ATOSSA GENETICS, INC. (now identified in request metadata as Atossa Therapeutics, Inc.) — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three months ended March 31, 2017, filed May 11, 2017. The company was a clinical-stage pharmaceutical company developing breast-cancer and breast-health therapeutics, including intraductal microcatheter delivery of fulvestrant and oral/topical endoxifen. It was not marketing products or services and had no established recurring revenue.
Financial Position and Results
| Metric | Q1 2017 | Q1 2016 / Comparative |
|---|---|---|
| Revenue | $0; no commercial revenue | $0; no commercial revenue |
| Research and development expense | $544,302 | $149,971 |
| General and administrative expense | $1,142,544 | $2,177,569 |
| Total operating expenses | $1,686,846 | $2,327,540 |
| Operating loss | $1,686,846 | $2,327,540 |
| Net loss | $1,703,554 | $2,327,540 |
| Basic and diluted loss per share | $0.45 | $0.98 |
| Cash used in operating activities | $1,860,951 | $2,994,755 |
Because the company had no revenue, gross margin and operating margin are not meaningful. As of March 31, 2017, cash and cash equivalents were $1.17 million, restricted cash was $55,000, working capital was approximately $0.7 million, total assets were $2.30 million, and total current liabilities were $774,777. The filing does not report funded debt; liabilities consisted primarily of accounts payable, accrued expenses, payroll liabilities and other current liabilities. Stockholders’ equity was $1.53 million.
Cash decreased by $1.86 million during the quarter, with no investing or financing cash inflows. The company had $917,011 of cash above FDIC insurance limits at March 31, 2017.
Material Changes Versus the Prior Comparable Period
- Total operating expenses declined $640,694, or 27.5%, primarily because G&A expense fell 47.5% due to lower headcount, rent and the absence of 2016 exit costs.
- R&D expense increased $394,331, or 262.9%, reflecting salaries, manufacturing and clinical-trial costs for the endoxifen program.
- Net loss improved by $623,986, while loss per share improved from $0.98 to $0.45, partly reflecting a higher weighted-average share count of 3,786,913 versus 2,382,757.
- Operating cash burn improved by approximately $1.13 million, mainly because of lower compensation, occupancy and consulting costs and the absence of 2016 severance payments.
- The company opened a Phase 1 dose-escalation study of oral and topical endoxifen on March 23, 2017, and reported two positive interim safety determinations for the topical cohorts.
Guidance, Outlook, Risks and Unusual Items
- Management stated that existing resources, including the subsequent April 3, 2017 financing, were expected to fund planned operations for at least six months, but additional capital would be needed for the following twelve months. The company expected continuing operating losses and planned to seek additional financing later in 2017.
- The April 3, 2017 public offering generated approximately $4.4 million of gross proceeds and $3.9 million of net proceeds. It included common stock, Series A convertible preferred stock convertible into 4,669,333 common shares, and warrants exercisable at $0.9375 per share. The transaction creates significant potential dilution.
- The company disclosed substantial doubt about its ability to continue as a going concern because of recurring losses, negative operating cash flows and the absence of sufficient revenue. Failure to obtain additional capital could require curtailment or cessation of operations.
- Management expected R&D spending to increase during 2017 as the fulvestrant and endoxifen programs progressed. Enrollment in the fulvestrant microcatheter study was expected to be completed by August 2017, and a Phase 2 endoxifen study was planned for the second half of 2017, subject to successful Phase 1 completion and regulatory requirements.
- A securities class-action appeal remained pending after dismissal of the claims. The potential loss could not be reasonably estimated, and no liability was recorded. Oral argument was scheduled for May 18, 2017.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2017. Previously identified material weaknesses involved the Acueity patent impairment analysis and weighted-average share and loss-per-share calculations; remediation was in progress.
- On May 11, 2017, NASDAQ notified the company that its common stock did not meet the $1.00 minimum bid-price requirement. The company had until November 7, 2017 to regain compliance or request additional time, creating a potential delisting risk.
- The company had a $136,000 purchase commitment to KriSan Biotech for endoxifen manufacturing research and an operating lease commitment of $12,325 for the remainder of 2017.
Most Important Facts for Investors to Verify
- Whether the April 2017 financing proceeds were sufficient to extend the operating runway and whether additional equity or debt financing was subsequently required.
- Enrollment, safety and efficacy progress for the fulvestrant microcatheter and endoxifen clinical programs, including any regulatory feedback or delays.
- Actual cash-burn rates, operating losses and the company’s ability to continue as a going concern.
- The status and potential financial impact of the securities-litigation appeal.
- Whether NASDAQ listing compliance was regained and the effect of the financing’s convertible preferred stock and warrants on dilution.
- Whether the identified disclosure-control material weaknesses were remediated and whether subsequent filings required restatement or correction.