GT Biopharma(US:GTBP)2020-11-13 22:01PART I FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements reflect a significant net loss, a widening stockholders' deficit, and substantial doubt about its ability to continue as a going concern Consolidated Balance Sheets The balance sheet shows a widening stockholders' deficit to ($29.78) million, driven by a substantial increase in total liabilities to $30.69 million Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $350 | $28 | | Total Current Assets | $833 | $274 | | Total Assets | $917 | $396 | | Liabilities & Stockholders' Deficit | | | | Convertible notes | $23,000 | $13,207 | | Total Current Liabilities | $30,694 | $19,706 | | Total Liabilities | $30,694 | $19,706 | | Accumulated deficit | ($580,695) | ($567,332) | | Total Stockholders' Deficit | ($29,777) | ($19,310) | Consolidated Statements of Operations The company reported a significantly reduced net loss of ($2.9) million for the third quarter of 2020 compared to ($29.9) million in the prior year Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Research and development | ($84) | $671 | $252 | $1,659 | | Selling, general and administrative | $2,029 | $3,585 | $4,321 | $8,932 | | Loss from operations | ($1,945) | ($8,855) | ($4,573) | ($15,190) | | Interest expense | ($931) | ($560) | ($6,227) | ($1,493) | | Net loss | ($2,876) | ($29,878) | ($13,363) | ($31,177) | | Net loss per common share | ($0.04) | ($0.51) | ($0.18) | ($0.69) | Consolidated Statements of Cash Flows Net cash used in operations increased, while financing activities provided $5.7 million, resulting in a net cash increase of $0.32 million for the nine-month period Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($5,335) | ($3,174) | | Net cash used by investing activities | $0 | $200 | | Net cash provided by financing activities | $5,657 | $3,227 | | Net increase in cash | $322 | $253 | | Cash at end of period | $350 | $313 | Condensed Notes to Consolidated Financial Statements Notes highlight a significant 'Going Concern' issue, an accumulated deficit of $580 million, and details on convertible notes and subsequent management changes - The company is a clinical-stage biopharmaceutical company focused on developing immuno-oncology products based on its proprietary Tri-specific Killer Engager (TriKE™) platform21 - There is substantial doubt about the company's ability to continue as a going concern due to substantial losses, an accumulated deficit of $580 million, and cash of only $350 thousand as of September 30, 202024 - As of September 30, 2020, the company had approximately $23 million in convertible notes outstanding, with about $13.2 million in default566266 - Subsequent to the quarter end, the company issued additional convertible notes, entered into a settlement agreement, appointed two new directors, and experienced the resignation of its CFO103108112118 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its focus on the TriKE™ platform, recent financing activities, and reiterates the substantial doubt about its ability to continue as a going concern - The company is focused on developing its proprietary TriKE™ and Dual Targeting TriKE™ platforms for hematologic malignancies, solid tumors, and infectious diseases129131 - Entered into a GMP manufacturing services agreement with Cytovance® Biologics for three TriKE™ product candidates133 Operating Expense Comparison (in thousands) | Expense Category | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Change | | :--- | :--- | :--- | :--- | | Research & Development | $252 | $1,700 | Decreased due to reduced employee, consultant, and preclinical expenses | | Selling, General & Administrative | $4,300 | $8,900 | Decreased due to reduction in payroll and stock compensation | | Interest Expense | $6,200 | $1,500 | Increased due to accrual of default interest on notes | - The company has an accumulated deficit of $580 million and cash of $350 thousand, and will need to raise an additional $18 million to fund operations over the next 12 months, reinforcing the going concern risk168170 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this disclosure is not required - As a smaller reporting company, GT Biopharma is not required to provide quantitative and qualitative disclosures about market risk179 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective due to material weaknesses in internal control - Disclosure controls and procedures were concluded to be ineffective as of September 30, 2020180 - Identified material weaknesses include: (i) inadequate segregation of duties, (ii) risks of executive override, and (iii) insufficient written policies for accounting and financial reporting180 - The company is implementing remediation measures, including hiring additional finance staff and documenting policies and procedures181 PART II OTHER INFORMATION Item 1. Legal Proceedings The company is a defendant in a lawsuit alleging breach of agreements and seeking damages of $1,670,000 plus stock issuance - A complaint was filed against the company and its subsidiary on August 28, 2019, by Jeffrey Lion and Daniel Vallera, alleging breach of license and consulting agreements183 - The plaintiffs are seeking damages of $1,670,000 and the issuance of common stock equivalent to 15,000,000 shares as of September 1, 2015183 Item 1A. Risk Factors No material changes to risk factors have been reported since the last Annual Report on Form 10-K - No material changes have occurred in the company's risk factors since the filing of its Form 10-K for the year ended December 31, 2019184 Item 2. Unregistered Sales of Securities and Use of Proceeds The company issued various unregistered securities for note conversions, consulting services, and settlement agreements - During the nine months ended September 30, 2020, the company issued unregistered securities, including: - 3,147,486 shares of common stock upon conversion of convertible notes - 1,086,429 shares of common stock for consulting services - 3,500,000 shares of common stock pursuant to a settlement agreement - A warrant to purchase 1,000,000 shares of common stock as compensation186190 Item 3. Defaults Upon Senior Securities The company was in default on convertible notes with a principal amount of approximately $13.2 million - As of September 30, 2020, convertible notes totaling approximately $13.2 million are in default186 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable187 Item 5. Other Information Subsequent events include a significant settlement agreement, the resignation of the CFO, and the appointment of new directors - On November 9, 2020, the company entered into a settlement agreement with Theorem Group and other claimants, resolving disputes by agreeing to issue new convertible notes188189 - Steven Weldon resigned as Chief Financial Officer on November 11, 2020192 - Michael Handelman was appointed as the new interim Chief Financial Officer, and Bruce Wendel and Greg Berk were appointed as new directors to the Board of Directors193197 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements and certifications