GT Biopharma, Inc. (filing identifies registrant as OXIS International, Inc.) — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing is for OXIS International, Inc.; it does not identify GT Biopharma, Inc. as the registrant. The summary below reflects the filing as provided.
Business context
OXIS described itself as an immuno-oncology development company with two employees and outsourced operations. Its pipeline included OXS-1550, a bispecific cancer candidate; OXS-4235 for multiple myeloma; OXS-2175 for triple-negative breast cancer; and licensed TriKE technology. OXS-1550 was in a Phase 1/Phase 2 trial begun in the second quarter of 2016; the filing reports 32 trial participants and an increased dose for newly enrolled patients. The company had no commercial product revenue in 2016.
Financial results and condition
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $0 | $27,000 |
| Research and development expense | $975,000 | $1,000,000 |
| Selling, general and administrative expense | $8,399,000 | $7,954,000 |
| Operating loss | $9,374,000 | $8,927,000 |
| Interest expense | $6,555,000 | $17,039,000 |
| Change in warrant and derivative liabilities | $36,962,000 gain | $6,760,000 loss |
| Reported net income (loss) | $21,033,000 | ($32,726,000) |
| Cash used in operating activities | $1,930,000 | $4,657,000 |
| Cash and cash equivalents at year-end | $19,000 | $47,000 |
The 2016 reported profit was primarily a non-cash accounting result from the decrease in fair value of warrant and derivative liabilities, not operating profitability. The filing’s stockholders’ deficit statement separately shows 2016 net income of $22.033 million, inconsistent with the $21.033 million in the income statement; investors should verify the correct figure.
At December 31, 2016, total assets were $25,000, current liabilities were $18.949 million, total liabilities were $18.949 million, and stockholders’ deficit was $18.924 million. The balance sheet implies a working-capital deficit of approximately $18.928 million. Current convertible debentures, net of discount, were $10.350 million; accrued interest was $3.8 million; and accounts payable was $2.1 million. The reported warrant liability fell to $417,000 from $44.531 million in 2015, a major driver of the liability and earnings changes.
Common shares issued and outstanding rose from 2.4 million at year-end 2015 to 31.265 million at year-end 2016. The filing reports 122.9 million shares outstanding as of March 28, 2017, reflecting substantial subsequent dilution.
Material changes and developments
- SG&A increased by $445,000 year over year, attributed primarily to professional fees, license fees, and stock compensation; R&D expense declined by $25,000.
- Interest expense decreased by $10.484 million, while the derivative-liability fair-value change swung from a $6.760 million loss to a $36.962 million gain.
- During 2016, the company issued convertible debentures and warrants and converted debt and warrants into shares. Several debt instruments had variable or full-ratchet conversion provisions.
- In the first quarter of 2017, the company reported issuing 91.1 million shares to cancel approximately $1.810 million of debt and $524,000 of interest, in addition to further convertible-debt financing.
Outlook, risks, contingencies and unusual items
- Funding and going concern: Management said it needed to raise approximately $4–5 million to fund operations and current liabilities over the next 12 months, and expected to need additional capital by the end of the next quarter. The auditor and management both cited substantial doubt about the company’s ability to continue as a going concern. Financing success was not assured.
- No financial guidance: The filing provides no revenue or earnings forecast. Management’s stated plan was to seek equity or debt financing and advance its drug-development programs.
- Dilution and debt risk: Convertible notes carried interest rates of up to 18% (including default rates); certain conversion prices were linked to low recent trading prices. These terms, warrants, and stock-for-debt settlements could result in further dilution.
- Legal matters: A consulting dispute was settled and dismissed in January 2017. Separate claims included a $73,898 consulting-services suit and a $207,783-plus-interest-and-costs arbitration claim by MultiCell Immunotherapeutics.
- Internal controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing inadequate segregation of duties, reliance on consultants, and risk of executive override. The auditor did not audit or opine on internal-control effectiveness.
- Operating and development risks: Candidates remained in early development and required regulatory and clinical success. The company relied on a small number of third-party manufacturers and had no long-term manufacturing agreements. The filing omitted the separate Risk Factors item because the company qualified as a smaller reporting company.
Most important facts for investors to verify
- Confirm the correct issuer: the supplied filing is for OXIS International, Inc., not GT Biopharma, Inc.
- Reconcile the filing’s conflicting 2016 net-income figures ($21.033 million versus $22.033 million) and its liquidity discussion, which incorrectly refers to December 31, 2019 in one passage.
- Review the full debt and conversion terms, including defaults, security interests, variable-price conversion features, and subsequent financings.
- Confirm the actual share count and dilution after the reported first-quarter 2017 debt conversions; the filing gives materially different share counts at different March 2017 dates.
- Assess cash runway, the feasibility and terms of additional financing, the going-concern uncertainty, and the status of clinical trials and legal claims.