Business Context and Reporting Period
Atossa Genetics Inc. (now identified in the request as Atossa Therapeutics, Inc.) filed its Form 10-K for the fiscal year ended December 31, 2018; this is an annual filing rather than a standalone fourth-quarter filing. The company is a clinical-stage biopharmaceutical business developing oral and topical Endoxifen for breast-related conditions and intraductal delivery technologies for fulvestrant, CAR-T therapies, and other immunotherapies. No products or services were being marketed commercially.
Financial Results and Liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No sustainable revenue |
| Operating expenses | $11.43 million | $7.65 million | Up 49% |
| Research and development | $4.21 million | $2.33 million | Up 81% |
| General and administrative | $7.22 million | $4.86 million | Up 49% |
| Net loss | $11.40 million | $8.12 million | Loss increased |
| Net loss applicable to common shareholders | $22.88 million | $10.69 million | Higher due primarily to deemed dividends |
| Loss per common share | $5.50 | $10.97 | Per-share figures affected by share-count changes |
| Cash used in operating activities | $8.96 million | $6.59 million | Up 36% |
| Cash and cash equivalents | $10.38 million | $7.22 million | Increased |
| Working capital | Approximately $8.6 million | Not clearly provided | — |
Operating and net margins are not meaningful because the company had no revenue. Total assets were $11.72 million and stockholders’ equity was $8.81 million at December 31, 2018. Current liabilities were $2.92 million. The filing does not disclose material interest-bearing debt; liabilities primarily consisted of accounts payable, accrued expenses, payroll liabilities, stock-based compensation liabilities, and other current liabilities.
Net cash provided by financing activities was $12.29 million, primarily from the May 2018 rights offering of Series B convertible preferred stock and warrants. In March 2019, the company received approximately $11.3 million from warrant exercises and reported approximately $19.3 million of cash and cash equivalents as of March 25, 2019.
Material Changes Versus the Prior Comparable Period
- R&D spending increased substantially as the company initiated two Phase 2 Endoxifen studies and continued its fulvestrant microcatheter study.
- G&A expense rose due to higher stock-based compensation, salary increases, $350,000 of one-time bonuses, and approximately $600,000 of higher legal and professional consulting costs.
- The company recorded no 2018 intangible-asset impairment, compared with a $461,715 impairment charge in 2017.
- The company raised approximately $12.3 million net in the May 2018 Series B preferred stock and warrant offering.
- Series B preferred stock conversions resulted in the issuance of approximately 3.2 million common shares during 2018.
- The April 2018 one-for-twelve reverse stock split affects the comparability of historical share and per-share data.
Guidance, Outlook, Risks, and Unusual Items
- Management expected available resources, including the March 2019 warrant proceeds, to fund planned operations for at least 12 to 18 months from the filing date, but stated that additional funding would likely be required thereafter.
- The Swedish Phase 2 mammographic breast-density study enrolled 90 participants, but approximately 72 participants had exited before completing six months, primarily because of skin irritation or rashes. Management warned that the study may not produce sufficient data for its objectives. Preliminary results were expected in the second quarter of 2019.
- The company’s oral Endoxifen window-of-opportunity study in Australia and intraductal fulvestrant Phase 2 study remained clinical-stage programs requiring further regulatory and clinical progress.
- The company has no approved commercial products and depends on successful clinical trials, regulatory approvals, manufacturing, reimbursement, and future financing.
- Management disclosed substantial doubt-related liquidity risk: the company has recurring losses, negative operating cash flow, no sustainable revenue source, and could be forced to curtail or cease operations if financing is unavailable.
- The company relies heavily on third-party manufacturers, clinical research organizations, medical institutions, and in some cases single vendors.
- A securities class action was settled for $3.5 million in 2018, fully funded by defendants’ insurers; the case was reported as closed.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective as of December 31, 2018 because of a material weakness in accounting for the Series B preferred stock deemed dividend. A prior Form 10-Q was restated: the deemed dividend increased from $4.78 million to $11.48 million, and reported loss per share for the six months ended June 30, 2018 changed from $3.77 to $6.11.
- The company reported a $76.83 million accumulated deficit at year-end and no income-tax benefit because realization of tax attributes was uncertain.
Most Important Facts to Verify
- Confirm the company’s current legal name and ticker, because the filing identifies the registrant as Atossa Genetics Inc.
- Verify the March 2019 warrant exercises, including approximately $11.3 million of proceeds and approximately 2.8 million warrants exercised.
- Assess cash runway against the company’s continuing operating cash burn and expected increases in clinical-development spending.
- Review the full results and attrition impact of the Swedish mammographic breast-density study.
- Evaluate the status, enrollment, endpoints, and regulatory pathway of the Endoxifen and intraductal fulvestrant programs.
- Review remediation of the material weakness and the accuracy of future accounting for complex equity and preferred-stock instruments.
- Consider potential dilution from outstanding warrants, preferred-stock conversion rights, stock options, and future capital raises.
- Review Nasdaq continued-listing requirements and the company’s ability to maintain adequate capital and share-price compliance.