GT Biopharma, Inc. quarterly report, Q1 FY2015

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GT Biopharma, Inc. (as identified in request) — 2015 Q1 filing summary

Filing identity: The supplied Form 10-Q is filed by OXIS International, Inc., not GT Biopharma, Inc. It covers the quarter ended March 31, 2015 and was signed May 14, 2015. Confirm the issuer before relying on this summary.

Business context and reporting period

OXIS describes a biotechnology business developing drug candidates through Oxis Biotech, focused on cancer and other unmet medical needs. Its lead programs include OXS-2175 for triple-negative breast cancer and OXS-4235 for multiple myeloma and associated bone disease; the filing describes preclinical evidence, not established clinical efficacy. The statements are unaudited and compare the three months ended March 31, 2015 with the same period in 2014.

Financial results and liquidity

  • Revenue: $7,000, all license revenue, versus zero in Q1 2014; no product revenue. Gross profit was $7,000.
  • Expenses and loss: Research and development expense was $250,000 versus zero; selling, general and administrative expense was $1.568 million versus $101,000. Operating loss was $1.811 million versus $101,000.
  • Net loss: $20.516 million versus $371,000. Other expense totaled $18.705 million, including $11.266 million of loss from changes in warrant and derivative liability values and $7.439 million of interest expense. Management attributes higher interest expense primarily to noncash debt-discount amortization and interest associated with conversion features.
  • Per-share presentation: The statements show a net loss but display basic and diluted income (loss) per share of positive $0.03 for 2015. This appears inconsistent; the filing text does not provide a clear, reconciled loss-per-share value.
  • Cash flow: Operating cash use was $1.787 million, compared with $90,000 in Q1 2014. Financing provided $2.350 million, compared with $50,000. Cash increased by $563,000 to $1.418 million. The filing reports no investing cash flow and no interest or income taxes paid.
  • Balance sheet at March 31: Total assets were $1.425 million; current liabilities were $50.509 million, total liabilities $51.358 million, and stockholders’ deficit $49.933 million. Cash was $1.418 million. Accrued expenses were $5.458 million, accrued interest $2.184 million, and the warrant liability $39.702 million. Long-term convertible debt, net of discount, was $849,000; current convertible debentures, including current portion, were reported at $1.938 million in aggregate.
  • Liquidity and going concern: Management cited a $5.893 million cash-basis working-capital deficit and stated that current operations were not expected to generate enough cash for the next 12 months. It estimated a need to raise $11.462 million to fund operations and pay current liabilities over that period and said substantial doubt existed about the company’s ability to continue as a going concern.

Material changes, financing, and outlook

  • Compared with Q1 2014, the net loss increased substantially, driven chiefly by warrant/derivative remeasurement, interest expense, higher SG&A, and newly reported R&D expense.
  • In February 2015, OXIS entered into a securities purchase agreement for $2.350 million of 10% convertible debentures and warrants to purchase up to 94 million shares. The cash-flow statement reports the same amount as financing proceeds.
  • Common shares outstanding rose from 591,714,484 at year-end 2014 to 595,714,484 at March 31, 2015. The filing also reports 767,998,439 warrants and 84,510,021 options outstanding at quarter-end. It notes that 4 million price-protection shares had been issued by March 31, with another 4,285,516 issued in April.
  • Management expected annualized administrative expenses to approach $5 million and said additional capital would be needed by the end of 2015. It provided no assurance that financing would be available on acceptable terms or in time.
  • The company licensed p62-related intellectual property from ID4 Pharma, with milestone payments of up to $700,000 and royalties. It also disclosed substantial potential development and milestone payments under its ADC arrangements with MultiCell Immunotherapeutics, including up to $22.75 million if specified development milestones and manufacturing rights are achieved, plus sales royalties.

Risks, contingencies, and unusual items

  • Financing and dilution: The company’s capital need, large warrant and option overhang, convertible securities, and price-protection arrangements create material financing and potential dilution risks. Some warrants and derivative features are recorded as liabilities and can cause significant noncash earnings volatility.
  • Debt: The filing describes legacy defaulted debt and unpaid obligations, including a 2006 debenture arrangement with security rights and penalty interest. The filing says there were no material changes to prior-year disclosure regarding defaults upon senior securities.
  • Controls: Management concluded disclosure controls and internal control over financial reporting were not effective at March 31, 2015, citing material weaknesses involving insufficient segregation of duties, reliance on outside consultants, and executive-override risk.
  • Legal proceedings: Part II reports “NA.” The filing does not provide a clear value for all potential obligations or contingencies beyond the described financing, licensing, and debt terms.
  • Source inconsistencies: Some note headings refer to March 31, 2014 despite the 2015 reporting period; MD&A also refers once to cash at March 31, 2014 while giving the 2015 cash figure. Its current-liability breakdown does not precisely reconcile to the balance-sheet total. Verify these disclosures against the filed statements and notes.

Most important facts for an investor to verify

  1. Whether this OXIS International filing is the intended filing for GT Biopharma.
  2. The correct 2015 loss per share and the stated cash-basis working-capital deficit, given the presentation inconsistencies.
  3. The terms, cash obligations, maturity/default status, and conversion or dilution effects of outstanding debt, warrants, and price-protection shares.
  4. Whether OXIS could obtain the stated $11.462 million of financing and sustain operations; management explicitly identified substantial going-concern doubt.
  5. The development stage, remaining funding needs, milestone obligations, and commercial prospects of the licensed drug and ADC programs.
  6. Whether the identified material weaknesses in financial reporting controls have been remediated.