GT Biopharma Inc

GT Biopharma, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Note 1 –Organization and Operations

The corporate predecessor of GT Biopharma, Inc, Diagnostic Data, Inc., was incorporated in the state of California in 1965. Diagnostic Data, Inc. changed its incorporation to the state of Delaware on December 21, 1972 and changed its name to DDI Pharmaceuticals, Inc. on March 11, 1985. On September 7, 1994, DDI Pharmaceuticals, Inc. merged with International BioClinical, Inc. and Bioxytech S.A. and changed its name to OXIS International, Inc. On July 17, 2017, OXIS International, Inc. changed its name to GT Biopharma, Inc. (the “Company”).

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®), and Tetra-specific Killer Engager (Dual 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 (NK cells).

Reverse Stock Split

On February 1, 2024, the Company announced a reverse stock-split of its common stock, par value $0.001 per share, at a ratio of 1 for 30. The reverse stock-split became effective on February 2, 2024. The Company’s common stock began trading on a reverse stock-split-adjusted basis on The Nasdaq Capital Market on February 5, 2024 under the existing trading symbol “GTBP.”

As a result of the reverse stock-split, every thirty (30) shares of issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share. No fractional shares will be issued in connection with the reverse stock split. Stockholders who otherwise would be entitled to receive fractional shares of common stock will be entitled to receive their pro-rata portion of the net proceeds obtained from the aggregation and sale by the exchange agent of the fractional shares resulting from the reverse stock-split (reduced by any customary brokerage fees, commission and other expenses). The reverse stock split reduced the number of shares of common stock outstanding from 41,419,000 shares to 1,380,633 shares, subject to minor adjustments due to the treatment of fractional shares. The number of authorized shares of common stock remains unchanged at 250,000,000 shares.

Proportionate adjustments will be made to the per share exercise price and the number of shares of common stock that may be purchased upon exercise of outstanding stock options for the Company’s common stock and to the number of shares of common stock reserved for future issuance pursuant to the GT Biopharma, Inc. 2022 Omnibus Incentive Plan.

All share and per share information within this report have been adjusted to retroactively reflect the reverse stock-split as of the earliest period presented.

Note 2 –Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiaries, OXIS Biotech, Inc. and Georgetown Translational Pharmaceuticals, Inc. All intercompany transactions and balances have been eliminated in consolidation.

Liquidity

The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has no recurring source of revenue and has recorded a net loss of $7.6 million and used cash in operations of $8.9 million for the year ended December 31, 2023. The Company had a cash and short-term investments balance of $14.0 million at December 31, 2023. We anticipate that we will need cash of approximately $10.0 million for the next twelve months for research and development and selling, general and administrative expenses. We expect the cash and short-term investments totaling $14.0 million will be sufficient to fund operations for the following 12 months, and anticipate raising additional funds as needed to fund our continued clinical trials. Management anticipates that the $14.0 million of cash and cash equivalents and short-term investments available are adequate to satisfy the liquidity needs of the Company for at least one year from the date the Company’s 2023 consolidated financial statements are issued.

Historically, the Company has financed its operations through public and private sales of common stock, issuance of preferred stock, issuance of convertible debt instruments, and strategic collaborations. There can be no assurances that the Company will be able to secure additional financing on acceptable terms. In the event that the Company does not generate sufficient cash flows from investing and financing activities, the Company will be forced to delay, reduce, or eliminate some or all of its discretionary spendings, which could adversely affect the Company’s business prospects, ability to meet long-term liquidity needs or ability to continue operations.

Accounting Estimates

The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include accruals for potential liabilities, assumptions used in deriving the fair value of warrant liabilities, share-based compensation and valuation of deferred tax assets. Actual results could differ from those estimates.

Cash Equivalents and Short-Term Investments

The Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents in the accompanying consolidated financial statements. As of December 31, 2023, total cash and cash equivalents which consist of cash and money market funds, amounted to approximately $1.1 million.

The Company also invested its excess cash in commercial paper and corporate notes and bonds. Management generally determines the appropriate classification of its investments at the time of purchase. We classify these investments as short-term investments as part of current assets, based upon our ability and intent to use any and all of these investments as necessary to satisfy liquidity requirements that may arise from our businesses. Investments are carried at fair value with the unrealized holding gains and losses reported in the accompanying consolidated statements of operations. As of December 31, 2023, total short-term investments amounted to approximately $12.9 million.

Fair Value of Financial Instruments

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

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

Level 1 Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2 Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3 Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amount of the Company’s warrant liability of $1.1 million at December 31, 2023 and $19,000 at December 31, 2022 was based on Level 2 measurements.

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

Warrant Liability

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.

The Company’s use of derivative financial instruments is generally limited to warrants issued by the Company that do not meet the criteria for equity treatment and are recorded as liabilities. We do not use financial instruments or derivatives for any trading purposes.

Stock-Based Compensation

The Company periodically issues stock-based compensation to officers, directors, employees and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date.

Stock-based payments to officers, directors, employees and consultants for acquiring goods and services from non-employees, which include grants of employee stock options, are recognized in the financial statements based on their grant date fair values in accordance with ASC 718,Compensation-Stock Compensation. Stock based payments to officers, directors, employees and consultants, which are generally time vested, are measured at the grant date fair value and depending on the conditions associated with the vesting of the award, compensation cost is recognized on a straight-line or graded basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life, and future dividends. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.

Research and Development Costs

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

Leases

The Company accounts for its lease in accordance with the guidance of ASC 842,Leases. The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments.

Net Loss Per Share

Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and the dilutive effect of contingent shares outstanding during the period. Potentially dilutive contingent shares, which primarily consist of stock issuable upon exercise of stock options and warrants have been excluded from the diluted loss per share calculation because their effect is anti-dilutive.

The following shares were excluded in the computation of the diluted net loss per share because their effect is anti-dilutive:

Concentration

Cash is deposited in one financial institution. The balances held at this financial institution at times may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits of up to $250,000. Management believes that the financial institutions that hold the Company’s cash are financially sound and, accordingly, minimal credit risk exists.

The Company has a significant concentration of expenses incurred and accounts payable from a single vendor (Note 4).

*Segments *

The Company determined its reporting units in accordance with “Segment Reporting” (“ASC 280”). Management evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.

Management has determined that the Company has one consolidated operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.

Recently Issued Accounting Pronouncements

The Company’s management has evaluated all the recently issued, but not yet effective, accounting standards and guidance that have been issued or proposed by the FASB or other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s financial position and results of operations.

Note 3 –Fair Value of Financial Instruments

The estimated fair values of financial instruments outstanding were (in thousands):

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

As of December 31, 2023 and 2022, the fair value of the warrant liability amounted to $1.1 million and $19,000, respectively. (Note 5 – Warrant Liability).

Note 4 –Accounts Payable

Accounts payable consisted of the following (in thousands):

The Company relies on a third-party contract manufacturing operation to produce and/or test our compounds used in our potential product candidates.

On October 5, 2020, the Company entered into a Master Services Agreement with a third-party product manufacturer to perform biologic development and manufacturing services on behalf of the Company. Associated with this, the Company has subsequently signed five Statements of Work (“SOWs”) for the research and development of products for use in clinical trials. The Company’s commitments in relation to these SOWs and any related Change Orders totaled approximately $15.6 million.

On August 24, 2022, the Company entered into a payment agreement with this third-party manufacturer and issued 40,743 shares of common stock with a fair value of $3.2 million as part of that agreement. The shares were valued at $79.80 per share based on the closing price of the Company’s common stock on the date of the agreement. As part of the agreement, the Company also paid this third-party manufacturer $1.3 million on September 1, 2022, $1.0 million on October 3, 2022, and $1.0 million in November 2022. In addition, the Company and the third-party manufacturer agreed that services to be rendered in future periods, as specified in the agreement, will be paid or settled at the Company’s discretion, in a combination of cash and issuance of the Company’s common stock. The agreement also amended certain agreements executed in prior years which eliminated future financial commitments of the Company.

During the year ended December 31, 2022, the Company recorded research and development expenses in the aggregate of $3.6 million for services rendered by this third-party product manufacturer and made additional payments of $900,000. As of December 31, 2022, the outstanding balance due to this third-party product manufacturer amounted to $2.3 million.

During the year ended December 31, 2023, the Company recorded research and development expenses in the aggregate of $4.6 million for services rendered by this third-party product manufacturer, made additional payments of $2.2 million, issued 57,436 additional shares of stock in settlement of $1.2 million of accounts payable with a fair value of $1.1 million, which resulted in a gain of $547,000 on that settlement. The common stock issued were valued at the respective date of their issuance. As of December 31, 2023, the outstanding balance due to this third-party product manufacturer amounted to $3.5 million.

Note 5 –Warrant Liability

The details of warrant liability transactions for the years ended December 31, 2023 and 2022 are as follows (in thousands):

2023 Warrants

On January 4, 2023, as part of the private placement offering, the Company issued common stock, warrants to purchase up to an aggregate of 216,667 shares of the Company’s common stock (the “Common Warrants”), and placement agent warrants to purchase up to 13,000 shares of the Company’s common stock (the “Placement Agents Warrants” see Note 6 – Stockholders’ Equity).

The Purchase Warrant provides for a value calculation for the Purchase Warrant using the Black Scholes model in the event of certain fundamental transactions. The fair value calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined this provision introduces leverage to the holders of the Purchase Warrant that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrant as a liability in its consolidated balance sheet. The classification of the Purchase Warrant, including whether the Purchase Warrant should be recorded as liability or as equity, is evaluated at the end of each reporting period with changes in the fair value reported in other income (expense) in the consolidated statements of operations and comprehensive loss. The Purchase Warrant was initially recorded at a fair value at $5.8 million at the grant date and is re-valued at each reporting date. Upon the closing of placement, the fair value of the Purchase Warrant liability was recorded as a cost of capital.

During 2023, the Company recognized change in fair value of the warrant liability of $4.7 million. As of December 31, 2023, the fair value of the warrant liability was $1.1 million.

All changes in the fair value of the warrant liabilities are recognized as a change in fair value of warrant liability in the Company’s consolidated statements of operations until they are either exercised or expire.

The warrant liabilities for the Common Warrants and the Placement Agents Warrants were valued using a Binomial pricing model with the following weighted average assumptions:

2020 Warrants

During the year ended December 31, 2020, the Company issued certain warrants that contained a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder upon occurrence of certain change in control type events. In accordance with ASC 480, the fair value of these warrants is classified as a liability in the Consolidated Balance Sheets and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations. The warrant liabilities were valued using a Binomial pricing model with an estimated fair value of $138,000 as of December 31, 2021.

During 2022, the Company recognized change in fair value of the derivative liability of $119,000. As of December 31, 2022, the fair value of the warrant liability was $19,000.

During 2023, the Company recognized change in fair value of the derivative liability of $17,000. As of December 31, 2023, the fair value of the warrant liability was $2,000.

The warrant liabilities were valued using a Binomial pricing model with the following average assumptions:

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the derivative securities was determined by the remaining contractual life of the derivative instrument. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

**Note 6 –Stockholders’ Equity **

The Company is authorized to issue 250,000,000 shares of common stock at a par value of $0.001, and 15,000,000 shares of preferred stock at par value $0.01 per share as of December 31, 2023.

Common Stock

Private Placement of Common Stock

On January 4, 2023, GT Biopharma received gross proceeds of $6.5 million, before deducting placement agent fees and other offering expenses of $232,000 in relation to a purchase agreement (the “Purchase Agreement”) signed on December 30, 2022, between the Company and an institutional investor (the “Purchaser”) for the issuance and sale, in a registered direct offering (the “Offering”), of 120,000 shares of the Company’s common stock, par value $0.001 per share (the “Shares”), pre-funded warrants to purchase up to 96,667 shares of the Company’s common stock (the “Pre-Funded Warrants”), warrants to purchase up to an aggregate of 216,667 shares of the Company’s common stock (the “Common Warrants”) and placement agent warrants to purchase up to 13,000 of the Company’s common stock (the “Placement Agents Warrants”). The Common Warrants have an exercise price equal to $30.00, became exercisable commencing six months following issuance, and shall have a term of exercise equal to five years following the initial exercise date. The Pre-Funded Warrants had an exercise price of $0.003 per Share, were immediately exercisable and could be exercised at any time after their original issuance until such Pre-Funded Warrants were exercised in full. The Placement Agents Warrants have an exercise price equal to $37.50, became exercisable commencing six months following issuance, and shall have a term of exercise equal to five years following the initial exercise date. The Shares and Common Warrants were sold at an offering price of $30.00 per Share and accompanying Common Warrant and the Pre-Funded Warrants and Common Warrants were sold at an offering price of $29.997 per Pre-Funded Warrant and accompanying Common Warrant.

The Common Warrants and the Placement Agents Warrants contained a clause not considered to be within the Company’s control. The Company determined that the provision represented a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under ASC 815-40, and thus the Common Warrants and the Placement Agent Warrants are not considered indexed to the Company’s own stock and not eligible for an exception from derivative accounting. Accordingly, the Common Warrants and the Placement Agent Warrants were classified as a warrant liability, and $5.8 million of the initial common stock offering was classified as a warrant liability (Note 5 – Warrant Liability).

In May 2023, the 96,667 Pre-Funded Warrants were exercised.

Common Stock Issuable

As a result of the completion of a public offering on February 16, 2021 and listing of the Company’s shares of common stock on the Nasdaq Capital Market, convertible notes payable and accrued interest totaling $38.8 million were mandatorily converted into 380,444 shares of the Company’s common stock. As of December 31, 2021,10,909 shares of common stock were still unissued to the corresponding noteholders with a total notes payable and accrued interest of $1.1 million and was accounted as common stock issuable in the accompanying consolidated statements of stockholders’ equity.

During the year ended December 31, 2022, the Company issued the remaining 10,909 common shares issuable valued at $1.1 million. In addition, the Company also issued an additional 347 shares of commons stock with a fair value of $35,000 as settlement with a noteholder.

Cancellation of Common Stock Previously Issued for Services

The Company cancelled 9,700 previously issued shares of common stock during the year ended December 31, 2022.

Issuance of Common Stock as Equity Compensation to Officers, Employees and Board of Directors

During the year ended December 31, 2023, the Company issued 14,237 shares of common stock and recognized stock compensation expense of $267,000 to account for the fair value of common stock that vested. This included 13,333 shares with a fair value of $115,000 that were granted during the year.

During the year ended December 31, 2022, the Company issued 23,654 shares of common stock and recognized stock compensation expense of $2.5 million to account for the fair value of common stock that vested. This included 12,602 shares with a fair value of $938,000 that were granted during the year.

As of December 31, 2023 and 2022, there wereno unvested shares granted to officers, employees and directors.

Equity Compensation to Consultants

During the year ended December 31, 2023, the Company issued 1,545 shares of common stock and recognized stock compensation expense of $162,000 to account for the fair value of common stock that vested.

During the year ended December 31, 2022, the Company issued 17,562 shares of common stock and recognized stock compensation expense of $2.1 million to account for the fair value of common stock that vested.

As of December 31, 2023, there wereno unvested shares of common stock issued to consultants.

Cancellation of Common Stock Upon Settlement with a Former Officer

On April 29, 2022, the Company entered into a settlement agreement with its former Chief Executive Officer (“Officer”) and received 61,500 shares of its previously issued common stock in full and final settlement of all its claims against the Officer. The common stock was subsequently cancelled and returned to treasury. In addition, the Company incurred legal and professional expenses of $224,000. The legal and professional fees incurred were accounted as costs of the acquisition of the common stock and recorded as a reduction to additional paid in capital. Both the Company and the Officer released each other from claims under the settlement agreement.

Preferred Stock

Series C Preferred Stock

At December 31, 2023 and 2022, there were 96,230 shares of Series C Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”) issued and outstanding.

As a result of reverse stock-splits in previous years and the agreement terms for adjusting the rights of the related shares, the 96,230 shares of Series C Preferred Stock are not convertible to common stock, have no voting rights, and in the event of liquidation, the holders of the Series C Preferred Stock would not participate in any distribution of the assets or surplus funds of the Company. The holders of Series C Preferred Stock also are not currently entitled to any dividends if and when declared by the Company’s board of directors (the “Board”). No dividends to holders of the Series C Preferred Stock were declared or unpaid as of and for the period ended December 31, 2023.

Series K Preferred Stock

On February 16, 2021, the Board designated 115,000 shares of Series K preferred stock, par value $.01. (the “Series K Preferred Stock”).

Shares of the Series K Preferred Stock are convertible at any time, at the option of the holders, into shares of the Company’s common stock at an effective conversion rate of 100 shares of common stock for each share of Series K Preferred Stock. Shares of the Series K Preferred Stock have the same voting rights a shares of the Company’s common stock, with the holders of the Series K Preferred Stock entitled to vote on an as-converted-to-common stock basis, subject to the beneficial ownership limitation, together with the holders of the Company’s common stock on all matters presented to the Company’s stockholders. The Series K Preferred Stock are not entitled to any dividends (unless specifically declared by the Board), but will participate on an as-converted-to-common-stock basis in any dividends to the holders of the Company’s common stock. In the event of the Company’s dissolution, liquidation or winding up, the holders of the Series K Preferred Stock will be on parity with the holders of the Company’s common stock and will participate, on a on an as-converted-to-common stock basis, in any distribution to holders of the Company’s common stock.

As of December 31, 2023 and 2022, there wereno Series K Preferred stock issued and outstanding.

Warrants and Options

Common Stock Warrants

Stock warrant transactions for the years ended December 31, 2023 and 2022, were as follows:

As of December 31, 2023 and 2022, all issued and outstanding warrants were fully vested. There wasno intrinsic value of the outstanding warrants as of December 31, 2023 and 2022, as the exercise price of these warrants was equal to or greater than the market price.

Common Stock Options

Stock option transactions for the years ended December 31, 2023 and 2022 were as follows:

Year Ended December 31, 2023

On January 27, 2023, the Company granted stock options to employees and members of its board of directors to purchase an aggregate of 66,667 shares of common stock at an exercise price of $25.50 per share. The stock options expire in 10 years, vest over twelve months and had a fair value of $1.4 million at the date of grant determined using the Black-Scholes Option Pricing model with the weighted average assumptions below.

On May 15, 2023, the Company granted stock options to a member of its board of directors to purchase 16,666 shares of common stock at an exercise price of $10.50 per share. The stock options expire in 10 years, vest over twelve months and had a fair value of $175,000 on at the date of grant determined using the Black-Scholes Option Pricing model.

Due to the departure of certain employees during the year end December 31, 2023,11,416 stock option were forfeited or expired unexercised.

The Company used the following weighted average assumptions in the Black-Scholes Option Pricing model to compute the fair value of the stock options granted during the year ended December 31, 2023.

During the year ended December 31, 2023, the Company recognized stock compensation expense relating to the vesting of options granted in 2023 totaling $1.8 million to account the fair value of stock options that vested in fiscal 2023.

There was no intrinsic value of the outstanding options as of December 31, 2023 as the exercise price of these options was greater than the market price.

As of December 31, 2023, unamortized fair value of the 8,085 unvested stock options amounted to $186,000 which will be recognized in future periods.

Year Ended December 31, 2022

On July 15, 2022, the Company granted certain consultants, employees, officers and directors stock options to purchase an aggregate of 51,098 shares of common stock. The stock options are exercisable at $74.40 per share and will expire in 10 years. A portion of the options vested immediately with the remaining portion vesting over a period of 5 months up to 36 months. The fair value of the options amounted to $3.4 million or an average of $66.60 per share and were calculated using the Black Scholes Option pricing model.

The Company used the following weighted average assumptions in the Black-Scholes Option Pricing model to compute the fair value of the stock options granted during the year ended December 31, 2022.

The Company recorded forfeitures of 6,833 options to purchase common stock during 2022 due to the resignation of two employees. The forfeitures were related to shares that had not yet been vested.

During the year ended December 31, 2022, the Company recorded total stock compensation of $3.0 million to account the fair value of stock options that vested in fiscal 2022.

Note 7 –Commitments and Contingencies

Litigation

The Company is involved in certain legal proceedings that arise from time to time in the ordinary course of our business. Except for income tax contingencies, the Company records accruals for contingencies to the extent that our management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. There is no current or pending litigation of any significance with the exception of the matters that have arisen under, and are being handled in, the normal course of business.

Significant Agreements

Research and Development Agreements

The Company is a party to a scientific research agreement with the Regents of the University of Minnesota (“UofMN”), effective June 16, 2021. This scientific research agreement aims to work with the Company with three major goals in mind: (1) support the Company’s TriKE®product development and GMP manufacturing efforts; (2) TriKE® pharmacokinetics optimization in humans; and (3) investigation of the patient’s native NK cell population based on insights obtained from the analysis of the human data generated during our GTB-3550 clinical trial. The major deliverables proposed here are: (1) creation of IND enabling data for TriKE®constructs in support of our product development and GMP manufacturing efforts; (2) TriKE® platform drug delivery changes to allow transition to alternative drug delivery means and extended PK in humans; and (3) gain an increased understanding of changes in the patient’s native NK cell population as a result of TriKE®therapy. Most studies will use TriKE®DNA/amino acid sequences created by us under current UMN/GTB licensing terms. This agreement expired on June 30, 2023. The Company and UofMN are negotiating the terms of a new scientific research agreement and expect to finalize it in the first half of 2024.

For the years ended December 31, 2023 and 2022, the Company recorded an expense of $383,000 and $766,000 pursuant to the scientific research agreement for each respective period. The Company has recorded expense in the aggregate of $2.1 million as of December 31, 2023 pursuant to this agreement.

Patent and License Agreements

2016 Exclusive Patent License Agreement

The Company is party to an exclusive worldwide license agreement with the Regents of the University of Minnesota, (“UofMN”), to further develop and commercialize cancer therapies using TriKE® technology developed by researchers at the UofMN to target NK cells to cancer. Under the terms of the 2016 agreement, the Company receives 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. The Company is 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 and the European Agency for the Evaluation of Medicinal Products in the European Union. Under the agreement, the UofMN received an upfront payment of $200,000, and an annual License Maintenance fee of $100,000 beginning in 2021. The agreement also includes 4% royalty fees, (not to exceed 6% under subsequence license agreements or amendments to this agreement or minimum annual royalty payments ranging from $250,000 to $5.0 million. The agreement also includes certain performance milestone payments totaling $3.1 million, and one-time sales milestone payments of $1.0 million upon reaching $250 million in gross sales, and $5.0 million upon reaching $500 million dollars in cumulative gross sales of Licensed Products.

The Company didnot incur any research and development expense relating to the 2016 Exclusive Patent License Agreement for the year ended December 31, 2023.

2021 Patent License Agreement

On March 26, 2021, the Company signed an agreement specific to the B7H3 targeted TriKE®. Under the agreement, the UofMN received an upfront license fee of $20,000, and will receive an annual License Maintenance fee of $5,000 beginning in 2022,2.5% to 5% royalty fees, or minimum annual royalty payments of $250,000 beginning in the year after the first commercial sales of Licensed Product, and $2.0 million beginning in the fifth year after the first commercial sale of such Licensed Product. The agreement also includes certain performance milestone payments totaling $3.1 million, and one-time sales milestone payments of $1.0 million upon reaching $250 million in gross sales, and $5.0 million upon reaching $500 million dollars in cumulative gross sales of Licensed Products. There is no double payment intended; if one of the milestone payments has been paid under the 2016 agreement no further payment is due for the corresponding milestone above.

The Company didnot incur any research and development expense relating to the 2021 Patent License Agreement for the years ended December 31, 2023 and 2022, respectively.

Employee Compensation

The following table summarizes the Company’s future financial commitment to certain employees pursuant to their respective employment agreements (in thousands):

Note 8 –Operating Leases

Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for the lease and non-lease components of its leases as a single lease component. Rent expense is recognized on a straight-line basis over the lease term. Operating lease Right-of-Use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical collateralized borrowing rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.

On November 19, 2021, the Company entered into a sublease with a third party for 4,500 square feet of office space located in Brisbane, California, with acommencement date of January 1, 2022, and maturing on June 30, 2024. As a result of this agreement, the Company recognized ROU asset and liability of $247,294 pursuant to ASC 842*, Leases.*

On February 8, 2022, the Company entered into a copier lease which would end on February 7, 2025. As a result, the Company recognizedan additional ROU asset and liability of $13,000. In October 2023, this lease was cancelled and the remaining ROU asset of $6,000 was written off against the cancelled lease liability.

Other information related to leases and future minimum lease payments under non-cancellable operating leases were as follows:

Future minimum lease payments under non-cancellable operating leases were as follows:

Note 9 –Income Tax

The Company did not record any income tax provision for the years ended December 31, 2023 and 2022, respectively, due to the Company’s net losses. The Company files income tax returns in the United States (“Federal”) and California, Minnesota and Massachusetts (“State”) jurisdictions. The Company is subject to Federal and State income tax examinations by tax authorities for all years since its inception. At December 31, 2023, the Company had Federal and State net operating loss carry forwards available to offset future taxable income of approximately $238 million. These carry forwards will begin to expire in the year ending December 31, 2030, subject to IRS limitations, including change in ownership. The Company periodically evaluates the likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by a valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.

Based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company has determined that it was more likely than not that its deferred tax assets would not be realized at December 31, 2023 and 2022, respectively. Accordingly, the Company has recorded a valuation allowance for 100% of its cumulative deferred tax assets.

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 are (in thousands):

A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income tax provision is as follows for the year ended: