GT Biopharma, Inc. (filing identifies issuer as OXIS International, Inc.) — Form 10-Q
Reporting period: Three months ended March 31, 2012; financial statements are unaudited. The filing’s issuer name differs from the company in the request metadata.
Business context
OXIS reported a business focused on developing and selling or licensing oxidative-stress and inflammation products, with a current emphasis on ergothioneine (EGT)-based nutraceuticals and personal-care products. It planned to commercialize products including ErgoFlex through an online joint venture with engage:BDR.
Financial results and position
| Metric | Q1 2012 | Q1 2011 or comparison |
|---|---|---|
| Revenue | $1,000 | $20,000 |
| Gross profit (loss) | $0 | ($5,000) |
| Research and development | $0 | $21,000 |
| Selling, general and administrative expense | $396,000 | $1,832,000 |
| Operating loss | ($396,000) | ($1,858,000) |
| Net loss | ($615,000) | ($1,923,000) |
| Net cash used in operating activities | ($192,000) | ($147,000) |
Cash and cash equivalents were $120,000 at quarter-end, versus $92,000 at December 31, 2011. Current assets were $144,000 and current liabilities were $5.429 million, a working-capital deficit of approximately $5.285 million. Total assets were $166,000; stockholders’ deficit was $5.263 million. Management stated current liabilities included $5.126 million of cash obligations and $303,000 of noncash warrant liability. Interest expense was $74,000; the $145,000 fair-value change in warrant and derivative liabilities was an expense.
Material changes and financing
- Net loss improved by $1.308 million year over year, largely because SG&A fell by about $1.436 million, primarily from a $1.4 million decrease in noncash compensation. The company cautioned that the low revenue levels reflected limited marketing and were not indicative of future operations.
- Operating cash use increased by $45,000 year over year. Financing provided $220,000 in the quarter, and cash increased by $28,000.
- The company issued 31 million common shares in Q1 through debt conversions; common shares outstanding were 300.3 million at March 31 and 329.8 million at May 15, 2012. It also granted 26.4 million options during the quarter.
- In March, OXIS obtained $220,000 through 8% convertible debentures due in 2014. After quarter-end, it reported another $57,500 from the sale of 8% debentures. Management also cited investor indications for approximately $505,000 of additional funding, which was not assured.
- In April 2012, conversion and warrant exercise prices were reset to $0.01 under anti-dilution provisions, with warrant share counts adjusted accordingly. This creates substantial potential dilution.
Outlook, risks and unusual matters
- Management planned a 2012 commercial release of additional EGT-based products and expected online sales to begin around April/May 2012. It anticipated revenue growth if adequately funded, but provided no quantified revenue or earnings guidance and said the amount and timing of sales were uncertain.
- The filing states that the company’s cash usage raises substantial doubt about its ability to continue as a going concern without significant additional cash flows. Management intended to seek equity or debt financing; it cautioned that financing might not be available on acceptable terms and that operations or product launches could be curtailed.
- OXIS had an accumulated deficit of $84.410 million. Legacy 2006 debentures were in default after required monthly repayments were not made; related creditors had security rights and potential acceleration remedies. The filing describes a remaining deficiency from prior collateral sales, but does not provide a clear quarter-end total for all obligations arising from that history.
- The Gemini inventory credit facility, up to $750,000 subject to milestones, could be terminated by Gemini at its discretion and was restricted to purchases from Gemini.
- Disclosure controls and internal control over financial reporting were reported ineffective, with material weaknesses including inadequate segregation of duties and risk of executive override. Management cited limited staffing and reliance on outside consultants.
- The filing reported no material changes to previously disclosed risk factors or legal proceedings. It stated there were no off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the issuer-name discrepancy between the requested company and the OXIS International, Inc. filing.
- Confirm the status and terms of the indicated $505,000 financing and any other funding after the reported $57,500 receipt.
- Review the full debt and default obligations, including creditor remedies, accrued interest, and the effect of the April repricing.
- Assess product-launch progress, actual sales, and whether online revenues can fund ongoing operations and working capital.
- Evaluate dilution from outstanding debt conversions, warrants, options, and the adjusted $0.01 prices.
- Review remediation of the disclosed material weaknesses in financial reporting controls.