisdictions or increase the number of patients in any clinical trials we may pursue. We also may determine that additional types and amounts of coverage would be desirable at later stages of clinical development of our product candidates or upon commencing commercialization of any product candidate that obtains required approvals. However, we may not be able to obtain any such additional insurance coverage when needed on acceptable terms or at all. If we do not obtain or retain sufficient product liability insurance, we could be responsible for some or all of the financial costs associated with a product liability claim relating to our preclinical and clinical development activities, in the event that any such claim results in a court judgment or settlement in an amount or of a type that is not covered, in whole or in part, by any insurance policies we may have or that is in excess of the limits of our insurance coverage. We may not have, or be able to obtain, sufficient capital to pay any such amounts that may not be covered by our insurance policies.
We rely on third parties to supply candidates for clinical testing and to conduct preclinical and clinical trials of our product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates andcandidates. As a result, our business could be substantially harmed.
We rely, and expect to continue to rely, upon third-party CROs to execute our preclinical and clinical trials and to monitor and manage data produced by and relating to those trials. However, we may not be able to establish arrangements with CROs when needed or on terms that are acceptable to us, or at all, which could negatively affect our development efforts with respect to our drug product candidates and materially harm our business, operations and prospects.
We will have only limited control over the activities of the CRO we will engage to conduct our clinical trials including the University of Minnesota for our Phase II clinical trial for GTB-1550 and Phase I clinical trial for GTB-3550. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on any CRO does not relieve us of our regulatory responsibilities. Based on our present expectations, we, our CROs and our clinical trial sites are required to comply with good clinical practices (“GCPs”) for all of our product candidates in clinical development. Regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in the applicable trial may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving a product candidate for marketing, which we may not have sufficient cash or other resources to support and which would delay our ability to generate revenue from any sales of such product candidate. In addition, our clinical trials are required to be conducted with product produced in compliance with cGMPs. Our or our CROs’ failure to comply with those regulations may require us to repeat clinical trials, which would also require significant cash expenditures and delay the regulatory approval process.
Agreements governing relationships with CROs generally provide those CROs with certain rights to terminate a clinical trial under specified circumstances. If a CRO that we have engaged terminates its relationship with us during the performance of a clinical trial, we would be forced to seek an engagement with a substitute CRO, which we may not be able to do on a timely basis or on commercially reasonable terms, if at all, and the applicable trial would experience delays or may not be completed. In addition, our CROs are not our employees, and except for remedies available to us under any agreements we enter with them, we are unable to control whether or not they devote sufficient time and resources to our clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to a failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for, or successfully commercialize, the affected product candidates. As a result, our operations and the commercial prospects for the effected product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
We contract with third parties for the supply of product candidates for clinical testing and expect to contract with third parties for the manufacturing of our product candidates for large-scale testing and commercial supply. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We anticipate continuing our engagement of third parties to provide our clinical supply as we advance our product candidates into and through clinical development, and we depend on third parties to produce and maintain sufficient quantities of material to supply our clinical trials. If these third parties do not produce and maintain adequate supplies of clinical material, our development efforts could be significantly delayed, or could incur substantially higher costs. We expect in the future to use third parties for the manufacture of our product candidates for clinical testing, as well as for commercial manufacture. We plan to enter into long-term supply agreements with several manufacturers for commercial supplies. We may be unable to reach agreement on satisfactory terms with contract manufacturers to manufacture our product candidates. Additionally, the facilities to manufacture our product candidates must be the subject of a satisfactory inspection before the FDA or other regulatory authorities approve a marketing authorization for the product candidate manufactured at that facility. We will depend on these third-party manufacturers for compliance with the FDA’s and international regulatory authority requirements for the manufacture of our finished products. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers for compliance with cGMPs. If our manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA and other regulatory authorities’ cGMP requirements, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved, and may subject us to recalls or enforcement action for products already on the market.
If any ofThese risks are described more fully in our product candidates are approved and contract manufacturers fail to deliverAnnual Report on Form 10-K for the required commercial quantities of finished product on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and could lose potential revenue. It may take several years to establish an alternative source of supply for our product candidates and to have any such new source approvedyear ended December 31, 2021, which is incorporated herein by the FDA or any other relevant regulatory authorities.reference.
We currently have no marketing and sales force. If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates, if approved, or generate product revenues.
We currently do not have a marketing or sales team for the marketing, sales and distribution of any of our product candidates that are able to obtain regulatory approval. In order to commercialize any product candidates, we must build on a territory-by-territory basis marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If our product candidates receive regulatory approval, we intend to establish an internal sales and marketing team with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and time consuming and will require significant attention of our executive officers to manage. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of any of our products that we obtain approval to market. With respect to the commercialization of all or certain of our product candidates, we may choose to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements when needed on acceptable terms or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval or any such commercialization may experience delays or limitations. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and we may incur substantial costs to attempt to recover or reproduce the data. If any disruption or security breach resulted in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and/or the further development of our product candidates could be delayed.
Our operations are vulnerable to interruption by natural disasters, power loss, terrorist activity and other events beyond our control, the occurrence of which could materially harm our business.
Businesses located in California have, in the past, been subject to electrical blackouts as a result of a shortage of available electrical power, and any future blackouts could disrupt our operations. We are vulnerable to a major earthquake, wildfire and other natural disasters, and we have not undertaken a systematic analysis of the potential consequences to our business as a result of any such natural disaster and do not have an applicable recovery plan in place. We do not carry any business interruption insurance that would compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could cause our business to materially suffer.
Epidemic or pandemic outbreaks such as COVID-19 (coronavirus), natural disasters, whether or not caused by climate change, unusual weather conditions, terrorist acts and political events, could disrupt business and result in halting our clinical trials and otherwise adversely affect our financial performance.
The occurrence of one or more natural disasters, such as tornadoes, hurricanes, fires, floods and earthquakes, unusual weather conditions, epidemic outbreaks, terrorist attacks or disruptive political events in certain regions where our operations are located could adversely affect our business. Epidemic or pandemic outbreaks, such as COVID-19 (coronavirus) could impact our management and our ability to conduct clinical trials. For example, we were required to temporarily halt our Phase I clinical trial with GTB-3550 for 30 days in March 2020 as result of restrictions on hospital operation implemented in reaction to the coronavirus pandemic. This also may affect the market conditions that would limit our ability to raise additional capital. This could have a sustained material adverse effect on our business, financial condition and results of operations.
We have not held regular annual meetings in the past, and if we are required by the Delaware Court of Chancery to hold an annual meeting pursuant to Section 211(c) of the Delaware General Corporation Law (the “DGCL”) it could result in the unanticipated expenditure of funds, time and other Company resources.
Section 2.2 of our bylaws provides that an annual meeting shall be held each year on a date and at a time designated by our Board of Directors (the “Board”), and Section 211(b) of the DGCL provides for an annual meeting of stockholders to be held for the election of directors. Section 211(c) of the DGCL provides that if there is a failure to hold the annual meeting for a period of 13 months after the latest to occur of the organization of the corporation, its last annual meeting or last action by written consent to elect directors in lieu of an annual meeting, the Delaware Court of Chancery may order a meeting to be held upon the application of any stockholder or director. Section 211(c) also provides that the failure to hold an annual meeting shall not affect otherwise valid corporate acts or result in a forfeiture or dissolution of the corporation.
We have not held regular annual meetings in the past because a substantial majority of our stock is owned by a small number of stockholders, making it easy to obtain written consent in lieu of a meeting when necessary. In light of our historical liquidity constraints, handling matters by written consent has allowed our Company to save on the financial and administrative resources required to prepare for and hold such annual meetings. To our knowledge, no stockholder or director has requested our Company’s management to hold such an annual meeting and no stockholder or director has applied to the Delaware Court of Chancery seeking an order directing our company to hold a meeting. However, if one or more stockholders or directors were to apply to the Delaware Court of Chancery seeking such an order, and if the Delaware Court of Chancery were to order an annual meeting before we are prepared to hold one, the preparation for the annual meeting and the meeting itself could result in the unanticipated expenditure of funds, time and other Company resources.
Risks Related to this Offering and Our Common Stock
There has been a limited public market for our common stock, and we do not know whether one will develop to provide you adequate liquidity. Furthermore, the trading price for our common stock, should an active trading market develop, may be volatile and could be subject to wide fluctuations in per-share price.
Our common stock is quotednow listed on the OTCQBNasdaq Capital Market under the trading symbol “GTBP”; historically, however, there has been a limited public market for our common stock. We cannot assure you that an active trading market for our common stock will develop or be sustained. The liquidity of any market for the shares of our common stock will depend on a number of factors, including:
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the number of stockholders;
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our operating performance and financial condition;
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the market for similar securities;
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the extent of coverage of us by securities or industry analysts; and
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the interest of securities dealers in making a market in the shares of our common stock.
Even if an active trading market develops, the market price for our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the price of shares of our common stock could decline significantly if our future operating results fail to meet or exceed the expectations of market analysts and investors and actual or anticipated variations in our quarterly operating results could negatively affect our share price.
The volatility of the price of our common stock may also be impacted by the risks discussed under this “Risk Factors” section, in addition to other factors, including:
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developments in the financial markets and worldwide or regional economies;
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announcements of innovations or new products or services by us or our competitors;
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announcements by the government relating to regulations that govern our industry;
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significant sales of our common stock or other securities in the open market;
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variations in interest rates;
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changes in the market valuations of other comparable companies; and
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changes in accounting principles.
Our outstanding warrants and preferred stock may affect the market price and liquidity of theour common stock.
As of the date of this prospectus, after giving effect to the issuance of the Settlement Shares and the Settlement Warrants pursuant to the Settlement Agreement, we had approximately 77.528.6 million shares of common stock outstanding and issued or issuable and had outstanding warrants for the purchase of up to approximately 7.8 million78,400 additional shares of common stock at an exercise price of $0.20$3.40 per share, warrants for the purchase of up to approximately 4,368,280 additional shares of common stock at an exercise price of $5.50 per share and warrants for the purchase of up to approximately 247,250 additional shares of common stock at an exercise price of $6.875 per share, all of which are exercisable as of the date of this prospectus (subject to certain beneficial ownership limitations). We also had outstanding 96,230 shares of Series C preferred stock (the “Series C Preferred Stock”) and 2,353,548 shares of Series J-1 Preferred Stock as of the date of this prospectus, which preferred stock is convertible into up to approximately 11.8 million additional shares of common stock at any time (subject to certain beneficial ownership limitations). In addition, as described more fully below, holders of our convertible notes and debentures may elect to receive a substantial number of shares of common stock upon conversion of the notes and, at each holder’s option, we will pay accrued interest on such notes in shares of our common stock. The amount of common stock reserved for issuance may have an adverse impact on our ability to raise capital and may affect the price and liquidity of our common stock in the public market. In addition, the issuance of these shares of common stock will have a dilutive effect on current stockholders’ ownership.
The conversion of outstanding convertible notes and debentures into shares of common stock, and the issuance of common stock by us as payment of accrued interest upon our convertible notes and debentures, could materially dilute our current stockholders.
As of the date of this prospectus, after giving effect to (i) the issuance of the September 2020 Notes, the July 2020 Notes and the May 2020 Notes and (ii) the issuance of the Settlement Notes pursuant to the Settlement Agreement, we had approximately $23.3 million aggregate principal amount of convertible notes and debentures outstanding. The convertible notes and debentures are convertible into shares of our common stock at fixed conversion prices, which may be less than the market price of our common stock at the time of conversion, and which may be subject to future adjustmentdue to certain events, including the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion rate then in effect. If the entire principal is converted into shares of common stock (including approximately $3.9 million in default amounts accrued with respect to the Default Notes), we would be required to issue an aggregate of no less than 84.5 million shares of common stock. If we issue all of these shares, the ownership of our current stockholders will be diluted.
Further, at each holder’s option, we will pay interest on the convertible notes and debentures in shares of common stock based on the then current conversion price. To date, we have issued approximately [●] million shares of common stock as in-kind interest payments on our convertible notes and debentures. Such interest payments could further dilute our current stockholders.
Because our common stock may be deemed a low-priced “penny” stock, an investment in our common stock should be considered high-risk and subject to marketability restrictions.
Historically, the trading price of our common stock has been $5.00 per share or lower, and deemed a penny stock, as defined in Rule 3a51-1 under the Exchange Act, and subject to the penny stock rules of the Exchange Act specified in rules 15g-1 through 15g-100. Those rules require broker–dealers, before effecting transactions in any penny stock, to:
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deliver to the customer, and obtain a written receipt for, a disclosure document;
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disclose certain price information about the stock;
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disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;
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send monthly statements to customers with market and price information about the penny stock; and
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in some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.
Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our common stock, which could depress the price of our common stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that the investment is suitable for that customer before recommending an investment to a customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares of common stock, have an adverse effect on the market for our shares of common stock, and thereby depress our price per share of common stock.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock may be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have research coverage by only one securities analyst, and we may never obtain research coverage by securities and industryadditional analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our common stock may be negatively affected. In the event that we receive additional securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline.
Delaware law and our restated certificate of incorporation (“certificate of incorporation”), our restated bylaws (“bylaws”) and other governing documents contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders, which could cause our stock price to decline. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.
We do not currently or for the foreseeable future intend to pay dividends on our common stock.
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, any return on your investment in our common stock will be limited to the appreciation in the price of our common stock, if any.
An investment in this offering may result in uncertain U.S. federal income tax consequences.
An investment in this offering may result in uncertain U.S. federal income tax consequences. For instance, because there are no authorities that directly address instruments similar to the Units part of this offering, the allocation an investor makes with respect to the purchase price of a Unit between the common stock and Common Warrant included in each Unit (or between the Pre-Funded Warrant and Common Warrant included in each Pre-Funded Unit) could be challenged by the IRS or courts. See “Material United States Federal Income Tax Considerations” for a summary of the U.S. federal income tax considerations of an investment in our securities. Prospective investors are urged to consult their tax advisors with respect to these and other tax consequences when acquiring, owning or disposing of our securities.
Risks Relating to this Offering and our Reverse Stock-Split
Our Bridge Notes automatically convert at the closing of this offering at the lower of $4.00 per Unit or a 30% discount to the offering price of the Units, and our Settlement Warrants will be cancelled and shares issued as a result, all of which could negatively impact trading in our securities. On March 6, 2020, we completed the offering of $1,992,000 of the Bridge Notes that provided for the automatic conversion into shares of our common stock at the closing of this offering at the lower of $4.00 per share or a 30% discount to the offering price of the Units. Purchasers of the Bridge Notes also received warrants (the “Settlement Warrants”) in the private placement. On June 15, 2020, we entered into agreements with the holders of the Bridge Notes to provide that the Bridge Notes will automatically convert upon the closing of this offering into shares of our common stock and warrants underlying the Units at the lower of $4.00 per Unit or a 30% discount to the public offering price of the Units. As of June 15, 2020, two holders representing $200,000 in the aggregate of the outstanding Bridge Notes automatically convertible into an aggregate of 51,948 shares of common stock at an exercise price of $3.85 per share (based on an assumed public offering price of $5.50 per Unit) and who hold Settlement Warrants to purchase an aggregate of 50,000 shares of common stock, or 68,182 shares of common stock after the offering at the assumed public offering price of $5.50 per Unit, have not yet signed the agreement. The agreements further provide that, immediately upon the closing of this offering, the Settlement Warrants will be cancelled and in lieu thereof each holder will receive 0.4 of a share of common stock for each share formerly underlying such cancelled 2020 Warrant. As a result, the investors in this offering will experience immediate dilution when the Bridge Notes are automatically converted into shares of our common stock and warrants and the Settlement Warrants are cancelled and shares in lieu thereof are issued at the closing of this offering. We estimate that approximately 517,403 shares and warrants to purchase 517,403 shares will be issuable upon conversion of the Bridge Notes, assuming a $3.85 conversion price and not taking into account interest earned, and 199,200 shares will be issued to holders upon cancellation of the Settlement Warrants. We have agreed to register the shares and warrants underlying the Bridge Notes, as well as the shares underlying the warrants issued upon automatic conversion of the Bridge Notes, and the shares issued upon cancellation of the Settlement Warrants for resale under the Securities Act. The holders of the Bridge Notes and Settlement Warrants have agreed to certain lock-up provisions with respect to the securities received upon conversion of the Bridge Notes and Settlement Warrants as described below under “Underwriting—Lock-up Agreements.” The automatic conversion of the Bridge Notes into shares of our common stock and warrants and issuance of shares upon cancellation of the Settlement Warrants will be dilutive to our holders and could negatively impact the trading market and price of our common stock following the offering.
Our management team will have immediate and broad discretion over the use of net proceeds from this offering and may not use them effectively.
We intend to use the net proceeds of this offering for general corporate purposes, which includes, among other purposes, the [●]. See “Use of Proceeds.”However, our management will still have broad discretion in the application of such proceeds. Our shareholders may notagree with the manner in which our management chooses to allocate the net proceeds from this offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. Pending their use, management may invest the net proceeds from this offering in a manner that does not produce income. The decisions made by our management may not result in positive returns on your investment, and you will not have an opportunity to evaluate the economic, financial or other information upon which our management bases its decisions.
You may experience immediate and substantial dilution in the net tangible book value of the common shares you purchase.
The offering price of the common shares underlying the Units and the Pre-Funded Units offered pursuant to thisprospectus is substantially higher than the net tangible book value per share. Therefore, if you purchase Units or Pre-Funded Units, you will incur immediate and substantial dilution in the pro forma net tangible book value per common share from the price per unit that you pay for the underlying share. If the holders of outstanding options or warrants exercise those options or warrants at prices below the offering price, you will incur even further dilution. See “Dilution.”
There is no public market for the Common Warrants or Pre-Funded Warrants being offered.
There is no established public trading market for the Common Warrants or Pre-Funded Warrants being offered pursuant to this offering, nor do we expect such a market to develop. We do not intend to apply to list any Common Warrants or Pre-Funded Warrants on any securities exchange or other nationally recognized trading system, including NASDAQ. Without an active market, the liquidity of such Common Warrants and Pre-Funded Warrants will be limited.
Holders of the Common Warrants and Pre-Funded Warrants purchased pursuant to this offering will have no rights as common shareholders until such holders exercise the Common Warrants and Pre-Funded Warrants and acquire our common shares.
Holders of Common Warrants and Pre-Funded Warrants purchased in this offering only acquire our common shares upon exercise thereof, meaning holders will have no rights with respect to the shares of our common shares underlying such warrants. Upon the exercise of any of the warrants purchased, such holders will be entitled to exercise the rights of a shareholder only as to matters for which the record date occurs after the exercise date. The Common Warrants and the Underwriter Warrants are speculative in nature. The Common Warrants being sold in this offering have an exercise price of $[●] per common share, the Pre-Funded Warrants $[●], and the Underwriter Warrants have an exercise price of $[●]. The Common Warrants will expire on the [●] anniversary from the issuance date, and the Underwriter Warrants will expire on the [●] anniversary from the effective date of this offering. In the event our common share price does not exceed the per share exercise price of the Common Warrants or the Underwriter Warrants during the period when such warrants are exercisable, such warrants will not have any value.
TAX CONSIDERATIONS
We are not providing any tax advice as to the acquisition, holding or disposition of the securities offered herein. Investors in our shares, particularly investors who are not residents of the U.S., are strongly encouraged to consult their own tax advisor to determine the U.S. federal, state and any applicable foreign tax consequences relating to their investment in our securities.
USE OF PROCEEDS
We estimate that our netThe Company will receive no proceeds from the resale of the shares by the Selling Shareholders. Unless otherwise set forth in a prospectus supplement, all of the shares of Common Stock offered by the Selling Shareholders pursuant to this offeringprospectus will be approximately $
million, based onsold by the sale of the maximum amount of Units in this offering at an assumed public offering price of $ per Unit after deducting the underwriter fees and estimated offering expenses payable by us.
If a holderall of Common Warrants elects to exercise the Common Warrants issuedwarrants held by the Selling Shareholders are exercised in this offering,full, we may alsowould receive proceeds from the exercisepayment of the Common Warrants. We cannot predict when or if the Common Warrants will be exercised. It is possible that the Common Warrants may expire and may never be exercised.
Each $[●] increase or decrease in the assumed public offeringexercise price thereof of $ per Unit would increase or decrease, respectively, our net proceeds by approximately $ million, assuming the maximum number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriter fees and estimated offering expenses payable by us. We may also increase or decrease the number of Units$243,000, which we are offering. An increase or decrease of 1,000,000 in the number of Units we are offering would increase or decrease, respectively, the net proceeds from this offering, after deducting underwriter fees and estimated offering expenses payable by us, by approximately $ million, assuming the assumed public offering price stays the same.
We intend to use the net proceeds of this offering for general corporate purposes, which includes, among other purposes, the [ ].
Our expected use of net proceeds from the offering represents our current intentions based upon our present plansfunding and business condition. Investors are cautioned, however, that expenditures may vary substantially from these uses. Investors will be relying on the judgmentexpansion of our management, who will have broad discretion regardingongoing clinical trials and the application of the proceeds of this offering. The amounts and timingcontinued development of our actual expenditures will depend upon numerous factors, including the amountpipeline of cash generated by our operations, the amount of competition and other operational factors. We may find it necessary or advisable to use portions of the proceeds from this offering for other purposes.candidate products.
UNDERWRITING
We have entered into an underwriting agreement with Dawson James Securities, Inc. with respect to the offering. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriter, and the underwriter has agreed to purchase from us on a firm commitment basis, the number of units set forth opposite its name in the table below.
Underwriter | Number of Units (1) |
Dawson James Securities, Inc. | |
Total | |
(1) The shares and warrants comprising the Units will be separately issued but will be purchased together in this offering.SELLING SHAREHOLDERS
The underwriting agreement provides that the obligations of the underwriter are subjectSelling Shareholders may offer and sell, from time to certain conditions precedent and that the underwriter has agreed to purchasetime, any or all of the Units sold undershares covered by this prospectus. We are registering 130,246 shares of Common Stock that are either currently held by the underwriting agreement if any of these Units are purchased. The underwriter proposes to offer to the public the Units purchased pursuant to the underwriting agreement at the public offering price per UnitSelling Shareholders or that may be issued on the cover page of this prospectus supplement. The underwriter may offer someexercise of the Units to other securities dealers at such price lesswarrants held by the Selling Shareholders. The warrants were issued in connection with a concession of $[___] per Unit.
The underwriter may also allow, and such dealers may re-allow, a concession not in excess of $[___] per Unit to other dealers. After the Units are released for sale to the public, the underwriter may change the offering price and other selling terms at various times.
The factors considered in determining the public offering price included the recent market price of our common stock, the general condition of the securities market at the time of this offering, the history of, and the prospects for, the industryprivate placement transaction completed on January 22, 2018, in which we compete, our past and present operations and our prospects for future revenues.
Dawson James Securities, Inc., its officers and its registered representatives may participate inagreed to file this offering onregistration statement covering the same terms and conditions asresale of the investors participating in this offering.shares issuable upon exercise of such warrant.
The following table showssets forth the per Unit price and total underwriting discounts and commissions we will pay in connection with the salename of the Units.
Per Unit underwriting discount | $ |
Total | $ |
In addition, we have agreedSelling Shareholders, the number of shares of Common Stock beneficially owned by the Selling Shareholders prior to reimburseand after completion of the underwriter for its expenses in an amount not to exceed $25,000.
Pursuant to the underwriting agreement, for a period of twelve months from the closing ofoffering contemplated by this offering, we will grant Dawson James Securities, Inc. the right of first refusal to act as lead managing underwriterprospectus, and book runner, for future equity, or convertible debt (excluding non-convertible debt, at the market financing and strategic investments) offerings during such period.
We have also agreed to issue to the underwriter or its designees a five-year Unit purchase option to purchase 5% of the aggregate number of Unitsshares that may be offered by the Selling Shareholders pursuant to this prospectus. In calculating the percentages of shares of Common Stock beneficially owned by the Selling Shareholders, we treated as outstanding the number of shares of our Common Stock issuable upon exercise of the warrants and did not assume exercise of any other warrants. The percentage of shares owned prior to the offering is based on 28,393,960 shares of Common Stock outstanding as of April 12, 2021.
Under the terms of the warrants, a Selling Shareholder may not exercise the warrants to the extent such exercise would cause such Selling Shareholder, together with its affiliates, to beneficially own a number of shares of Common Stock which would exceed 4.99% of our then outstanding shares of Common Stock following such exercise, excluding for purposes of such determination shares of Common Stock issuable upon exercise of the warrants which have not been exercised. The number of shares in the third column do not reflect this limitation or any similar limitation.
There is no assurance that the warrants will be exercised. If the warrants are exercised, the Selling Shareholders may sell some, all or none of the shares obtained thereby. We do not know how long the Selling Shareholders will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the Selling Shareholders regarding the sale or other disposition of any of the shares. As a result, we cannot estimate the number of shares of Common Stock the Selling Shareholders will beneficially own after termination of sales under this prospectus. In addition, the Selling Shareholders may have sold, transferred or otherwise disposed of all or a portion of its shares of Common Stock since the date on which they provided information for this table.
Unless otherwise indicated, the term “Selling Shareholders” as used in this offering at an exercise price equalprospectus means the Selling Shareholders referred to $ [___] per Unit (125% ofin this prospectus, and their donees, pledgees, transferees, assigns and other successors-in-interest. Information concerning the public offering price per Unit). The Unit purchase option will be exercisable at any time andSelling Shareholders may change from time to time and, to the extent required, we will supplement this prospectus accordingly. We have prepared the following table and the related notes based on information filed with the SEC, supplied to us by the Selling Shareholders or estimated based on our internal records, which may not include shares held by a Selling Shareholder in whole or“street name.”
| | Shares Beneficially Owned Prior to this Offering (1) | | Shares Beneficially Owned After This Offering (2) |
| Selling Shareholder and Addresses | | | | | |
| Siesta Fiesta Holdings, LLC (3) | 707 | * | 707 | 0 | * |
| James Heavener (4) | 1,402,305 | 4.9% | 8,972 | 1,393,333 | 4.9% |
| Bristol Capital, LLC (5) | 972,418 | 3.4% | 58,824 | 913,594 | 3.2% |
| Bristol Investment Fund Ltd. (5) | 1,192,292 | 4.2% | 2,826 | 1,189,466 | 4.2% |
| Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B (6) | 177,521 | * | 28,256 | 149,265 | * |
| Adam Kasower (7) | 539,130 | * | 7,064 | 532,066 | * |
| Red Mango Enterprises Limited (8) | 1,737,365 | 6.1% | 11,797 | 1,725,568 | 6.0% |
| Rosalinde and Arthur Gilbert Foundation (9) | 1,211,172 | 4.2% | 4,945 | 1,206,227 | 4.2% |
| RSZ Trust (10) | 490,966 | * | 1,625 | 489,341 | * |
| Jeffrey Bronfman Revocable Liv. Trust (11) | 319,011 | * | 2,120 | 316,891 | * |
| Lipp Irrevocable Trust (12) | 14,144 | * | 566 | 13,578 | * |
| Robert Lipp Separate Property Trust (13) | 245,607 | * | 1,978 | 243,629 | * |
| Diane Lipp Separate Property Trust (14) | 63,220 | * | 566 | 62,654 | * |
(1)
Includes 78,400 shares of Common Stock that may be issued if all Selling Shareholders exercise of the warrants in part, duringfull.
(2)
Assumes sale of all shares available for sale under this prospectus and no further acquisitions of shares by the period commencing six months followingSelling Shareholders.
(3)
The address of record is 7924 Midnight Pass Road, Sarasota, FL 34242.
(4)
The address of record is 3300 University Blvd., Ste 218, Winter Park, FL 32792.
(5)
The address of record is 662 N. Sepulveda Blvd., Ste 300, Los Angeles, CA 90049. Paul Kessler, as manager of Bristol Capital Advisors, LLC, the commencementinvestment advisor to Bristol Investment Fund, Ltd. (“BIF”) and Bristol Capital, LLC (“BC”), has voting and investment control over the securities held by BIF and BC. Mr. Kessler disclaims beneficial ownership of these securities except to the extent of his pecuniary interest therein.
(6)
The address of record is 1180 Avenue of Americas, Ste 842, New York, NY 10036.
(7)
The address of record is 25170 Jim Bridger Road, Hidden Hills, CA 92302.
(8)
The address of record is Pictet & Cie (Europe) S.A. Hong Kong Branch, 9/F Chater House 8 Connaught Road Central, Hong Kong. We have been advised that Chi Kan Tang exercises voting and investment power over the securities held by Red Mango Enterprises Limited.
(9)
The address of record is 2730 Wilshire Blvd., Ste 301, Santa Monica, CA 90403. We have been advised that Martin H. Blank exercises voting and investment power over the securities held by The Rosalinde and Arthur Gilbert Foundation.
(10)
The address of record is 11620 Wilshire Blvd., Ste 1000, Los Angeles, CA 90025. We have been advised that Richard Ziman is the trustee of The RSZ Trust and may be deemed to exercise voting and investment control.
(11)
The address of record is 1000 Cordova Place #710, Santa Fe, NM 87505. We have been advised that Jeffrey Bronfman is the trustee of the trust and may be deemed to exercise and investment control.
(12)
The address of record is 270 18thSt., Santa Monica, CA 90402. We have been advised that Diane Lipp is the trustee of the trust and may be deemed to exercise and investment control.
(13)
The address of record is 270 18thSt., Santa Monica, CA 90402. We have been advised that Robert Lipp is the trustee of the trust and may be deemed to exercise and investment control.
(14)
The address of record is 270 18thSt., Santa Monica, CA 90402. We have been advised that Diane Lipp is the trustee of the trust and may be deemed to exercise and investment control.
PLAN OF DISTRIBUTION
We are registering the shares of common stock issuable upon exercise of the warrants to permit the resale of these shares of common stock by the holders of the c warrants from time to time after the date of this offering, and ending five yearsprospectus. We will not receive any of the proceeds from the commencement datesale by the Selling Shareholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock.
The Selling Shareholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the Selling Shareholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions,
●
on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
●
in the over-the-counter market;
●
in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
●
through the writing of options, whether such options are listed on an options exchange or otherwise;
●
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
●
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
●
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
●
an exchange distribution in accordance with the rules of the applicable exchange;
●
privately negotiated transactions;
●
sales pursuant to Rule 144;
●
broker-dealers may agree with the selling securityholders to sell a specified number of such shares at a stipulated price per share;
●
a combination of any such methods of sale; and
●
any other method permitted pursuant to applicable law.
If the Selling Shareholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the Selling Shareholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the Selling Shareholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The Selling Shareholders may also sell shares of common stock short and deliver shares of common stock covered by this offering.prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Shareholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.
The Unit purchase option provides forSelling Shareholders may pledge or grant a cashless exercise provision, registration rights (including a one-time demand registration right and unlimited piggyback rights) and customary anti-dilution provisions (for stock dividends and splits and recapitalizations) consistent with FINRA Rule 5110. The Unit purchase option and the underlying securities are deemed compensation by FINRA, and are therefore subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the Unit purchase option nor any securities issued upon exercisesecurity interest in some or all of the Unit purchase optionwarrants or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of Selling Shareholders to include the pledgee, transferee or other successors in interest as Selling Shareholders under this prospectus. The Selling Shareholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The Selling Shareholders and any broker-dealer participating in the distribution of the shares of common stock may be sold, transferred, assigned, pledged, or hypothecated, ordeemed to be “underwriters” within the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of such securities by any person for a period of 180 days immediately following the date of commencement of salesmeaning of the offering pursuant to which the Unit purchase option is being issued, except the transfer ofSecurities Act, and any security: (i) by operation of lawcommission paid, or by reason of reorganization of our company; (ii)any discounts or concessions allowed to, any FINRA member firm participating in thissuch broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction described above for the remainder of the time period; (iii)shares of common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of our securities held by either a underwriter or a related person do not exceed 1%shares of common stock being offered and the terms of the securities being offered; (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member managesoffering, including the name or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or (v) the exercise or conversionnames of any security, if all securities received remain subjectbroker-dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Shareholders and any discounts, commissions or concessions allowed or reallowed or paid to the lock-up restriction set forth above for the remainder of the time period.broker-dealers.
We have granted toUnder the underwriter a 45-day option to purchase up to an additional 15%securities laws of some states, the total Units offered pursuant to this the offering.
We will pay the expenses associated with the exerciseshares of the over-allotment option.
In connection with this offering, the underwriter may engage in stabilizing transactions, overallotment transactions, syndicate covering transactions, penalty bids and purchases to cover positions created by short sales.
· | Stabilizing transactions permit bids to purchase Units so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the Units while the offering is in progress. |
· | Syndicate covering transactions involve purchases of Units in the open market after the distribution has been completed in order to cover syndicate short positions. If the underwriters sell more shares than set forth herein and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering. |
· | Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions. |
This prospectus may be made availablesold in electronic format on Internet sitessuch states only through registered or through other online services maintained by the underwriterlicensed brokers or its affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. Other than this prospectus in electronic format, any information on the underwriter’s or its affiliates’ websites and any information contained in any other website maintained by the underwriter or any affiliate of the underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriter and should not be relied upon by investors.
The underwriter or its affiliates have in the past and may in the future engage in transactions with, and may perform, from time to time, investment banking and advisory services for us in the ordinary course of their business and for which they would receive customary fees and expenses.dealers. In addition, in some states the ordinary courseshares of their business activities, the underwritercommon stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for its own account and for the accounts of its customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates.is complied with.
The underwriting agreement providesThere can be no assurance that our directors and executive officersany Selling Shareholder will agree for a periodsell any or all of six months from the date of this offering, not to (a) offer, sell, or otherwise transfer or dispose of, directly or indirectly, any shares of our capitalcommon stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock; or (b) file or caused to be filed any registration statement relating to the offering of any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock.
The foregoing description of the underwriting agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the underwriting agreement and underwriter Unit purchase option, copies of which are included as exhibitsregistered pursuant to the registration statement, of which this prospectus forms a part.
The Selling Shareholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the Selling Shareholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.
We will pay all expenses of the registration of the shares of common stock pursuant to the registration rights agreement, estimated to be $21,590 in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that a Selling Shareholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the Selling Shareholders against liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreements, or the Selling Shareholders will be entitled to contribution. We may be indemnified by the Selling Shareholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the Selling Shareholder specifically for use in this prospectus, in accordance with the related registration rights agreement, or we may be entitled to contribution.
Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.
MARKET INFORMATION
Our common stock is quotedlisted on the OTCQBNasdaq Capital Market under the symbol “GTBP.” Our common stock is also quoted on several European based exchanges, including Berlin (GTBP.BE), Frankfurt (GTBP.DE), the Euronext (GTBP.NX) and Paris (GTBP.PA).
Stockholders
As of November 30,2020,March 22, 2021, there were 3351 stockholders of record, whichrecord. This total does not include stockholders who hold their shares in “street name.” The transfer agent for our common stock is Computershare, whose address is 8742 Lucent Blvd., Suite 225, Highland Ranch, CO 80129.
Dividends
We have not paid any dividends on our common stock to date and do not anticipate that we will pay dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our anticipated capital requirements and other factors that the Board may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development and expansion of our business and, therefore, do not expect to pay any dividends on our common stock during such time.
CONSOLIDATED CAPITALIZATION
The following table presents the number of our issued and outstanding shares of common stock and our consolidated
cash and cash equivalents and capitalization as at September 30, 2020; (i) on an actual basis; and (ii) on an as adjusted basis to give effect to the sale by us of [●] Units in this offering at the public offering price of $[●] per Unit, and the sale of [●] Pre-Funded Units at the public offering price of $[●] per Pre-Funded Unit and assuming the full exercise of the Pre-Funded Warrants sold in this offering, after deducting estimated underwriter fees and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the Common Warrants and Underwriter Warrants issued pursuant to this offering.
The information below has been derived from and should be read in conjunction with, and is qualified in its entirety by, our unaudited consolidated financial statements as at September 30, 2020, and for the six-month periods ended June 30, 2020 and 2019, and the Management’s Discussion and Analysis thereon, incorporated by reference into this prospectus supplement. Figures are in thousands of U.S. dollars except share data.
| |
(in thousands except per share data) | | As Adjusted |
Number of Common Shares issued and outstanding | 77,518
| |
Cash and cash equivalents | 350
| |
Shareholders’ equity | (29,777)
| |
Share capital | | |
Other capital | | |
Deficit | | |
Accumulated other comprehensive income | | |
Total shareholders’ equity and total capitalization | | |
The number of shares of common stock that will be outstanding both before and immediately after this offering is based on 77,518,614 shares outstanding as of September 30, 2020, and excludes as of such date:
●
7.8 million shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.20 per share;
●
[●] shares of common stock issuable upon the exercise of outstanding stock options and deferred share units at a weighted average exercise price of $[●] per share;
●
[●] shares of common stock reserved for future issuance under our 2014 Stock Inventive Plan;
●
[●] shares of common stock reserved for future issuance under our [Stock Option Plan] adopted by our Board of Directors on [●], and ratified by the shareholders on [●];
●
[●] shares of common stock issuable upon the exercise of warrants to be issued to investors in this offering at an exercise price of $[●] per share; and
●
[●] shares of common stock issuable upon the exercise of the Underwriter Warrants to be issued to the underwriter at an exercise price of $[●] per share.
DILUTION
If you invest in our common stock and warrants, your interest will be diluted immediately to the extent of the difference between the public offering price per unit and the as-adjusted net tangible book value per share after this offering.
The net tangible book value (deficit) of our common stock as of November 30, 2020 was approximately $[●], or approximately $[●] per share. Net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the total number of our shares of common stock outstanding as of November 30, 2020.
After giving effect to the sale of Units in this offering at the public offering price of $ per Unit, and the sale of Pre-Funded Units at the public offering price of $ per Pre-Funded Unit and assuming the full exercise of the Pre-Funded Warrants sold in this offering, after deducting estimated underwriter fees and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the Common Warrants and Underwriter Warrants issued pursuant to this offering, our as adjusted net tangible book value as of November 30, 2020 would have been approximately $ , or approximately $ per share. This represents an immediate increase in net tangible book value of approximately $ per share to our existing security holders and an immediate dilution in as-adjusted net tangible book value of approximately $ per share to purchasers of units in this offering, as illustrated by the following table:
Public offering price per Unit | | | | |
Consolidated net tangible book value per Common Share | | | | |
Increase in consolidated net tangible book value per Common Share | | | | |
As adjusted consolidated net tangible book value per Common Share | | | | |
Dilution per Common Share to new investors participating in this offering | | | | |
If the underwriter exercises in full its option to purchase additional Units in full, the as adjusted net tangible book value of our common stock after this offering would be $ per share, representing an immediate increase in net tangible book value of approximately $ per share to existing stockholders and an immediate dilution of $ per share to the investors in this offering, after deducting the underwriting discount and estimated offering expenses payable by us.
To the extent that outstanding options or warrants outstanding as of November 30, 2020, have been or may be exercised or other shares issued, investors participating in this offering may experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are a clinical stage biopharmaceutical company focused on the development and commercialization of novel immuno-oncology products based off our proprietaryTri-specific Killer Engager (TriKE™) and Tetra-specific Killer Engager (TetraKE™). Our TriKE and TetraKE platforms generate proprietary therapeutics designed to harness and enhance the cancer killing abilities of a patient’s own NK cells. Once bound to an NK cell, our moieties are designed to enhance the NK cell and precisely direct it to one or more specifically-targeted proteins expressed on a specific type of cancer cell or virus infected cell, ultimately resulting in the targeted cell’s death. TriKEs and TetraKEs are made up of recombinant fusion proteins, can be designed to target any number of tumor antigens on hematologic malignancies, sarcomas or solid tumors and do not require patient-specific customization.
Recent Developments
Financings
November 2020 Financing
In November, 2020, we entered into a securities purchase agreement with three purchasers pursuant to which we issued convertible debentures in an aggregate principal amount of $350,000 (the “November 2020 Notes”).
The November 2020 Notes are convertible at any time, at the holder’s option, into shares of our common stock at an initial conversion price of $0.20 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion rate then in effect. The November 2020 Notes will be subject to mandatory conversion in the event of the completion of a future financing in the amount of at least $15 million at a conversion price equal to the lesser of (i) the conversion price in effect for the November 2020 Notes on the date of completion of such financing or (ii) 75% of the lowest per share price at which common stock may be issued in connection with any conversion rights associated with the financing, in each case, subject to the beneficial ownership limitations described above.
The November 2020 Notes each have a term of six months and mature in May, 2021, unless earlier converted or repurchased. The November 2020 Notes accrue interest at a rate of 10% per annum, subject to increase to 18% per annum upon and during the occurrence of an event of default. Interest is payable in cash or, at the holder’s option, in shares of common stock based on the conversion price then in effect. We may not prepay the November 2020 Notes without the prior written consent of the applicable holder.
September 2020 Financing
On September 16, 2020, we entered into a securities purchase agreement with two purchasers pursuant to which we issued the September 2020 Notes in an aggregate principal amount of $250,000.
The September 2020 Notes are convertible at any time, at the holder’s option, into shares of our common stock at an initial conversion price of $0.20 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion rate then in effect. The September 2020 Notes will be subject to mandatory conversion in the event of the completion of a future financing in the amount of at least $15 million at a conversion price equal to the lesser of (i) the conversion price in effect for the September 2020 Notes on the date of completion of such financing or (ii) 75% of the lowest per share price at which common stock may be issued in connection with any conversion rights associated with the financing, in each case, subject to the beneficial ownership limitations described above.
The September 2020 Notes each have a term of six months and mature on March 16, 2021, unless earlier converted or repurchased. The September 2020 Notes accrue interest at a rate of 10% per annum, subject to increase to 18% per annum upon and during the occurrence of an event of default. Interest is payable in cash or, at the holder’s option, in shares of common stock based on the conversion price then in effect. We may not prepay the September 2020 Notes without the prior written consent of the applicable holder.
July 2020 Financing
On July 7, 2020, we entered into a securities purchase agreement with ten purchasers pursuant to which we issued the July 2020 Notes in an aggregate principal amount of approximately $3.2 million.
The July 2020 Notes are convertible at any time, at the holder’s option, into shares of our common stock at an initial conversion price of $0.20 per share, subject to certain beneficial ownership limitations(with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion rate then in effect. The July 2020 Notes will be subject to mandatory conversion in the event of the completion of a future financing in the amount of at least $15 million at a conversion price equal to the lesser of (i) the conversion price in effect for the July 2020 Notes on the date of completion of such financing or (ii) 75% of the lowest per share price at which common stock may be issued in connection with any conversion rights associated with the financing, in each case, subject to the beneficial ownership limitations described above.
The July 2020 Notes each have a term of six months and mature on January 7, 2021, unless earlier converted or repurchased. The July 2020 Notes accrue interest at a rate of 10% per annum, subject to increase to 18% per annum upon and during the occurrence of an event of default. Interest is payable in cash or, at the holder’s option, in shares of common stock based on the conversion price then in effect. We may not prepay the July 2020 Notes without the prior written consent of the applicable holder.
May 2020 Financing
Between April 20, 2020 and May 7, 2020, we entered into securities purchase agreements with eight purchasers pursuant to which we issued convertible notes in an aggregate principal amount of approximately $2.0 million.
The May 2020 Notes are convertible at any time, at the holder’s option, into shares of our common stock at an initial conversion price of $0.20 per share, subject to certain beneficial ownership limitations(with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion rate then in effect. The May 2020 Notes will be subject to mandatory conversion in the event of the completion of a future financing in the amount of at least $15 million at a conversion price equal to the lesser of (i) the conversion price in effect for the May 2020 Notes on the date of completion of such financing or (ii) 75% of the lowest per share price at which common stock may be issued in connection with any conversion rights associated with the financing, in each case, subject to the beneficial ownership limitations described above.
The May 2020 Notes each have a term of six months and mature between October 20, 2020 and November 7, 2020, unless earlier converted or repurchased. The May 2020 Notes accrue interest at a rate of 10% per annum, subject to increase to 18% per annum upon and during the occurrence of an event of default. Interest is payable in cash or, at the holder’s option, in shares of common stock based on the conversion price then in effect. We may not prepay the May 2020 Notes without the prior written consent of the applicable holder.
January 2020 Financing
On January 30, 2020, we entered into a securities purchase agreement with one purchaser pursuant to which weissued the January 2020 Notes in an aggregate principal amount of $0.2 million.
The January 2020 Notes are convertible at any time, at the holder’s option, into shares of our common stock at an initial conversion price of $0.20 per share, subject to certain beneficial ownership limitations(with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion rate then in effect.
The January 2020 Notes have a term of eight months and mature on September 30, 2020, unless earlier converted or repurchased. The January 2020 Notes accrue interest at a rate of 10% per annum, subject to increase to 18% per annum upon and during the occurrence of an event of default. Interest is payable in cash or, at the holder’s option, in shares of common stock based on the conversion price then in effect. We may not prepay the January 2020 Notes without the prior written consent of the holder.
For additional information regarding the terms of our convertible notes and debentures, including the Bridge Notes, and the securities purchase agreements pursuant to which they were issued, see “Indebtedness—Convertible Notes/Debentures” below.
Manufacturing Agreement
Effective October 5, 2020, the Company entered into a Master Services Agreement (the “MSA”), with Cytovance Biologics, Inc., (“Cytovance”), a subsidiary of Shenzhen Hepalink Pharmaceutical Group Co., Ltd. Cytovance is headquartered in Oklahoma City, Oklahoma.
Under the MSA, the Company will engage Cytovance as the exclusive manufacture for three of the Company’s TriKE™ therapeutic product candidates. Cytovance will manufacture TriKE™ using Cytovance’s proprietary Keystone® bacterial or mammalian expression systems. Subject to the completion of certain milestones by Cytovance, GT Biopharma has the option to pay Cytovance up to $6 million for its manufacturing services in either cash or in shares of the Company’s common stock valued at the time Cytovance achieves each of several milestones over the next 12 months.
Forbearance Agreements
Effective as of June 23, 2020, we entered into the Forbearance Agreements with the holders of approximately $13.2 million aggregate principal amount of the Default Notes, which are currently in default. Pursuant to the Forbearance Agreements, the holders of the Default Notes have agreed to forbear from exercising their rights and remedies under the Default Notes (including declaring such Default Notes (together with default amounts and accrued and unpaid interest) immediately due and payable) until the earlier of (i) the date that we complete a New Financing or (ii) the Termination Date.
Pursuant to the Forbearance Agreement, the holders of the Default Notes have also agreed that the Default Notes (together with default amounts and accrued and unpaid interest) will be converted into common stock upon the closing of a New Financing at a conversion price equal to the lesser of (i) the conversion price in effect for the Default Notes on the date of such New Financing or (ii) 75% of the lowest per share price at which common stock is or may be issued in connection with such New Financing, in each case, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). Shares of our Series J-1 Preferred Stock, which are convertible into the Company’s common stock, will be issued in lieu of common stock to the extent that conversion of the Default Notes is prohibited by such beneficial ownership limitations.
For additional information regarding the terms of the Forbearance Agreements, see “Indebtedness—Forbearance Agreements”below.
Extension Agreements
Effective as of November 9, 2020, we entered into the New Financing with the holders of approximately $[●] million aggregate principal amount of our outstanding convertible notes and debentures to extend the maturity date thereof until the earlier of (i) the date that we complete a future financing in the amount of at least $15 million and, in connection therewith, commences listing on NASDAQ or (ii) the Termination Date.
Settlement with Empery Funds
Settlement Agreement
On June 19, 2020, we entered into the Settlement Agreement with the Empery Funds, Anthony Cataldo and Paul Kessler resolving all remaining disputes between the parties pertaining to the Original Securities issued by the Company to the Empery Funds in January 2018 pursuant to a securities purchase agreement. See “Description of Business—Legal Proceedings.”
As a result of the Settlement Agreement, the Company paid the Empery Funds cash payments in an aggregate amount of $0.2 million. In addition, pursuant to the Settlement Agreement, the Company issued to the Empery Funds, solely in exchange for the outstanding Original Securities, (i) an aggregate of 3.5 million shares of common stock, (ii) pre-funded warrants to purchase an aggregate of 5.5 million shares of common stock and (iii) senior convertible notes in an aggregate principal amount of $0.45 million.
Settlement Notes
The Settlement Notes are convertible at any time, at the holder’s option, into shares of common stock at an initial conversion rate of $0.20 per share, subject to certain beneficial ownership limitations(with a maximum ownership limit of 4.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion rate then in effect.
The Settlement Notes have a term of six months, maturing on December 19, 2020, and bear interest at a rate of 10% per annum, subject to increase to 18% per annum upon and during the occurrence of an event of default. Interest is payable in cash or, at the holder’s option, in shares of common stock based on the conversion price then in effect.
Pursuant to the terms of the Settlement Notes, the Company is required to make an offer to repurchase, at the holder’s option, the Settlement Notes at price in cash equal to 100% of the aggregate principal amount of the Settlement Note plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase following the consummation by the Company of a capital raising transactions, or a series of transactions, resulting in aggregate gross proceeds to the Company in excess of $7.5 million. The Company may not otherwise prepay the Settlement Notes without the prior written consent of the applicable Empery Funds.
For additional information regarding the terms of the Settlement Notes and Settlement Agreement, see “Indebtedness—Convertible Notes/Debentures” below.
Settlement Warrants
The Settlement Warrants provide for the purchase of up to an aggregate of 5.5 million shares of common stock at an exercise price of $0.20 per share, subject to adjustment in certain circumstances, and expire on June 19, 2025. Exercise of the warrant is subject to certain additional terms and conditions, including certain beneficial ownership limitations(with a maximum ownership limit of 4.99%).
Collaboration Agreement
On March 10, 2020, we entered into a collaboration agreement with Cytovance® Biologics, a USA-based contract development and manufacturing organization and a subsidiary of Hepalink, to provide development services for a TriKE therapeutic for the treatment of the coronavirus infection. Under the terms of the collaboration agreement, the companies will focus on preparing sufficient quantities of our coronavirus TriKE drug product for preclinical evaluation using Cytovance’s E. coli-basedKeystone Expression System™ and subsequently, will scale-up production using Cytovance’s GMP microbial manufacturing platform for evaluation of TriKE in humans to treat the coronavirus infection.
Results of Operations
Comparison of the Three Months Ended September 30, 2020 and 2019
Research and Development Expenses
During the three months ended September 30, 2020 and 2019, we incurred $0 and $.6 thousand of research and development expenses, respectively. Research and development costs decreased less clinical expenses. We anticipate our direct clinical costs will increase in the last quarter of 2020 with the continuation of our Phase I clinical trial of our most advanced TriKe product candidate, GTB-3550.
Selling, general and administrative expenses
During the three months ended September 30, 2020 and 2019, we incurred $2 million and $3.6 million of selling, general and administrative expenses, respectively. The decrease in selling, general and administrative expenses is primarily attributable the reduction of payroll and stock compensation expenses.
Loss on impairment
For the three months ended September 30, 2019, the Company recorded an intangible asset impairment charge of $4.6 million related to the portfolio of CNS IPR&D assets, which represents the excess carrying value compared to fair value. The impairment charge was the result the sale of certain assets and prioritization for immuno-oncology development candidates.
Interest Expense
Interest expenses were $.9 million and $.6 million for the three months ended September 30, 2020 and 2019, respectively. The increase is primarily due to the accrual of default interest under the Default Notes.
Comparison of the Nine Months Ended September 30, 2020 and 2019
Research and Development Expenses
During the nine months ended September 30, 2020 and 2019, we incurred $252 thousand and $1.7 million of research and development expenses, respectively. Research and development costs decreased due primarily to the reduction of employee, consultant and preclinical expenses. We anticipate our direct clinical costs will increase in the 4thquarter of 2020 upon the continuation of our Phase I clinical trial of our most advanced TriKE product candidate, GTB-3550.
Selling, general and administrative expenses
During the nine months ended September 30, 2020 and 2019, we incurred $4.3 million and $8.9 million of selling, general and administrative expenses, respectively. The decrease in selling, general and administrative expenses is primarily attributable the reduction of payroll and stock compensation expenses.
Loss on impairment
For the three months ended September 30, 2019, the Company recorded an intangible asset impairment charge of $4.6 million related to the portfolio of CNS IPR&D assets, which represents the excess carrying value compared to the fair value. The impairment charge was the result of the sale of certain assets and prioritization for immuno-oncology development candidates.
Interest Expense
Interest expenses were $6.2 million and $1.5 million for the nine months ended September 30, 2020 and 2019 respectively. The increase is primarily due to the accrual of default interest under the Default Notes.
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. During the nine months ended September 30, 2020, the Company raised $5.7 million through a series of issuances of Convertible Notes.We anticipate that cash utilized for selling, general and administrative expenses will range between $1 and $2 million in the coming quarters, while research and development expenses will vary depending on clinical activities. The Company is pursuing several alternatives to address this situation, including the raising of additional funding through equity or debt financings. In order to finance existing operations and pay current liabilities over the next 12 months, the Company will need to raise an additional $18 million of capital.
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 $580 million and cash of $350 thousand as of September 30, 2020. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales or revenue from out-licensing 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, licensing and/or marketing arrangements with pharmaceutical companies. Management has also implemented cost saving efforts, including reduction in executive salaries and reduced travel. 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 nine 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, its business, operating results, financial condition and cash flows may be materially and adversely affected.
Indebtedness
Convertible Notes/Debentures
As of the date of this prospectus, after giving effect to (i) the issuance of the July 2020 Notes and the May 2020 Notes and (ii) the issuance of the Settlement Notes pursuant to the Settlement Agreement, we had approximately $18.8 million aggregate principal amount of convertible notes and debentures outstanding that were issued pursuant to securities purchase agreements (or, in the case of the Settlement Notes, the Settlement Agreement) entered into with numerous investors.
The convertible notes and debentures are convertible at any time, at the holder’s option, into shares of our common stock at an initial conversion rate, subject to certain beneficial ownership limitations (which vary between maximum ownership of between 4.99% and 9.99%). The conversion price is also generally subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion rate then in effect. The conversion price for each of our outstanding convertible notes and debentures is currently $0.20 per share. In addition, the July 2020 Notes and the May 2020 Notes will be subject to mandatory conversion in connection with the completion of a future financing in the amount of at least $15 million, subject to the beneficial ownership limitations described above.
The convertible notes and debentures generally have terms of six months to one year. The convertible notes and debentures each accrue interest at a rate of 10% per annum, subject to increase to 18% per annum upon and during the occurrence of an event of default with respect to certain of our convertible notes and debentures. Interest is payable in cash or, with respect to certain of our convertible notes and debentures, and at the holder’s option, in shares of common stock based on the conversion price then in effect.
Pursuant to the terms of the Settlement Notes, the Company is required to make an offer to repurchase, at the holder’s option, the Settlement Notes at price in cash equal to 100% of the aggregate principal amount of the Settlement Note plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase following the consummation by the Company of a capital raising transactions, or a series of transactions, resulting in aggregate gross proceeds to the Company in excess of $7.5 million. Generally, we otherwise do not have the right to prepay any of the convertible notes and debentures without the prior written consent of the holders of such securities.
The convertible notes and debentures contain a number of affirmative and negative covenants and customary events of default. See “Risk Factors—Risks Related to Our Business—Our current and future indebtedness may impose significant operating and financial restrictions on us and affect our ability to access liquidity.”
The securities purchase agreements and Settlement Agreement, as applicable, also generally contain certain ongoing covenants of the Company, including rights of participation in certain future financing transactions, limitations on future variable rate transactions at “at-the-market” offerings and “most favored nation” provisions giving holders of certain of the convertible notes and debentures the benefit of any terms or conditions under which the Company agrees to issue or sell any common stock or common stock equivalents that are more favorable to an investor than the terms and conditions granted to such holder under the applicable securities purchase agreement and the transactions contemplated thereby.
The convertible notes and debentures are senior obligations of the Company. In addition, approximately $1.4 million aggregate principal amount of the convertible note and debenture are secured by a first priority security interest in substantially all of the assets of the Company and its subsidiaries. Certain convertible note and debentures are also secured by individual pledges by certain of our current and former officers and directors of our common stock owned by such officer and directors.
For additional information about our convertible notes and debentures, see Note 2 to our unaudited financial statements,Debt.
Forbearance Agreements
Effective as of June 23, 2020, we entered into the Forbearance Agreements with the holders of $13.2 million aggregate principal amount of the Default Notes, which are currently in default. Pursuant to the Forbearance Agreements, the holders of the Default Notes have agreed to forbear from exercising their rights and remedies under the Default Notes (including declaring such Default Notes (together with default amounts and accrued and unpaid interest) immediately due and payable) until the earlier of (i) the date that we complete a New Financing or (ii) the Termination Date. As a result of the ongoing default, the Default Notes are currently accruing interest at the default rate of 18% per annum and have also accrued defaults in an aggregate amount of $3.9 million.
The obligations of the holders to forbear from exercising their rights and remedies under the Default Notes pursuant to the Forbearance Agreements will terminate on the earliest of (i) the Termination Date, (ii) the date of any bankruptcy filing by the Company or its subsidiaries, (iii) the date on which the Company defaults on any of the terms and conditions of the Forbearance Agreements or (iv) the date the Forbearance Agreements are otherwise terminated or expire.
The Forbearance Agreements contain various customary and other representations, warranties and covenants of the Company and the holders of the Default Notes, including an agreement that the Default Notes (together with default amounts and accrued and unpaid interest) will be converted into common stock upon the closing of a New Financing at a conversion price equal to the lesser of (i) the conversion price in effect for the Default Notes on the date of such New Financing or (ii) 75% of the lowest per share price at which common stock is or may be issued in connection with such New Financing, in each case, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). Shares of our Series J-1 Preferred Stock, which are convertible into the Company’s common stock, will be issued in lieu of common stock to the extent that conversion of the Default Notes is prohibited by such beneficial ownership limitations.
Gemini 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 bear interest at the rate of interest of prime plus 2% per annum. There is $31,000 due on this credit line at September 30, 2020.
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.
Basis of Consolidation
The consolidated financial statements contained in this report include the accounts of GT Biopharma, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated.
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 Accounting Standards Codification (“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 November 30, 2020.
DESCRIPTION OF BUSINESS
We are a clinical stage biopharmaceutical company focused on the development and commercialization of novel immuno-oncology products based off our proprietary Tri-specific Killer Engager (TriKE™) and Tetra-specific Killer Engager (TetraKE™). Our TriKE and TetraKE platforms generate proprietary therapeutics designed to harness and enhance the cancer killing abilities of a patient’s own NK cells. Once bound to an NK cell, our moieties are designed to enhance the NK cell and precisely direct it to one or more specifically-targeted proteins expressed on a specific type of cancer cell or virus infected cell, ultimately resulting in the targeted cell’s death. TriKEs and TetraKEs are made up of recombinant fusion proteins, can be designed to target any number of tumor antigens on hematologic malignancies, sarcomas or solid tumors and do not require patient-specific customization.
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 CAR-T therapy.
We are also using our TriKE and TetraKE platforms to develop therapeutics useful for the treatment of infectious disease such as for the treatment of patients infected by HIV. While the use of anti-retroviral drugs has substantially improved the health and increased the longevity of individuals infected with HIV, these drugs are designed to suppress virus replication to help modulate progression to AIDS and to limit further transmission of the virus. Despite the use of anti-retroviral drugs, infected individuals retain reservoirs of latent HIV-infected cells that, upon cessation of anti-retroviral drug therapy, can reactivate and reestablish an active HIV infection. For a curative therapy, destruction of these latent HIV infected cells must take place. The HIV-TriKE contains the antigen binding fragment (Fab) from a broadly-neutralizing antibody targeting the HIV-Env protein. The HIV-TriKE is designed to target HIV while redirecting NK cell killing specifically to actively replicating HIV infected cells. The HIV-TriKE induced NK cell proliferation and demonstrated the ability in vitro to reactivate and kill HIV-infected T-cells. These findings indicate a potential role for the HIV-TriKE in the reactivation and elimination of the latently infected HIV reservoir cells by harnessing the NK cell’s ability to mediate the ADCC.
Our initial work has been conducted in collaboration with the Masonic Cancer Center at the University of Minnesota under a program led by Dr. Jeffrey Miller, the Deputy Director. 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.
Immuno-Oncology Platform
Tri-specific Killer Engagers (TriKEs) and Tetra-specific Killer Engagers (TetraKEs)
The generation of chimeric antigen receptor (“CAR”) expressing T cells from monoclonal antibodies has represented an important step forward in cancer therapy. These therapies involve the genetic engineering of T cells to express either CARs, or T cell receptors, (“TCRs”), and are designed such that the modified T cells can recognize and destroy cancer cells. While a great deal of interest has recently been placed upon CAR-T therapy, it has certain limitations for broad potential applicability because it can require an individual approach that is expensive and time consuming, and may be difficult to apply on a large scale. NK cells represent an important immunotherapeutic target as they are involved in tumor immune-surveillance, can mediate ADCC, contain pre-made granules with perforin and granzyme B and can quickly secrete inflammatory cytokines, and unlike T cells they do not require antigen priming and can kill cells in the absence of major histocompatibility complex (“MHC”) presentation of antigens. We believe there is a continued unmet medical need for targeted immuno-oncology therapies that can have the potential to be dosed in a patient-friendly outpatient setting, can be used on a stand-alone basis, augment the current monoclonal antibody therapeutics or be used in conjunction with more traditional cancer therapy. We believe our TriKE and TetraKE constructs have this potential and therefore we have generated, and intend to continue to generate, a pipeline of product candidates to be advanced into the clinic on our own or through potential collaborations with larger companies.
GTB-3550 TriKE™ and GTB-3550 TriKE™ Phase I/II Clinical Trial
GTB-3550 is the Company’s first TriKE™ product candidate which is a single-chain, tri-specific recombinant fusion protein construct composed of the variable regions of the heavy and light chains of anti-CD16 and anti-CD33 antibodies and a modified form of IL-15. The GTB-3550 Phase I/II clinical trial for treatment of patients with CD33-expressing, high risk MDSs, refractory/relapsed acute myeloid leukemia or advanced systemic mastocytosis opened for patient enrollment September 2019. The clinical trial is being conducted at the University of Minnesota’s Masonic Cancer Center in Minneapolis, Minnesota under the direction of Dr. Erica Warlick.
NK cells represent an important immunotherapeutic target as they are involved in tumor immune-surveillance, can mediate ADCC, contain pre-made granules with perforin and granzyme B and can quickly secrete inflammatory cytokines, and unlike T cells they do not require antigen priming and can kill cells in the absence of MHC presentation.
Unlike full-length antibodies, TriKEs and TetraKEs are small single-chain fusion proteins that bind the CD16 receptor of NK cells directly producing a potent and lasting response, as demonstrated by preclinical studies. An additional benefit they may have is attractive biodistribution, as a consequence of their smaller size, which we expect to be important in the treatment of solid tumors. In addition to these advantages, TriKEs and TetraKEs are designed to be non-immunogenic, have appropriate clearance properties and can be engineered quickly to target a variety of tumor antigens.
Background and Select Non-Clinical Data
In conjunction with our research agreement with the Masonic Cancer Center at the University of Minnesota, the exploration of targeting NK cells to a variety of tumors initially focused on novel bi-specific killer engagers (“BiKEs”) composed of the variable portions of antibodies targeting the CD16 activating receptor on NK cells and CD33 (AML and MDS; see figure below), CD19/CD22 (B cell lymphomas), or EpCAM (epithelial tumors (breast, colon and lung)) on the tumor cells.
Subsequently, a tri-specific (TriKE) construct that replaced the linker molecule between the CD16 scFv and the CD33 scFv with a modified IL-15 molecule, containing flanking sequences, was generated and tested. Data indicate that the CD16 x IL-15 x CD33 and CD16 x IL-15 x EpCAM TriKEs potently induce proliferation of healthy donor NK cells, possibly greater than that induced by exogenous IL-15, which is absent in the BiKE platform. Targeted delivery of the IL-15 through the TriKE also resulted in specific expansion of the NK cells without inducing T cell expansion on post-transplant patient samples.
When compared to the CD16 x CD33 BiKE, the CD16 x IL-15 x CD33 TriKE is also capable of potently restoring killing capacity of post-transplant NK cells against CD33-expressing HL-60 targets and primary AML blasts. These results demonstrated the ability to functionally incorporate an IL-5 cytokine into the BiKE platform and also demonstrated the possibility of targeting a variety of cytokines directly to NK cells while reducing off-target effects and the amount of cytokines needed to obtain biologically relevant function.
The figure below is a schematic of a BiKE construct (top) and a TriKE construct (bottom), which has the modified IL-15 linker between the CD16 scFv and the CD33 scFv components.
The TriKE constructs were also tested against three separate human tumor cell lines: HL-60 (promyelocitic leukemia), Raji (Burkitt’s lymphoma) and HT29 (colorectal adenocarcinoma), in addition to a model for ovarian cancer. All cell lines contained the Luc reporter to allow for in vivo imaging of the tumors. These systems were used to show in vivo efficacy of BiKEs (1633) and TriKEs (GTB-3550) against relevant human tumor targets (HL-60-luc) over an extended period of time. The system consisted of initial conditioning of mice using radiation (250-275 cGy), followed by injection of the tumor cells (I.V. for HL-60-luc and Raji-luc, intra-splenic for HT29-luc and IP for ovarian for MA-148-luc), a three-day growth phase, injection of human NK cells and repeated injection of the drugs of interest, BiKE and TriKE (three to five times a week). Imaging was carried out at day 7, 14 and 21, and extended as needed.
Figure A below shows the results (tumor burden and mortality) when dosing NK cells alone (top panel), the BiKE version (lacking IL-15) of GTB-3550 (middle panel; called 1633) and the TriKE, GTB-3550 (bottom panel; then called 161533) in the above described human tumor model, HL-60-luc. In the NK-cell-only arm, two out of the five mice were dead by day 21 with two of the surviving mice having extensive tumor burden as depicted by the colored images. In contrast, all five mice in each of the BiKE and TriKE arms survived. In addition, the tumor burden in the TriKE-treated mice was significantly less than in the BiKE-treated mice, demonstrating the improved efficacy from NK cells in the TriKE-treated mice.
Based on these results, and others, the IND for GTB-3550 was filed in June 2017 by the University of Minnesota. The 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 and clinical packages. The requested additional information and clarifications were completed and incorporated by us into the IND in eCTD format. We filed the IND amendment in June 2018 and announced on November 1, 2018 that we had received notification from the FDA that the IND was open and the Company was authorized to initiate a first-in-human Phase I study with GTB-3550 in AML, MDS and severe mastocytosis. We began the Phase I clinical trial in January 2020.
Generation of humanized single-domain antibody targeting CD16 for incorporation into the TriKE platform
To develop second generation TriKEs, we designed a new humanized CD16 engager derived from a single-domain antibody. While scFvs consist of a heavy and a light variable chain joined by a linker, single-domain antibodies consist of a single variable heavy chain capable of engaging without the need of a light chain counterpart (see figure below).
These single-domain antibodies are thought to have certain attractive features for antibody engineering, including physical stability, ability to bind deep grooves and increased production yields, amongst others. Pre-clinical studies demonstrated increased activity (NK Cell Degranulation) and functionality (NC Cell Cytokine Production) of the single-domain CD16 TriKE (GTB-C3550) compared to the original TriKE (GTB-3550) (see figure below). This data was presented at the 2017 American Society of Hematology Conference.
Targeting Solid Tumors and Other Potentially Attractive Characteristics
Unlike full-length antibodies, TriKEs and TetraKEs are small single-chain fusion proteins that bind the CD16 receptor of NK cells directly producing a potentially more potent and lasting response as demonstrated by preclinical studies. An additional benefit that they may have is an attractive biodistribution, because of their smaller size, which we expect to be important in the treatment of solid tumors. In addition to these potential advantages, TriKEs and TetraKEs are designed to be non-immunogenic, have appropriate clearance properties and can be engineered quickly to target a variety of tumor antigens. We believe these attributes make them an ideal pharmaceutical platform for potentiated NK cell-based immunotherapies and have the potential to overcome some of the limitations of CAR-T therapy and other antibody therapies.
Examples of our earlier stage solid tumor targeting product candidates are focused on EpCAM, Her2, Mesothelin (mesothelioma and lung adenocarcinoma) and CD133 alone and in combination. We believe certain of these constructs have the potential to target prostate, breast, colon, ovarian, liver, and head and neck cancers. Depending on the availability of drug supply, we hope to initiate human clinical testing for certain of our solid tumor product candidates later this year.
Efficient Advancement of Potential Future Product Candidates - Production and Scale Up
We are using our TriKE and TetraKE platforms with the intent to bring to market multiple immuno-oncology products that can treat a range of hematologic malignancies, sarcomas and solid tumors. The platforms are scalable and we are currently working with several third parties investigating the optimal expression system of the TriKEs and TetraKE constructs which we expect to be part of a process in which we are able to produce IND-ready moieties in approximately 90-120 days after the construct conceptual design.
After conducting market and competitive research, specific moieties can then be rapidly advanced into the clinic on our own or through potential collaborations with larger companies. We are currently evaluating over a dozen moieties and intend to announce additional clinical product candidates.
We believe our TriKEs and TetraKEs will have the ability, if approved for marketing, to be used on a stand-alone basis, augment the current monoclonal antibody therapeutics, or be used in conjunction with more traditional cancer therapy and potentially overcome certain limitations of current CAR-T therapy.
Immuno-Oncology Product Candidates
Our TriKE product candidates, GTB-3550 and GTB-C3550, 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 ADCC.
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 GTB-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. GTB-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.
In addition, we have recently terminated further development of GTB-1550, which targets CD19+ and/or CD22+ hematological malignancies following completion of the Phase II component of a Phase I/II NHL/ALL trial.
GTB-3550
GTB-3550 is our first TriKE product candidate. It is a single-chain, tri-specific scFv recombinant fusion protein conjugate composed of the variable regions of the heavy and light chains of anti-CD16 and anti-CD33 antibodies and a modified form of IL-15. We intend to study this anti-CD16-IL-15-anti-CD33 TriKE in CD33 positive leukemias, a marker expressed on tumor cells in AML, MDS, and other hematopoietic malignancies. CD33 is primarily a myeloid differentiation antigen with endocytic properties broadly expressed on AML blasts and, possibly, some leukemic stem cells. CD33 or Siglec-3 (sialic acid binding Ig-like lectin 3, SIGLEC3, SIGLEC3, gp67, p67) is a transmembrane receptor expressed on cells of myeloid lineage. It is usually considered myeloid-specific, but it can also be found on some lymphoid cells. The anti-CD33 antibody fragment that will be used for these studies was derived from the M195 humanized anti-CD33 scFV and has been used in multiple human clinical studies. It has been exploited as target for therapeutic antibodies for many years. We believe the recent approval of the antibody-drug conjugate gemtuzumab validates this targeted approach.
The GTB-3550 IND will focus on AML. 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 GTB-3550 could serve as a relatively safe, cost-effective and easy-to-use therapy for resistant/relapsing AML and could also be combined with chemotherapy as frontline therapy thus targeting the larger market.
The IND for GTB-3550 was filed in June 2017 by the University of Minnesota. The 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 and clinical packages. The requested additional information and clarifications were completed and incorporated by us into the IND in eCTD format. We filed the IND amendment in June 2018 and announced on November 1, 2018 that we had received notification from the FDA that the IND was open and the Company was authorized to initiate a first-in-human Phase I study with GTB-3550 in AML, MDS and severe mastocytosis. We began the Phase I clinical trial in January 2020.
GTB-C3550
GTB-C3550 is a next-generation, follow-on, to our lead TriKE, GTB-3550. GTB-C3550 contains a modified CD16 moiety which has improved binding characteristics and enhanced tumor cell killing based on functional assays and animal models of AML. Using our platform technology, we substituted the anti-CD16 scFv arm in GTB-3550 with a novel humanized single-domain anti-CD16 antibody to create this second-generation molecule which may have improved functionality. Single-domain antibodies, such as GTB-C3550, typically have several advantages, including better stability and solubility, more resistance to pH changes, can better recognize hidden antigenic sites, lack of a VL portion thus preventing VH/VL mispairing and are suitable for construction of larger molecules. GTB-C3550 induced a potent increase in NK cell degranulation, measured by CD107a expression against HL-60 AML tumor targets when compared to our first-generation TriKE (70.75±3.65% vs. 30.75±5.05%). IFN production was similarly enhanced (29.2±1.8% vs. 6.55±1.07%). GTB-C3550 also exhibited a robust increase in NK cell proliferation (57.65±6.05% vs. 20.75±2.55%). GTB-3550 studies will help inform the development of GTB-C3550 which we expect will de-risk the GTB-C3550 program as data will be generated to make an informed decision on which, or both, will be brought into later phase studies.
GTB-1615
GTB-1615 is an example of our first-generation TetraKEs designed for the treatment of solid tumors. It is a single-chain fusion protein composed of CD16-IL15-EpCAM-CD133. EpCAM is found on many solid tumor cells of epithelial origin and CD133 is a marker for cancer stem cells. This TetraKE is designed to target not only the heterogeneous population of cancer cells found in solid tumors but also the cancer stem cells that are typically responsible for recurrences. Depending on the availability of drug supply, we hope to initiate human clinical testing for certain of our solid tumor product candidates later this year.
Our Strategy
Our goal is to be a leader in immuno-oncology therapies targeting a broad range of indications including hematological malignancies, sarcoma and solid tumors. Key elements of our strategy are to:
Rapidly advanced our Tri-specific Killer Engagers (TriKEs), GTB-3550 and GTB-C3550
Our TriKE and TetraKE product candidates have the potential to be groundbreaking therapies targeting a broad range of hematologic malignancies, sarcomas and solid tumors. We are preparing to study GTB-3550, an anti-CD16-IL-15-anti-CD33 TriKE in CD33 positive leukemias, a marker expressed on tumor cells in AML, MDS and other myeloid malignancies. We began a Phase I clinical trial in the fourth quarter of 2019 in patients with relapsed/refractory AML. The Phase I trial will be a dose finding study. We expect this will be closely followed by Phase II trials to determine the most efficacious dosing and cycles with the aim to maximize efficacy while minimizing on-target, off-disease adverse events.
GTB-C3550 contains a humanized single-domain anti-CD16 moiety which demonstrated improved binding characteristics and enhanced tumor cell killing based on functional assays and animal models of AML.
We have designed GTB-3550 and GTB-C3550, if approved for marketing, to serve as a relatively safe, cost-effective and easy-to-use therapies for resistant/relapsing AML or MDS which could also be combined with chemotherapy as frontline therapy thus targeting a broad AML/MDS market.
GTB-C3550 is a next-generation, follow-on, to our lead TriKE, GTB-3550. GTB-3550 studies will help inform the development of GTB-C3550. We believe this will de-risk the GTB-C3550 program as the data being generated will help to make informed decisions on which, or both, will be brought into later phase studies and in which patient populations.
Utilize our TriKE and TetraKE platform technologies to develop a robust pipeline of targeted immuno-oncology products targeting a wide range of hematologic malignancies, sarcomas and solid tumors for development on our own and through potential collaborations with larger pharmaceutical companies
We are using our TriKE and TetraKE platforms with the intent to bring to market multiple, targeted, off-the-shelf therapies that can treat a range of hematologic malignancies, sarcomas and solid tumors. The platforms are scalable and we are currently working with several third parties investigating the optimal expression system of the TriKEs and TetraKE constructs which we expect to be part of a process in which we are able to produce IND-ready moieties in approximately 90-120 days after the construct conceptual design. After conducting market and competitive research, specific moieties can then be rapidly advanced into the clinic on our own or through potential collaborations with larger pharmaceutical companies.
We believe our TriKEs and TetraKEs will have the ability, if approved for marketing, to be used on a stand-alone basis, augment the current monoclonal antibody therapeutics, or be used in conjunction with more traditional cancer therapy and potentially overcome certain limitations of current CAR-T therapy.
Oncology Markets
B-cell Lymphomas/Leukemias
B-cell lymphoma is a type of cancer that forms in B cells (a type of immune system cell). B-cell lymphomas may be either indolent (slow-growing) or aggressive (fast-growing). Non-Hodgkin lymphoma has an incidence rate of 19.4 per 100,000 per year and B-cell lymphomas make up most (about 85%) of NHL in the United States. There are many different types of B-cell non-Hodgkin lymphomas. These include Burkitt lymphoma, chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL), diffuse large B-cell lymphoma, follicular lymphoma and mantle cell lymphoma.
Acute Lymphoblastic Leukemia
ALL is an acute form of leukemia, or cancer of the white blood cells, characterized by the overproduction and accumulation of immature white blood cells, known as lymphoblasts. In persons with ALL, lymphoblasts are overproduced in the bone marrow and continuously multiply, causing damage and death by inhibiting the production of normal cells (such as red and white blood cells and platelets) in the bone marrow and by spreading (infiltrating) to other organs.
“Acute” is defined by the World Health Organization standards, in which greater than 20% of the cells in the bone marrow are blasts. Chronic lymphoblastic leukemia is defined as having less than 20% blasts in the bone marrow. Acute lymphoblastic leukemia is seen in both children and adults; the highest incidence is seen between ages 2 to 3 years (>90 cases per 1 million per year). ALL is the most common cancer diagnosed in children and represents approximately 25% of cancer diagnoses among children younger than 15 years. Among children with ALL, approximately 98% attain remission, and approximately 85% of patients aged 1 to 18 years with newly diagnosed ALL treated on current regimens are expected to be long-term event-free survivors, with over 90% surviving at 5 years.
Multiple Myeloma
Multiple myeloma is a type of cancer that forms in white blood cells. Multiple myeloma causes cancer cells to accumulate in the bone marrow, where they crowd out healthy blood cells. Multiple myeloma is also characterized by destructive lytic bone lesions (rounded, punched-out areas of bone), diffuse osteoporosis, bone pain and the production of abnormal proteins which accumulate in the urine. Anemia is also present in most multiple myeloma patients at the time of diagnosis and during follow-up. Anemia in multiple myeloma is multifactorial and is secondary to bone marrow replacement by malignant plasma cells, chronic inflammation, relative erythropoietin deficiency and vitamin deficiency. Plasma cell leukemia, a condition in which plasma cells comprise greater than 20% of peripheral leukocytes, is typically a terminal stage of multiple myeloma and is associated with short survival.
Myeloid Leukemias
Acute Myeloid Leukemia
AML is a heterogeneous hematologic stem cell malignancy in adults with incidence rate of 4.3% per 100,000 populations. The median age at the time of diagnosis is 68 years. AML is an aggressive disease and is fatal without anti-leukemic treatment. AML is the most common form of adult leukemia in the U.S. These patients will require frontline therapy, usually chemotherapy including cytarabine and an anthracycline, a therapy that has not changed in over 40 years. MDSs are a heterogeneous group of myeloid neoplasms characterized by dysplastic features of erythroid/myeloid/megakaryocytic lineages, progressive bone marrow failure, a varying percentage of blast cells and enhanced risk to evolve into acute myeloid leukemia. It is estimated that over 10,000 new cases of MDS are diagnosed each year and there are minimal treatment options; other estimates have put this number higher. In addition, the incidence of MDS is rising for unknown reasons.
Sarcomas
A sarcoma is a type of cancer that develops from certain tissues, like bone or muscle. Bone and soft tissue sarcomas are the main types of sarcoma. Soft tissue sarcomas can develop from soft tissues like fat, muscle, nerves, fibrous tissues, blood vessels or deep skin tissues. They can be found in any part of the body. Most of them develop in the arms or legs. They can also be found in the trunk, head and neck area, internal organs and the area in back of the abdominal cavity (known as the retroperitoneum). Sarcomas are not common tumors, and most cancers are the type of tumors called carcinomas.
The most common types of sarcoma in adults are undifferentiated pleomorphic sarcoma (previously called malignant fibrous histiocytoma), liposarcoma and leiomyosarcoma. Certain types occur more often in certain areas of the body than others. For example, leiomyosarcomas are the most common abdominal sarcoma, while liposarcomas and undifferentiated pleomorphic sarcoma are most common in legs. But pathologists (doctors who specialize in diagnosing cancers by how they look under the microscope), may not always agree on the exact type of sarcoma. Sarcomas of uncertain type are very common (American Cancer Society, Cancer Facts & Figures 2019).
Manufacturing
We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of any of our product candidates. We rely on a small number of third-party manufacturers to produce our compounds and expect to continue to do so to meet the preclinical and clinical requirements of our potential product candidates as well as for all of our commercial needs. We do not have long-term agreements with any of these third parties. We require in our manufacturing and processing agreements that all third-party contract manufacturers and processors produce active pharmaceutical ingredients and finished products in accordance with the FDA’s cGMPs and all other applicable laws and regulations. We maintain confidentiality agreements with potential and existing manufacturers in order to protect our proprietary rights related to our drug candidates.
Intellectual Property
We seek to protect our proprietary information by means of United States and foreign patents, trademarks and copyrights. In addition, we rely upon trade secret protection and contractual license agreements to protect certain of our proprietary information and products. We seek to protect and enhance proprietary technology, inventions, and improvements that are commercially important to the development of our business by seeking, maintaining, and defending patent rights, whether developed internally or licensed or acquired from third parties. We also plan to rely on regulatory protection afforded through orphan drug designations, available regulatory exclusivities and patent term extensions where available. To achieve this objective, a strategic focus for us has been to develop our own intellectual property, while also identifying and licensing patents that provide protection and serve as an optimal platform to enhance our intellectual property and technology base.
University of Minnesota Licensed Intellectual Property
We are party to an exclusive worldwide license agreement with the Regents of the University of Minnesota, to further develop and commercialize cancer therapies using TriKE technology developed by researchers at the university to target NK cells to cancer. Under the terms of the agreement, we receive exclusive rights to conduct research and to develop, make, use, sell, and import TriKE technology worldwide for the treatment of any disease, state or condition in humans. We are responsible for obtaining all permits, licenses, authorizations, registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as the TriKE technology, including without limitation the FDA in the United States and the European Agency for the Evaluation of Medicinal Products in the European Union. We are presently evaluating GTB-3550, our lead TriKE therapeutic product candidate in a Phase I/II clinical trial. . Under the agreement, the University of Minnesota will receive an upfront license fee, royalty fees ranging from 4% to 6%, minimum annual royalty payments of $0.25 million beginning in 2022, $2.0 million in 2025, and $5.0 million in 2027 and certain milestone payments totaling $3.1 million.
The TriKE™ patent estate licensed from the Regents of the University of Minnesota includes more than 18 patent applications and the following foundational patent application:
Appl. No. | | Title | | Country | | Status |
PCT Patent Application Number PCT/US2016/055722 | | Therapeutic compounds and methods | | Worldwide | | Pending |
Daniel A. Vallera, Ph.D. Licensed Intellectual Property
We are party to an exclusive worldwide license agreement with Daniel A. Vallera, Ph.D. and his co-inventor Jeffrey Lion, or jointly, Dr. Vallera, to further develop and commercialize DT2219ARL (GTB-1550), a novel therapy for the treatment of various human cancers. Under the terms of the agreement, we received exclusive rights to conduct research and to develop, make, use, sell, and import DT2219ARL worldwide for the treatment of any disease, state or condition in humans. We shall be responsible for obtaining all permits, licenses, authorizations, registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as DT2219ARL, including without limitation the FDA in the United States and the European Agency for the Evaluation of Medicinal Products in the European Union. . Under the agreement, Dr. Vallera will receive an upfront license fee, royalty fees ranging from 3% for net sales and 25% of net sublicensing revenues, and certain milestone payments totaling $1.5 million.
The patent estate licensed from the Dr. Vallera includes more than 16 patent applications and the following issued U.S. patent and U.S. patent application:
Pat./Pub. No. | | Title | | Country | | Status |
U.S. Patent Number 9,371,386 | | Methods and compositions for bi-specific targeting of cd19/cd22 | | US | | Issued |
U.S. Patent Application Number 15/187,579 | | Methods and compositions for bi-specific targeting of cd19/cd22 | | US | | Pending |
Employees
As of November ___, 2020, we had two employees. Many of our activities are outsourced to consultants who provide services to us on a project basis. As business activities require and capital resources permit, we will hire additional employees to fulfill our company’s needs.
Legal Proceedings
On December 24, 2018, the Empery Funds filed in the N.Y. Supreme Court, Index No. 656408/2018, alleging causes of action against the Company for Breach of Contract, Liquidated Damages, Damages, and Indemnification. The claims arose out of a securities purchase agreement entered into between the Empery Funds and the Company pursuant to which the Company issued the Original Securities to the Empery Funds in or around January 2018.On June 19, 2020, the Company and the Empery Funds, among others, entered into the Settlement Agreement resolving all remaining disputes between the parties pertaining to the Original Securities. See “Prospectus Summary—Recent Developments—Settlement with Empery Funds.”
On August 28, 2019, a complaint was filed in the Superior Court of California, County of Los Angeles, West Judicial District, Santa Monica Courthouse, Unlimited Civil Division by Jeffrey Lion and Daniel Vallera. Lion and Vallera are referred to jointly as the “Plaintiffs”. The complaint was filed against the Company and its subsidiary Oxis Biotech, Inc. (either of them or jointly, the “Defendant”). The Plaintiffs allege breach of a license agreement between the Plaintiffs and the Defendant entered into on or about September 3, 2015. Lion alleges breach of a consulting agreement between Lion and the Defendant entered into on or about September 1, 2015. Vallera alleges breach of a consulting agreement between Vallera and the Defendant entered into in or around October, 2018. The complaint seeks actual damages of $1,670,000, for the fair market value of the number of shares of the Company’s common stock that at the time of judgment represent 15,000,000 shares of such stock as of September 1, 2015, and that the Company issue Lion the number of common shares the Company’s common stock that at the time of judgment represent 15,000,000 such shares as of September 1, 2015.
Form and Year of Organization
In 1965, the corporate predecessor of the Company, Diagnostic Data, Inc., was incorporated in the State of California. Diagnostic Data, Inc. 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. On July 17, 2017, we amended our certificate of incorporation for the purpose of changing our name from Oxis International, Inc. to GT Biopharma, Inc.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the name, age and position held by each of our executive officers and directors as of the date of this prospectus. Directors are elected for a period of one year and thereafter serve until the next annual meeting at which their successors are duly elected by the stockholders.
Name | | Position |
Anthony J. Cataldo | 68
| Chief Executive Officer and Chairman of the Board |
Michael Handelman | 61
| Chief Financial Officer |
Bruce Wendel | 67
| Director |
Greg Berk | 62
| Director |
Anthony J. Cataldowas appointed Chief Executive Officer and Chairman of the Board on March 15, 2019. Previously he served as Vice Chairman of the Board since January 2019. Mr. Cataldo has extensive experience with the Company, having served on the Board from July 2014 until November 2018, also serving as Chief Executive Officer from November 2014 to September 2017 and Executive Chairman of the Board from September 2017 to February 2018 during that time. Prior to joining the Company, from February 2011 until June 2013, Mr. Cataldo served as Chairman and CEO/Founder of Genesis Biopharma, Inc. (now known as Iovance Biotherapeutics, Inc.). Mr. Cataldo is credited with developing the Stage Four Cancer treatment for melanoma known as Lion/Genesis using assets acquired from the National Cancer Institute (NIH). Mr. Cataldo also served as non-executive co-chairman of the board of directors of MultiCell Technologies, Inc., a supplier of functional, non-tumorigenic immortalized human hepatocytes from February 2005 until July 2006.
Michael Handelmanwas appointed Chief Financial Officer on November 13, 2020. Mr. Handelman became a Director of the GoooGreen, Inc. in August 2020, and Chairman of the Board of Directors and Secretary in September 2020. He has served as Chief Financial Officer of Clickstream Corporation since October 2015. He served as Chief Financial Officer of Lion Biotechnologies, Inc. from February 2011 until June 2015, and was a member of the Lion Bio Board of Directors from February 2013 until May 2013. Mr. Handelman served as the Chief Financial Officer and as a financial management consultant of Oxis International, Inc., a public company engaged in the research, development and commercialization of nutraceutical products, from August 2009 until October 2011. From November 2004 to July 2009, Mr. Handelman served as Chief Financial Officer and Chief Operating Officer of TechnoConcepts, Inc., formerly a public company engaged in designing, developing, manufacturing and marketing wireless communications semiconductors, or microchips. Prior thereto, Mr. Handelman served from October 2002 to October 2004 as Chief Financial Officer of Interglobal Waste Management, Inc., a manufacturing company, and from July 1996 to July 1999 as Vice President and Chief Financial Officer of Janex International, Inc., a children’s toy manufacturer. Mr. Handelman was also the Chief Financial Officer from 1993 to 1996 of the Los Angeles Kings, a National Hockey League franchise. Mr. Handelman is a certified public accountant and holds a degree in accounting from the City University of New York.
Bruce Wendelwas appointed as a director on November 12, 2020. From April 2018 to May 2019, Mr. Wendel served as the Chief Business Development Officer for Prometic Biotherapeutics, Inc., a pharmaceutical development company. Mr. Wendel also served as Chief Strategic Officer of Hepalink USA, the U.S. subsidiary of Shenzhen Hepalink Pharmaceutical Company from February 2012 to July 2017, and Chief Executive Officer of Scientific Protein Laboratories, LLC from December 2014 to June 2015. He also served as a director of ProMetic Life Sciences Inc. and Vice Chairman and Chief Executive Officer at Abraxis BioScience, LLC, where he oversaw the development and commercialization of Abraxane® and led the negotiations that culminated in the acquisition of the company by Celgene Corporation in 2010. He began his 14 years with Bristol-Myers Squibb as in-house counsel before shifting to global business and corporate development, where he served in business and corporate development roles of increasing responsibility at American Pharmaceutical Partners, IVAX Corporation and Bristol-Myers Squibb. Mr. Wendel earned a juris doctorate degree from Georgetown University Law School, and a B.S. from Cornell University.
Greg Berkwas appointed as a director on November 12, 2020. Prior to joining the Company, Dr. Berk has served as a private consultant in the field of drug development and is the Chief Medical Officer of Celularity, a privately owned company. Previously, he served as Chief Medical Officer at Verastem as and President, Chief Medical Officer and Board Member of Sideris Pharmaceuticals. From May 2012 until January 2014, Dr. Berk was Chief Medical Officer of BIND Therapeutics. Prior to this, he was Chief Medical Officer at Intellikine, a privately held biotechnology company focused on the discovery and development of novel PI3 Kinase and mTOR inhibitors. Intellikine was acquired by Takeda/Millennium in January 2012. He also served as Senior Vice President of Global Clinical Development at Abraxis BioScience, where he was responsible for the company’s overall clinical strategy, including efforts to expand the indications for their lead clinical program (Abraxane®). Dr. Berk obtained his medical degree from Case Western Reserve University, and completed his internship, residency and fellowship in internal medicine, hematology and medical oncology, at the Weill Medical College of Cornell University and New York Presbyterian Hospital, where he also served as a faculty member from 1989-2004. During this time Dr. Berk served as an investigator on several industry-sponsored and cooperative group oncology clinical trials, including the pivotal trials for Gleevec® and Avastin®.
Board Committees, Compensation Committee Interlocks and Insider Participation
At the present time the duties of an Audit Committee, Nominating and Governance Committee and Compensation Committee (including with respect to setting executive officer compensation) are performed by the Board as a whole. However, as a result of the appointment of Mr. Wendel and Dr. Berk to our Board, these committees will be reconstituted.
Director Independence
Mr. Wendel and Dr. Berk each qualify as an “independent director” as defined by Item 407 of Regulation S-K.
We have elected to use the definition for “director independence” under the Nasdaq Stock Market’s listing standards, which defines an “independent director” as “a person other than an officer or employee of us or its subsidiaries or any other individual having a relationship, which in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.” The definition further provides that, among others, employment of a director by us (or any parent or subsidiary of ours) at any time during the past three years is considered a bar to independence regardless of the determination of our Board.
EXECUTIVE COMPENSATION
As a “smaller reporting company” under SEC rules, our named executive officers for the fiscal year ended December 31, 2019 (collectively, the “Named Executive Officers”) were as follows:
●
Anthony J. Cataldo, our current Chief Executive Officer;
●
Steven Weldon, was appointed Chief Financial Officer on March 20, 2019, and resigned on November 10, 2020; and
●
Raymond Urbanski, M.D., Ph.D., our former Chief Executive Officer who resigned from the Company on March 15, 2019.
No other executive officers received total annual compensation during the fiscal year ended December 31, 2019 in excess of $100,000.
Summary Compensation Table
The following table sets forth certain information relating to the total compensation earned for services rendered to us in all capacities by our Named Executive Officers.
| Name and Principal Position | Year | | | | All Other Compensation ($)(2) | |
Anthony J. Cataldo (3) | 2019 | 225,000 | — | 1,281,000 | 75,000 | 1,581,000 |
| Chief Executive Officer | 2018 | 190,000 | — | - | 404,151 | 594,151 |
Steven Weldon (4) | 2019 | 230,000 | — | 823,500 | — | 1,053,500 |
| Chief Financial Officer | 2018 | 230,000 | — | - | — | 230,000 |
Raymond Urbanski, M.D., Ph.D. (5) | 2019 | 318,000 | — | - | — | 318,000 |
| Former Chief Executive Officer | 2018 | 321,154 | — | 7,644,490 | — | 7,965,644 |
(1)
The amounts in this column represent the aggregate grant date fair value of the stock awards, determined in accordance with Financial Accounting Standards Board ASC Topic 718. The Company determines the grant date fair value of the awards by multiplying the number of shares granted by the closing market price of one share of the Company’s common stock on the award grant date. These amounts do not reflect the actual economic value that will be realized by the Named Executive Officer upon the sale of these awards.
(2)
The amount in this column represents compensation earned under a consultant agreement with the Company described in more detail below under “—Employment Arrangements.”
(3)
Mr. Cataldo was appointed Chief Executive Officer on March 15, 2019. Prior to his appointment as Chief Executive Officer, Mr. Cataldo provided services to the Company under a consulting agreement from February 14, 2018. Mr. Cataldo also served as Executive Chairman of the Board until February 2018 for which service he received salary in 2018.
(4)
Mr. Weldon was appointed Chief Financial Officer on March 20, 2019, and resigned on November 10, 2020.
(5)
Dr. Urbanski resigned as Chief Executive Officer on March 15, 2019.
Employment Arrangements
On October 18, 2018, the Company entered into a consultant agreement with Anthony Cataldo (the “Consulting Agreement”). The Consulting Agreement terminated in March 2019 in connection with Mr. Cataldo’s appointment as Chief Executive Officer of the Company. The Consulting Agreement replaced an earlier consulting agreement, dated February 14, 2018, and provide for payments of $25,000 per month to Mr. Cataldo during the term of the agreement.
On April 1, 2019, the Company entered into a settlement agreement and general release with Mr. Urbanski (as amended, the “Severance Agreement”) in connection with his resignation as Chief Executive Officer. Pursuant to the Severance Agreement, Mr. Urbanski received a cash severance payment of approximately $170,000 in two installments. In consideration for the severance payment, Mr. Urbanski provided a general release of claims in favor of the Company, including an acknowledgement that Mr. Urbanski was not entitled to any further compensation, remuneration or benefits under his executive employment agreement as a result of his resignation from the Company.
Effective August 11, 2020, the Company and Mr. Cataldo entered into the Cataldo Agreement with respect to Mr. Cataldo’s continued employment as Chief Executive Officer of the Company. The Initial Term of the Cataldo Agreement is three years with the option of automatic one-year renewals thereafter. Mr. Cataldo will be paid a cash salary of $30,000 per month, together with customary benefits, expense reimbursement and the possibility of performance bonuses. Mr. Cataldo will receive a stock grant equal to ten percent of the fully diluted shares of common stock of the Company (calculated with the inclusion of the current stock holdings of Mr. Cataldo) upon conversion of options, warrants and Convertible Notes in association with a national markets qualified financing as consideration for entering into the Cataldo Agreement (with such stock to vest and be delivered within 30 days after the national markets qualified financing). Mr. Cataldo will be entitled to certain additional severance payments and other benefits in connection with a Change in Control Period Involuntary Termination or a Non Change in Control Period Involuntary Termination (each as defined in the Cataldo Agreement) or his resignation as a result of a Change in Control Period Good Reason or Non Change in Control Period Good Reason (each as defined in the Cataldo Agreement). Following the Effective Date, Mr. Cataldo will also continue to serve as the chairman of the board of the Company.
Effective August 11, 2020, the Company and Mr. Weldon entered into the Weldon Agreement with respect to Mr. Weldon’s continued employment as the Chief Financial Officer of the Company. The Initial Term of the Weldon Agreement is three years with the option of automatic one-year renewals thereafter. Mr. Weldon will be paid a cash salary of $25,000 per month, together with customary benefits, expense reimbursement and the possibility of performance bonuses. Mr. Cataldo will receive a stock grant equal to seven percent of the fully diluted shares of common stock of the Company (calculated with the inclusion of the current stock holdings of Mr. Weldon) upon conversion of options, warrants and Convertible Notes in association with a national markets qualified financing as consideration for entering into the Weldon Agreement (with such stock to vest and be delivered within 30 days after the national markets qualified financing). Mr. Weldon will be entitled to certain additional severance payments and other benefits in connection with a Change in Control Period Involuntary Termination or a Non Change in Control Period Involuntary Termination (each as defined in the Weldon Agreement) or his registration as a result of a Change in Control Period Good Reason or Non Change in Control Period Good Reason (each as defined in the Weldon Agreement). Following the Effective Date, Mr. Weldon will also continue to serve as the principal accounting officer and as a director of the Company.
Outstanding Equity Awards at Fiscal Year End
As of December 31, 2019, there were no unexercised options, unvested stock awards or outstanding equity incentive plan awards held by our Named Executive Officers.
Director Compensation
The following table summarizes the total compensation we paid to our non-employee directors for the fiscal year ended December 31, 2019:
| Name | Fees Earned or Paid in Cash ($) | | | |
Dr. John Bonfiglio(1) | 15,325 | - | - | 15,325 |
Dr. Peter Kiener(1) | 15,325 | - | - | 15,325 |
Geoffrey Davis(1) | 15,325 | - | - | 15,325 |
(1)
Dr. Bonfiglio, Dr. Kiener and Mr. Davis resigned from the Board on March 20, 2019.
Effective January 2018, the following annual compensation for non-employee directors was approved by the Compensation Committee of our Board:
●
an additional cash payment of $15,000 for acting as chair of a committee and $5,000 for acting as a member of a committee; and
●
upon approval of a stock option plan, a grant of options to purchase 150,000 shares of our common stock, vesting over a three year period (with vesting accelerating if the Company undergoes a change of control transaction for cash).
A director who is one of our employees receives no additional compensation for his service as a director or as a member of a committee of the Board.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth certain information regarding beneficial ownership of our common stock and Preferred Stock as of November 30, 2020 (a) by each person known by us to own beneficially 5% or more of any class of our voting securities, (b) by each of our Named Executive Officers, (c) by each of our directors and (d) by all our current executive officers and directors as a group. As of November 30, 2020, there were (a) 77,518,614 shares of common stock, (b) 96,230 shares of Series C Preferred Stock and (c) 2,353,548 shares of Series J-1 Preferred Stock issued and outstanding.
Shares of common stock subject to stock options, Preferred Stock, convertible notes and debentures and warrants that are currently exercisable or convertible, or exercisable or convertible within 60 days of November 30, 2020, are deemed to be outstanding for purposes of computing the percentage ownership of that person but are not treated as outstanding for computing the percentage ownership of any other person. Unless indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
Except as otherwise indicated, the address of each stockholder is c/o GT Biopharma, Inc. at 9350 Wilshire Blvd., Suite 203, Beverly Hills, CA 90212.
Name and Address of Beneficial Owner(1) | Shares of Common Stock Beneficially Owned | Percentage of Class Outstanding | Shares of Series J-1 Preferred Stock Beneficially Owned(2) | Percentage of Class Outstanding |
| | | | | |
| Security Ownership of Certain Beneficial Owners: | | | | |
Alpha Capital Anstalt(3) | 7,648,430(4) | 9.99%(5) | — | |
Bristol Capital, LLC(6) | —(7) | — | 1,575,324 | 66.9% |
Bristol Investment Fund, Ltd.(6) | 6,619,779(8) | 9.99%(9) | 778,224 | 33.1% |
James Heavener(10) | 7,648,430(11)(16) | 9.99%(17) | — | — |
| Adam Kasower | 7,625,485(11) | 9.96% | | |
Bigger Capital Fund, LP(12) | 4,500,000(11) | 5.88% | — | — |
District 2 Capital Fund LP(13) | 4,289,077(11) | 5.60% | — | — |
GT Bio Partners LLC(14) | 7,500,000(11) | 9.80% | — | — |
| Kevin Young | 5,000,000(11) | 6.53% | — | — |
Red Mango Enterprises Limited(15) | 7,648,430(10)(16) | 9.99%(17) | — | — |
The Rosalinde and Arthur Gilbert Foundation(18) | 7,648,430(10)(16) | 9.99%(17) | — | — |
The RSZ Trust(19) | 5,938,566(11) | 7.76% | — | — |
| Steven Weldon | 4,500,000 | 5.89% | | |
| | | | | |
| Security Ownership of Management and Directors: | | | | |
| Anthony J. Cataldo | 7,013,345 | 9.16% | — | — |
| Executive officers and directors as a group - 4 people | 7,013,345 | 9.16% | — | — |
(1)
The Company is not aware of any holder beneficially owning in excess of 5% of the outstanding shares of Series C Preferred Stock.
(2)
Each holder of Series J-1 Preferred Stock is entitled to the number of votes equal to the number of shares of common stock into which the shares of Series J-1 Preferred Stock held by such holder could be converted as of November 30, 2020 (voting together, as a single class, with the holders of common stock and Series C Preferred Stock). Each share of our Series J-1 Preferred Stock is currently convertible into five shares of our common stock, subject to a “blocker provision” which prohibits conversion if such conversion would result in the holder being the beneficial owner of in excess of 9.99% of our common stock.
(3)
The address of Alpha Capital Anstalt (“Alpha Capital”) is Lettstrasse 32, FL-9490 Vaduz, Furstentums, Liechtenstein. We have been advised Konrad Ackermann exercises voting and investment power over securities held by Alpha Capital.
(4)
As reported on Schedule 13G/A filed with the SEC on January 16, 2020, Alpha Capital holds shares of our common stock plus other securities that are convertible or exercisable for shares of our common stock only if such conversion or exercise does not result in Alpha Capital (together with its affiliates) holding more than 9.99% of our outstanding shares of common stock. The full conversion or exercise of such securities of the Company held by Alpha Capital would exceed such beneficial ownership limitation. This represents the maximum number of shares of common stock that Alpha Capital could beneficially own as of November 30 , 2020.
(5)
Calculated based on the maximum number of shares of common stock that Alpha Capital could have beneficially owned on November 30 , 2020 following conversion or exercise of securities held by Alpha Capital, subject to the beneficial ownership limitation described in note (4) above.
(6)
Paul Kessler, as manager of Bristol Capital Advisors, LLC, the investment advisor to Bristol Investment Fund, Ltd. (“BIF”), has voting and investment control over the securities held by BIF. Mr. Kessler, as manager of Bristol Capital, LLC (“Bristol Capital”), also has voting and investment control over the securities held by Bristol Capital. Mr. Kessler disclaims beneficial ownership of these securities except to the extent of his pecuniary interest therein. The address of Bristol Capital Advisors, LLC is 662 N. Sepulveda Blvd., Suite 300, Los Angeles, California 90049.
(7)
As reported on Schedule 13G filed with the SEC on June 10, 2020. Excludes shares of our common stock that may be issued upon conversion of the Series J-1 Preferred Stock held by Bristol Capital. Such Series J-1 Preferred Stock may be converted into shares of our common stock only if such conversion does not result in Bristol Capital (together with its affiliates, including BIF) holding more than 9.99% of our outstanding shares of common stock.
(8)
As reported on Schedule 13G filed with the SEC on June 10, 2020. As disclosed in the Schedule 13G, BIF also holds Series J-1 Preferred Stock and convertible notes which may be converted into shares of our common stock only if such conversion does not result in BIF (together with its affiliates, including Bristol Capital) holding more than 9.99% of our outstanding shares of common stock. The full conversion of such securities would exceed such beneficial ownership limitation. As of November 30 , 2020, the maximum number of shares of common stock that BIF could beneficially own was 7,648,430 shares.
(9)
Calculated based on the maximum number of shares of common stock that BIF could have beneficially owned on November 30 , 2020 following conversion of the Series J-1 Preferred Stock or convertible notes, subject to the beneficial ownership limitation described in note (8) above.
(10)
The address of Mr. Heavener is 3300 University Blvd, Suite 218 Winter Park, FL 32792.
(11)
Represents or includes shares of common stock that may be issuable to the stockholder upon conversion of certain convertible notes or other securities that are convertible into, or exercisable for, shares of our common stock and excludes additional shares of common stock that may be issuable to the stockholder (i) in lieu of cash payments of interest on convertible notes or (ii) in connection with any default amounts with respect to convertible notes. Such convertible notes are only convertible if such conversion does not result in the stockholder (together with its affiliates) holding more than 9.99% of our outstanding shares of common stock.
(12)
We have been advised that Michael Bigger exercises voting and investment power over the securities held by Bigger Capital Fund, LP.
(13)
We have been advised that Eric H Schlanger exercises voting and investment power over the securities held by District 2 Capital Fund LP.
(14)
We have been advised that Philip G. Werthman exercises voting and investment power over the securities held by of GT Bio Partners LLC.
(15)
We have been advised that Chi Kan Tang exercises voting and investment power over the securities held by Red Mango Enterprises Limited.
(16)
The full conversion or exercise of convertible notes or other securities convertible into, or exercisable for, our common stock held by the stockholder would exceed the beneficial ownership limitation described in note (11) above. This represents the maximum number of shares of common stock that the stockholder could beneficially own as of November 30, 2020.
(17)
Calculated based on the maximum number of shares of common stock that the stockholder could have beneficially owned on the Exercise Date following conversion or exercise of convertible notes or other securities convertible into, or exercisable for, our common held by the stockholder, subject to the beneficial ownership limitation described in note (11) above.
(18)
We have been advised that Martin H. Blank exercises voting and investment power over the securities held by The Rosalinde and Arthur Gilbert Foundation.
(19)
We have been advised that Richard Ziman exercises voting and investment power over the securities held by RSZ Trust.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock,securities, together with any additional information we include in any applicable prospectus supplement or any related free writing prospectus, summarizes the material terms and provisions of our capital stock. For the complete terms of our capital stock, please refer to our certificate of incorporation bylaws that are incorporated by reference into the registration statement of which this prospectus is a part or may be incorporated by reference in this prospectus or any applicable prospectus supplement. The terms of these securities may also be affected by the DGCL.Delaware General Corporation Law (“DGCL”). The summary below and that contained in any applicable prospectus supplement or any related free writing prospectus are qualified in their entirety by reference to our certificate of incorporation and bylaws.
General
As of the date of this prospectus, our authorized capital stock consists of 750.0 million shares of common stock, par value $0.001 per share, and 15.0 million shares of preferred stock, par value $0.001 per share. As of November 30, 2020,April 12, 2021, there were 77,518,61428,393,960 shares of our common stock and 96,230 shares of Series C Preferred Stock and 2,353,548 shares of Series J-1 Preferred Stock issued and outstanding.
Common Stock
Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to receive dividends ratably, if any, as may be declared by the Board out of legally available funds, subject to any preferential dividend rights of any preferred stock then outstanding. In the event of our dissolution, liquidation or winding up, holders of our common stock are entitled to share ratably in our net assets legally available after the payment of all of our debts and other liabilities, subject to the liquidation preferences of any preferred stock then outstanding. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock currently outstanding or that we may designate and issue in the future. All outstanding shares of our common stock are fully paid and non-assessable. Except as described below in “Anti-Takeover Provisions Under Our Charter and Bylaws and Delaware Law,” holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business, and a vote of the majority of the voting power represented at such meeting at which a quorum is generally required to take action under our certificate of incorporation and bylaws.
Warrants
The Common Warrants were issued in registered form and entitle the registered holder to purchase one share of our common stock at a price equal to $5.50 per share, subject to adjustment as discussed below, terminating at 5:00 p.m., New York City time, on the fifth anniversary of the date of issuance. The Underwriters Warrants were issued in registered form and entitle the registered holder to purchase one share of our common stock at a price equal to $6.875 per share, subject to adjustment as discussed below, terminating at 5:00 p.m., New York City time, on the fifth anniversary of the date of issuance. Holders of Warrants may exercise such warrants on a “cashless” basis if an effective registration statement is not available with respect to the offering of shares of Common Stock upon exercise of such Warrant. In such event, the aggregate number of shares of common stock issuable in such cashless exercise shall be equal to (x) the difference between (i) value of the aggregate number of shares of common stock for which the Warrant is being exercised based on the weighted average price of our common stock as determined in the formula set forth in such Warrant and (ii) the value of the aggregate number of shares of common stock for which the Warrant is being exercised based on the exercise price then in effect, divided by (y) the exercise price then in effect. The exercise price and number of shares of common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation. The Warrants may be exercised by delivery of a notice of exercise and the aggregate exercise price (assuming no cashless exercise has been elected if an effective registration statement is not available with respect to the offering of shares of Common Stock upon exercise of such Warrant) to us as specified in such Warrant. Holders of Warrants do not have the rights or privileges of holders of common stock and any voting rights until they exercise their Warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the Warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Preferred Stock
Our Board is authorized, without action by the stockholders, to designate and issue up to 15.0 million shares of preferred stock in one or more series. In the past the Board has designated series lettered A through J-1K and issued shares in those series.series (other than Series K). As of the date of this prospectus, only preferred shares in the series designated C and J-1 have shares issued and outstanding. Our Board can fix or alter the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting a class or series. The issuance of preferred stock could, under certain circumstances, result in one or more of the following adverse effects:
●
decreasing the market price of our common stock;
●
restricting dividends on our common stock;
●
diluting the voting power of our common stock;
●
impairing the liquidation rights of our common stock; or
●
delaying or preventing a change in control of us without further action by our stockholders.
Our Board will make any determination to issue such shares based on its judgment as to our best interests and the best interests of our stockholders.
Series C Preferred Stock
For a discussion of the terms of our Series C Preferred Stock, see Note 78 to our audited financial statements, Stockholders’ Equity., incorporated in this document by reference.
Series J-1 Preferred Stock
Shares of our Series J-1 Preferred Stock are convertible at any time, at the option of the holders, into shares of our common stock at an effective conversion price of $0.20 per share, subject to adjustment for, among other things, stock dividends, stock splits, combinations, reclassifications of our capital stock and mergers or consolidations, and subject to a “blocker provision” which prohibits conversion if such conversion would result in the holder being the beneficial owner of in excess of 9.99% of our common stock. Shares of our Series J-1 Preferred Stock have the same voting rights a shares of our common stock, with the holders of the Series J-1 Preferred Stock entitled to vote on an as-converted-to-common stock basis, subject to the “blocker provision” described above, together with the holders of our common stock on all matters presented to our stockholders. The Series J-1 Preferred Stock are not entitled to any dividends (unless specifically declared by our Board), but will participate on an as-converted-to-common-stock basis in any dividends to the holders of our common stock. In the event of our dissolution, liquidation or winding up, the holders of our Series J-1 Preferred Stock will be on parity with the holders of our common stock and will participate, on a on an as-converted-to-common stock basis, in any distribution to holders of our common stock.
Anti-Takeover Provisions Under Our Charter and Bylaws and Delaware Law
Certain provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, may have the effect of discouraging coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to first negotiate with our Board. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Amended and Restated Certificate of Incorporation
Undesignated Preferred Stock. Our Board has the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.
Special Meetings of Stockholders. Our bylaws provide that special meetings of our stockholders may be called only by our Chairman of the Board, our president or our Board, thus prohibiting a stockholder from calling a special meeting. This provision might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.
Board Vacancies Filled Only by Majority of Directors. Vacancies and newly created seats on our Board may be filled only by a majority of the directors then in office. Only our Board may determine the number of directors on our board. The inability of stockholders to determine the number of directors or to fill vacancies or newly created seats on our Board makes it more difficult to change the composition of our Board, but these provisions promote a continuity of existing management.
No Cumulative Voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our certificate of incorporation and bylaws do not expressly provide for cumulative voting.
Directors Removed Only by Special Meeting of Stockholders. A director can be removed only by the affirmative vote of a majority of the votes of the issued and outstanding stock entitled to vote for the election of directors of the corporation given at a special meeting of the stockholders called and held for this purpose.
Amendment of Charter Provisions. In order to amend certain of the above provisions in our certificate of incorporation and our bylaws, the Board is expressly authorized to adopt, alter or repeal the bylaws, subject to the rights of the stockholders entitled to vote. Stockholders can vote at any stockholder meeting and repeal, alter, or amend the bylaws by the affirmative vote of a majority of the stockholders entitled to vote in such meeting.
Delaware Anti-takeover Statute
We are subject to Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interest stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales and other transactions in which the interested stockholder receives or could receive a financial benefit on other than a pro rata basis with other stockholders. An “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock. This provision has an anti-takeover effect with respect to transactions not approved in advance by our Board, including discouraging takeover attempts that might result in a premium over the market price for the shares of our market price. With approval of our stockholders, we could amend our amended and restated certificate of incorporation in the future to avoid the restrictions imposed by this anti-takeover law.
The provisions of Delaware law and our amended and restated certificate of incorporation could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Transfer Agent and Registrar
Our transfer agent and registrar for our capital stock is Computershare. The transfer agent’s address is 8742 Lucent Blvd., Suite 225, Highland Ranch, CO 80129, and its telephone number is (303) 262-0600.
Existing Trading Markets
Our common stock is quotedlisted on the OTCQB, one of the OTC Markets Group over-the-counter markets,Nasdaq Capital Market under the trading symbol “GTBP.” The closing sale price of our common stock on the OTCQBNasdaq Capital Market on December 10, 2020,April 16, 2021, was $0.26$9.82 per share. Our common stock is also quoted on several European-based exchanges including Berlin (GTBP.BE), Frankfurt (GTBP.DE), the Euronext (GTBP.NX) and Paris (GTBP.PA).
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS
The following is a summary of certain material U.S. federal income tax considerations that may be relevant to the acquisition, ownership and disposition of Units or Pre-Funded Units. This description addresses only the U.S. federal income tax considerations to Non-U.S. Holders (as defined below) that will hold the Units, Pre-Funded Units and the components thereof as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). This description does not address all of the tax considerations applicable to particular investors in light of their individual circumstances, including holders that may be subject to special tax rules, including, but not limited to:
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certain financial institutions, banks, thrifts or insurance companies;
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real estate investment trusts;
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regulated investment companies;
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brokers, dealers or traders in securities;
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a trader in securities who elects to use a mark-to-market method of accounting for its securities holdings;
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investors subject to special tax accounting rules as a result of any item of gross income with respect to our ordinary shares being taken into account in an applicable financial statement;
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partnerships or other entities or arrangements classified as partnerships for U.S. federal income tax purposes or other pass-through entities (and investors therein);
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individual retirement and other tax-deferred accounts;
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persons that will hold our securities as part of a “straddle,” “hedging,” “constructive sale,” “conversion” or other integrated transaction or as a position in a “straddle” for U.S. federal income tax purposes;
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persons who acquire our securities pursuant to the exercise of compensatory options or compensatory warrants or in other compensatory transactions;
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persons that may be liable for the alternative minimum tax;
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certain former citizens or long-term residents of the United States;
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persons that have a “functional currency” other than the U.S. dollar; or
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persons that own or are deemed to own directly, indirectly, or constructively 10% or more, by voting power or value, of our stock.
Moreover, this description does not address the U.S. federal estate, gift or alternative minimum tax consequences or any state, local or non-U.S. tax consequences, of the acquisition, ownership and disposition of our Units, Pre-Funded Units, and the components thereof, or the U.S. federal Medicare tax on net investment income. This description is for general information purposes only and does not purport to be a complete analysis or summary of all potential U.S. federal income tax consequences that may apply as a result of the acquisition, ownership and disposition of our Units, Pre-Funded Units or the components thereof. Each Non-U.S. Holder (as defined below) is urged to consult its own tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax considerations of their investment in our ordinary shares.
This description is based on the Code, and existing, proposed and temporary U.S. Treasury regulations, and judicial and administrative interpretations thereof, in each case as of the date hereof. The U.S. tax laws and the interpretation thereof are subject to change, which change could apply retroactively and could affect the tax consequences described below.
A “U.S. Holder” is a beneficial owner of our Units, Pre-Funded Units, common stock, Common Warrants, or Pre-Funded Warrants that is, for U.S. federal income tax purposes:
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a citizen or individual resident of the United States;
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a corporation, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust (A) the administration of which is subject to the primary supervision of a court within the United States and which has one or more U.S. persons who have the authority to control all of the substantial decisions of such trust or (B) that has otherwise validly elected to be treated as a U.S. person under applicable U.S. Treasury regulations.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our Units or Pre-Funded Units or the components thereof, the tax treatment of the partnership and a partner in such partnership will generally depend on the status of the partner (or other interest holder) and the activities of the partnership. Such a partnership or partner in such a partnership should consult its own tax advisor as to its own tax consequences of acquiring, holding, or disposing of our ordinary shares.
For purposes of this discussion, a “Non-U.S. Holder” is a holder of our Units, Pre-Funded Units, common stock, Common Warrants, or Pre-Funded Warrants that is not a U.S. Holder and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes.
Prospective purchasers should consult their own tax advisors concerning the U.S. federal, state, local, foreign and other tax consequences of acquiring, owning and disposing of our units and the components thereof in light of their particular circumstances.
Characterization of Units and Allocation of Purchase Price
No statutory, administrative or judicial authority directly addresses the treatment of a Unit, a Pre-Funded Unit, or any instrument similar to these units for U.S. federal income tax purposes, and therefore, that treatment is not entirely clear. We intend to take the position that the acquisition or disposition of a Unit is treated for U.S. federal income tax purposes as the acquisition or disposition of the underlying common stock and Common Warrants and that the acquisition or disposition of a Pre-Funded Unit is treated for U.S. federal income tax purposes as the acquisition or disposition of the underlying Pre-Funded Warrants and Common Warrants. By purchasing a Unit or Pre-Funded Unit, you will agree to adopt such treatment for U.S. federal income tax purposes. For U.S. federal income tax purposes, each holder of a Unit or Pre-Funded Unit must allocate the purchase price paid by such holder for such unit between the underlying common stock, Common Warrant or Pre-Funded Warrant based on the relative fair market value of each at the time of issuance. Under U.S. federal income tax law, each investor must make his or her own determination of such value based on all the relevant facts and circumstances. Therefore, we urge each investor to consult his or her tax advisor regarding the determination of value for these purposes. The price allocated to each share of common stock, each Common Warrant, and each Pre-Funded Warrant should be the shareholder’s initial tax basis in such shares of common stock or such Common Warrant or Pre-Funded Warrant. We also intend to take the position that the separation of the common stock and Common Warrant constituting a Unit and the separation of a Common Warrant and Pre-Funded Warrant constituting a Pre-Funded Unit is not a taxable event for U.S. federal income tax purposes.
The foregoing treatment of the Units, Pre-Funded Units, common stock, Common Warrants, and Pre-Funded Warrants and a holder’s purchase price allocation is not binding on the U.S. Internal Revenue Service (“IRS”) or the courts. Because there are no authorities that directly address instruments that are similar to the Units or Pre-Funded Units, no assurance can be given that the IRS or the courts will agree with the characterization described above or the discussion below. Accordingly, each prospective investor is urged to consult its tax advisors regarding the tax consequences of an investment in a Unit or Pre-Funded Unit (including alternative characterizations of the same). The remainder of this discussion assumes that the characterization of the Units and Pre-Funded Units described above will be respected for U.S. federal income tax purposes.
Characterization of Pre-Funded Warrants
Although the characterization of the Pre-Funded Warrants for U.S. federal income tax purposes is not entirely clear, because the exercise price of the Pre-Funded Warrants is a nominal amount, the Company expects to treat the Pre-Funded Warrants as common stock of the Company for U.S. federal income tax purposes. Except where noted, the remainder of this discussion assumes that the Pre-Funded Warrants will be so treated. Each holder should consult its own tax advisor regarding the proper characterization of the Pre-Funded Warrants for U.S. federal, state and local, and non-U.S. tax purposes, and the consequences to them of such treatment given their individual circumstances.
Distributions
We have never declared or paid any cash dividends on our common stock. However, if we do make distributions with respect to our common stock of cash or other property (other than certain distributions of common stock), such distributions will constitute dividends for U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent any distributions exceed our current and accumulated earnings and profits, such distributions will first be treated as a tax-free return of capital to the extent of a Non-U.S. Holder’s U.S. federal income tax basis in the common stock, and then will be treated as gain from the sale of common stock.
Dividends paid to a Non-U.S. Holder will generally be subject to withholding tax at a 30% rate unless the Non-U.S. Holder is eligible for the benefits of an income tax treaty that provides for a reduced rate of withholding and the Non-U.S. Holder establishes its eligibility for the reduced rate by providing a properly executed IRS Form W-8BEN or W-8BEN-E (or applicable successor form) claiming an exemption from or reduction of the withholding tax under the benefit of an applicable income tax treaty.
Additionally, a Non-U.S. Holder will not be subject to withholding tax if such Non-U.S. Holder holds our common stock in connection with the conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are attributable), dividends are paid in connection with that trade or business, and such Non-U.S. Holder provides a properly executed IRS Form W-8ECI (or applicable successor form) stating that the dividends are effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States. Instead, such Non-U.S. Holder will generally be subject to U.S. federal income tax at the rates applicable to U.S. persons and, in the case of a corporate Non-U.S. Holder, a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.
If a Non-U.S. Holder is eligible for a reduced rate of withholding, such Non-U.S. Holder may file a refund claim with the IRS for a refund of any amounts withheld in excess of such reduced rate.
Sale or Exchange of Common Stock and Common Warrants
Non-U.S. Holders will generally not be subject to U.S. federal income tax on any gain realized upon the sale or exchange of common stock or Common Warrants unless:
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The gain is effectively connected with the conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gains are attributable);
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The Non-U.S. Holder is an individual present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or
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We are or have been within the five year period ending on the date of disposition a “United States real property holding corporation” (a “USRPHC”).
If a Non-U.S. Holder is described in the first bullet above, such Non-U.S. Holder will generally be subject to U.S. federal income tax at the rates applicable to U.S. persons and, in the case of a corporate Non-U.S. Holder, a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. If a Non-U.S. Holder is described in the second bullet above, such Non-U.S. Holder will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by U.S.-source capital losses for the year.
With respect to the third bullet above, we believe that we are not currently, and have not been a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of certain of our other assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if you actually or constructively hold more than five percent of such regularly traded common stock at any time during the shorter of the five-year period preceding your disposition of, or your holding period for, our common stock. Special rules may apply to the determination of the five percent threshold in the case of a holder of a Common Warrant or Pre-Funded Warrant. Non-U.S. Holders are urged to consult their own tax advisors regarding the effect of holding our Common Warrants or Pre-Funded Warrants on the calculation of such five percent threshold.
Exercise or Lapse of a Common Warrant or Pre-Funded Warrant
In general, a Non-U.S. Holder will not recognize gain or loss for U.S. federal income tax purposes upon the exercise of a Common Warrant or Pre-Funded Warrant, except to the extent the Non-U.S. Holder receives a cash payment for any such fractional share that would otherwise have been issuable upon exercise of the Common Warrant or Pre-Funded Warrant, which will be treated as a sale subject to the rules described under “—Sale or Other Disposition of Common Stock or Common Warrants” above. Upon the lapse or expiration of a Common Warrant or Pre-Funded Warrant, a Non-U.S. Holder will recognize a loss equal to such Non-U.S. Holder’s U.S. federal income tax basis in the Common Warrant or Pre-Funded Warrant if the loss is (i) effectively connected with the conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such loss is attributable) or (ii) treated as a loss from sources within the United States and the Non-U.S. Holder is present 183 days or more in the taxable year of disposition and certain other conditions are met. The deductibility of capital losses is subject to limitations.
Certain Adjustments to the Common Warrants or Pre-Funded Warrants
Under Section 305(c) of the Code, an adjustment (or a failure to make an adjustment) to the conversion ratio of a Common Warrant or Pre-Funded Warrant that has the effect of increasing a Non-U.S. Holder’s proportionate interest in our assets or earnings may, in some circumstances, result in a deemed distribution to a Non-U.S. Holder for U.S. federal income tax purposes. Adjustments to the conversion rate made pursuant to a bona fide, reasonable, adjustment formula that has the effect of preventing the dilution of the interest of the holders of our Common Warrants or Pre-Funded Warrants, however, generally will not be deemed to result in a distribution to a Non-U.S. Holder. Any such deemed distribution would be taxable to a Non-U.S. Holder as described above under “—Distributions.”
In addition, regulations governing “dividend equivalents” under Section 871(m) of the Code may apply to the Pre-Funded Warrants. Under those regulations, an implicit or explicit payment under the Pre-Funded Warrants that references a dividend distribution on our common stock would possibly be taxable to a Non-U.S. Holder as described under “—Distributions” above. Such dividend equivalent amount would be taxable and subject to withholding whether or not there is actual payment of cash or other property. Non-U.S. Holders are encouraged to consult their own tax advisors regarding the application of Section 871(m) of the Code to the Pre-Funded Warrants.
Information Reporting and Backup Withholding
Payments to Non-U.S. Holders of dividends will generally not be subject to backup withholding, and payments of proceeds made to Non-U.S. Holders by brokers upon a sale of common stock, Common Warrants, and Pre-Funded Warrants will generally not be subject to information reporting or backup withholding, in each case so long as the Non-U.S. Holders certifies its non-resident status (and we or our paying agent do not have actual knowledge or reason to know that the Non-U.S. Holders is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. The certification procedures to claim a reduced rate of withholding under an income tax treaty described above in “Distributions” will generally satisfy the certification requirements necessary to avoid backup withholding. Copies of information returns with respect to dividends that are filed with the IRS may also be made available to tax authorities of the country in which the Non-U.S. Holder resides.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a Non-U.S. Holder’s US federal income tax liability. A Non-U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules in excess of such Non-U.S. Holder’s U.S. federal income tax liability by filing the appropriate claim for refund with the U.S. Internal Revenue Service in a timely manner and furnishing any required information.
FATCA
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (commonly referred to as the Foreign Account Tax Compliance Act or “FATCA”) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on payments of dividends if paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution enters into an agreement with the United States Department of the Treasury to undertake certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution which entered into the agreement in (1) above, the diligence and reporting requirements include, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. An intergovernmental agreement governing FATCA between the United States and an applicable foreign country may modify the requirements described in this paragraph.
The FATCA withholding tax will apply to all withholdable payments without regard to whether the beneficial owner of the payment would otherwise be entitled to an exemption from withholding tax pursuant to an applicable tax treaty with the United States or under other provisions of the Code. Non-U.S. Holders are urged to consult their tax advisors regarding the potential application of withholding under FATCA.
THE US FEDERAL INCOME TAX SUMMARY SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. HOLDERS OF UNITS, PRE-FUNDED UNITS, COMMON STOCK, COMMON WARRANTS, AND PRE-FUNDED WARRANTS SHOULD CONSULT THEIR TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDERS, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, AND NON-US TAX LAWS.
UNDERWRITING
Dawson James Securities, Inc. is acting as lead book-running manager of the offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally and not jointly agreed to purchase, and we have agreed to sell to that underwriter, the number of units described in this prospectus.
Underwriter | | | Number ofUnits |
Dawson James Securities, Inc. | | | |
Total | | | |
The underwriting agreement provides that the obligations of the underwriters to purchase the units of the Company’s securities included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all of such units of common stock and warrants (other than those covered by the over-allotment option described below) if they purchase any of the shares of common stock and warrants.
Shares of common stock and warrants sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares of common stock and warrants sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $ per share and warrant. If all the shares of common stock and warrants are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms.
Pursuant to the underwriting agreement, we granted to the underwriter an option, exercisable within 45 days after the closing of this offering to acquire up to an additional of the total units to be offered, solely for the purpose of covering over-allotments, if any. If the underwriter exercises all or any part of this option, it will purchase shares and/or warrants covered by the option at the public offering price per share and the public offering price per warrant, respectively, less the underwriting discount. If this option is exercised in full, the total offering price to the public will be $ and the total net proceeds, before expenses, to us will be $ . We will pay the expenses associated with the exercise of the over-allotment option.
Underwriting discounts and commissions
The following table shows the per unit price and total underwriting discounts and commissions we will pay in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option:
| | | |
Public offering price
| $
| $
| $
|
Underwriting discount (8%)
| $
| $
| $
|
Proceeds, before expenses, to us
| $
| $
| $
|
We have also agreed to reimburse the underwriter for its expenses in connection with this offering, including all reasonable fees and expenses of the underwriters’ outside legal counsel, up to $125,000. We estimate the total expenses of this offering which will be payable by us, excluding the underwriting discount and the underwriter’s expenses payable by us, will be approximately $ .
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
Right of First Refusal; Tail Financing
Provided this offering is completed, for a period of twelve months from the closing date of this offering, Dawson James has a right of first refusal to act as our exclusive placement agent or lead underwriter and sole book runner, as applicable, in the event we decide to pursue an offering of our equity, equity-linked or debt securities during such period.
Dawson James will be entitled to compensation as discussed above with respect to any public or private offering or other financing or capital-raising transaction of any kind (“Tail Financing”) to the extent that such Tail Financing is consummated by the Company during the term of Dawson James’ engagement for this offering or nine months following the completion thereof.
Underwriters’ Warrants
We have also agreed to issue to the underwriters’ a warrant to purchase a number of our shares of common stock equal to 5% of the common stock underlying the units sold in this offering. The underwriters’ warrant will have an exercise price equal to 125% of the public offering price of the combination of shares and warrants set forth on the cover of this prospectus (or $ per share and accompanying warrant) and may be exercised on a cashless basis. The underwriters’ warrant is not redeemable by us. This prospectus also covers the sale of the underwriters’ warrant and the shares of common stock underlying such warrant. The underwriters’ warrant and the underlying securities have been deemed compensation by FINRA, and are therefore subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the underwriters’ warrant nor any securities issued upon exercise of the underwriters’ warrant may be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of such securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which the underwriters’ warrant is being issued, except the transfer of any security: (i) by operation of law or by reason of reorganization of our company; (ii) to any FINRA member firm participating in this offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction described above for the remainder of the time period; (iii) if the aggregate amount of our securities held by either an underwriter or a related person do not exceed 1% of the securities being offered; (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or (v) the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction set forth above for the remainder of the time period.
Lock-up Agreements
We, our executive officers and directors, and certain holders of at least 5% or more of our common stock have agreed to enter into lock-up agreements in connection with this offering. Under the lock-up agreements, subject to certain exceptions, we and each of these persons may not, without the prior written approval of the Underwriter, offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, or hedge our common stock or securities convertible into or exchangeable or exercisable for our common stock. These restrictions remain in effect and will generally terminate on the six-month anniversary after the closing date. In connection with this offering, we agreed that we will not: (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock; or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our capital stock, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of our capital stock or such other securities, in cash or otherwise, in each case without the prior consent of the Underwriter for a period of six months after the date of the Underwriting Agreement, other than (A) the securities sold in this offering, or (B) the issuance by us of shares of our common stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date of this prospectus, hereafter issued pursuant to our currently existing or hereafter adopted equity compensation plans or employment or consulting agreements or arrangements of which the Underwriter has been advised in writing or which have been filed with the SEC.
Stabilization, Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Exchange Act:
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Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
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A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
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Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.
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Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq Capital Market or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
Electronic Distribution
A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.
Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
Other Relationships
The underwriters and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for the issuer and its affiliates, for which they received or may in the future receive customary fees and expenses. Dawson James Securities, Inc., the representative of the underwriters, served as the lead book-running manager of our initial public offering.
In the ordinary course of their various business activities, the underwriters and certain of their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer or its affiliates. If the underwriters or their affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. The underwriters and their affiliates may hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the shares of common stock offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the shares of common stock offered hereby. The underwriters and certain of their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Selling Restrictions
This prospectus does not constitute an offer to sell to, or a solicitation of an offer to buy from, anyone in any country or jurisdiction (i) in which such an offer or solicitation is not authorized, (ii) in which any person making such offer or solicitation is not qualified to do so or (iii) in which any such offer or solicitation would otherwise be unlawful. No action has been taken that would, or is intended to, permit a public offer of the shares of common stock or possession or distribution of this prospectus or any other offering or publicity material relating to the shares of common stock in any country or jurisdiction (other than the United States) where any such action for that purpose is required. Accordingly, each underwriter has undertaken that it will not, directly or indirectly, offer or sell any shares of common stock or have in its possession, distribute or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of shares of common stock by it will be made on the same terms.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will behas been passed upon for us by Baker & McKenzie LLP, Dallas, Texas. Certain legal matters in connection with the offering will be passed upon for the underwriter by Schiff Hardin LLP.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
EXPERTS
The financial statements of GT Biopharma, Inc. at December 31, 2020, and for the year in the period ending December 31, 2020, incorporated by reference into this prospectus, have been audited by Weinberg & Company, an independent registered public accounting firm, and the financial statements of GT Biopharma, Inc. at December 31, 2019, and 2018, and for each of the two yearsyear in the period ending December 31, 2019, appearing inincorporated by reference into this prospectus, have been audited by Seligson & Giannattasio, LLP, an independent registered public accounting firm,each as set forth in their report thereon appearing elsewhereincorporated by reference herein, and are included in reliance upon such reportreports given on the authority of such firmfirms as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act with the SEC with respect to this offering. This prospectus was filed as a part of that registration statement but does not contain all of the information contained in the registration statement and exhibits. Reference is thus made to the omitted information. Statements made in this prospectus are summaries of the material terms of contracts, agreements and documents and are not necessarily complete; however, all information we considered material has been disclosed. Reference is made to each exhibit for a more complete description of the matters involved and these statements are qualified in their entirety by the reference. You can find, copy and inspect information we file at the SEC’s public reference room, which is located at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SEC’s public reference room. The SEC also maintains a web site (http://www.sec.gov) that contains this filed registration statement, reports and other information regarding us that we have filed electronically with the SEC. For more information pertaining to our company and this offering, reference is made to the registration statement.
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of GT Biopharma, Inc.
Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Balance Sheets as of December 31, 2019 and 2018 | F-3 |
Consolidated Statement of Operations For Years Ended December 31, 2019 and 2018 | F-4 |
Consolidated Statement of Stockholders’ Equity For Years Ended December 31, 2019 and 2018 | F-5 |
Consolidated Statement of Cash Flows For Years Ended December 31, 2019 and 2018 | F-6 |
Notes to Consolidated Financial Statements | F-7 |
Unaudited Consolidated Financial Statements of GT Biopharma, Inc.
Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019 | F-21 |
Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (Unaudited) | F-[ ] |
Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited) | F-[ ] |
Condensed Notes to Consolidated Financial Statements | F-[ ] |
REPORTINCORPORATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of GT Biopharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of GT Biopharma, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, inall material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018 and the consolidated results of its operations and its consolidated cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis of Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.CERTAIN INFORMATION BY REFERENCE
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant recurring losses. The realization of a major portion of its assets is dependent upon its ability to meet its future financing needs and the success of its future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from this uncertainty.
/s/ Seligson & Giannattasio, LLP
Seligson & Giannattasio, LLP
We have served as the Company’s auditor since 2008.
White Plains, New York
March 27, 2020
GT Biopharma, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except par value and share data)
| | | |
| ASSETS | | |
| Current Assets: | | |
| Cash and cash equivalents | $28 | $60 |
| Prepaid expenses | 246 | 30 |
| Total Current Assets | 274 | 90 |
| | | |
| Intangible assets | - | 25,262 |
| Operating lease right-to use asset | 110 | - |
| Deposits | 12 | 12 |
| Fixed assets, net | - | 35 |
| Total Other Assets | 122 | 25,309 |
| TOTAL ASSETS | $396 | $25,399 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
| Current Liabilities: | | |
| Accounts payable | $1,940 | $1,762 |
| Accrued expenses | 2,379 | 1,023 |
| Accrued interest | 2,029 | 432 |
| Line of credit | 31 | 31 |
| Note Payable to Related Party | - | 100 |
| Deferred Rent | - | 8 |
| Operating lease liability | 120 | |
| Convertible debentures | 13,207 | 10,673 |
| Total Current Liabilities | 19,706 | 14,029 |
| | | |
| Total liabilities | 19,706 | 14,029 |
| | | |
Commitments and Contingencies
| | |
| Stockholders’ (deficit) Equity: | | |
| Convertible preferred stock - $0.001 par value; 15,000,000 shares authorized: | | |
| Series C - 96,230 and 96,230 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively | 1 | 1 |
| Series J – 2,353,548 and 1,163,548 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively | 2 | 1 |
| Common stock - $0.001 par value; 750,000,000 shares authorized; and 69,784,699 and 50,650,478 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively | 70 | 51 |
| Additional paid-in capital | 548,118 | 540,171 |
| Accumulated deficit | (567,332) | (528,685) |
| Noncontrolling interest | (169) | (169) |
| Total Stockholders’ (deficit) Equity | (19,310) | 11,370 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $396 | $25,399 |
The accompanying notes are an integral part of these consolidated financial statements.
GT Biopharma, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands except per share data)
| | |
| | | |
| Operating expenses: | | |
| Research and development | $1,667 | $9,067 |
| Selling, general and administrative expenses | 9,790 | 12,487 |
| Loss on impairment | 4,599 | 228,515 |
| Total operating expenses | 16,056 | 250,069 |
| Loss from operations | (16,056) | (250,069) |
| Other income (expense): | | |
| Loss on disposal of assets | (20,463) | - |
| Interest expense | (2,128) | (9,117) |
| Total other income (expense) | (22,591) | (9,117) |
| Loss before provision for income taxes | (38,647) | (259,186) |
| Provision for income tax | - | - |
| Net loss | $(38,647) | $(259,186) |
| Net loss per common share – basic and diluted | $(0.67) | $(5.16) |
| Weighted average common shares outstanding – basic and diluted | 57,527 | 50,240 |
The accompanying notes are an integral part of these consolidated financial statements.
GT Biopharma, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 2019 and 2018
| | | | | |
| | | | | | | |
| Balance at December 31, 2018 | 1,260 | $2 | 50,118 | $50 | $521,305 | $(269,499) |
| Issuance of warrants | | | | | 8,304 | |
| Issuance of common stock for convertible notes | | | 162 | 0 | 325 | |
| Beneficial conversion feature on convertible notes | | | | | 544 | |
| Issuance of common stock for compensation | | | 370 | 1 | 9,693 | |
| Net loss | | | | | | (259,186) |
| Balance at December 31, 2018 | 1,260 | $2 | 50,650 | $51 | $540,171 | $(528,685) |
| Issuance of preferred stock | 1,190 | 1 | | | 1,139 | |
| Issuance of common stock for convertible notes | | | 3,484 | 3 | 1,357 | |
| Beneficial conversion feature on convertible notes | | | | | 158 | |
| Issuance of common stock for compensation | | | 15,650 | 16 | 5,293 | |
| Net loss | | | | | | (38,647) |
| Balance at December 31, 2019 | 2,450 | $3 | 69,784 | $70 | $548,118 | $(567,332) |
The accompanying notes are an integral part of these consolidated financial statements.
GT Biopharma, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
| | Twelve Months Ended December 31, |
| | | |
| | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | |
| Net loss | $(38,647) | $(259,186) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | |
| Depreciation | 4 | 7 |
| Loss on impairment of long-lived assets | 4,599 | 228,515 |
| Loss on the disposal of assets | 20,494 | - |
| Stock compensation expense for options and warrants issued to employees and non-employees | 5,308 | 9,696 |
| Amortization of debt discounts | 505 | 8,663 |
| Non-cash interest expense | 1,140 | 441 |
| Amortization of loan costs | - | 1,076 |
| Changes in operating assets and liabilities: | | |
| Prepaid Expenses | (216) | (30) |
| Other assets | - | (3) |
| Other liabilities | - | 8 |
| Accounts payable and accrued liabilities | 3,154 | 136 |
| Net cash used in operating activities | (3,659) | (10,677) |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | |
| Acquisition of fixed assets | | (36) |
| Disposal of fixed assets | 200 | - |
| Net cash used by investing activities | 200 | (36) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | |
| Proceeds from notes payable | 3,527 | 15,145 |
| Loan costs | - | (533) |
| Repayment of note payable | (100) | (4,415) |
| Net cash provided by financing activities | 3,427 | 10,197 |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (32) | (516) |
| CASH AND CASH EQUIVALENTS - Beginning of period | 60 | 576 |
| CASH AND CASH EQUIVALENTS - End of period | $28 | $60 |
| | | |
| Supplemental cash flow disclosures: | | |
| Issuance of common stock upon conversion of convertible notes | $1,360 | $325 |
| Issuance of common stock for interest expense | $21 | $- |
The accompanying condensed notes are an integral part of these consolidated financial statements.
1. The Company
Business
In 1965, the corporate predecessor of GT Biopharma, Diagnostic Data, Inc. was incorporated in the State of California. Diagnostic Data changed its incorporation to the State of Delaware in 1972; and changed its name to DDI Pharmaceuticals, Inc. in 1985. In 1994, DDI Pharmaceuticals merged with International BioClinical, Inc. and Bioxytech S.A. and changed its name to OXIS International, Inc. In July 2017, the Company changed its name to GT Biopharma, Inc.
We are a clinical stage biopharmaceutical company focused on the development and commercialization of novel immuno-oncology products based off our proprietary Tri-specific Killer Engager (TriKE™), Tetra-specific Killer Engager (TetraKE™) and bi-specific ligand-directed single-chain fusion protein technology platforms. Our TriKE and TetraKE platforms generate proprietary therapeutics designed to harness and enhance the cancer killing abilities of a patient’s own natural killer cells, or NK cells. Once bound to an NK cell, our moieties are designed to enhance the NK cell and precisely direct it to one or more specifically-targeted proteins expressed on a specific type of cancer cell or virus infected cell, ultimately resulting in the targeted cell’s death. TriKEs and TetraKEs are made up of recombinant fusion proteins, can be designed to target any number of tumor antigens on hematologic malignancies, sarcomas or solid tumors and do not require patient-specific customization.
Basis of Consolidation
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.
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 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 $567 million and cash of $28 thousand as of December 30, 2019. 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 bySEC allows the Company to fund its operations“incorporate by reference” the information it has filed with the SEC, which means that the Company can disclose important information to you by referring you to those documents. The information that the Company incorporates by reference is an important part of this prospectus, and to commercially develop its product candidates. These factors raise substantial doubt aboutinformation that it files later with 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 researchSEC will automatically update and development, and licensing and/or marketing arrangements with pharmaceutical companies. Ifsupersede this information. The documents the Company is unable to secure adequate additional funding, its business, operating results, financial condition and cash flows may be materially and adversely affected.
Use of Estimates
The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluationincorporating by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as one segment operating in the United States of America.
2. Summary of Significant Accounting Policies
Advertising and promotional fees
Advertising expenses consist primarily of costs incurred in the design, development, and printing of Company literature and marketing materials. The Company expenses all advertising expenditures as incurred. There were no advertising expenses for the years ended December 31, 2019 and 2018, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Concentrations of Credit Risk
The Company’s cash and cash equivalents, marketable securities and accounts receivable are monitored for exposure to concentrations of credit risk. The Company maintains substantially all of its cash balances in a limited number of financial institutions. The balances are each insured by the Federal Deposit Insurance Corporation up to $250,000. The Company had no balances in excess of this limit at December 31, 2019.
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 years ended December 31, 2019 and 2018, respectively.
Long-Lived Assets
Our long-lived assets include property, plant and equipment, capitalized costs of filing patent applications and other indefinite lived intangible assets. We evaluate our long-lived assets for impairment, other than indefinite lived intangible assets, in accordance with ASC 360, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Estimates of future cash flows and timing of events for evaluating long-lived assets for impairment are based upon management’s judgment. If any of our intangible or long-lived assets are considered to be impaired, the amount of impairment to be recognized is the excess of the carrying amount of the assets over its fair value.
Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment.
Impairment of Long-Lived Assets
The Company’s long-lived assets currently consist of indefinite lived intangible assets associated with IPR&D (“In-Process Research & Development”) projects and related capitalized patents acquired in the acquisition of Georgetown Translational Pharmaceuticals, Inc. as described in Note 3 below. Intangible assets associated with IPR&D projects are not amortized until approval by the Food and Drug Administration (FDA) is obtained in a major market subject to certain specified conditions and management judgment. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated.
The Company evaluates indefinite lived intangible assets for impairment at least annually and whenever impairment indicators are present in accordance with ASC 350. When necessary, the Company records an impairment loss for the amount by which the fair value is less than the carrying value of these assets. The fair value of intangible assets other than goodwill is typically determined using the “relief from royalty method”, specifically the discounted cash flow method utilizing Level 3 fair value inputs. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
The Company performs impairment testing for all other long-lived assets whenever impairment indicators are present. When necessary, the Company calculates the undiscounted value of the projected cash flows associated with the asset, or asset group, and compares this estimated amount to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, whereby deferred income tax assets and liabilities are recognized for the estimated future tax effects, based on current enacted tax laws, of temporary differences between financial and tax reporting for current and prior periods. Deferred tax assets are reduced, if necessary, by a valuation allowance if the corresponding future tax benefits may not be realized.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period, plus the potential dilutive effect of common shares issuable upon exercise or conversion of outstanding stock options and warrants during the period.
During 2019, there were three repricings related to the conversion price of the convertible debt and the exercise price of the warrants. The Company prepared the calculations of the change in value pursuant to ASU 2017-11, and determined there was no deemed dividend to include in the calculation of earnings per share.
The computation of basic and diluted net loss per share for the years ended December 31, 2019 and 2018 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
| | |
| | | |
| Exercise of common stock warrants | 9,065,265 | 1,813,053 |
| Conversion of preferred stock into common stock | 11,768,295 | 1,163,659 |
| Conversion of convertible debentures into common stock | 66,136,870 | 5,704,543 |
| Exercise of common stock options | 40 | 1,113 |
| | 86,970,470 | 8,682,368 |
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 costs 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 are 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 current liabilities 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:reference are:
●
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. These liabilities are remeasured each reporting period if required by ASC 815-40. 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 no such liabilities at December 31, 2019 ..
●
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company does not have any assets or liabilities measured using Level 3 inputs.
Research and Development
Research and development costs are expensed as incurred and reported as research and development expense. Research and development costs totaled $1.7 million and $9.1 million for the years ended December 31, 2019 and 2018, respectively. Research and development costs for the year ended December 31, 2018 included non-cash compensation of $6.8 million.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, “Leases.” This ASU requires all lessees to be recognized on the balance sheet as right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The Company adopted the ASU as of January 1, 2019. The effect of the adoption of the ASU was to increase the other assets and liabilities by approximately $174,000.
3. Intangibles
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 represented 33% of the issued and outstanding capital stock of the Company on a fully diluted basis. $253.8 million of the value of shares issued was allocated to intangible assets consisting of a portfolio of three CNS development candidates, which are classified as IPR&D.
For the year ended December 31, 2018, the Company recorded an intangible asset impairment charge of $228.5 million related to the portfolio of CNS IPR&D assets within Operating Expenses, which represents the excess carrying value compared to fair value. The impairment charge was the result of both internal and external factors. In the 3rd quarter of 2018, the Company experienced changes in key senior management, led by the appointment of a new CEO with extensive experience in oncology drug development. These changes resulted in the prioritization of immuno-oncology development candidates relative to CNS development candidates. In conjunction with these strategic changes, limited internal resources delayed the development of the CNS IPR&D assets. The limited resources, changes in senior leadership, and favorable market conditions for immuno-oncology development candidates have resulted in the Company choosing to focus on development of its immuno-oncology portfolio. In light of this shift in market strategy, the Company performed a commercial assessment and a valuation of the CNS IPR&D assets, both to assess fair value and support potential future licensing efforts. The valuation indicated an excess carrying value over the fair value of these assets, resulting in the impairment charge noted above.
The fair value of the CNS IPR&D assets was determined using the discounted cash flow method which utilized significant estimates and assumptions surrounding the amount and timing of the projected net cash flows, which includes the probability of commercialization, the assumption that the assets would be out-licensed to third-parties for continued development for upfront licensing fees and downstream royalty payments based on net sales, and expected impact of competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
On September 19, 2019, the Company entered into an Asset Purchase Agreement (the “Agreement”), pursuant to which the Company sold its rights, titles and interests, including associated patents, to the pharmaceutical product designated by the Company as GTB-004 (the “Product”). Under the Agreement, the Product was purchased by DAS Therapeutics, Inc. who the Company believes is well positioned to take over the clinical development of the Product including obtaining timely approval by the FDA.
The Company received $200,000 at closing. The Company will also participate in the future commercial value of the Product by receiving $6,000,000 upon the achievement of certain sales objectives. In addition, the Company will receive a royalty equal to 1.5% of U.S. sales until such time as the last of the patents associated with the Product expires. The Company reflected a loss in the year ended December 31, 2019 totaling $20,463,000.
As a result of the loss reported on the sale of the Product, as well as the response received on inquiries related to the other two projects, the Company determined that the remaining value related to these remaining projects should be fully impaired. During the year ended December 31, 2019, the Company reported an impairment charge for these projects totaling $4,599,000.
4. Debt
Convertible Notes
On January 22, 2018, the Company entered into a Securities Purchase Agreement (“SPA”) with fourteen accredited investors (individually, a “Buyer” and collectively, the “Buyers”) pursuant to which the Company agreed to issue to the Buyers senior convertible notes in an aggregate principal amount of $7,760,510 (the “Notes”), which Notes shall be convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a price of $4.58 per share, and five-year warrants to purchase the Company’s Common Stock representing the right to acquire an aggregate of approximately 1,694,440 shares of Common Stock (the “Warrants”).
Pursuant to the terms of SPA the Notes were subject to an original issue discount of 10% resulting in proceeds to the Company of $7,055,000 from the transaction.
Upon the purchase of the Notes, the Buyers received Warrants to purchase 1,694,440 shares of Common Stock. Such Warrants are exercisable for (5) years from the date the shares underlying the Warrants are freely saleable. The initial Exercise Price is $4.58. According to the terms of the warrant agreement, the Warrants are subject to certain adjustments depending upon the price and structure of a subsequent financing, including a qualified financing with gross proceeds of at least $20 million, as defined in the agreements.
The issuance of the Notes and Warrants were made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act.
Contemporaneously with the execution and delivery of the SPA, the Company and the Buyers executed and delivered a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.
Senior Convertible Debentures
On August 2, 2018, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement with the purchasers identified on the signature pages thereto (individually, a “Purchaser,” and collectively, the “Purchasers”) pursuant to which the Company issued to the Purchasers one year 10% Senior Convertible Debentures in an aggregate principal amount of $5,140,000 (the “Debentures”), which Debentures shall be convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a price of $2 per share. The Company used a portion of these proceeds to repay $4.4 million of the notes issued on January 22, 2018. Additionally, the remaining $3.3 million of the notes issued on January 22, 2018 were converted into the Debentures at the same terms discussed above.
On September 7, 2018, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement with the purchasers identified on the signature pages thereto (individually, a “Purchaser,” and collectively, the “Purchasers”) pursuant to which the Company has issued to the Purchasers one year 10% Senior Convertible Debentures in an aggregate principal amount of $2,050,000 (the “Debentures”), which Debentures shall be convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial price of $2 per share.
On September 24, 2018, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement with the purchasers identified on the signature pages thereto (individually, a “Purchaser,” and collectively, the “Purchasers”) pursuant to which the Company has issued to the Purchasers one year 10% Senior Convertible Debentures in an aggregate principal amount of $800,000 (the “Debentures”), which Debentures shall be convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial price of $2 per share.
On February 4, 2019, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the 15 purchasers (individually, a “Purchaser,” and collectively, the “Purchasers”), pursuant to which the Company issued to the Purchasers, on February 4, 2019, Secured Convertible Notes in an aggregate principal amount of $1,352,224 (the “Notes”), consisting of gross proceeds of $1,052,224 and settlement of existing debt of $300,000, which Notes shall be convertible at any time after issuance into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $0.60 per share (the “Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature on August 2, 2019. Interest on the Notes is payable in cash or, at a Purchaser’s option, in shares of Common Stock at the Conversion Price. Upon the occurrence of an event of default, interest accrues at 18% per annum. The Notes contain customary default provisions, including provisions for potential acceleration, and covenants, including negative covenants regarding additional indebtedness and dividends. The Conversion Price is subject to adjustment due to certain events, including stock dividends and stock splits, and is subject to reduction in certain circumstances if the Company issues Common Stock or Common Stock equivalents at an effective price per share that is lower than the Conversion Price then in effect. The Company may only prepay the Notes with the prior written consent of the respective Purchasers thereof.
Contemporaneously with the execution and delivery of the Purchase Agreement, on February 4, 2019, the Company and certain of its wholly-owned subsidiaries entered into a Security Agreement (the “Security Agreement”) with Alpha Capital Anstalt, as collateral agent on behalf of the Purchasers, and with the Purchasers, pursuant to which the Purchasers have been granted a first-priority security interest in substantially all of the assets of the Company and such subsidiaries securing (i) an aggregate principal amount of $1,352,224 of Notes and (ii) an aggregate principal amount of $9,058,962 of the Company’s 10% Senior Convertible Debentures issued on August 2, 2018, September 7, 2018 and September 24, 2018 held by such Purchasers.
The Purchase Agreement contains customary representations, warranties and covenants, including covenants, subject to certain exceptions, that the Company, until the date on which less than 10% of the Notes are outstanding, shall not effect any Variable Rate Transaction (as defined in the Purchase Agreement) and that, for as long as a Purchaser holds any Notes or Conversion Shares, the Company shall amend the terms and conditions of the Purchase Agreement and the transactions contemplated thereby with respect to such Purchaser to give such Purchaser the benefit of any terms or conditions under which the Company agrees to issue or sell any Common Stock or Common Stock equivalents that are more favorable to an investor than the terms and conditions granted to such Purchaser under the Purchase Agreement and the transactions contemplated thereby.
In addition, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company has agreed to file, within 14 days after February 4, 2019, one or more registration statements on Form S-3 (or, if Form S-3 is not then available to the Company, such form of registration that is then available to effect a registration for resale of the subject securities) covering the resale of all Conversion Shares, subject to certain penalties set forth in the Registration Rights Agreement. The Form S-3 was filed by the Company on February 14, 2019 and became effective on March 11, 2019.
On May 22, 2019, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the ten purchasers (individually, a “Purchaser,” and collectively, the “Purchasers”), pursuant to which the Company issued to the Purchasers, on May 22, 2019, Secured Convertible Notes in an aggregate principal amount of $1,300,000 (the “Notes”), which Notes shall be convertible at any time after issuance into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $0.35 per share (the “Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature on November 22, 2019. Interest on the Notes is payable in cash or, at a Purchaser’s option, in shares of Common Stock at the Conversion Price. Upon the occurrence of an event of default, interest accrues at 18% per annum. The Notes contain customary default provisions, including provisions for potential acceleration, and covenants, including negative covenants regarding additional indebtedness and dividends. The Conversion Price is subject to adjustment due to certain events, including stock dividends and stock splits, and is subject to reduction in certain circumstances if the Company issues Common Stock or Common Stock equivalents at an effective price per share that is lower than the Conversion Price then in effect. The Company may only prepay the Notes with the prior written consent of the respective Purchasers thereof.
The Purchase Agreement contains customary representations, warranties and covenants, including covenants, subject to certain exceptions, that the Company, until the date on which less than 10% of the Notes are outstanding, shall not effect any Variable Rate Transaction (as defined in the Purchase Agreement) and that, for as long as a Purchaser holds any Notes or Conversion Shares, the Company shall amend the terms and conditions of the Purchase Agreement and the transactions contemplated thereby with respect to such Purchaser to give such Purchaser the benefit of any terms or conditions under which the Company agrees to issue or sell any Common Stock or Common Stock equivalents that are more favorable to an investor than the terms and conditions granted to such Purchaser under the Purchase Agreement and the transactions contemplated thereby.
In addition, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company has agreed to file, within 30 days after May 22, 2019, one or more registration statements on Form S-3 (or, if Form S-3 is not then available to the Company, such form of registration that is then available to effect a registration for resale of the subject securities) covering the resale of all Conversion Shares, subject to certain penalties set forth in the Registration Rights Agreement. The Form S-1 was filed by the Company on June 21, 2019 and became effective on July 12, 2019.
Between July 31 and August 28, 2019, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the eleven purchasers (individually, a “Purchaser,” and collectively, the “Purchasers”), pursuant to which the Company issued to the Purchasers, Secured Convertible Notes in an aggregate principal amount of $975,000 (the “Notes”), which Notes shall be convertible at any time after issuance into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $0.20 per share (the “Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature between January 31 and February 28, 2020. Interest on the Notes is payable in cash or, at a Purchaser’s option, in shares of Common Stock at the Conversion Price. Upon the occurrence of an event of default, interest accrues at 18% per annum. The Notes contain customary default provisions, including provisions for potential acceleration, and covenants, including negative covenants regarding additional indebtedness and dividends. The Conversion Price is subject to adjustment due to certain events, including stock dividends and stock splits, and is subject to reduction in certain circumstances if the Company issues Common Stock or Common Stock equivalents at an effective price per share that is lower than the Conversion Price then in effect. The Company may only prepay the Notes with the prior written consent of the respective Purchasers thereof.
The Purchase Agreement contains customary representations, warranties and covenants, including covenants, subject to certain exceptions, that the Company, until the date on which less than 10% of the Notes are outstanding, shall not effect any Variable Rate Transaction (as defined in the Purchase Agreement) and that, for as long as a Purchaser holds any Notes or Conversion Shares, the Company shall amend the terms and conditions of the Purchase Agreement and the transactions contemplated thereby with respect to such Purchaser to give such Purchaser the benefit of any terms or conditions under which the Company agrees to issue or sell any Common Stock or Common Stock equivalents that are more favorable to an investor than the terms and conditions granted to such Purchaser under the Purchase Agreement and the transactions contemplated thereby.
In addition, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company has agreed to file, within 30 days, one or more registration statements on Form S-3 (or, if Form S-3 is not then available to the Company, such form of registration that is then available to effect a registration for resale of the subject securities) covering the resale of all Conversion Shares, subject to certain penalties set forth in the Registration Rights Agreement. The Form S-1 was filed by the Company on September 13, 2019 and became effective in October 2, 2019.
On December 19, 2019, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the one purchaser (individually, a “Purchaser,” and collectively, the “Purchasers”), pursuant to which the Company issued to the Purchasers, on December 19, 2019, Secured Convertible Notes in an aggregate principal amount of $200,000 (the “Notes”), which Notes shall be convertible at any time after issuance into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $0.20 per share (the “Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature on August 19, 2020. Interest on the Notes is payable in cash or, at a Purchaser’s option, in shares of Common Stock at the Conversion Price. Upon the occurrence of an event of default, interest accrues at 18% per annum. The Notes contain customary default provisions, including provisions for potential acceleration, and covenants, including negative covenants regarding additional indebtedness and dividends. The Conversion Price is subject to adjustment due to certain events, including stock dividends and stock splits, and is subject to reduction in certain circumstances if the Company issues Common Stock or Common Stock equivalents at an effective price per share that is lower than the Conversion Price then in effect. The Company may only prepay the Notes with the prior written consent of the respective Purchasers thereof.
The Purchase Agreement contains customary representations, warranties and covenants, including covenants, subject to certain exceptions, that the Company, until the date on which less than 10% of the Notes are outstanding, shall not affect any Variable Rate Transaction (as defined in the Purchase Agreement) and that, for as long as a Purchaser holds any Notes or Conversion Shares, the Company shall amend the terms and conditions of the Purchase Agreement and the transactions contemplated thereby with respect to such Purchaser to give such Purchaser the benefit of any terms or conditions under which the Company agrees to issue or sell any Common Stock or Common Stock equivalents that are more favorable to an investor than the terms and conditions granted to such Purchaser under the Purchase Agreement and the transactions contemplated thereby.
In addition, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company has agreed to file, within 30 days after December 19, 2019, one or more registration statements on Form S-3 (or, if Form S-3 is not then available to the Company, such form of registration that is then available to effect a registration for resale of the subject securities) covering the resale of all Conversion Shares, subject to certain penalties set forth in the Registration Rights Agreement.
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 December 31, 2019.
5. Accrued Expenses
Accrued Expenses are comprised of the following:
| | | |
| Rent | 52,000 | - |
| License Fee | 50,000 | - |
| Research & Development | 1,675,000 | 585,000 |
| Professional Fees | 95,000 | 162,000 |
| Consulting and Advisory Services | 161,000 | 161,000 |
| Board of Directors Service Costs | 101,000 | 94,000 |
| Payroll and Benefits | 245,000 | 21,000 |
| Accrued Expenses | 2,379,000 | 1,023,000 |
6. Related Party Transactions
On December 21, 2018, Dr. Raymond Urbanski, Chief Executive Officer and Chairman of the Board, provided a short-term loan of $100,000 to meet immediate capital needs. The loan matured on January 20, 2019 and carries an interest rate of 5%. The loan was repaid in January, 2019.
7. Stockholders’ Equity
Common Stock
For the year ended December 31, 2018, the Company issued 162,500 shares of common stock upon conversion of $325,000 of senior convertible notes.
For the year ended December 31, 2018, the Company issued a total of 245,000 shares of Rule 144 restricted common stock in full settlement of outstanding legal matters, and 125,000 shares of Rule 144 restricted common stock in connection with consulting services.
For the year ended December 31, 2019, the Company issued a total 3,484,222 shares of common stock upon conversion of $1,361,034 in principal and interest on senior convertible notes.
For the year ended December 31, 2019, the Company issued CEO AnthonyCataldoa total of 7,000,000 andthe Company’s CFO Steven Weldona total of 4,500,000 shares of Rule 144 restricted common stock as compensation, and 4,150,000 shares of Rule 144 restricted common stock in connection with consulting services.
Preferred Stock
The 96,230 shares of Series C preferred stock are convertible into 111 shares of the Company’s common stock at the option of the holders at any time. The conversion ratio is based on the average closing bid price of the common stock for the fifteen consecutive trading days ending on the date immediately preceding the date notice of conversion is given, but cannot be less than .20 or more than .2889 common shares for each Series C preferred share. The conversion ratio may be adjusted under certain circumstances such as stock splits or stock dividends. The Company has the right to automatically convert the Series C preferred stock into common stock if the Company lists its shares of common stock on the Nasdaq National Market and the average closing bid price of the Company’s common stock on the Nasdaq National Market for 15 consecutive trading days exceeds $3,000.00. Each share of Series C preferred stock is entitled to the number of votes equal to .26 divided by the average closing bid price of the Company’s common stock during the fifteen consecutive trading days immediately prior to the date such shares of Series C preferred stock were purchased. In the event of liquidation, the holders of the Series C preferred stock shall participate on an equal basis with the holders of the common stock (as if the Series C preferred stock had converted into common stock) in any distribution of any of the assets or surplus funds of the Company. The holders of Series C preferred stock are entitled to noncumulative dividends if and when declared by the Company’s board of directors. No dividends to Series C preferred stockholders were issued or unpaid through December 31, 2019 .
On September 1, 2017, the Company designated 2,000,000 shares of Series J Preferred Stock. Shares of Series J Preferred Stock will have the same voting rights as shares of common stock with each share of Series J Preferred Stock entitled to one vote at a meeting of the shareholders of the Corporation. Shares of Series J Preferred Stock will not be entitled to receive any dividends, unless and until specifically declared by our board of directors. The holders of the Series J Preferred Stock will participate, on an as-if-converted-to-common stock basis, in any dividends to the holders of common stock. Each share of the Series J Preferred Stock is convertible into one share of our common stock at any time at the option of the holder.
On the same day, the Board issued 1,513, 548 of those shares in exchange for the cancellation of debt. In the first quarter of 2019, it was discovered that a certificate of designation with respect to the Series J Preferred Stock had never been filed with the Office of the Secretary of State for the State of Delaware. Legal research determined that despite the fact the Company had issued shares of Series J Preferred Stock, those shares had, in fact, never existed.
To remedy the situation, on April 4, 2019, the Company filed a certificate of designation with the Office of the Secretary State for the State of Delaware designating a series of preferred stock as Series J-1 Preferred Stock. On April 19, 2019, the Company issued 2,353,548 of those shares. The issuance was in lieu of the preferred stock that should have been issued on September 1, 2017, and in settlement for not receiving preferred stock until 20 months after the debt for which the stock was issued was cancelled. The Company reflected an expense in general and administrative costs in the year ended December 31, 2019 totaling $1,140,000.
The Shares are convertible into shares of common stock of the Registrant at the rate of $0.60 per share. The issuance was exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the same Act since the issuance of the Shares did not involve any public offering.
Common Stock Warrants
Warrant transactions for the years ended December 31, 2019 and 2018 are as follows:
| | | Weighted-Average Exercise Price |
| Outstanding, December 31, 2018 | - | - |
| Granted | 1,813,053 | 0.20 |
| Exercised | - | - |
| Expired | - | - |
| Outstanding, December 31, 2019 | 1,813,053 | - |
| Granted | - | - |
| Exercised | - | |
| Expired | - | |
| Outstanding, December 31, 2019 | 1,813,053 | 0.20 |
| | | |
| Exercisable Warrants: | | |
| December 31, 2019 | 1,813,053 | 0.20 |
| December 31, 2018 | 1,813,053 | 0.20 |
Stock Options
The Company reserved 1,333 shares of its common stock at December 31, 2014 for issuance under the 2014 Stock Incentive Plan (the “2014 Plan”). The 2014 Plan, approved by stockholders in May 2015, permits the Company to grant stock options to acquire shares of the Company’s common stock, award stock bonuses of the Company’s common stock, and grant stock appreciation rights. At December 31, 2019, 87 shares of common stock were available for grant and options to purchase 40 shares of common stock are outstanding under the 2014 Plan.
The following table summarizes stock option transactions for the years ended December 31, 2019 and 2018:
| | | Weighted-Average Exercise Price |
| Outstanding, December 31, 2017 | 1,246 | 1,320.00 |
| Granted | - | - |
| Exercised | - | - |
| Expired | (133) | 1,020.00 |
| Outstanding, December 31, 2018 | 1,113 | 1,320.00 |
| Granted | - | - |
| Exercised | - | - |
| Expired | (1,073) | 1,500.00 |
| Outstanding, December 31, 2019 | 40 | 877.50 |
| | | |
| Exercisable Options: | | |
| December 31, 2019 | 40 | 877.50 |
| December 31, 2018 | 1,113 | 1,320.00 |
The following table summarizes information about all outstanding and exercisable stock options at December 31, 2019 :
| | |
| | Weighted-Average Remaining Contractual Life | Weighted-Average Exercise Price | | Weighted-Average Exercise Price |
| $750.00 to$2,225.00 | 40 | 0.89 | $877.50 | 40 | $877.50 |
8. Income Taxes
Deferred Taxes
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating losses and tax credit carryforwards. The significant components of net deferred income tax assets for the Company are (in thousands):
| | |
| | | |
| Deferred tax assets: | | |
| Federal net operating loss carryforward | 36,803,000 | 25,306,000 |
| Intellectual property | 58,504,000 | 61,787,000 |
| Accrued expense | 1,262,000 | 129,000 |
| Patent amortization | 4,000 | 5,000 |
| Deferred tax asseets before valuation | 96,573,000 | 87,227,000 |
| Valuation allowance | (96,573,000) | (87,227,000) |
| Net deferred income tax assets | - | - |
Generally accepted accounting principles requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management has provided a valuation allowance equal to its net deferred tax assets. The valuation allowance increased by approximately $9,346,000 during the year ended December 31, 2019.
Tax Carryforward
At December 31, 2019, the Company had net operating loss carryforwards of approximately $122,676,000 to reduce United States federal taxable income in future years. These carryforwards expire from 2020 through 2039.
The Company is no longer subject to U.S. and state tax examinations for years ending before the fiscal year ended December 31, 2015. Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months.
The Company’s policy is to recognize interest and penalties accruedAnnual Report on any unrecognized tax benefits as a component of income tax expense. There was no accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the years ended December 31, 2019 and 2018.
9. Commitments and Contingencies
Leases
On September 1, 2017, the Company 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.
On October 1, 2018, the Company entered into a three-year lease agreement for its office in Westlake Village, CA. In addition to minimum rent, certain leases require payment of real estate taxes, insurance, common area maintenance charges and other executory costs. The Company recognizes rent expense under such arrangements on a straight-line basis over the effective term of each lease.
The following table summarizes the Company’s future minimum lease commitments as of December 31, 2019 (in thousands):
| Year ending December 31: |
| 2020 | 71,000 |
| 2021 | 61,000 |
| Total minimum lease payments | 132,000 |
Rent expense for the years ended December 31, 2019 and 2018 was $69,000 and $9,000, 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 was revised to reflect her new position and included an annual salary of $500,000, paid in equal monthly installments. All other terms of her original Employment Agreement remain unchanged. In October 2018, Dr. Clarence-Smith resigned from her position with the Company. In connection with this resignation, the Company entered into a separation agreement which superseded the Employment Agreement.
On October 18, 2018, the Company entered into a Consultant Agreement with Anthony Cataldo. The term of the Consultant Agreement shall remain in effect until September 30, 2019. This Agreement supersedes the Consultant Agreement dated February 14, 2018 and will pay Mr. Cataldo $25,000 per month during the term of the Agreement.
On October 19, 2018, the Company entered into an Executive Employment Agreement with Dr. Raymond Urbanski, reflecting his current position as Chief Executive Officer of the Company. Under the terms of this agreement, Dr. Urbanski’s annual salary is essentially unchanged from his previous positions. Dr. Urbanski is also entitled to participate in the Company’s bonus plans. Under the Executive Employment Agreement, the Company has agreed that upon shareholder approval of a Stock Option Plan, it will recommend to the Board that the Company grant Dr. Urbanski a Non-Qualified stock option to purchase 2,971,102 shares of the Company’s common stock having an exercise equal to the fair market value of the shares on the date of the Agreement. The stock option grant would vest according to the following schedule: (i) 1,250,000 fully vested shares upon signing of the agreement, (ii) 1,250,000 shares on January 1, 2019 and (iii) 471,102 shares on January 1, 2020. On March 15, 2019, Dr., Urbanski resigned his position as Chief Executive Officer, President and Chairman of the Board.
10. Subsequent Events
Financing
On January 30, 2020 GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the one purchaser (individually, a “Purchaser,” and collectively, the “Purchasers”), pursuant to which the Company issued to the Purchasers, between April 20 and May 7, 2020, Secured Convertible Notes in an aggregate principal amount of $200,000 (the “Notes”), which Notes shall be convertible at any time after issuance into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $0.20 per share (the “Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature on September 30, 2020. Interest on the Notes is payable in cash or, at a Purchaser’s option, in shares of Common Stock at the Conversion Price. Upon the occurrence of an event of default, interest accrues at 18% per annum. The Notes contain customary default provisions, including provisions for potential acceleration, and covenants, including negative covenants regarding additional indebtedness and dividends. The Conversion Price is subject to adjustment due to certain events, including stock dividends and stock splits, and is subject to reduction in certain circumstances if the Company issues Common Stock or Common Stock equivalents at an effective price per share that is lower than the Conversion Price then in effect. The Company may only prepay the Notes with the prior written consent of the respective Purchasers thereof.
The Purchase Agreement contains customary representations, warranties and covenants, including covenants, subject to certain exceptions, that the Company, until the date on which less than 10% of the Notes are outstanding, shall not effect any Variable Rate Transaction (as defined in the Purchase Agreement) and that, for as long as a Purchaser holds any Notes or Conversion Shares, the Company shall amend the terms and conditions of the Purchase Agreement and the transactions contemplated thereby with respect to such Purchaser to give such Purchaser the benefit of any terms or conditions under which the Company agrees to issue or sell any Common Stock or Common Stock equivalents that are more favorable to an investor than the terms and conditions granted to such Purchaser under the Purchase Agreement and the transactions contemplated thereby.
In addition, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company has agreed to file, within 30 days after January 30, 2020, one or more registration statements on Form S-3 (or, if Form S-3 is not then available to the Company, such form of registration that is then available to effect a registration for resale of the subject securities) covering the resale of all Conversion Shares, subject to certain penalties set forth in the Registration Rights Agreement.
On March 24, 2020 GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the one purchaser (individually, a “Purchaser,” and collectively, the “Purchasers”), pursuant to which the Company issued to the Purchasers, on January 30, 2020, Secured Convertible Notes in an aggregate principal amount of $200,000 (the “Notes”), which Notes shall be convertible at any time after issuance into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $0.20 per share (the “Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature on September 30, 2020. Interest on the Notes is payable in cash or, at a Purchaser’s option, in shares of Common Stock at the Conversion Price. Upon the occurrence of an event of default, interest accrues at 18% per annum. The Notes contain customary default provisions, including provisions for potential acceleration, and covenants, including negative covenants regarding additional indebtedness and dividends. The Conversion Price is subject to adjustment due to certain events, including stock dividends and stock splits, and is subject to reduction in certain circumstances if the Company issues Common Stock or Common Stock equivalents at an effective price per share that is lower than the Conversion Price then in effect. The Company may only prepay the Notes with the prior written consent of the respective Purchasers thereof.
The Purchase Agreement contains customary representations, warranties and covenants, including covenants, subject to certain exceptions, that the Company, until the date on which less than 10% of the Notes are outstanding, shall not effect any Variable Rate Transaction (as defined in the Purchase Agreement) and that, for as long as a Purchaser holds any Notes or Conversion Shares, the Company shall amend the terms and conditions of the Purchase Agreement and the transactions contemplated thereby with respect to such Purchaser to give such Purchaser the benefit of any terms or conditions under which the Company agrees to issue or sell any Common Stock or Common Stock equivalents that are more favorable to an investor than the terms and conditions granted to such Purchaser under the Purchase Agreement and the transactions contemplated thereby.
In addition, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company has agreed to file, within 30 days after March 24, 2020, one or more registration statements on Form S-3 (or, if Form S-3 is not then available to the Company, such form of registration that is then available to effect a registration for resale of the subject securities) covering the resale of all Conversion Shares, subject to certain penalties set forth in the Registration Rights Agreement.
Common Stock
In the first quarter of 2020, the Company issued 814,733 shares of common stock upon conversion of $162,947 in principal and interest on senior convertible notes.
GT BIOPHARMA, INC. AND SUBSIDIARIES
As of September 30, 2020 and December 31, 2019
Consolidared Balance Sheets
(In Thousands, Except Par Value and Share Data)
| | | |
| | | |
| | |
| ASSETS | | |
| Current Assets: | | |
| Cash and cash equivalents | $350 | $28 |
| Prepaid expenses | 483 | 246 |
| Total Current Assets | 833 | 274 |
| | | |
| Deposits | 12 | 12 |
| Operating lease right-to-use asset | 72 | 110 |
| Total Other Assets | 84 | 122 |
| $917 | $396 |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | |
| Current Liabilities: | | |
| Accounts payable | $2,171 | $1,940 |
| Accrued expenses | 1,228 | 2,379 |
| Accrued interest | 4,182 | 2,029 |
| Operating lease liability | 82 | 120 |
| Line of credit | 31 | 31 |
| Convertible notes | 23,000 | 13,207 |
| Total Current Liabilities | 30,694 | 19,706 |
| | | |
| Total liabilities | 30,694 | 19,706 |
| | | |
| Stockholders’ Deficit: | | |
| Convertible preferred stock - $0.01 par value; 15,000,000 shares authorized: | | |
| Series C - 96,230 and 96,230 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 1 | 1 |
| Series J-1 – 2,353,548 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 24 | 24 |
| Common stock - $0.001 par value; 750,000,000 shares authorized; and 77,518,614 and 69,784,699 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 78 | 70 |
| Additional paid-in capital | 550,984 | 548,096 |
| Accumulated deficit | (580,695) | (567,332) |
| Noncontrolling interest | (169) | (169) |
| Total Stockholders’ Deficit | (29,777) | (19,310) |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $917 | $396 |
The accompanying notes are an integral part of these consolidated financial statements.
GT BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
| | Three Months Ended September 30, | Nine Months Ended September 30, |
| | | | | |
| Operating expenses: | | | | |
| Research and development | (84) | 671 | 252 | 1,659 |
| Selling, general and administrative expenses | 2,029 | 3,585 | 4,321 | 8,932 |
| Loss on impairment | - | 4,599 | - | 4,599 |
| Total operating expenses | 1,945 | 8,855 | 4,573 | 15,190 |
| Loss from operations | (1,945) | (8,855) | (4,573) | (15,190) |
| Other income (expense): | | | | |
| Loss on disposal of assets | - | (20,463) | - | (20,494) |
| Settlement expense | - | - | (2,563) | - |
| Interest expense | (931) | (560) | (6,227) | (1,493) |
| Total other income (expense) | (931) | (21,023) | (8,790) | (21,987) |
| Loss before provision for income taxes | (2,876) | (29,878) | (13,363) | (31,177) |
| Provision for income tax | - | - | - | - |
| Net loss | (2,876) | (29,878) | (13,363) | (31,177) |
| Net loss per common share – basic and diluted | $(0.04) | $(0.51) | $(0.18) | $(0.69) |
| Weighted average common shares outstanding – basic and diluted | 76,730,076 | 58,805,997 | 72, 909,738 | 53,967,298 |
The accompanying notes are an integral part of these consolidated financial statements.
GT Biopharma, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Deficit
(In thousands)
| | | | | |
| | | | | | | |
| Balance at January 1, 2020 | 2,450 | $25 | 69,785 | $70 | $548,096 | $(567,332) |
| Issuance of common stock for convertible notes | | | 3,147 | 3 | 626 | |
| Beneficial conversion feature of convertible notes | | | | | 27 | |
| Issuance of common stock for settlement of litigation | | | 3,500 | 4 | 1,909 | |
| Issuance of warrants for compensation | | | | | 180 | |
| Issuance of common stock for compensation | | | 1,086 | 1 | 146 | |
| Net loss | | | | | | (13,363) |
| Balance at September 30, 2020 | 2,450 | $25 | 77,518 | $78 | $550,984 | $(580,695) |
| | | | | |
| | | | | | | |
| Balance at January 1, 2019 | 1,260 | $13 | 50,650 | $51 | $540,160 | $(528,685) |
| Issuance of preferred stock | 1,190 | 12 | | | 1,128 | |
| Issuance of common stock for convertible notes | | | 2,741 | 3 | 1,160 | |
| Beneficial conversion feature of convertible notes | | | | | 158 | |
| Issuance of common stock for compensation | | | 13,500 | 13 | 5,047 | |
| Net loss | | | | | | (37,177) |
| Balance at September 30, 2019 | 2,450 | $25 | 66,891 | $67 | $547,653 | $(565,862) |
The accompanying notes are an integral part of these consolidated financial statements.
GT Biopharma, Inc. and Subsidiaries |
Consolidated Statements of Cash Flows |
For the Nine Months Ended September 30, 2020 and 2019 |
(in Thousands) |
| | | |
| | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| Net loss | $(13,363) | $(37,177) |
| Adjustments to reconcile net loss to net cash used in operating activities: |
| Depreciation | - | 10 |
| Stock compensation expense for options and warrants issued to employees and non-employees | 327 | 6,202 |
| Amortization of debt discounts | - | 451 |
| Non-cash interest expense | 3,970 | 1,140 |
| Loss on disposal of assets | - | 20,494 |
| Impairment of intangible assets | - | 4,599 |
| Settlement expense | 2,363 | - |
| Changes in operating assets and liabilities: | | |
| Other assets | 3 | 6 |
| Accounts payable and accrued liabilities | 1,365 | 1,101 |
| Net cash used in operating activities | (5,335) | (3,174) |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| Disposal of fixed assets | - | 200 |
| Net cash used by investing activities | 0 | 200 |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| Proceeds from notes payable | 5,657 | 3,327 |
| Repayment of note payable | - | (100) |
| Net cash provided by financing activities | 5,657 | 3,227 |
| Minority interest | - | - |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 322 | 253 |
| CASH AND CASH EQUIVALENTS - Beginning of period | 28 | 60 |
| CASH AND CASH EQUIVALENTS - End of period | $350 | $313 |
| | | |
| Supplemental disclosures: | | |
| Interest paid | $69 | $- |
| Income taxes paid | $- | $- |
| | | |
| Supplemental disclosures: | | |
| Issuance of common stock upon conversion of convertible notes | $598 | $1,150 |
| Issuance of common stock upon conversion of accrued interest | $32 | $14 |
The accompanying condensed notes are an integral part of these consolidated financial statements.
1.
The Company and Summary of Significant Accounting Policies
Business
In 1965, the corporate predecessor of GT Biopharma, Diagnostic Data, Inc. was incorporated in the State of California. Diagnostic Data changed its incorporation to the State of Delaware in 1972. and changed its name to DDI Pharmaceuticals, Inc. in 1985. In 1994, DDI Pharmaceuticals merged with International BioClinical, Inc. and Bioxytech S.A. and changed its name to OXIS International, Inc. In July 2017, the Company changed its name to GT Biopharma, Inc.
The Company is a clinical stage biopharmaceutical company focused on the development and commercialization of novel immuno-oncology products based off our proprietary Tri-specific Killer Engager (TriKE™), Tetra-specific Killer Engager (Dual Targeting TriKEDual Targeting TriKE) platforms. The Company’s TriKE and Dual Targeting TriKE platforms generate proprietary therapeutics designed to harness and enhance the cancer killing abilities of a patient’s own natural killer cells, or NK cells. Once bound to an NK cell, the Company’s moieties are designed to enhance the NK cell, and precisely direct it to one or more specifically-targeted proteins expressed on a specific type of cancer cell or virus infected cell, ultimately resulting in the targeted cell’s death. TriKEs and Dual Targeting TriKEs are made up of recombinant fusion proteins, can be designed to target any number of tumor antigens on hematologic malignancies, sarcomas or solid tumors and do not require patient-specific customization.
Going Concern
The Company’s current operations have focused on business planning, raising capital, establishing an intellectual property portfolio, hiring, and conducting preclinical studies and clinical trials. The Company does not have any product candidates approved for sale and has not generated any revenue from product sales. The Company has sustained operating losses since inception and expects such losses to continue over the foreseeable future.
The financial statements of the Company have been prepared on a goingconcern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments that might be necessary should the Company be unable to continue in existence.
The Company has incurred substantial losses and negative cash flows from operations since its inception and has an accumulated deficit of $580 million and cash of $350 thousand as of September 30, 2020. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its products currently in development. Substantial additional financing will be needed by the Company to fund its operations and to commercially develop its product candidates. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Management is currently evaluating different strategies to obtain the required funding for future operations. These strategies may include but are not limited to: public offerings of equity and/or debt securities, payments from potential strategic research and development, and licensing and/or marketing arrangements with pharmaceutical companies. If the Company is unable to secure adequate additional funding, its business, operating results, financial condition and cash flows may be materially and adversely affected.
Use of Estimates
The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities revenues and expenses and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
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, 20192021, filed with the SEC on March 27, 2020. The unaudited interim condensed consolidated financial information presented herein reflects all normal adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The Company is responsible for the unaudited interim consolidated financial statements included in this report. The results of operations of any interim period are not necessarily indicative of the results for the full year.April 16, 2021;
