Filing context
The supplied filing is an unaudited Form 10-Q for the quarter ended September 30, 2013, covering OXIS International, Inc. and its subsidiaries. The filing was signed December 17, 2014. This does not match the request metadata naming GT Biopharma, Inc.; the filing itself identifies OXIS International, Inc.
OXIS described its business as developing and selling nutraceutical, personal-care, food and beverage products, with a primary focus on ergothioneine (ERGO), and licensing proprietary compounds. The filing also discusses a cannabinoid-focused subsidiary formed in September 2014.
Financial results and position
Amounts below are in U.S. dollars. Comparisons are with the corresponding 2012 period.
| Metric | Three months ended Sep. 30 | Nine months ended Sep. 30 |
|---|---|---|
| Product revenue | $183,000; prior year $120,000 | $327,000; prior year $123,000 |
| Cost of product revenue | $123,000; prior year $32,000 | $204,000; prior year $33,000 |
| Gross profit | $60,000; prior year $88,000 | $123,000; prior year $90,000 |
| Operating expenses | $201,000; prior year $1.438 million | $684,000; prior year $2.865 million |
| Operating loss | $(140,000); prior year $(1.350 million) | $(561,000); prior year $(2.775 million) |
| Net loss | $(319,000); prior year $(1.400 million) | $(147,000); prior year $(4.410 million) |
- Gross margin was approximately 33% for the quarter and 38% for the nine-month period. No license revenue or research and development expense was reported in either comparative period.
- Nine-month other income included a $1.365 million gain from changes in the fair value of warrant and derivative liabilities, versus a $358,000 expense in 2012. Nine-month interest expense was $1.002 million, versus $1.305 million.
- Operating cash use was $73,000 for the nine months, compared with $773,000 in 2012. Financing activities provided $1,000; cash declined by $123,000 to zero. No interest or income taxes were paid.
- At September 30, cash was zero, current assets were $40,000, current liabilities were $6.031 million, and the working-capital deficit was $5.991 million. Total assets were $62,000 and stockholders’ deficit was $5.969 million. Accumulated deficit was $89.113 million.
- Current liabilities included $935,000 of accounts payable, $1.542 million of accrued interest, $1.271 million of accrued expenses, a $695,000 settlement note, $63,000 of demand notes, and convertible debentures totaling $1.511 million net of stated discounts. The filing reports no clear aggregate measure of all debt obligations beyond its balance-sheet categories.
Changes, outlook and risks
- Nine-month revenue rose from a low base, while quarterly revenue also increased. Management cautioned that comparisons were not meaningful indicators of future operations because active product marketing began only in July 2012; it said the product’s marketability was being evaluated as of 2014.
- Lower selling, general and administrative expense—attributed mainly to reduced non-cash fees—contributed to the smaller operating loss. The large nine-month fair-value gain also helped reduce the reported net loss. Management gave no quantified revenue, earnings or cash-flow guidance.
- Management stated that the cash-use rate and lack of cash raised substantial doubt about the company’s ability to continue as a going concern. It planned to seek equity or debt financing and increase revenue through new, primarily ERGO-based nutraceutical products, but could not assure financing or future sales.
- At September 30, 2013, common shares outstanding were 573.1 million against 600 million authorized. The filing reported 539.4 million warrants outstanding and 29.3 million options; 528.0 million potentially dilutive shares were excluded from diluted EPS as anti-dilutive. The company also issued shares to retire debt and in connection with debt securities during the nine months.
- Subsequent-event disclosures describe additional convertible-debt and warrant financings, including financings in 2013 and 2014, and leadership changes in 2014. These transactions carry potential dilution. The filing also reports a resolution in October 2014 of a licensing dispute, under which OXIS was to receive cash and a perpetual royalty on future product sales; the amount of the cash payment is not specified in the supplied text.
- Management concluded disclosure controls were ineffective and identified material weaknesses in financial reporting controls, including inadequate segregation of duties and risk of executive override. The filing also describes defaults and security rights associated with legacy debt; it states there were no material changes to previously disclosed senior-security defaults.
Investor verification priorities
- Confirm the issuer identity and filing chronology: the document is for OXIS International, not GT Biopharma, and is dated more than a year after the reported quarter.
- Verify current liquidity, the status and terms of outstanding debt, and whether the company obtained sufficient financing to sustain operations.
- Review subsequent convertible financings, warrant terms, authorized-share capacity and actual share counts to assess dilution.
- Assess whether product sales and planned ERGO or cannabinoid programs generated meaningful revenue, given the company’s stated marketability evaluation and absence of R&D spending in the reported periods.
- Check the resolution and continuing economics of the 2014 licensing dispute, and whether the identified internal-control weaknesses were remediated.