Business context and reporting period
OXIS International, Inc. (the issuer named in this filing; the request metadata names GT Biopharma) filed this unaudited Form 10-Q for the quarter ended March 31, 2016. OXIS described itself as an immuno-oncology company developing candidates including OXS-1550, OXS-4235 and OXS-2175.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 or comparison |
|---|---|---|
| Revenue | $0 | $7,000 |
| Research and development expense | $225,000 | $250,000 |
| Selling, general and administrative expense | $3.676 million | $1.568 million |
| Operating loss | $3.901 million | $1.811 million |
| Change in warrant and derivative liabilities | $31.496 million gain | $11.266 million loss |
| Interest expense | $1.646 million | $7.439 million |
| Net income (loss) | $25.949 million | $(20.516) million |
| Operating cash flow | $(167,000) | $(1.787) million |
The reported Q1 2016 profit was driven by the noncash fair-value gain on warrant and derivative liabilities, not operating revenue. The filing reports basic and diluted earnings per share of $1.49, versus a loss per share of $8.61 in Q1 2015. Gross margin is not meaningful with no Q1 2016 revenue.
At March 31, cash was $30,000, total current assets were $32,000, and the working-capital deficit was $19.671 million. Total liabilities were $20.256 million, including $19.703 million of current liabilities; stockholders’ deficit was $20.219 million. Warrant liability fell to $4.795 million from $44.531 million at December 31, 2015. Cash declined from $47,000 at year-end. The company reported $150,000 of proceeds from notes payable during the quarter.
Material changes and financing
- SG&A expense increased by $2.108 million, which management attributed primarily to higher professional fees and stock compensation.
- Common shares issued and outstanding rose to 21,693,221 at March 31 from 2,400,000 at December 31. The quarter included substantial cashless warrant exercises and share issuances for consulting services and executive employment agreements.
- A January restructuring contemplated converting approximately $15.056 million of debt to common stock, conditional on completing a $6 million financing. The financing was not completed by March 15, 2016, and the debt-conversion agreement terminated. Separate warrant exchanges and preferred-stock arrangements were also part of the restructuring.
Outlook, risks and other notable matters
- Management said additional capital was needed by the end of the next quarter to continue operations and estimated a need to raise approximately $4–5 million over the next 12 months. It planned to pursue equity or debt financing; success was not assured.
- The filing states that the company’s cash usage raises substantial doubt about its ability to continue as a going concern. Management reported an accumulated deficit of $119.734 million and said the financial statements include no adjustments that might be required if the company cannot continue as a going concern.
- Management reported that disclosure controls were ineffective and identified material weaknesses in internal control over financial reporting, including inadequate segregation of duties and risk of executive override.
- Product development and licensing obligations remain relevant. For example, the MCIT agreement included up to $1.125 million of development-cost reimbursement and potential additional milestone and royalty obligations. The filing reports no specific revenue guidance or product-launch timetable.
- A consulting firm’s breach-of-contract lawsuit against the company was pending, with the company having filed a cross-claim. The filing also describes longstanding, overdue convertible debt and related default and forbearance provisions.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is for OXIS International, Inc., not GT Biopharma, Inc.
- Assess near-term liquidity, the going-concern warning, and whether subsequent financing was obtained; the filing says available cash was only $30,000.
- Separate operating performance from the large noncash fair-value gain that produced reported net income.
- Review dilution and share-count changes, including the restructuring agreements and outstanding convertible debt and warrants.
- Reconcile share-issuance disclosures: the filing gives different consulting-share totals in different sections and reports 21,693,221 shares at quarter-end versus 22,431,221 outstanding at May 13, 2016.
- Consider the disclosed material weaknesses in financial reporting controls and the pending litigation.