OXIS International, Inc. — Q1 2017 Form 10-Q
Issuer identification: The filing is by OXIS International, Inc.; it does not identify the issuer as GT Biopharma, Inc. The unaudited quarter ended March 31, 2017, with comparisons to Q1 2016 and year-end 2016 balance-sheet figures.
Business context and operating developments
OXIS described itself as an immuno-oncology company developing cancer therapeutics. Its programs included OXS-1550, a bispecific drug candidate for B-cell lymphoma or leukemia; OXS-4235 for multiple myeloma and related bone disease; and OXS-2175 for triple-negative breast cancer. The company reported that OXS-1550’s Phase 1/2 trial had enrolled 32 patients; the first patient in a Phase 2 trial began dosing in April 2017. In March 2017, OXIS also entered a one-year University of Minnesota sponsored research agreement concerning its TriKE technology.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $144,000 | $225,000 |
| Selling, general and administrative expense | $1.394 million | $3.676 million |
| Operating loss | $1.538 million | $3.901 million |
| Gain from change in warrant and derivative values | $2.743 million | $31.496 million |
| Interest expense | $3.520 million | $1.646 million |
| Net income (loss) | $(2.315) million | $25.949 million |
| Basic and diluted loss (income) per share | $(0.04) | $1.49 |
| Net cash used in operating activities | $(650,000) | $(167,000) |
No revenue was reported in either period, so gross margin is not meaningful. The large prior-year profit reflected a $31.496 million fair-value gain; Q1 2017’s smaller gain did not offset operating costs and interest expense. SG&A declined, which management attributed mainly to lower professional fees and stock compensation; R&D expense also declined.
At March 31, 2017, cash was $235,000, total current assets were $235,000, and current liabilities were $18.348 million, producing a reported working-capital deficit of $18.113 million. Total liabilities were $18.348 million. The balance sheet included $10.036 million of current convertible debentures, net of discount, $844,000 of noncurrent convertible debentures, a $691,000 settlement note in default, and $3.867 million of accrued interest. Operating cash use was partly offset by $866,000 of financing proceeds; ending cash was $235,000, versus $30,000 at March 31, 2016.
Changes, financing, and potential dilution
- Q1 2017 common shares outstanding rose to 122,912,868 from 31,265,475 at December 31, 2016. The company issued 91,064,060 shares during the quarter to cancel $1.863 million of debt and $442,000 of accrued interest; it also issued 583,333 shares upon cashless warrant exercise. The filing reports 144,713,162 shares outstanding at April 28, 2017.
- Convertible debentures, before discount, declined to $10.744 million from $11.144 million at year-end. The company reported $866,000 of convertible debenture financing during Q1. Many notes carry 10% interest and conversion terms tied to low recent trading prices; full-ratchet anti-dilution terms and warrants may create substantial dilution.
- The filing reports 254,434,453 potentially dilutive shares excluded from diluted EPS for Q1 2017. It also says warrants to purchase 173,181,000 common shares were issued in connection with equity transactions during the quarter.
- Subsequent to quarter-end, the company issued 21,800,294 shares for cancellation of debt and interest. It also entered into an April debenture financing with $170,000 initial principal and warrants for up to 3,400,000 shares.
Outlook, risks, and contingencies
Management stated that the company needed additional capital by the end of the following quarter to continue current operations and expected to need approximately $4–5 million over the next 12 months to fund operations and pay current liabilities. It was pursuing equity or debt financing but could not assure that financing or future product revenue would be available. The filing states that the current cash-use rate raises substantial doubt about the company’s ability to continue as a going concern.
Disclosure controls and internal control over financial reporting were reported ineffective as of March 31, 2017, with material weaknesses involving inadequate segregation of duties, reliance on outside consultants, and risk of executive override. Legal matters included a $73,898 consulting-services claim and a pending arbitration seeking $207,783 plus interest and costs. A separate settlement matter was reported resolved in January 2017. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for OXIS International, Inc., not GT Biopharma, Inc.
- Assess the company’s ability to raise the stated $4–5 million and meet near-term operating and liability needs given $235,000 of quarter-end cash.
- Review conversion prices, anti-dilution provisions, warrant terms, and subsequent share issuance for potential dilution; reconcile reported share counts and warrant totals.
- Evaluate the going-concern disclosure, the defaulted settlement note, accrued interest, and other debt obligations.
- Track OXS-1550 trial progress and whether development programs can produce future revenues; the filing reports no Q1 revenue.
- Consider the disclosed material weaknesses in financial reporting controls and the status and potential exposure of the legal claims.