GT Biopharma, Inc. (filing identifies issuer as OXIS International, Inc.) — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2015; filed November 13, 2015. The supplied filing is for OXIS International, Inc., not GT Biopharma, Inc.; verify the issuer identity and any corporate-name or successor relationship before relying on this summary.
Business context
OXIS described itself as an immuno-oncology drug developer. Its programs included OXS-1550, which had shown activity in an early human trial for relapsed or refractory B-cell lymphoma or leukemia, and preclinical candidates OXS-4235 and OXS-2175. The company also reported legacy skin-care and nutraceutical activities. Revenue remained negligible.
Financial results and liquidity
| Metric | Three months ended Sep. 30, 2015 | Nine months ended Sep. 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $0 | $27,000 | $3,000 for Q3; $28,000 for nine months |
| Operating expenses | $2.777 million | $6.046 million | $547,000 for Q3; $760,000 for nine months |
| Operating loss | $2.777 million | $6.019 million | $549,000 for Q3; $754,000 for nine months |
| Net income (loss) | $(1.692) million | $4.652 million | $(4.220) million for Q3; $(4.853) million for nine months |
| Interest expense | $1.724 million | $10.012 million | $3.263 million for Q3; $3.628 million for nine months |
- Profit quality: Nine-month net income was driven by a $20.683 million gain from changes in the fair value of warrant and derivative liabilities, not operating performance. The company reported an operating loss, and its cash flow statement showed $3.713 million of cash used in operations.
- Margins: Revenue was too small for a meaningful margin assessment. Nine-month gross profit was $27,000, versus $6,000 in 2014; operating expenses substantially exceeded gross profit.
- Cash and liquidity: Cash fell to $42,000 at September 30, 2015, from $855,000 at December 31, 2014. Current assets were $44,000 against current liabilities of $22.308 million; management reported a $22.264 million working-capital deficit.
- Debt and liabilities: Total liabilities were $24.598 million, including $2.837 million of current and long-term convertible debt reported net of discounts, plus a $11.345 million warrant liability. The filing also reports $2.611 million of accrued interest and substantial accrued expenses. Financing included $2.35 million of convertible debentures in February 2015 and $550,000 in July 2015.
- Dilution: Common shares issued and outstanding reached 600 million at September 30, up from 591.7 million at year-end. The company reported 1.019 billion warrants and 84.3 million options outstanding; potential dilution and the relationship to authorized shares warrant close review.
Material changes versus 2014
- Revenue declined slightly for the first nine months, from $28,000 to $27,000; Q3 revenue fell from $3,000 to zero.
- Research and development expense increased to $475,000 for nine months from zero, while selling, general and administrative expense rose to $5.571 million from $760,000. Management attributed the SG&A increase primarily to professional fees, salaries, license fees, investor relations, and stock compensation.
- Interest expense rose to $10.012 million from $3.628 million, primarily due to non-cash debt-discount amortization, interest associated with new debt, and share issuance costs. The fair-value gain on warrant and derivative liabilities reversed the prior-year loss and materially changed reported net income.
Outlook, risks, and unusual items
- Going concern: The filing states that the company’s cash usage raises substantial doubt about its ability to continue as a going concern. It planned to seek additional equity or debt financing, but gave no assurance financing would be available or that future product revenue would be sufficient.
- Subsequent financing and settlements: After quarter-end, the company reported a $450,000 convertible-debenture financing in October. It also issued noteholder allonges increasing principal by $537,500 in an October settlement and $837,500 in a November settlement, following failures to meet share-reserve or authorized-share obligations.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at September 30, citing material weaknesses, including inadequate segregation of duties and risk of executive override.
- Legal matter: A consulting firm filed a breach-of-contract action in May 2015; the company filed contract and tort counterclaims in July. The filing does not provide a clear estimate of potential loss.
- Other: Stockholders approved a proposed reverse split within a 1-for-50 to 1-for-250 range and authorized-share amendments, with final terms to be set by the board. The company reported no off-balance-sheet arrangements. No specific financial guidance was provided.
Investor facts to verify
- Whether this OXIS filing is the correct filing for GT Biopharma and how the entities are related.
- Near-term cash needs, access to financing, going-concern status, and the cash portion and maturity of outstanding obligations.
- Terms and effects of the post-quarter debenture financings and noteholder settlements, including potential dilution and share-reserve requirements.
- Warrant and derivative-liability valuation assumptions and the extent to which the reported nine-month profit is non-cash.
- Progress, funding obligations, and development milestones for the drug candidates and license agreements.
- Remediation of the disclosed control weaknesses and the status or potential exposure of the consulting lawsuit.