Business context and reporting period
The supplied filing is OXIS International, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2016, filed November 14, 2016. It is not a GT Biopharma filing; the registrant named in the source is OXIS International, Inc. OXIS describes itself as an immuno-oncology company developing cancer therapies, including OXS-1550, OXS-4235, OXS-2175 and TriKE technology.
Financial results and position
| Metric | Period / value | Comparable period / value |
|---|---|---|
| Revenue | Q3 2016: $0; nine months: $0 | Q3 2015: $0; nine months: $27,000 |
| Operating loss | Q3: $2.530 million; nine months: $8.552 million | Q3 2015: $2.777 million; nine months: $6.019 million |
| Net income (loss) | Q3: loss of $3.630 million; nine months: income of $23.862 million | Q3 2015: loss of $1.692 million; nine months 2015: income of $4.652 million |
| Operating cash flow | Nine months: cash used of $1.795 million | Nine months 2015: cash used of $3.713 million |
| Cash and cash equivalents | September 30, 2016: $154,000 | December 31, 2015: $47,000 |
The nine-month net income chiefly reflects a $37.195 million non-cash gain from changes in the fair value of warrant and derivative liabilities; it does not indicate operating profitability. Interest expense was $4.781 million for the nine months. Gross margin is not meaningful because the company reported no product revenue and no cost of product revenue.
At September 30, current assets were $156,000 and current liabilities were $16.966 million, including $184,000 of warrant liability; total liabilities were $17.366 million. Management reported a cash-basis working-capital deficit of $16.810 million. Current convertible debentures, net of discount, were $8.678 million; long-term convertible debt, net of discount, was $400,000. The filing reports an accumulated deficit of $121.820 million.
Material changes versus the prior comparable period
- Nine-month operating expenses rose to $8.552 million from $6.046 million, as R&D increased to $725,000 from $475,000 and SG&A rose to $7.827 million from $5.571 million.
- The reported nine-month net income increased to $23.862 million from $4.652 million, largely because the fair-value gain on warrants and derivatives rose to $37.195 million from $20.683 million. The filing’s discussion refers once to the comparison period as ending June 30, 2015; the financial statements show September 30, 2015.
- Cash used in operations improved to $1.795 million from $3.713 million. Financing activities provided $1.902 million, primarily from notes payable.
- Common shares issued and outstanding increased to 28,218,365 at September 30 from 2,400,000 at December 31, 2015; 30,241,305 shares were outstanding at November 14, 2016. Share issuance included warrant cancellations, consulting and executive compensation, and debt conversions.
Outlook, risks and unusual items
- Going concern: Management stated that the cash-usage rate raises substantial doubt about the company’s ability to continue as a going concern without significant additional cash flows. It plans to seek equity or debt financing but cannot assure that financing will be available or sufficient.
- Funding and dilution: The company issued convertible debentures in 2016, including $250,000 in August under an agreement allowing up to $1 million, and warrants. Certain conversion prices were reduced to $0.40 in May 2016. Subsequent conversions disclosed in the filing used prices of $0.0841 and $0.0513, creating substantial dilution risk.
- Development: OXS-1550 was in a Phase 1/Phase 2 trial at the University of Minnesota; the filing reports 32 participants and an increased dosage for the newly enrolled patients. TriKE was being advanced toward FDA-approved clinical trials. No quantified revenue, earnings or financing guidance is provided.
- Commitments: Under its MCIT license, OXIS paid a $500,000 license fee and agreed to reimburse up to $1.125 million in development costs; further payments of $22.75 million and 3% sales royalties may apply if specified clinical and manufacturing milestones are achieved.
- Controls and legal matters: Management concluded disclosure controls and internal control over financial reporting were ineffective, citing inadequate segregation of duties, reliance on outside consultants and risk of executive override. OXIS disclosed a default on two remaining cash payments under a $150,000 settlement with Aaion Partners and a separate consulting-services lawsuit seeking $73,898.
Important facts for investors to verify
- Confirm the issuer: the source is OXIS International, Inc., not GT Biopharma, Inc.
- Assess near-term liquidity, the going-concern warning, current debt obligations and the company’s ability to secure financing.
- Separate operating performance from the large non-cash derivative revaluation gain; verify the underlying warrant and conversion terms and potential dilution.
- Check clinical-trial progress, funding needs and the conditions attached to significant license and development payments.
- Review the disclosed control weaknesses, settlement default and pending lawsuit, and note that the filing provides no formal financial guidance.