GT Biopharma, Inc. (identified in filing as OXIS International, Inc.) — Form 10-Q
Period: Three months ended March 31, 2013. The filing is signed December 10, 2014, and includes subsequent events through November 2014. The company-name discrepancy and unusually late filing date should be verified.
Business context and financial results
OXIS described its business as developing and selling or licensing products related to oxidative stress and inflammation, with a primary focus on ergothioneine (ERGO)-based products. The filing also discusses a planned cannabinoid therapeutics business.
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $88,000 | $1,000 |
| Cost of product revenue | $69,000 | $1,000 |
| Gross profit | $19,000 | $0 |
| SG&A expense | $366,000 | $397,000 |
| Operating loss | $(347,000) | $(396,000) |
| Net income (loss) | $468,000 | $(615,000) |
| Cash used in operating activities | $(138,000) | $(192,000) |
Q1 2013 gross margin was approximately 22%. The reported net income primarily reflected a $1.36 million gain from a decrease in the fair value of warrant and derivative liabilities; it did not indicate operating profitability. Interest expense was $531,000, versus $74,000 a year earlier, with the increase attributed primarily to noncash amortization of debt issuance costs. Research and development expense was zero in both periods.
Liquidity, debt, and capital
- Cash was zero at March 31, 2013, down from $123,000 at year-end 2012. Current assets were $94,000 and current liabilities were $5.407 million; the filing reports a cash-basis working-capital deficit of $5.313 million.
- Accumulated deficit was $88.498 million. Management stated that the company’s cash usage raised substantial doubt about its ability to continue as a going concern and that additional financing was needed; success in obtaining financing or reaching profitability was not assured.
- Current liabilities included $1.341 million accrued interest, $883,000 accounts payable, $1.240 million accrued expenses, $695,000 settlement notes, $63,000 demand notes, and convertible debentures. The filing identifies legacy debenture defaults and substantial financing obligations.
- The company borrowed an additional $35,000 in March under a short-term loan facility permitting up to $350,000. The related loans carried 18% interest and were secured against assets, junior to existing security interests. The filing describes payments due April and May 2013; the text does not clearly explain whether those obligations were subsequently repaid or refinanced.
- Common shares outstanding rose from 500.6 million at December 31, 2012 to 573.1 million at March 31, 2013. The company reported 539.4 million warrants outstanding, alongside 29.3 million options, indicating substantial potential dilution.
Changes, outlook, and risks
- Revenue increased by $87,000 year over year, but management cautioned that the comparison was not meaningful because active product marketing had only begun in July 2012. Management said it was evaluating the product’s marketability; no quantified revenue or earnings guidance was provided.
- SG&A declined by $31,000, primarily due to lower professional fees. Management reported no R&D spending in either quarter.
- Management’s plans included raising equity or debt and increasing sales of new, primarily ERGO-based nutraceutical products. These plans were subject to financing and commercialization uncertainty.
- Disclosure controls and internal control over financial reporting were deemed ineffective. Reported material weaknesses included inadequate segregation of duties and risk of executive override, attributed in part to a small staff and limited policies.
- Subsequent-event disclosures describe additional convertible financings and securities issuances in 2013–2014. These postdate the quarter and underscore financing dependence and dilution risk. The filing also describes a later resolution of a licensing dispute, but does not provide the settlement’s cash amount.
Key facts investors should verify
- Whether this OXIS International filing is correctly associated with GT Biopharma, Inc., and how the December 2014 signature date relates to the stated 2013 reporting period.
- The status, repayment, or refinancing of the short-term loans due in April and May 2013, and the company’s other defaulted or overdue debt.
- Cash availability, subsequent financing terms, and the resulting fully diluted share count and dilution from warrants and convertible securities.
- The basis and noncash nature of the $1.36 million fair-value gain, and the company’s operating cash needs and ability to continue as a going concern.
- Progress in product commercialization, revenue generation, and remediation of the disclosed material weaknesses in financial controls.