It may take longer to complete our clinical trials than we project, or we may not be able to complete them at all.
For budgeting and planning purposes, we have projected the date for the commencement, continuation and completion of our various clinical trials. However, a number of factors, including scheduling conflicts with participating clinicians and clinical institutions, and difficulties in identifying and enrolling patients who meet trial eligibility criteria, may cause significant delays. We may not commence or complete clinical trials involving any of our products as projected or may not conduct them successfully.
We expect to rely on medical institutions, academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our products. We will have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our own. If we fail to commence or complete, or experience delays in, any of our planned clinical trials, our stock price and our ability to conduct our business as currently planned could be harmed.
We are exposed to the risk of liability claims, for which we may not have adequate insurance.
Since we participate in the pharmaceutical industry, we may be subject to liability claims by employees, customers, end users and third parties. We do not currently have product liability insurance. We intend to haveobtain proper insurance in place;. however, there can be no assurance that any liability insurance we purchase will be adequate to cover claims asserted against us or that we will be able to maintain such insurance in the future. We intend to adopt prudent risk managementrisk-management programs to reduce these risks and potential liabilities;liabilities. however, we have not taken any steps to create these programs and have no estimate as to the cost or time required to do so and there can be no assurance that such programs, if and when adopted, will fully protect us. We may not be able to put risk management programs in place, or obtain insurance, if we are unable to retain the necessary expertise and/or are unsuccessful in raising necessary capital in the future. AdverseOur failure to obtain appropriate insurance, or to adopt and implement effective risk-management programs, as well as any adverse rulings in any legal matters, proceedings and other matters could have a material adverse effect on our business.
commercial supplies. We may be unable to attractreach agreement on satisfactory terms with contract manufacturers to manufacture our product candidates. Additionally, the facilities to manufacture our product candidates must be the subject of a satisfactory inspection before the FDA or other regulatory authorities approve a marketing authorization for the product candidate manufactured at that facility. We will depend on these third-party manufacturers for compliance with the FDA’s and retain qualified, experienced, highly skilled personnel, which could adversely affectinternational regulatory authority requirements for the implementationmanufacture of our business plan.
Our success dependsfinished products. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers for compliance with cGMPs. If our manufacturers cannot successfully manufacture material that conforms to a significant degree upon our specifications and the FDA and other regulatory authorities’ cGMP requirements, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to attract, retain and motivate skilledmaintain adequate quality control, quality assurance and qualified personnel. As we becomeIf the FDA or a more mature companycomparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find recruitingalternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved, and retention effortsmay subject us to recalls or enforcement action for products already on the market.
If any of our product candidates are approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices, and we are unable to find one or more challenging. Ifreplacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we do not succeed in attracting, hiring and integrating excellent personnel, or retaining and motivating existing personnel, we maywould likely be unable to grow effectively. Themeet demand for our products and could lose potential revenue. It may take several years to establish an alternative source of supply for our product candidates and to have any such new source approved by the FDA or any other relevant regulatory authorities.
We currently have no marketing and sales force. If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates, if approved, or generate product revenues.
We currently do not have a marketing or sales team for the marketing, sales and distribution of any of our product candidates that are able to obtain regulatory approval. In order to commercialize any product candidates, we must build on a territory-by-territory basis marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If our product candidates receive regulatory approval, we intend to establish an internal sales and marketing team with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and time consuming and will require significant attention of our executive officers to manage. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of any of our products that we obtain approval to market. With respect to the commercialization of all or certain of our product candidates, we may choose to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements when needed on acceptable terms or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval or any such commercialization may experience delays or limitations. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and we may incur substantial costs to attempt to recover or reproduce the data. If any key employee, including membersdisruption or security breach resulted in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and/or the further development of our senior management team,product candidates could be delayed.
Our operations are vulnerable to interruption by natural disasters, power loss, terrorist activity and other events beyond our inability to attract highly skilled personnel with sufficient experience in our industriescontrol, the occurrence of which could materially harm our business.
Businesses located in California have, in the past, been subject to electrical blackouts as a result of a shortage of available electrical power, and any future blackouts could disrupt our operations. We are vulnerable to a major earthquake, wildfire and other natural disasters, and we have not undertaken a systematic analysis of the potential consequences to our business as a result of any such natural disaster and do not have an applicable recovery plan in place. We do not carry any business interruption insurance that would compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could cause our business to materially suffer.
Our common stock is quoted onWe have not held regular annual meetings in the OTCQB which may havepast, and if we are required by the Delaware Court of Chancery to hold an unfavorable impact on our stock priceannual meeting pursuant to Section 211(c) of the Delaware General Corporation Law, or the DGCL, it could result in the unanticipated expenditure of funds, time and liquidity.other Company resources.
Our common stock is quotedSection 2.2 of our bylaws provides that an annual meeting shall be held each year on a date and at a time designated by our board of directors, and Section 211(b) of the OTCQB, whichDGCL provides for an annual meeting of stockholders to be held for the election of directors. Section 211(c) of the DGCL provides that if there is a significantly more limited trading market thanfailure to hold the New York Stock Exchange or The NASDAQ Stock Market. The quotationannual meeting for a period of 13 months after the latest to occur of the Company's shares onorganization of the OTCQBcorporation, its last annual meeting or last action by written consent to elect directors in lieu of an annual meeting, the Delaware Court of Chancery may order a meeting to be held upon the application of any stockholder or director. Section 211(c) also provides that the failure to hold an annual meeting shall not affect otherwise valid corporate acts or result in a less liquid market available for existing and potential stockholders to trade sharesforfeiture or dissolution of the corporation.
We have not held regular annual meetings in the past because a substantial majority of our common stock could depress the trading priceis owned by a small number of stockholders, making it easy to obtain written consent in lieu of a meeting when necessary. In light of our common stockhistorical liquidity constraints, handling matters by written consent has allowed our Company to save on the financial and administrative resources required to prepare for and hold such annual meetings. To our knowledge, no stockholder or director has requested our Company’s management to hold such an annual meeting and no stockholder or director has applied to the Delaware Court of Chancery seeking an order directing our company to hold a meeting. However, if one or more stockholders or directors were to apply to the Delaware Court of Chancery seeking such an order, and if the Delaware Court of Chancery were to order an annual meeting before we are prepared to hold one, the preparation for the annual meeting and the meeting itself could have a long-term adverse impact on our ability to raise capitalresult in the future.unanticipated expenditure of funds, time, and other Company resources.
There is limited liquidity on the OTCQB which may result in stock price volatility and inaccurate quote information.
When fewer shares of a security are being traded on the OTCQB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a lower likelihood of one's orders for shares of our common stock being executed, and current prices may differ significantly from the price one was quoted at the time of one's order entry.
Our common stock is thinly traded, so you may be unable to sell at or near asking prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
Currently, the Company's common stock is quoted in the OTCQB and future trading volume may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in OTCQB stocks and certain major brokerage firms restrict their brokers from recommending OTCQB stocks because they are considered speculative, volatile and thinly traded. The OTCQB market is an inter-dealer market much less regulated than the major exchanges and our common stock is subject to abuses, volatility and shorting. Thus, there is currently no broadly followed and established trading market for the Company's common stock. An established trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded there.
Our common stock is subject to price volatility unrelated to our operations.USE OF PROCEEDS
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company's competitors or the Company itself. In addition, the OTCBB is subject to extreme price and volume fluctuations in general. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
The Company has certain notes which could be converted into common stock, the exercise of which and the conversion of which may dilute the value of shares held by Company shareholders.
The Company has warrants outstanding that if exercised would lead to the issuance of 4,677,106 shares of common stock of the company. There are also certain notes on which the Company is not obligated but which are the subject of litigation in which the Company is involved that parties adverse to the Company have asked the Court to order a conversion of such notes into common shares of the Company. In the event the warrants or any of them are exercised, or if the court orders the described notes to be converted, the stock of the existingselling stockholders will be diluted.
If you are not an institutional investor, you may purchase securities in this offering only if you reside within the states in which we will apply to have the securities registered or are exempt from registration, and, if required, meet any requisite suitability standards.
Because our common stock is quoted on the OTCQB Marketplace and not listed on a national securities exchange, this offering must be registered, or be exempt from registration, in any state in which the securities are to be offered or sold. We will apply to register the securities, or will seek to obtain an exemption from registration, only in certain states. If you are not an "institutional investor," you must be a resident of these jurisdictions to purchase our securities in the offering. The definition of an "institutional investor" varies from state to state, but generally includes financial institutions, broker-dealers, banks, insurance companies and other qualified entities. If you are not an institutional investor, you may purchase securities in this offering only if you reside in the jurisdictions where there is an effective registration or an available exemption, and, if required, meet any requisite suitability standards.
USE OF PROCEEDS
Unless we state otherwise in the applicable prospectus supplement, we intend to use thereceive all net proceeds from the sale of securities described in this prospectus for the further development of our products and for general corporate purposes, which may include, among other things, reducing indebtedness, acquiring other businesses (although we currently have no agreement to acquire any business), and making capital expenditures, as well as for working capital.
DETERMINATION OF OFFERING PRICE
The offering price of the units has been arbitrarily determined and bears no relationship to any objective criterion of value. The price does not bear any relationship to our assets, book value, historical earnings or net worth. No valuation or appraisal has been prepared for our business. Our common stock is listed and traded on the OTCQB under the symbol "OXIS." The closing price of our common stock on August 18, 2016 was $0.20 per share.
Our net tangible book value of our common stock as of September 30, 2016 was approximately negative $17,206,000 ($(17,206,000)), or approximately $(0.569) per share of common stock. "Net tangible book value" is total assets minus the sum of liabilities and intangible assets. "Net tangible book value per share" is net tangible book value divided by the total number of shares outstanding.
Assuming that we issue 60,000,000 Units at an assumed offering price of $0.20 per Unit, the closing price of our common stock on the OTCQB on August 18, 2016, and after deducting placement agents fees and estimated offering expenses payable by us, our adjusted net tangible book value after giving effect to this offering as of September 30, 2016 would have been approximately$(6,241,026) or $(0.069) per share of our common stock. This calculation excludes the proceeds, if any, from the exercise of warrants issued in this offering. This amount represents an immediate dilution in net tangible book value of $0.269 per share to new investors purchasing units in this offering and an immediate increase in net tangible book value of $0.500 per share to our existing shareholders.
Because there is no minimum offering amount required as a condition to the closing of this offering, the dilution per share to new investors may be more than that indicated above in the event that the actual number of shares sold, if any, is less than the maximum number of shares of our common stock we are offering. If any shares of common stock are issued upon exerciseregistered by this prospectus and offered by any accompanying prospectus supplement. We will not receive any proceeds from the sale of outstanding options or warrants, includingcommon stock by the warrants issuedselling stockholders.
We, and not the selling stockholders, will pay the costs, expenses and fees in connection with the registration of the shares covered by this offering, you may experience further dilution.prospectus.
Overview
OXIS International, Inc., through its wholly owned subsidiary Oxis Biotech, Inc, is an immuno-oncology company with a robust technology platform consisting of bispecific and trispecific scFv constructs, full-length antibodies, proprietary drug payloads, proprietary antibody-drug linkers, dual-drug payload antibody-drug conjugates (ADCs), bispecific targeted ADCs, and NK cell and T-cell antibody directed cell-mediated cytotoxic (ADDCs) agents.
OXS-1550
OXS-1550 is a bispecific scFv recombinant fusion protein-drug conjugate composed of the variable regions of the heavy and light chains of anti-CD19 and anti-CD22 antibodies and a modified form of diphtheria toxin as its cytotoxic drug payload. CD19 is a membrane glycoprotein present on the surface of all stages of B-lymphocyte development, and is also expressed on most B-cell mature lymphoma cells and leukemia cells. CD22 is a glycoprotein expressed on B-lineage lymphoid precursors, including precursor acute lymphoblastic leukemia, and often is co-expressed with CD19 on mature B-cell malignancies such as lymphoma.
OXS-1550 targets cancer cells expressing the CD19 receptor or CD22 receptor or both receptors. When OXS-1550 binds to cancer cells, the cancer cells internalize OXS-1550, and are killed due to the action of drug's cytotoxic diphtheria toxin payload. OXS-1550 has demonstrated success in a Phase 1 human clinical trial in patients with relapsed/refractory B-cell lymphoma or leukemia.
Oxis began enrolling patients in a Phase 1/Phase 2 trial of OXS-1550 during the second quarter of 2016. The FDA-approved clinical trial is being conducted at the University of Minnesota's Masonic Cancer Center. There are currently 32 patients who have participated in the clinical trial. The six new patients bring to 32 the number of patients who have participated in the clinical trial. All the new patients are given an approved increased dosage of OXS-1550.
p62/SQSTM1 (Sequestosome-1) Inhibitor Drug Development Program
In humans, the p62/SQSTM1 protein is encoded by the SQSTM1 gene. The p62/SQSTM1 protein is a multifunctional protein involved in autophagy, cell signaling, tumorigenesis, and plays an important role at the crossroad between autophagy and cancer. Cell-cell interactions between multiple myeloma cells and bone marrow stromal cells activate signaling pathways that result in enhanced multiple myeloma cell growth, osteoclast formation, and inhibition of osteoblast differentiation.
Multiple myeloma remains an incurable malignancy with systematic morbidity and a median survival of 3-5 years. Multiple myeloma is characterized by aberrant proliferation of terminally differentiated plasma cells and impairment in apoptosis capacity. Due to the interactions between myeloma cells and cells of the bone marrow microenvironment, the osteolytic bone disease associated with myeloma is inextricably linked with tumor progression. High incidence of bone metastasis in multiple myeloma patients is frequently associated with severe bone pain and pathological bone fracture. Activated osteoclast levels and suppressed osteoblast levels are thought to play a role in multiple myeloma associated osteolytic bone disease.
While a diverse spectrum of novel agents has shown therapeutic potential for the treatment of multiple myeloma including bortezomib, lenalidomide and arsenic trioxide, high relapse rates and drug resistance continue to plague these therapies. Thus, novel targets and new therapeutics for the treatment of multiple myeloma are of critical importance for improved patient outcomes.
It has been demonstrated that the ZZ domain of the p62/SQSTM1 protein is responsible for increased multiple myeloma cell growth and associated osteoclast mediated bone disease. Dr. Xiang-Qun Xie and colleagues at ID4 Pharma LLC have developed novel chemical compounds (e.g., OXS-4235) which inhibit osteoclastic bone destruction in multiple myeloma. Oxis Biotech has exclusively licensed rights to OXS-4135 and other compounds for the treatment of multiple myeloma and associated osteolytic bone disease.
Triple-Negative Breast Cancer Drug Development Program OXS-2175
OXS-2175 is a small molecule therapeutic candidate which has shown promise in early-stage preclinical in vitro and in vivo models of triple-negative breast cancer. Oxis Biotech is investigating OXS-2175 formulated as an infusible therapy, and as part of an ADC infusible therapy for the treatment of triple-negative breast cancer.
Therapeutic Antibody-Drug Conjugates Drug Development Program
Antibody-drug conjugates (ADCs) are a new class of highly potent biopharmaceutical drugs designed as a targeted therapy for the treatment of cancer. By combining the unique targeting capabilities of monoclonal antibodies with the cancer-killing ability of cytotoxic drugs, antibody-drug conjugates allow sensitive discrimination between healthy and diseased tissue.
Markets
B-cell lymphoma
B-cell lymphoma is a type of cancer that forms in B cells (a type of immune system cell). B-cell lymphomas may be either indolent (slow-growing) or aggressive (fast-growing). Most B-cell lymphomas are non-Hodgkin lymphomas. There are many different types of B-cell non-Hodgkin lymphomas. These include Burkitt lymphoma, chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL), diffuse large B-cell lymphoma, follicular lymphoma, and mantle cell lymphoma. It is the most common type of non-Hodgkin lymphoma among adults, with an annual incidence of 7–8 cases per 100,000 people per year.
Triple-Negative Breast Cancer (TNBC)
According to the American Cancer Society there were approximately 231,840 new cases of invasive breast cancer last year in the USA and 40,290 deaths from breast cancer during the same period. Women represent 99% of all breast cancer patients. Breast cancer is treated by various combinations of surgery, radiation therapy, chemotherapy, and hormone therapy. TNBC is a type of breast cancer characterized by breast cancer cells that do not express estrogen receptors, progesterone receptors, or large amounts of HER2/neu protein. Approximately 10% - 20% percent of invasive breast cancers are diagnosed as triple-negative breast cancers. TNBC is more likely to affect younger people, African Americans or Hispanics, and those with a BRCA1 gene mutation. TNBC is insensitive to many of the most effective therapies available for the treatment of breast cancer including the HER2-directed therapy Herceptin® (trastuzumab), and endocrine therapies such as tamoxifen or the aromatase inhibitors. The relapse and survival rates of TNBC patients are shorter than for patients with other types of breast cancer.
Multiple Myeloma
Multiple myeloma is a type of cancer that forms in white blood cells, and affects about 26,850 people annually in the USA causing about 11,240 deaths per year. Multiple myeloma causes cancer cells to accumulate in the bone marrow, where they crowd out healthy blood cells. Multiple myeloma is also characterized by destructive lytic bone lesions (rounded, punched-out areas of bone), diffuse osteoporosis, bone pain, and the production of abnormal proteins which accumulate in the urine. Anemia is also present in most multiple myeloma patients at the time of diagnosis and during follow-up. Anemia in multiple myeloma is multifactorial, and is secondary to bone marrow replacement by malignant plasma cells, chronic inflammation, relative erythropoietin deficiency, and vitamin deficiency. Plasma cell leukemia, a condition in which plasma cells comprise greater than 20% of peripheral leukocytes, is typically a terminal stage of multiple myeloma and is associated with short survival.
Manufacturing
We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of any of our product candidates. We rely on a small number of third-party manufacturers to produce our compounds, and expect to continue to do so to meet the preclinical and clinical requirements of our potential product candidates as well as for all of our commercial needs. We do not have long-term agreements with any of these third parties. We require in our manufacturing and processing agreements that all third-party contract manufacturers and processors produce active pharmaceutical ingredients, or API, and finished products in accordance with the FDA's current Good Manufacturing Practices, or cGMP, and all other applicable laws and regulations. We maintain confidentiality agreements with potential and existing manufacturers in order to protect our proprietary rights related to our drug candidates.
Patents and Trademarks
University of Minnesota License Agreement. Oxis executed an exclusive worldwide license agreement with the Regents of the University of Minnesota, to further develop and commercialize cancer therapies using Trispecific Killer Engager (TriKE) technology developed by researchers at the university to target NK cells to cancer. Under the terms of the agreement, OXIS receives exclusive rights to conduct research and to develop, make, use, sell, and import TriKe technology worldwide for the treatment of any disease, state or condition in humans. OXIS shall own all permits, licenses, authorizations, registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as the TriKe technology, including without limitation the Food and Drug Administration in the United States and the European Agency for the Evaluation of Medicinal Products in the European Union. Under the agreement, the University of Minnesota will receive an upfront license fee, royalty fees ranging from 4 to 6%, minimum annual royalty payments of $250,000 beginning in 2022, $2,000,000 in 2025, and $5,000,000 in 2027 and certain milestone payments totaling $3,100,000.
The following is a list of the pending patent applications that we licensed from the University of Minnesota under our License Agreement:
Pat./Pub. No. | Title | Country | Status |
U.S. Patent Application USSN 62/237,835 | Therapeutic compounds and its uses | US | Pending |
Daniel A. Vallera, Ph.D. License Agreement. Oxis executed an exclusive worldwide license agreement with Daniel A. Vallera, Ph.D. and his associate (jointly "Dr. Vallera"), to further develop and commercialize DT2219ARL (OXS-1550), a novel therapy for the treatment of various human cancers. Under the terms of the agreement, OXIS receives exclusive rights to conduct research and to develop, make, use, sell, and import DT2219ARL worldwide for the treatment of any disease, state or condition in humans. OXIS shall own all permits, licenses, authorizations, registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as DT2219ARL, including without limitation the Food and Drug Administration in the United States and the European Agency for the Evaluation of Medicinal Products in the European Union. Under the agreement, Dr. Vallera will receive an upfront license fee, royalty fees ranging from 3 to 4% for net sales and 24 to 26% of net sublicensing revenues, and certain milestone payments totaling $1,500,000.
The following is a list of the pending patent applications that we licensed from Dr. Vallera under our License Agreement:
Pat./Pub. No. | Title | Country | Status |
U.S. Patent Application USSN 13/256,812 | Methods and compositions for bi-specific targeting of cd19/cd22 | US | Issued |
ID4 Pharma, LLC License Agreement. Pursuant to a patent license agreement with ID4 Pharma LLC, dated January 2, 2015 (the "ID4 License Agreement"), we received an exclusive, worldwide license to certain intellectual property, including intellectual property related to treating a p62-mediated disease (e.g., multiple myeloma). The terms of this license require us to pay ID4 Pharma royalties equal to three percent (3%) of net sales of products and twenty-five percent royalty of net sublicensing revenues. The license will expire upon expiration of the last patent contained in the licensed patent rights, unless terminated earlier. We may terminate the licensing agreement with ID4 Pharma by providing ID4 Pharma with a 30-day written notice.
Oxis shall pay the following cash amounts to ID4 upon the attainment of the following milestones:
| (i) | filing of an investigational new drug application with a competent regulatory authority anywhere in the world -- $50,000; |
(ii)Initiation of Phase I Human Clinical Trial -- $50,000;
(iii)Initiation of Phase II Human Clinical Trial -- $100,000;
(iv)Initiation of pivotal Phase III Human Clinical Trial -- $250,000; and
(v)Receipt of the first marketing approval -- $250,000
The following is a list of the pending patent applications that we licensed from ID4 Pharma under our License Agreement:
Pat./Pub. No. | Title | Country | Status |
U.S. Patent Application USSN 14/237,494 | P62-zz chemical inhibitor | US | Pending |
China Patent Application
CN201280048718
| P62-zz chemical inhibitor | China | Pending |
MultiCell Immunotherapeutics, Inc. (MCIT) License Agreement. Oxis licensed exclusive rights to three antibody-drug conjugates (ADCs) that MCIT will prepare for further evaluation by Oxis as prospective therapeutics for the treatment of triple-negative breast cancer, and multiple myeloma and associated osteolytic bone disease. Under the terms of the agreement, MCIT will develop three ADC product candidates which contain Oxis' lead drug candidates OXS-2175 and OXS-4235. Oxis paid MCIT a license fee of $500,000 and will reimburse MCIT up to $1.125 million for its development costs to make the three ADCs exclusively licensed to Oxis. Assuming all clinical development milestones are achieved and manufacturing rights to the three ADCs purchased, Oxis will pay MCIT an additional sum of $22.75 million and pay a royalty of 3% of net yearly worldwide sales upon marketing approval of the ADCs.
MCIT's ADC platform technology is based on unique multivalent, cleavable linkers that allow drugs tethered to the antibody to be released intracellularly or extracellularly upon binding of the antibody to the target cell. Additionally, the MCIT's ADC technology platform allows multiple drugs to be attached per targeting antibody, and to release the drugs in their original form without modification of the drug.
Research and Development
Expenditures for research and development activities related to continuing operations were $1,000,000 and $-0- for the years ended December 31, 2015 and 2014, respectively. During the nine months ended September 30, 2016 and 2015, we incurred $725,000 and $475,000 of research and development expenses.
Our currently projected expenditures for 2017 include approximately $4-$5 million for research and development. The actual cost of our programs could differ significantly from our current projections if we change our planned development process. In the event that actual costs of our clinical program, or any of our other ongoing research activities, are significantly higher than our current estimates, we may be required to significantly modify our planned level of operations.
There is a risk that any drug discovery and development program may not produce revenue because of the risks inherent in drug discovery and development. The successful development of any product candidate is highly uncertain. It is difficult to reasonably estimate or know the nature, timing and costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from any product candidate, due to the numerous risks and uncertainties associated with developing drugs. Any failure to complete any stage of the development of products in a timely manner could have a material adverse effect on our operations, financial position and liquidity.
Competition
The biotechnology and pharmaceutical industries are subject to rapid technological change. Competition from domestic and foreign biotechnology companies, large pharmaceutical companies and other institutions is intense and expected to increase. A number of companies are pursuing the development of pharmaceuticals in our targeted areas. According to the Pharmaceutical Manufacturers Research Association, at the end of 2015 there were 168 drugs in development for the treatment of breast cancer, and there were 135 drugs in development for the treatment of lymphomas (blood cell cancers including multiple myeloma).
Government Regulation
United States
Our research and development activities and the future manufacturing and marketing of any products we develop are subject to significant regulation by numerous government authorities in the United States and other countries. In the United States, the Federal Food, Drug and Cosmetic Act and the Public Health Service Act govern the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion, and distribution of our drug candidates and any products we may develop. In addition, this regulatory framework is subject to changes that may adversely affect approval, delay an application or require additional expenditures.
The steps required before a pharmaceutical compound may be marketed in the United States include: preclinical laboratory and animal testing; submission of an IND to the FDA, which must become effective before clinical trials may commence; conducting adequate and well-controlled clinical trials to establish the safety and efficacy of the drug; submission of a New Drug Application, or NDA, or Biologics License Application, or BLA, to the FDA; satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities to assess compliance with cGMP; and FDA approval of the NDA or BLA prior to any commercial sale or shipment of the drug. In addition to obtaining FDA approval for each product, each drug-manufacturing establishment used must be registered with the FDA and be operated in conformity with cGMP. Drug product manufacturing facilities may also be subject to state and local regulatory requirements.
Preclinical testing includes laboratory evaluation of product chemistry and animal studies to assess the safety and efficacy of the product and its formulation. The results of preclinical testing are submitted to the FDA as part of an IND, and, unless the FDA objects, the IND becomes effective 30 days following its receipt by the FDA.
Clinical trials involve administration of the study drug to healthy volunteers and to patients diagnosed with the condition for which the study drug is being tested under the supervision of qualified clinical investigators. Clinical trials are conducted in accordance with protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA as part of the IND. Each clinical trial is conducted under the auspices of an independent Institutional Review Board, or IRB, in the United States, or Ethics Committee, or EC, outside the United States, for each trial site. The IRB or EC considers, among other matters, ethical factors and the safety of human clinical trial subjects.
Clinical trials are typically conducted in three sequential phases, but the phases may overlap or be repeated. In Phase 1 clinical trials, the drug is initially introduced into healthy human subjects or patients and is tested for adverse effects, dosage tolerance, pharmacokinetics, and clinical pharmacology. Phase 2 clinical trials involve the testing of a limited patient population in order to characterize the actions of the drug in targeted indications, in order to determine drug tolerance and optimal dosage and to identify possible adverse side effects and safety risks. When a compound appears to be effective at a specific dosage and have an acceptable safety profile in Phase 2 clinical trials, Phase 3 clinical trials are undertaken to further evaluate and confirm clinical efficacy and safety within an expanded patient population at multiple clinical trial sites. The FDA reviews the clinical plans and monitors the results of the trials and may discontinue the trials at any time if significant safety issues arise. Similarly, an IRB or EC may suspend or terminate a trial at a study site that is not being conducted in accordance with the IRB or EC's requirements or that has been associated with unexpected serious harm to subjects.
The results of preclinical testing and clinical trials are submitted to the FDA for marketing approval in the form of an NDA or BLA. The submission of an NDA or BLA also requires the payment of user fees, but a waiver of the fees may be obtained under specified circumstances. The testing and approval process is likely to require substantial time, effort and resources and there can be no assurance that any approval will be granted on a timely basis, if at all, or that conditions of any approval, such as warnings, contraindications, or scope of indications will not materially impact the potential market acceptance and profitability of the drug product. Data obtained from clinical trials are not always conclusive, and the FDA may interpret data differently than we interpret the same data. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it generally follows such recommendations. The approval process is affected by a number of factors, including the severity of the disease, the availability of alternative treatments and the risks and benefits of the product demonstrated in clinical trials.
Additional preclinical testing or clinical trials may be requested during the FDA review period and may delay any marketing approval. After FDA approval for the initial indications, further clinical trials may be necessary to gain approval for the use of the product for additional indications. In addition, after approval, certain types of changes to the approved product, such as manufacturing changes, are subject to further FDA review and approval. The FDA mandates that adverse effects be reported to the FDA, and the regulatory agency may also require post-marketing testing to continue monitoring for expected and unexpected adverse effects, which can involve significant expense. Adverse effects observed during the commercial use of a drug product or which arise in the course of post-marketing studies can result in the need for labeling revisions, including additional warnings and contraindications; and if the findings significantly alter the risk/benefit assessment, the potential withdrawal of the drug from the market.
Among the conditions for FDA approval is the requirement that the prospective manufacturer's quality control and manufacturing procedures conform to the FDA's cGMP requirements. Domestic manufacturing facilities are subject to biannual FDA inspections and foreign manufacturing facilities are subject to periodic inspections by the FDA or foreign regulatory authorities. If the FDA finds that a company is not operating in compliance with cGMPs, the continued availability of the product can be interrupted until compliance is achieved; and if the deficiencies are not corrected within a reasonable time frame, the drug could be withdrawn from the market. In addition, the FDA strictly regulates labeling, advertising and promotion of drugs. Failure to conform to requirements relating to licensing, manufacturing and promoting drug products can result in informal or formal sanctions, including warning letters, injunctions, seizures, civil and criminal penalties, adverse publicity and withdrawal of approval.
Foreign
We are also subject to numerous and varying foreign regulatory requirements governing the design and conduct of clinical trials and marketing approval for pharmaceutical products to be marketed outside of the United States. The approval process varies among countries and regions and can involve additional testing; and the time required to obtain approval may differ from that required to obtain FDA approval.
The steps to obtain approval to market a pharmaceutical compound in the European Union include: preclinical laboratory and animal testing; conducting adequate and well-controlled clinical trials to establish safety and efficacy; submission of a Marketing Authorization Application, or MAA; and the issuance of a product marketing license by the European Commission prior to any commercial sale or shipment of drug. In addition to obtaining a product marketing license for each product, each drug manufacturing establishment must be registered with the European Medicines Agency, or EMA, must operate in conformity with European good manufacturing practice and must pass inspections by the European health authorities.
Upon receiving the MAA, the Committee for Human Medicinal Products, or CHMP, a division of the EMA, will review the MAA and may respond with a list of questions or objections. Answers to questions posed by the CHMP may require additional tests to be conducted. Responses to the list of questions or objections must be provided to and deemed sufficient by the CHMP within a defined time frame. Ultimately, a representative from each of the European Member States will vote whether to approve the MAA.
Foreign regulatory approval processes include all of the risks associated with obtaining FDA approval, and approval by the FDA does not ensure approval by the health authorities of any other country.
Employees
As of September 30, 2016, we had two employees, the chief executive officer and chief financial officer of the company. Many of our activities are out-sourced to consultants who provide services to us on a project basis. As business activities require and capital resources permit, we will hire additional employees to fulfill our company's needs.
Properties
Our executive offices are located at 100 South Ashley Drive, Suite 600, Tampa, FL, 33602.
Legal Proceedings
In May, 2015, Aaion Partners Inc, a consulting firm, filed a breach of contract action against the Company in the Superior Court of California County of Los Angeles, Case No: BC581098. The lawsuit seeks payment under a consulting agreement. In July, 2015, the Company filed a cross-claim against Aaion Partners Inc. for breach of contract and tort claims. In December 2015, we settled this claim for $150,000 to be made in three cash payments and 11,429 shares of restricted common stock. The Company paid $50,000 of the cash due and issued the stock owed. As of this filing, the Company has not made the 2 remaining cash payments and is in default in the settlement agreement.
On June 23, 2016, the Company was served with a complaint filed in the Circuit Court of the 13th Judicial Circuit in and for Hillsborough County, FL, Case No. 16-CA-004791. Suit was brought against the Company by Lippert/Heilshorn and Associates, Inc. who is alleging they are owed compensation for consulting services provided to the company. They are seeking payment of $73,898. The Company has engaged legal counsel to answer the complaint.
MARKETMARKET FOR
REGISTRANT'SOUR COMMON
EQUITY,STOCK AND RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Until May 2009, our common stock was traded on the OTC Bulletin Board ("OTCBB"(“OTCBB”) under the symbol "OXIS."“OXIS.” From May 20, 2009 until March 11, 2010, our common stock was traded on Pink OTC Markets Inc. trading platform under the symbol "OXIS." Since“OXIS.” From January 2015 to August 2017, our common stock is quoted on the OTCQB under the "OXIS"“OXIS” trading symbol. Since August 2017, our common stock has been quoted on the OTCQB under the “GTBP” trading symbol.
Trading in our common stock has fluctuated greatly during the past year.eighteen months. Accordingly, the prices for our common stock quoted on the OTCQB or Pink OTC Markets Inc. may not necessarily be reliable indicators of the value of our common stock. The following table sets forth the high and low bid prices for shares of our common stock for the quarters noted, as reported on the OTCQB and the Pink OTC Markets Inc. The following price information reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
YEAR | PERIOD | HIGH | LOW |
| | | |
Fiscal Year 2014 | First Quarter | 2.50 | 0.75 |
| Second Quarter | 0.80 | 3.25 |
| Third Quarter | 6.25 | 1.25 |
| Fourth Quarter | 7.50 | 2.50 |
Fiscal Year 2015 | First Quarter | 13.50 | 5.13 |
| Second Quarter | 11.78 | 5.03 |
| Third Quarter | 6.23 | 3.50 |
| Fourth Quarter | 5.23 | 2.93 |
Fiscal Year 2016 | First Quarter | 3.20 | 0.41 |
| Second Quarter | 0.60 | 0.31 |
Fiscal Year 2019 | | |
Second Quarter | 0.60 | 0.21 |
First Quarter | 0.96 | 0.30 |
| | |
Fiscal Year 2018 | | |
Fourth Quarter | 2.16 | 0.62 |
Third Quarter | 2.75 | 1.42 |
Second Quarter | 2.52 | 1.25 |
First Quarter | 5.06 | 1.60 |
| | |
Fiscal Year 2017 | | |
Fourth Quarter | 6.99 | 4.25 |
Third Quarter | 29.55 | 4.66 |
Second Quarter | 9.90 | 3.36 |
First Quarter | 69.00 | 3.81 |
Our common stock is also quoted on several European based exchanges including Berlin (OXI.BE)(GTBP.BE), Frankfurt (OXI.DE)(GTBP.DE), the Euronext (OXI.NX)(GTBP.NX) and Paris, (OXI.PA)(GTBP.PA). The foregoing trading prices exclude trading on these foreign stock markets.
Stockholders
As of September 30, 2016,3, 2019, there were 1,33023 stockholders of record, which total does not include stockholders who hold their shares in "street“street name."” The transfer agent for our common stock is ComputerShare, whose address is 350 Indiana Street, Golden,8742 Lucent Blvd., Suite 225, Highland Ranch, CO 80401.80129.
Dividends
Dividends
We have not paid any dividends on our common stock to date and do not anticipate that we will pay dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our anticipated capital requirements and other factors that the Board of Directors may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development and expansion of our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future.
Equity Compensation Plan Information
The followinginformation included under the heading “Equity Compensation Plan Information” in “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” is a summary of our equity compensation plans at September 30, 2016:
Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) |
Equity compensation plans approved by security holders (1) | | 374,781 | | $4.78 | | 133,445 |
Equity compensation plans not approved by security holders | | - | | - | | - |
Total | | 374,781 | | $4.78 | | 133,445 |
hereby incorporated by reference into this paragraph.
(1) | As of September 30, 2016, we had options issued and outstanding to purchase 967 shares of common stock under our 2003 Stock Incentive Plan, -0- shares of our common stock under the 2010 Plan and 373,833 shares of common stock under our 2014 Stock Incentive Plan.
|
MANAGEMENT'SMANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus are forward-looking statements about what may happen in the future. Forward-looking statements include statements regarding our current beliefs, goals, and expectations about matters such as our expected financial position and operating results, our business strategy, and our financing plans. The forward-looking statements in this prospectus are not based on historical facts, but rather reflect the current expectations of our management concerning future results and events. The forward-looking statements generally can be identified by the use of terms such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. We cannot guarantee that our forward-looking statements will turn out to be correct or that our beliefs and goals will not change. Our actual results could be very different from and worse than our expectations for various reasons. You should review carefully all information, including the discussion of risk factors herein and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Form 10-K for the year ended December 31, 2018. Any forward-looking statements in this prospectus are made only as of the date hereof and, except as may be required by law, we do not have any obligation to publicly update any forward-looking statements contained in this prospectus to reflect subsequent events or circumstances.
Throughout this prospectus, the terms “GTBP,” “we,” “us,” “our,” “the company” and “our company” refer to GT Biopharma, Inc., a Delaware corporation formerly known as Oxis International, Inc., DDI Pharmaceuticals, Inc. and Diagnostic Data, Inc, together with our subsidiaries.
Overview
Until
We are a clinical stage biopharmaceutical company focused on the enddevelopment and commercialization of 2008, we were engagednovel immuno-oncology products based off our proprietary Tri-specific Killer Engager (TriKE), Tetra-specific Killer Engager (TetraKE) and bi-specific Antibody Drug Conjugate (ADC) technology platforms. Our immuno-oncology portfolio is based off a proprietary technology platform consisting of single-chain bi-, tri- and tetra-specific scFv’s, combined with proprietary antibody-drug linkers and drug payloads. Constructs include bispecific and trispecific scFv constructs, proprietary drug payloads, bispecific targeted antibody-drug conjugates, or ADCs, as well as tri- and tetra-specific antibody-directed cellular cytotoxicity, or ADCC. Our proprietary tri- and tetra-specific ADCC platform engages natural killer cells, or NK cells. NK cells are cytotoxic lymphocytes of the innate immune system capable of immune surveillance. NK cells mediate ADCC through the highly potent CD16 activating receptor. Upon activation, NK cells deliver a store of membrane penetrating apoptosis-inducing molecules. Unlike T cells, NK cells do not require antigen priming.
We also have a CNS portfolio consists of innovative reformulations and/or repurposing of existing therapies. We believe these therapeutic agents address certain unmet medical needs that can lead to improved efficacy while addressing tolerability and safety issues that tended to limit the usefulness of the original approved drug. Our CNS drug candidates address disease states such as chronic neuropathic pain, myasthenia gravis and vestibular disorders.
Recent Developments
Financing
Starting on August 20, 2019, GT Biopharma, Inc. (the "Company") entered into a Securities Purchase Agreement with11 purchasers (individually, a "Purchaser," and collectively, the "Purchasers") pursuant to which the Company has issued to the Purchasers Convertible Debentures in the businessan aggregate principal amount of developing and selling clinical and research assay products and out-licensing certain therapeutic compounds addressing conditions and diseases associated with oxidative stress. During 2008, we lost our majority-owned subsidiary, BioCheck, Inc.$975,000 (the "Debentures"), which Debentures are convertible into the Company's common stock (the "Common Stock") at a price of $0. 20per share. The Company and each Purchaser also entered into a Registration Rights Agreement.
The issuance of the Debentures was engagedmade in reliance on the productionexemption provided by Section 4(a)(2) of enzyme immunoassay diagnostic kitsthe Securities Act of 1933, as amended (the "Securities Act"), for clinical laboratories,the offer and sale of securities not involving a public offering and Regulation D promulgated under the Securities Act.
On May 22, 2019, GT Biopharma, Inc. (the "Company") entered into a Securities Purchase Agreement with ten purchasers (individually, a "Purchaser," and collectively, the "Purchasers") pursuant to which the Company has issued to the Purchasers Convertible Debentures in December 2008 we soldan aggregate principal amount of $1,300,000 (the "Debentures"), which Debentures are convertible into the Company's common stock (the "Common Stock") at a price of $0.35 per share. The Company and each Purchaser also entered into a Registration Rights Agreement.
The issuance of the Debentures was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), for the offer and sale of securities not involving a public offering and Regulation D promulgated under the Securities Act.
On February 4, 2019, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the purchasers identified on the signature pages thereto (individually, a “Purchaser,” and collectively, the “Purchasers”), pursuant to which the Company issued to the Purchasers, on February 4, 2019, Secured Convertible Notes in an aggregate principal amount of $1,352,224 (the “Notes”), consisting of gross proceeds of $1,052,224 and settlement of existing debt of $300,000, which Notes shall be convertible at any time after issuance into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a conversion price of $0.60 per share (the “Conversion Price”).
The Notes accrue interest at the rate of 10% per annum and mature on August 2, 2019. Interest on the Notes is payable in cash or, at a Purchaser’s option, in shares of Common Stock at the Conversion Price. Upon the occurrence of an event of default, interest accrues at 18% per annum. The Notes contain customary default provisions, including provisions for potential acceleration, and covenants, including negative covenants regarding additional indebtedness and dividends. The Conversion Price is subject to adjustment due to certain events, including stock dividends and stock splits, and is subject to reduction in certain circumstances if the Company issues Common Stock or Common Stock equivalents at an effective price per share that is lower than the Conversion Price then in effect. The Company may only prepay the Notes with the prior written consent of the respective Purchasers thereof.
Contemporaneously with the execution and delivery of the Purchase Agreement, on February 4, 2019, the Company and certain of its wholly-owned subsidiaries entered into a Security Agreement (the “Security Agreement”) with Alpha Capital Anstalt, as collateral agent on behalf of the Purchasers, and with the Purchasers, pursuant to which the Purchasers have been granted a first-priority security interest in substantially all of the assets of our research assay product line to Percipio Biosciences, Inc. Commencing in 2009, our focus shifted from the clinical and research assay business to developing and marketing nutraceutical products in the field of oxidative stress reduction, with a focus on products that include EGT™ as a component. We conducted limited operations, and had limited revenues from these products in 2013 and in 2014. In July 2014, we began pursuing the acquisition of novel therapeutics from various educational and research institutions.
As shown in the accompanying consolidated financial statements, the Company has incurred an accumulated deficit of $121,820,000 through September 30, 2016. On a consolidated basis, the Company had cash and cash equivalents of $154,000 at September 30, 2016. Because our lack of funds, we will have to raise additional capital in order to fund our selling, general and administrative, and research and development expenses. There are no assurances that we will be able to raise the funds necessary to maintain our operations or to implement our business plan. The consolidated financial statements included in this Annual Report do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event we cannot continue our operations.
Recent Developments
License Agreements
Pursuant to a patent license agreement with the ID4, dated December 31, 2015, we received a non-exclusive, worldwide license to certain intellectual property, including intellectual property related to treating a p62-mediated disease (e.g., multiple myeloma).
On March 10, 2015, Oxis licensed exclusive rights to three antibody-drug conjugates (ADCs) that MCIT will prepare for further evaluation by Oxis as prospective therapeutics for the treatment of triple-negative breast cancer, and multiple myeloma and associated osteolytic bone disease. Under the terms of the agreement, MCIT will develop three ADC product candidates which contain Oxis' lead drug candidates OXS-2175 and OXS-4235.
In September 2015, Oxis executed an exclusive worldwide license agreement with Daniel A. Vallera, Ph.D. and his associate (jointly "Dr. Vallera"), to further develop and commercialize DT2219ARL (OXS-1550), a novel therapy for the treatment of various human cancers. Under the terms of the agreement, OXIS receives exclusive rights to conduct research and to develop, make, use, sell, and import DT2219ARL worldwide for the treatment of any disease, state or condition in humans. OXIS shall own all permits, licenses, authorizations, registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as DT2219ARL, including without limitation the Food and Drug Administration in the United States and the European Agency for the Evaluation of Medicinal Products in the European Union. Under the agreement, Dr. Vallera will receive an upfront license fee, royalty fees, and certain milestone payments.
In July 2016, Oxis executed an exclusive worldwide license agreement with the Regents of the University of Minnesota, to further develop and commercialize cancer therapies using Trispecific Killer Engager (TriKE) technology developed by researchers at the university to target NK cells to cancer. Under the terms of the agreement, OXIS receives exclusive rights to conduct research and to develop, make, use, sell, and import TriKe technology worldwide for the treatment of any disease, state or condition in humans. OXIS shall own all permits, licenses, authorizations, registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as the TriKe technology, including without limitation the Food and Drug Administration in the United States and the European Agency for the Evaluation of Medicinal Products in the European Union. Under the agreement, the University of Minnesota will receive an upfront license fee, royalty fees, and certain milestone payments.
Financing
In January 2016, the Company entered into a securities purchase agreement with one accredited investor to sell 10% convertible debentures, with and an exercise price of $1.25, with an initial principal balance of $150,000 and warrants to acquire up to 80,000 shares of the Company's common stock at an exercise price of $1.25 per share.
In May 2016, the Company entered into a securities purchase agreement with twenty accredited investors to sell 10% convertible debentures, with and an exercise price of $0.40, with an initial principal balance of $1,390,044 and warrants to acquire up to 3,475,111 shares of the Company's common stock at an exercise price of $0.45 per share.
In July 2016, the Company entered into a securities purchase agreement with one accredited investor to sell 10% convertible debentures, with and an exercise price of $0.40, with an initial principal balance of $112,135 and warrants to acquire up to 280,338 shares of the Company's common stock at an exercise price of $0.45 per share.
In August 2016, the Company entered into a securities purchase agreement with one accredited investor to sell 10% convertible debentures up $1,000,000, with and an exercise price of $0.40, with an initial principal balance of $250,000 and warrants to acquire up to 2,500,000 shares of the Company's common stock at an exercise price of $0.45 per share.
Restructuring Agreements
Effective January 8, 2016, Company entered into agreements to effect the restructuring (the "Restructuring") of certain unregistered debt and equity securities of the Company that will result in an issuance of up to 28,389,193 shares of common stock of the Company (the "Common Stock"). In connection with the Restructuring, the Company entered into a note conversion agreement (the "Conversion Agreement"), a warrant exercise agreement (the "Exercise Agreement") and a preferred stock exchange agreement (the "Exchange Agreement" and, collectively with the Conversion Agreement and the Exercise Agreement, the "Restructuring Agreements"), pursuant to which the Company and certainsuch subsidiaries securing (i) an aggregate principal amount of $1,352,224 of Notes and (ii) an aggregate principal amount of $9,058,962 of the Company's creditorsCompany’s 10% Senior Convertible Debentures issued on August 2, 2018, September 7, 2018 and investors have agreedSeptember 24, 2018 held by such Purchasers.
The Purchase Agreement contains customary representations, warranties and covenants, including covenants, subject to certain exceptions, that (i) certain outstanding debtthe Company, until the date on which less than 10% of the Notes are outstanding, shall not affect any Variable Rate Transaction (as defined in the Purchase Agreement) and that, for as long as a Purchaser holds any Notes or Conversion Shares, the Company (collectively,shall amend the "Debt") will be converted into shares of Common Stock; (ii) certain outstanding warrants to purchase shares of capital stockterms and conditions of the Company (collectively, the "Warrants") will be exercised on a cashless basis for shares of Common Stock; and (iii) certain outstanding shares of Series H Convertible Preferred Stock of the Company (the "Series H Preferred Stock") and Series I Convertible Preferred Stock of the Company (the "Series I Preferred Stock" and together with the Series H Preferred Stock, the "Preferred Stock") will be exchanged for shares of Common Stock. The Conversion Agreement, Exercise Agreement and ExchangePurchase Agreement and the transactions contemplated thereby with respect to such Purchaser to give such Purchaser the benefit of any terms or conditions under which the Company agrees to issue or sell any Common Stock or Common Stock equivalents that are described in further detail below.more favorable to an investor than the terms and conditions granted to such Purchaser under the Purchase Agreement and the transactions contemplated thereby.
UnderIn addition, the Conversion Agreement, certain creditorsCompany entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company has agreed to file, within 14 days after February 4, 2019, one or more registration statements on Form S-3 (or, if Form S-3 is not then available to the Company, such form of registration that is then available to effect a registration for resale of the Company holding an aggregatesubject securities) covering the resale of approximately $15,056,000 (including accrued interest and penalties) of outstanding Debt agreedall Conversion Shares, subject to convert all such outstanding Debt into shares of Common Stock at a conversion price of $1.25 per share upon successful completioncertain penalties set forth in the Registration Rights Agreement. The Form S-3 was filed by the Company of a $6 million financing. However, since the financing did not occur by March 15, 2016, the Conversion Agreement was terminated.on February 14, 2019.
In addition, under the Exercise Agreement, certain investors together holding warrants to purchase 12,269,240 shares of capital stock of the Company exchanged such warrants and received one share of Common Stock in exchange for each share of capital stock of the Company underlying the warrants.
Finally, under the Exchange Agreement, certain investors together holding 25,000 shares of Series H Preferred Stock and 1,666,667 shares of Series I Preferred Stock have agreed to convert all such shares of Preferred Stock into an aggregate of 4,075,000 shares of Common Stock upon successful completion by the Company of a $6 million financing.
The Restructuring Agreements terminated the warrants and any anti-dilution protection thereunder. In addition, all creditor and investor parties to the Restructuring Agreements provided a waiver of any and all past defaults and breaches under the Warrants and Preferred Stock, in consideration of the shares issued pursuant to the Restructuring Agreements.
Results of Operations
Comparison of the ThreeSix Months Ended June 30, 20162019 and 20152018
License revenue
During the threesix months ended June 30, 20162019 and 2015, we received $-0- and $20,000 of licensing revenue related to a Vitamin D producing line of sun care and skin care products under a license from ESLLC.
Research and Development Expenses
During the three months ended June 30, 2016 and 2015,2018, we incurred $250,000$1.0 million and $-0-$6.7 million of research and development expenses. Research and development costs decreased due primarily to the reductions employees, consultants and preclinical expenses. We anticipate our direct clinical costs to increase in second half of 2019 upon the initiation of a phase one clinical trial of our most advanced TriKe product candidate, OXS-3550.
Selling, general and administrative expenses
During the threesix months ended June 30, 20162019 and 2015,2018, we incurred $1,871,000$5.4 million and $1,451,000$5.6 million of selling, general and administrative expenses. The increasedecrease in selling, general and administrative expenses is primarily attributable to an increase in professional fees, license fees investor relationsthe reduction of payroll and stock compensation.
Change in value of warrant and derivative liabilities
During the three months ended September 30, 2016, we recorded a gain as a result of a decrease in the fair market value of outstanding warrants and beneficial conversion features of $436,000, compared to a gain of $809,000 during the three months ended September 30, 2015. This reduction is a result of a decrease in the fair market value of outstanding debt and equity securities accounted for as derivative liabilities and the conversion of warrants to common stock.compensation expenses.
Interest Expense
Interest expense was $1,536,000$.9 million and $1,724,000$6.9 million for the three months ended September 30, 2016 and 2015 respectively. The increase is primarily due to an increase in the non-cash amortization of the debt issuance costs associated with the convertible debentures and demand notes payable and expenses related the issuance of additional shares
Comparison of the Nine Months Ended September 30, 2016 and 2015
License revenue
During the nine months ended September 30, 2016 and 2015, we received $-0- and $27,000 of licensing revenue related to a Vitamin D producing line of sun care and skin care products under a license from ESLLC.
Research and Development Expenses
During the nine months ended September 30, 2016 and 2015, we incurred $725,000 and $475,000 of research and development expenses.
Selling, general and administrative expenses
During the nine months ended September 30, 2016 and 2015, we incurred $7,827,000 and $5,571,000 of selling, general and administrative expenses. The increase in selling, general and administrative expenses is primarily attributable to an increase in professional fees, license fees, investor relations and stock compensation.
Change in value of warrant and derivative liabilities
During the nine months ended September 30, 2016, we recorded a gain as a result of a decrease in the fair market value of outstanding warrants and beneficial conversion features of $37,195,000, compared to a gain of $20,863,000 during the six months ended June 30, 2015.
Interest Expense
Interest expense was $4,781,0002019 and $10,012,000 for the nine months ended September 30, 2016 and 20152018 respectively. The decrease is primarily due to a decrease related to the amortization of the original issue discount and beneficial conversion features related to various financing.
Comparison of the Fiscal Years Ended December 31, 2018 and 2017
Research and Development Expenses
During the years ended December 31, 2018 and 2017, we incurred $9.1 million and $1.1 million of research and development expenses, respectively. 2018 research and development costs increased due primarily to the addition of new employees, increased regulatory and preclinical consultant costs to support the GTB-3550 IND, higher costs to advance the CNS portfolio and position the assets for licensing efforts, and higher preclinical and clinical expenses incurred at the University of Minnesota to continue development of our immune-oncology assets. 2018 expenses also include non-cash compensation of $6.8 million. We anticipate our direct clinical and preclinical costs to continue to increase throughout 2019, totaling approximately $12 to $15 million, as we initiate a Phase 1 clinical trial of our most advanced TriKe product candidate, GTB-3550 in the first half of 2019, and initiate IND-enabling activities for GTB-C3550, and GTB-1615.
Selling, general and administrative expenses
During the years ended December 31, 2018 and 2017, we incurred $12.5 million and $134.5 million of selling, general and administrative expenses, respectively. Selling, general and administrative expenses in 2017 were driven by stock compensation related to the acquisition of Georgetown Translational Pharmaceuticals on September 1, 2017. Stock compensation expenses totaled $2.3 million and $129.1 million for in 2018 and 2017, respectively. Additional selling, general, and administrative expenses in 2018 were due to increased spending on investor relations campaigns to broaden awareness of the Company, and increased legal costs primarily associated with financing efforts. We anticipate selling, general and administrative expenses, excluding stock compensation, to range between $1 and $2 million in the coming quarters.
Loss on impairment
For the year ended December 31, 2018, the Company recorded an intangible asset impairment charge of $228.5 million related to the portfolio of CNS IPR&D assets, which represents the excess carrying value compared to fair value. The impairment charge was the result of both internal and external factors. In the 3rd quarter of 2018, the Company experienced changes in key senior management, led by the appointment of a CEO with extensive experience in oncology drug development. These changes resulted in the prioritization for immuno-oncology development candidates relative to the CNS development candidates acquired from Georgetown Translational Pharmaceuticals. In conjunction with these strategic changes, limited internal resources have delayed the development of the CNS IPR&D assets. The limited resources, changes in senior leadership, and favorable market conditions for immuno-oncology development candidates have resulted in the Company choosing to focus on development of its immuno-oncology portfolio. We are assessing our options to realize value from the CNS IPR&D assets. In light of this shift in market strategy, the Company performed a commercial assessment and a valuation of the CNS IPR&D assets, both to assess fair value and support potential future licensing efforts. Based on the results of the independent valuation, the Company recorded the impairment charge noted above.
Interest Expense
Interest expense was $9.1 million and $8.6 million for the years ended December 31, 2018 and 2017, respectively. The increase is due to an increase in non-cash amortization of the debt issuance costs associated with the convertible debentures and demand notes payable, non-cash interest related to the beneficial conversion feature of new debt and expenses related the issuance of additional shareswarrants issued in January 2018.
Liquidity and Capital Resources
OnThe Company’s current operations have focused on business planning, raising capital, establishing an intellectual property portfolio, hiring, and conducting preclinical studies and clinical trials. The Company does not have any product candidates approved for sale and has not generated any revenue from product sales. The Company has sustained operating losses since inception and expects such losses to continue over the foreseeable future. During the six months ended June 30, 2019, the Company raised $2.4 million through a consolidatedseries of issuances of convertible debentures in February and May. Also, as noted above, the Company raised $975,000 through the issuance of convertible notes during the time period beginning August 20, 2019, through September 11, 2019. We anticipate that cash utilized for selling, general, and administrative expenses will range between $1 and $2 million in the coming quarters, while research and development expenses will vary depending on clinical activities.
The financial statements of the Company have been prepared on a going-concern basis, we hadwhich contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments that might be necessary should the Company be unable to continue in existence.
The Company has incurred substantial losses and negative cash flows from operations since its inception and has an accumulated deficit of $536 million and cash equivalents of $355,000 at June 30, 2016 and $15,666,000 of current liabilities (of which $15,174,000 represented current cash obligations and $492,000 represented non-cash warrant liabilities and accrued expenses). As a result, on a cash basis,$264 thousand as of June 30, 2016, we had a working capital deficit2019. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales or revenue from out-licensing of $14,819,000. In addition, we have an accumulated deficit of $118,190,000 through June 30, 2016.
In January 2016,its products currently in development. Substantial additional financing will be needed by the Company entered into convertible debentures totaling $150,000.to fund its operations and to commercially develop its product candidates. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
In May 2016,Management is currently evaluating different strategies to obtain the required funding for future operations. These strategies may include but are not limited to: public offerings of equity and/or debt securities, payments from potential strategic research and development, licensing and/or marketing arrangements with pharmaceutical companies. Management has also implemented cost saving efforts, including reduction in executive salaries and reduced travel. Management believes that these ongoing and planned financing endeavors, if successful, will provide adequate financial resources to continue as a going concern for at least the next six months from the date the financial statements are issued; however, there can be no assurance in this regard. If the Company entered into convertible debentures totaling $1,390,044.is unable to secure adequate additional funding, its business, operating results, financial condition and cash flows may be materially and adversely affected.
In July 2016, the Company entered into convertible debentures totaling $112,135.
In August 2016, the Company entered into convertible debentures totaling $250,000.
Critical Accounting Policies
We consider the following accounting policies to be critical given they involve estimates and judgments made by management and are important for our investors'investors’ understanding of our operating results and financial condition.
Basis of Consolidation
The consolidated financial statements contained in this report include the accounts of OXIS International, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated.
Revenue Recognition
Product Revenue
The Company manufactures, or has manufactured on a contract basis, fine chemicals and nutraceutical products, which are its primary products to be sold to customers. Revenue from the sale of its products, including shipping fees, will be recognized when title to the products is transferred to the customer which usually occurs upon shipment or delivery, depending upon the terms of the sales order and when collectability is reasonably assured. Revenue from sales to distributors of its products will be recognized, net of allowances, upon delivery of product to the distributors. According to the terms of individual distributor contracts, a distributor may return product up to a maximum amount and under certain conditions contained in its contract. Allowances are calculated based upon historical data, current economic conditions and the underlying contractual terms.
Long-Lived Assets
Our long-lived assets include property, plant and equipment, capitalized costs of filing patent applications and goodwill and other assets. We evaluate our long-lived assets for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"ASC 360, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Estimates of future cash flows and timing of events for evaluating long-lived assets for impairment are based upon management'smanagement’s judgment. If any of our intangible or long-lived assets are considered to be impaired, the amount of impairment to be recognized is the excess of the carrying amount of the assets over its fair value.
Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management'smanagement’s judgment. Goodwill and other assets are not amortized.
Certain Expenses and Liabilities
On an ongoing basis, management evaluates its estimates related to certain expenses and accrued liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
Derivative Financial Instruments
During the normal course of business, from time to time, we issue warrants as part of a debt or equity financing. We do not enter into any derivative contracts for speculative purposes. We recognize all derivatives as assets or liabilities measured at fair value with changes in fair value of derivatives reflected as current period income or loss unless the derivatives qualify for hedge accounting and are accounted for as such. During the six months ended June 30, 2016 and 2015, we issued warrants to purchase 3,475,111 and 376,000 shares of common stock, respectively, in connection with equity transactions. In accordance with ASC Topic 815-40, "Derivatives and Hedging — Contracts in Entity's Own Stock" ("ASC 815-40"), the value of these warrants is required to be recorded as a liability, as the holders have an option to put the warrants back to us in certain events, as defined.
Inflation
We believe that inflation has not had a material adverse impact on our business or operating results during the periods presented.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements as of September 30, 2016.3, 2019.
25We are a clinical stage biopharmaceutical company focused on the development and commercialization of novel immuno-oncology products based off our proprietary Tri-specific Killer Engager (TriKE), Tetra-specific Killer Engager (TetraKE) and bi-specific Antibody Drug Conjugate (ADC) technology platforms. Our TriKE and TetraKE platforms generate proprietary moieties designed to harness and enhance the cancer killing abilities of a patient’s own natural killer, or NK, cells. Once bound to an NK cell, our moieties are designed to enhance the NK cell and precisely direct it to one or more specifically-targeted proteins (tumor antigens) expressed on a specific type of cancer, ultimately resulting in the cancer cell’s death. TriKEs and TetraKEs are made up of recombinant fusion proteins, can be designed to target any number of tumor antigens on hematologic malignancies, sarcomas or solid tumors and do not require patient-specific customization. They are designed to be dosed in a common outpatient setting similar to modern antibody therapeutics and are expected to have reasonably low cost of goods. Our ADC platform generates product candidates that are bi-specific, ligand-directed single-chain fusion proteins that, we believe, represent the next generation of ADCs.
We are using our TriKE and TetraKE platforms with the intent to bring to market immuno-oncology products that can treat a range of hematologic malignancies, sarcoma and solid tumors. The platforms are scalable, and we are putting processes in place to be able to produce IND-ready moieties in a timely manner after a specific TriKE or TetraKE conceptual design. After conducting market and competitive research, specific moieties can then be advanced into the clinic on our own or through potential collaborations with larger companies. We are also evaluating, in conjunction with our Scientific Advisory Board, additional moieties designed to target different tumor antigens. We believe our TriKEs and TetraKEs may have the ability, if approved for marketing, to be used on a stand-alone basis, augment the current monoclonal antibody therapeutics, be used in conjunction with more traditional cancer therapy and potentially overcome certain limitations of current chimeric antigen receptor, or CAR-T, therapy.
We also believe our bi-specific, ligand-directed single-chain fusion proteins are examples of the next generation of ADCs. We believe GTB-1550 has certain properties that could result in competitive advantages over recently approved ADC products targeting leukemias and lymphomas and/or have utility in other niche populations. In a Phase 1 trial, of nine patients that achieved adequate blood levels, in two heavily pretreated patients a continuous partial remission (PR) and complete remission (CR) were observed. One of these patients, who had failed multiple previous treatment regimens, has been in remission since early 2015.
Our initial work has been conducted in collaboration with the Masonic Cancer Center at the University of Minnesota under a program led by Dr. Jeffrey Miller, the Deputy Director. Dr. Miller is a recognized leader in the field of NK cell and IL-15 biology and their therapeutic potential. We have exclusive rights to the TriKE and TetraKE platforms and are generating additional intellectual property around specific moieties.
Also, in connection with the acquisition of Georgetown Translational Pharmaceuticals on September 1, 2017, we acquired a portfolio of in-process research and development central nervous system (“CNS”) assets consisting of innovative reformulations and/or repurposing of existing therapies. These CNS assets address disease states such as chronic neuropathic pain, myasthenia gravis and motion sickness. We are currently pursuing out-licensing opportunities related to these assets.
Immuno-Oncology Platform
Tri-specific Killer Engagers (TriKEs) and Tetra-specific Killer Engagers (TetraKEs)
The generation of chimeric antigen receptor, or CAR, expressing T cells from monoclonal antibodies has represented an important step forward in cancer therapy. These therapies involve the genetic engineering of T cells to express either CARs, or T cell receptors, or TCRs, and are designed such that the modified T cells can recognize and destroy cancer cells. While a great deal of interest has recently been placed upon chimeric antigen receptor T, or CAR-T, therapy, it has certain limitations for broad potential applicability because it can require an individual approach that is expensive and time consuming, and may be difficult to apply on a large scale. We believe there is an unmet need for targeted immuno-oncology therapies that have the potential to be dosed in a patient-friendly outpatient setting, can be used on a stand-alone basis, augment the current monoclonal antibody therapeutics and/or be used in conjunction with more traditional cancer therapy. We believe our TriKE and TetraKE constructs have this potential and therefore we have generated, and intend to continue to generate, a pipeline of product candidates to be advanced into the clinic on our own or through potential collaborations with larger companies.
NK cells represent an important immunotherapeutic target as they are involved in tumor immune-surveillance, can mediate antibody- dependent cell-mediated cytotoxicity (ADCC), contain pre-made granules with perforin and granzyme B and can quickly secrete inflammatory cytokines, and unlike T cells they do not require antigen priming and can kill cells in the absence of major histocompatibility complex (MHC) presentation.
Unlike full-length antibodies, TriKEs and TetraKEs are small single-chain fusion proteins that bind the CD16 receptor of NK cells directly producing a potent and lasting response, as demonstrated by preclinical studies. An additional benefit they may have is attractive biodistribution, as a consequence of their smaller size, which we expect to be important in the treatment of solid tumors. In addition to these advantages, TriKEs and TetraKEs are designed to be non-immunogenic, have appropriate clearance properties and can be engineered quickly to target a variety of tumor antigens.
DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONSBackground and Select Non-Clinical Data
In conjunction with our research agreement with the Masonic Cancer Center at the University of Minnesota, the exploration of targeting NK cells to a variety of tumors initially focused on novel bi-specific killer engagers, or BiKEs, composed of the variable portions of antibodies targeting the CD16 activating receptor on NK cells and CD33 (AML and MDS; see figure below), CD19/CD22 (B cell lymphomas), or EpCAM (epithelial tumors (breast, colon, and lung)) on the tumor cells.
Subsequently, a tri-specific (TriKE) construct that replaced the linker molecule between the CD16 scFv and the CD33 scFv with a modified IL-15 molecule, containing flanking sequences, was generated and tested. Data indicate that the CD16 x IL-15 x CD33 and CD16 x IL-15 x EpCAM TriKEs potently induce proliferation of healthy donor NK cells, possibly greater than that induced by exogenous IL-15, which is absent in the BiKE platform. Targeted delivery of the IL-15 through the TriKE also resulted in specific expansion of the NK cells without inducing T cell expansion on post-transplant patient samples.
When compared to the CD16 x CD33 BiKE, the CD16 x IL-15 x CD33 TriKE is also capable of potently restoring killing capacity of post- transplant NK cells against CD33-expressing HL-60 Targets and primary AML blasts. These results demonstrated the ability to functionally incorporate an IL-5 cytokine into the BiKE platform and also demonstrated the possibility of targeting a variety of cytokines directly to NK cells while reducing off-target effects and the amount of cytokines needed to obtain biologically relevant function.
The figure below is a schematic of a BiKE construct (top) and a TriKE construct (bottom), which has the modified IL-15 linker between the CD16 scFv and the CD33 scFv components.
The TriKE constructs were also tested against three separate human tumor cell lines: HL-60 (promyelocitic leukemia), Raji (Burkitt’s lymphoma), and HT29 (colorectal adenocarcinoma), in addition to a model for ovarian cancer. All cell lines contained the Luc reporter to allow for in vivo imaging of the tumors. These systems were used to show in vivo efficacy of BiKEs (1633) and TriKEs (GTB-3550) against relevant human tumor targets (HL-60-luc) over an extended period of time. The system consisted of initial conditioning of mice using radiation (250-275 cGy), followed by injection of the tumor cells (I.V. for HL-60-luc and Raji-luc, intra-splenic for HT29-luc and IP for ovarian for MA-148-luc), a three-day growth phase, injection of human NK cells, and repeated injection of the drugs of interest, BiKE and TriKE (three to five times a week). Imaging was carried out at day 7, 14, and 21, and extended as needed.
Figure A below shows the results (tumor burden and mortality) when dosing NK cells alone (top panel), the BiKE version (lacking IL-15) of GTB-3550 (middle panel; called 1633), and the TriKE, GTB-3550 (bottom panel; then called 161533) in the above described human tumor model, HL-60-luc. In the NK-cell-only arm, two out of the five mice were dead by day 21 with two of the surviving mice having extensive tumor burden as depicted by the colored images. In contrast, all five mice in each of the BiKE and TriKE arms survived. In addition, the tumor burden in the TriKE-treated mice was significantly less than in the BiKE-treated mice, demonstrating the improved efficacy from NK cells in the TriKE-treated mice.
Executive Officers
Based on these results, and Directorsothers, the IND for GTB-3550 was filed in June 2017 by the University of Minnesota. FDA requested that additional preclinical toxicology be conducted prior to initiating clinical trials. The FDA also requested some additional information and clarifications on the manufacturing (CMC) and clinical packages. The requested additional information and clarifications were completed and incorporated by us into the IND in eCTD format. We filed the IND amendment in June 2018 and announced on November 1, 2018 that we had received notification from the FDA that the IND was open and the Company was authorized to initiate a first-in-human Phase 1 study with GTB-3550 in AML, MDS and severe mastocytosis. We expect to be in a position to begin the Phase 1 clinical trial in the first half of 2019.
Generation of humanized single-domain antibody targeting CD16 for incorporation into the TriKE platform
To develop second generation TriKEs, we designed a new humanized CD16 engager derived from a single-domain antibody. While scFvs consist of a heavy and a light variable chain joined by a linker, single-domain antibodies consist of a single variable heavy chain capable of engaging without the need of a light chain counterpart (see figure below).
These single-domain antibodies are thought to have certain attractive features for antibody engineering, including physical stability, ability to bind deep grooves, and increased production yields, amongst others. Pre-clinical studies demonstrated increased activity (NK Cell Degranulation) and functionality (NC Cell Cytokine Production) of the single-domain CD16 TriKE (GTB-C3550) compared to the original TriKE (GTB-3550) (see figure below). These data were presented at the 2017 American Society of Hematology Conference.
Targeting Solid Tumors and Other Potentially Attractive Characteristics
Unlike full-length antibodies, TriKEs and TetraKEs are small single-chain fusion proteins that bind the CD16 receptor of NK cells directly producing a potentially more potent and lasting response as demonstrated by preclinical studies. An additional benefit that they may have is an attractive biodistribution, because of their smaller size, which we expect to be important in the treatment of solid tumors. In addition to these potential advantages, TriKEs and TetraKEs are designed to be non-immunogenic, have appropriate clearance properties and can be engineered quickly to target a variety of tumor antigens. We believe these attributes make them an ideal pharmaceutical platform for potentiated NK cell-based immunotherapies and have the potential to overcome some of the limitations of CAR-T therapy and other antibody therapies.
Examples of our earlier stage solid tumor targeting product candidates are focused on EpCAM, Her2, Mesothelin (mesothelioma and lung adenocarcinoma), and CD133 alone and in combination. We believe certain of these constructs have the potential to target prostate, breast, colon, ovarian, liver, and head and neck cancers. Depending on the availability of drug supply, we hope to initiate human clinical testing for certain of our solid tumor product candidates in 2020.
Efficient Advancement of Potential Future Product Candidates --Production and Scale Up
We are using our TriKE and TetraKE platforms with the intent to bring to market multiple immuno-oncology products that can treat a range of hematologic malignancies, sarcomas and solid tumors. The platforms are scalable and we are currently working with several third parties investigating the optimal expression system of the TriKEs and TetraKE constructs which we expect to be part of a process in which we are able to produce IND-ready moieties in approximately 90-120 days after the construct conceptual design.
After conducting market and competitive research, specific moieties can then be rapidly advanced into the clinic on our own or through potential collaborations with larger companies. We are currently evaluating over a dozen moieties and intend to announce additional clinical product candidates in the second half of 2019.
We believe our TriKEs and TetraKEs will have the ability, if approved for marketing, to be used on a stand-alone basis, augment the current monoclonal antibody therapeutics, or be used in conjunction with more traditional cancer therapy and potentially overcome certain limitations of current chimeric antigen receptor, or CAR-T, therapy.
Bi-specific Antibody-Drug Conjugates Program
Antibody–drug conjugates (ADCs) are a class of potent biopharmaceutical drugs designed as a targeted therapy for the treatment of cancer. ADCs combine the antitumor potency of highly cytotoxic small-molecule drugs with the high selectivity, pharmacokinetic profile of mAbs. These attributes allow sensitive discrimination between healthy and diseased tissue. We believe our bi-specific, ligand-directed single-chain fusion protein represents an example of the next generation of ADCs.
We are currently utilizing a single chain bispecific recombinant fusion protein consisting of an anti-CD22 sFv, an anti-CD19 sFv, and DT390 (the catalytic and translocation domains of diphtheria toxin). It is a cytotoxic molecule produced by recombinant DNA techniques composed of a fusion gene consisting of sequences for DT390 and also sequences encoding two separate and distinct sFvs, one recognizing CD22 and one recognizing CD19. The anti-CD22 sFv comes from the monoclonal antibody RFB4 and this sFv is currently in clinical trials involving another anti-CD22 immunotoxin called BL22. The anti-CD19 sFv is from the monoclonal antibody HD37 that has previously been used clinically. Published preclinical studies have shown that the presence of both sFvs on the same single chain molecule results in a bispecific fusion toxin that has superior activity and anti-cancer effects compared to the monospecific fusion toxins. Between the VL and VH regions of the sFvs, we have introduced aggregation reducing sequences (ARL) which has produced a product which has demonstrated better activity against scid mouse systemic models of B cell malignancy. The action of DT2219 occurs as a result of binding to the CD22 and/or CD19 receptors, subsequent internalization, and enzymatic inhibition of protein synthesis leading to cell death.
We believe that our single-chain bi-specific recombinant fusion proteins utilizing novel linkers and innovative warheads represent an important advance over currently marketed ADCs. Utilizing our bi-specific ADC platform we have the ability to generate novel ADCs with unique targets, linkers and warheads. This platform provides us with the ability to rapidly construct novel ADCs with the potential to treat a wide range of cancers, including hematologic and solid tumors.
Immuno-Oncology Product Candidates
Our most advanced bi-specific ADC, GTB-1550, which targets CD19+ and/or CD22+ hematological malignancies, is in the Phase 2 component of a Phase 1/2 Non-Hodgins Lymphoma (NHL)/Acute Lymphocytic Leukemia (ALL) trial which is an open-label, investigator-led study. We are initially targeting certain hematologic malignancies as we believe our product candidates may have certain advantages over existing and other in-development products.
Our TriKE product candidates, GTB-3550 and GTB-C3550, are single-chain, tri-specific scFv recombinant fusion proteins composed of the variable regions of the heavy and light chains (or heavy chain only) of anti-CD16 antibodies, wild-type or a modified form of IL-15 and the variable regions of the heavy and light chains of an antibody designed to precisely target a specific tumor antigen. We utilize the NK stimulating cytokine human IL-15 as a crosslinker between the two scFvs which is designed to provide a self-sustaining signal leading to the proliferation and activation of NK cells thus enhancing their ability to kill cancer cells mediated by antibody-dependent cell-mediated cytotoxicity (ADCC).
Our TetraKE product candidates are single-chain fusion proteins composed of human single-domain anti-CD16 antibody, wild-type IL-15 and the variable regions of the heavy and light chains of two antibodies that are designed to target two specific tumor antigens expressed on specific types of cancer cells. An example of a TetraKE product candidate is GTB-1615 which is designed to target EpCAM and CD133 positive solid tumors. EpCAM is found on many solid tumor cells of epithelial origin and CD133 is a marker for cancer stem cells. GTB-1615 is designed to enable a patient’s NK cells to kill not only the heterogeneous population of cancer cells found in many solid tumors but also kill the cancer stem cells that can be responsible for recurrences.
GTB-1550
GTB-1550 is a bispecific scFv recombinant fusion protein-drug conjugate composed of the variable regions of the heavy and light chains of anti-CD19 and anti-CD22 antibodies and a modified form of diphtheria toxin (DT390) as its cytotoxic drug payload. CD19 is a membrane glycoprotein present on the surface of all stages of B-lymphocyte development and is also expressed on most B-cell mature lymphoma cells and leukemia cells. CD22 is a glycoprotein expressed on B-lineage lymphoid precursors, including precursor acute lymphoblastic leukemia, and often is co-expressed with CD19 on mature B-cell malignancies such as lymphoma.
GTB-1550 targets cancer cells expressing the CD19 receptor or CD22 receptor or both receptors. When GTB-1550 binds to cancer cells, the cancer cells internalize GTB-1550, and are killed due to the action of drug’s cytotoxic diphtheria toxin payload. GTB-1550 has completed a Phase 1 human clinical trial in patients with relapsed/refractory B-cell lymphoma or leukemia.
The initial Phase 1 study enrolled 25 patients with mature or precursor B-cell lymphoid malignancies expressing the CD19 receptor or CD22 receptor or both receptors. All 25 patients received at least a single course of therapy. The treatment at the higher doses produced objective tumor responses with one patient in continuous partial remission and the second in complete remission. A Phase 1/2 trial of GTB-1550 in 18 patients was recently completed in patients with ALL/NHL. The FDA-approved clinical trial was conducted at the University of Minnesota's Masonic Cancer Center. The data is currently being analyzed. We expect to submit data from this Phase 1/2 study for presentation/publication.
GTB-3550
GTB-3550 is our first TriKE product candidate. It is a single-chain, tri-specific scFv recombinant fusion protein conjugate composed of the variable regions of the heavy and light chains of anti-CD16 and anti-CD33 antibodies and a modified form of IL-15. We intend to study this anti-CD16-IL-15-anti-CD33 TriKE in CD33 positive leukemias, a marker expressed on tumor cells in acute myelogenous leukemia, or AML, myelodysplastic syndrome, or MDS, and other hematopoietic malignancies. CD33 is primarily a myeloid differentiation antigen with endocytic properties broadly expressed on AML blasts and, possibly, some leukemic stem cells. CD33 or Siglec-3 (sialic acid binding Ig-like lectin 3, SIGLEC3, SIGLEC3, gp67, p67) is a transmembrane receptor expressed on cells of myeloid lineage. It is usually considered myeloid-specific, but it can also be found on some lymphoid cells. The anti-CD33 antibody fragment that will be used for these studies was derived from the M195 humanized anti-CD33 scFV and has been used in multiple human clinical studies. It has been exploited as target for therapeutic antibodies for many years. We believe the recent approval of the antibody-drug conjugate gemtuzumab validates this targeted approach.
The GTB-3550 IND will focus on AML, the most common form of adult leukemia (American Cancer Society). These patients typically receive frontline therapy, usually chemotherapy, including cytarabine and an anthracycline, a therapy that has not changed in over 40 years. About half will have relapses and require alternative therapies. In addition, MDS incidence rates have dramatically increased in the population of the United States from 3.3 per 100,000 individuals from 2001-2004 to 70 per 100,000 annually, MDS is especially prevalent in elderly patients that have a median age of 76 years at diagnosis. The survival of patients with MDS is poor due to decreased eligibility, as a result of advanced age, for allogeneic hematopoietic cell transplantation (Allo- HSCT), the only curative MDS treatment (Cogle CR. Incidence and Burden of the Myelodysplastic Syndromes.Curr Hematol Malig Rep. 2015; 10(3):272-281). We believe GTB-3550 could serve as a relatively safe, cost-effective, and easy-to-use therapy for resistant/relapsing AML and could also be combined with chemotherapy as frontline therapy thus targeting the larger market.
The IND for GTB-3550 was filed in June 2017 by the University of Minnesota. FDA requested that additional preclinical toxicology be conducted prior to initiating clinical trials. The FDA also requested some additional information and clarifications on the manufacturing (CMC) and clinical packages. The requested additional information and clarifications were completed and incorporated by us into the IND in eCTD format. We filed the IND amendment in June 2018 and announced on November 1, 2018 that we had received notification from the FDA that the IND was open and the Company was authorized to initiate a first-in-human Phase 1 study with GTB-3550 in AML, MDS and severe mastocytosis. We expect to be in a position to begin the Phase 1 clinical trial in the first half of 2019.
GTB-C3550
GTB-C3550 is a next-generation, follow-on, to our lead TriKE, GTB-3550. GTB-C3550 contains a modified CD16 moiety which has improved binding characteristics and enhanced tumor cell killing based on functional assays and animal models of AML. Using our platform technology, we substituted the anti-CD16 scFv arm in GTB-3550 with a novel humanized single-domain anti-CD16 antibody to create this second-generation molecule which may have improved functionality. Single-domain antibodies, such as GTB-C3550, typically have several advantages, including better stability and solubility, more resistance to pH changes, can better recognize hidden antigenic sites, lack of a VL portion thus preventing VH/VL mispairing and are suitable for construction of larger molecules. GTB-C3550 induced a potent increase in NK cell degranulation, measured by CD107a expression against HL-60 AML tumor targets when compared to our first- generation TriKE (70.75±3.65% vs. 30.75±5.05%). IFN production was similarly enhanced (29.2±1.8% vs. 6.55±1.07%). GTB-C3550 also exhibited a robust increase in NK cell proliferation (57.65±6.05% vs. 20.75±2.55%). GTB-3550 studies will help inform the development of GTB-C3550 which we expect will de-risk the GTB-C3550 program as data will be generated to make an informed decision on which, or both, will be brought into later phase studies.
GTB-1615
GTB-1615 is an example of our first-generation TetraKEs designed for the treatment of solid tumors. It is a single-chain fusion protein composed of CD16-IL15-EpCAM-CD133. EpCAM is found on many solid tumor cells of epithelial origin and CD133 is a marker for cancer stem cells. This TetraKE is designed to target not only the heterogeneous population of cancer cells found in solid tumors but also the cancer stem cells that are typically responsible for recurrences. Depending on the availability of drug supply, we hope to initiate human clinical testing for certain of our solid tumor product candidates in 2020.
Central Nervous System
Our CNS portfolio consists of in-process R&D (“IPR&D”) assets acquired in connection with the acquisition of Georgetown Translational Pharmaceuticals (“GTP”) on September 1, 2017, consisting of innovative reformulations and/or repurposing of existing therapies. These CNS assets address disease states such as chronic neuropathic pain (product candidate PainBrake, utilizing AccuBreak technology), myasthenia gravis (product candidate GTP-004) and motion sickness (product candidate GTP-011).
In the 3rd quarter of 2018, the Company experienced changes in key senior management. These changes resulted in the prioritization of immuno-oncology development candidates relative to the CNS development candidates acquired from Georgetown Translational Pharmaceuticals. In conjunction with these strategic changes, limited internal resources have delayed the development of the CNS IPR&D assets. The limited resources, changes in senior leadership, and favorable market conditions for immuno-oncology development candidates have resulted in the Company choosing to focus on development of its immuno-oncology portfolio. We are assessing our options to realize value from the CNS IPR&D assets.
Our Strategy
Our goal is to be a leader in immuno-oncology therapies targeting a broad range of indications including hematological malignancies, sarcoma and solid tumors and to generate value from our CNS product candidates. Key elements of our strategy are to:
Expedite clinical development, regulatory approval and commercialization of our bi-specific ADC, GTB-1550, in specific indications with a high unmet-medical need such as patients who are resistant or refractory to conventional treatment and also assess fast-to- market strategies in potential orphan indications
Based upon promising clinical results from the initial GTB-1550 Phase 1 study, we began enrolling patients in a Phase 2 trial during the first quarter of 2017 for our most advanced oncology product candidate, GTB-1550, for the treatment of patients with relapsed/refractory B- cell leukemias or lymphomas. In the Phase 1 study, of the nine patients who received GTB-1550 at the higher doses, two had durable complete responses in heavily pretreated patients. One of these patients, who had failed multiple previous treatment regimens, has been cancer free since the beginning of 2015.
A Phase 1/2 trial of GTB-1550 in 18 patients was recently completed in patients with ALL/NHL. The FDA-approved clinical trial was conducted at the University of Minnesota's Masonic Cancer Center. The data is currently being analyzed. We expect to submit data from this Phase 1/2 study for presentation/publication.
We will also utilize our bi-specific ADC platform to generate novel ADCs with unique targets, linkers and warheads. We anticipate that this platform will give us the ability to rapidly construct novel ADCs with the potential to treat a wide range of cancers, including hematologic and solid tumors.
Rapidly advanced our Tri-specific Killer Engagers (TriKEs), GTB-3550 and GTB-C3550
Our TriKE and TetraKE product candidates have the potential to be groundbreaking therapies targeting a broad range of hematologic malignancies, sarcomas and solid tumors. We are preparing to study GTB-3550, an anti-CD16-IL-15-anti-CD33 TriKE in CD33 positive leukemias, a marker expressed on tumor cells in AML, MDS and other myeloid malignancies. We expect to begin a Phase 1 clinical trial in the first half of 2019 in patients with relapsed/refractory AML. The Phase 1 trial will be a dose finding study. We expect this will be closely followed by Phase 2 trials to determine the most efficacious dosing and cycles with the aim to maximize efficacy while minimizing on-target, off-disease adverse events.
GTB-C3550 contains a humanized single-domain anti-CD16 moiety which demonstrated improved binding characteristics and enhanced tumor cell killing based on functional assays and animal models of AML.
We have designed GTB-3550 and GTB-C3550, if approved for marketing, to serve as a relatively safe, cost-effective, and easy-to-use therapies for resistant/relapsing AML or MDS which could also be combined with chemotherapy as frontline therapy thus targeting a broad AML/MDS market.
GTB-C3550 is a next-generation, follow-on, to our lead TriKE, GTB-3550. GTB-3550 studies will help inform the development of GTB-C3550. We believe this will de-risk the GTB-C3550 program as the data being generated will help to make informed decisions on which, or both, will be brought into later phase studies and in which patient populations.
Utilize our TriKE and TetraKE platform technologies to develop a robust pipeline of targeted immuno-oncology products targeting a wide range of hematologic malignancies, sarcomas and solid tumors for development on our own and through potential collaborations with larger pharmaceutical companies
We are using our TriKE and TetraKE platforms with the intent to bring to market multiple, targeted, off-the-shelf therapies that can treat a range of hematologic malignancies, sarcomas and solid tumors. The platforms are scalable and we are currently working with several third parties investigating the optimal expression system of the TriKEs and TetraKE constructs which we expect to be part of a process in which we are able to produce IND-ready moieties in approximately 90-120 days after the construct conceptual design. After conducting market and competitive research, specific moieties can then be rapidly advanced into the clinic on our own or through potential collaborations with larger pharmaceutical companies.
We are currently evaluating over a dozen moieties and intend to announce additional clinical product candidates in the second half of 2019. Depending on the availability of drug supply, we hope to initiate human clinical testing for certain of our solid tumor product candidates in 2020.
We believe our TriKEs and TetraKEs will have the ability, if approved for marketing, to be used on a stand-alone basis, augment the current monoclonal antibody therapeutics, or be used in conjunction with more traditional cancer therapy and potentially overcome certain limitations of current chimeric antigen receptor, or CAR-T, therapy.
Continue our collaborative relationship with the Masonic Cancer Center at the University of Minnesota, under a program led by Dr. Jeffrey Miller and become the leading NK-oriented immune-oncology company
We believe that the TriKE and TetraKE constructs represent potentially groundbreaking innovations in immunotherapy. In July 2016 we entered into an exclusive license agreement with the University of Minnesota to develop and commercialize cancer therapies using TriKE and TetraKE technology developed by researchers at the university to target NK cells to cancer.
We believe TriKE and TetraKE therapeutics have the potential to significantly impact the standard of care for hematologic malignancies, sarcomas, as well as solid tumors. The direct engagement of the NK cell with the tumor cell via very specific receptors may increase the efficacy while decrease the toxicity seen with other forms of immunotherapies. If approved, we expect the TriKEs and TetraKEs will be able to be administered at cancer treatment facilities without the need for specialized centers or product-specific trained staff.
We also intend to selectively evaluate and potentially acquire or enter into licensing or other agreements for technologies and/or product candidates that we believe would complement our oncology product candidates and platform technologies.
Monetize our CNS programs through transactions with commercialization-oriented pharmaceutical companies and/or other transactions
Our CNS portfolio consists of IPR&D assets acquired in connection with the acquisition of GTP on September 1, 2017, consisting of innovative reformulations and/or repurposing of existing therapies. These CNS assets address disease states such as chronic neuropathic pain, myasthenia gravis and motion sickness.
In the 3rd quarter of 2018, the Company experienced changes in key senior management, led by the appointment of a CEO with extensive experience in oncology drug development. These changes resulted in the prioritization of immuno-oncology development candidates relative to the CNS development candidates acquired from Georgetown Translational Pharmaceuticals. In conjunction with these strategic changes, limited internal resources have delayed the development of the CNS IPR&D assets. The limited resources, changes in senior leadership, and favorable market conditions for immuno-oncology development candidates have resulted in the Company choosing to focus on development of its immuno-oncology portfolio.
We expect to monetize our CNS portfolio through licensing deals with commercialization-oriented pharmaceutical companies, which could result in income, or enter into other transaction structures with the intent to generate value for our shareholders.
Oncology Markets
B-cell Lymphomas/Leukemias
B-cell lymphoma is a type of cancer that forms in B cells (a type of immune system cell). B-cell lymphomas may be either indolent (slow- growing) or aggressive (fast-growing). Non- Hodgkin lymphoma has an incidence rate of 19.4 per 100,000 per year and B-cell lymphomas make up most (about 85%) of NHL in the United States. There are many different types of B-cell non- Hodgkin lymphomas. These include Burkitt lymphoma, chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL), diffuse large B-cell lymphoma, follicular lymphoma, and mantle cell lymphoma.
Acute Lymphoblastic Leukemia
Acute lymphoblastic leukemia, or ALL, is an acute form of leukemia, or cancer of the white blood cells, characterized by the overproduction and accumulation of immature white blood cells, known as lymphoblasts. In persons with ALL, lymphoblasts are overproduced in the bone marrow and continuously multiply, causing damage and death by inhibiting the production of normal cells (such as red and white blood cells and platelets) in the bone marrow and by spreading (infiltrating) to other organs.
It is estimated that there will be 5,930 new cases of ALL reported in the United States in 2019 (ACS Cancer Facts & Figures 2019). "Acute" is defined by the World Health Organization standards, in which greater than 20% of the cells in the bone marrow are blasts. Chronic lymphocytic leukemia is defined as having less than 20% blasts in the bone marrow. Acute lymphoblastic leukemia is seen in both children and adults; the highest incidence is seen between ages 2 to 3 years (>90 cases per 1 million per year). ALL is the most common cancer diagnosed in children and represents approximately 25% of cancer diagnoses among children younger than 15 years. Among children with ALL, approximately 98% attain remission, and approximately 85% of patients aged 1 to 18 years with newly diagnosed ALL treated on current regimens are expected to be long-term event-free survivors, with over 90% surviving at 5 years.
Multiple Myeloma
Multiple myeloma is a type of cancer that forms in white blood cells and will affect an estimated 32,110 people in 2019 in the U.S. causing about 12,960 deaths. Multiple myeloma causes cancer cells to accumulate in the bone marrow, where they crowd out healthy blood cells. Multiple myeloma is also characterized by destructive lytic bone lesions (rounded, punched-out areas of bone), diffuse osteoporosis, bone pain, and the production of abnormal proteins which accumulate in the urine. Anemia is also present in most multiple myeloma patients at the time of diagnosis and during follow-up. Anemia in multiple myeloma is multifactorial and is secondary to bone marrow replacement by malignant plasma cells, chronic inflammation, relative erythropoietin deficiency, and vitamin deficiency. Plasma cell leukemia, a condition in which plasma cells comprise greater than 20% of peripheral leukocytes, is typically a terminal stage of multiple myeloma and is associated with short survival.
Myeloid Leukemias
Acute Myeloid Leukemia
AML is a heterogeneous hematologic stem cell malignancy in adults with incidence rate of 4.3% per 100,000 populations. The median age at the time of diagnosis is 68 years. AML is an aggressive disease and is fatal without anti-leukemic treatment. AML is the most common form of adult leukemia with an estimated 21,450 new cases in 2019 in the U.S. These patients will require frontline therapy, usually chemotherapy including cytarabine and an anthracycline, a therapy that has not changed in over 40 years. Myelodysplastic syndromes (MDS) are a heterogeneous group of myeloid neoplasms characterized by dysplastic features of erythroid/myeloid/megakaryocytic lineages, progressive bone marrow failure, a varying percentage of blast cells, and enhanced risk to evolve into acute myeloid leukemia. It is estimated that over 10,000 new cases of MDS are diagnosed each year and there are minimal treatment options; other estimates have put this number higher. In addition, the incidence of MDS is rising for unknown reasons.
Solid Tumors
In the United States, in 2019, it is estimated there will be approximately 1,762,450 new cases of cancer resulting in 606,880 deaths. Greater than 80% of these cancers will be classified as solid tumors. The most prevalent new cases of solid tumors being breast, lung, prostate, colorectal and bladder. (American Cancer Society, Cancer Facts & Figures 2019)
Sarcomas
A sarcoma is a type of cancer that develops from certain tissues, like bone or muscle. Bone and soft tissue sarcomas are the main types of sarcoma. Soft tissue sarcomas can develop from soft tissues like fat, muscle, nerves, fibrous tissues, blood vessels, or deep skin tissues. They can be found in any part of the body. Most of them develop in the arms or legs. They can also be found in the trunk, head and neck area, internal organs, and the area in back of the abdominal cavity (known as the retroperitoneum). Sarcomas are not common tumors, and most cancers are the type of tumors called carcinomas.
The American Cancer Society's estimates for soft tissue sarcomas in the United States for 2019 are (these statistics include both adults and children): about 12,750 new soft tissue sarcomas will be diagnosed (7,240 cases in males and 5,510 cases in females). 5,270 Americans (2,840 males and 2,430 females) are expected to die of soft tissue sarcomas. The most common types of sarcoma in adults are undifferentiated pleomorphic sarcoma (previously called malignant fibrous histiocytoma), liposarcoma, and leiomyosarcoma. Certain types occur more often in certain areas of the body than others. For example, leiomyosarcomas are the most common abdominal sarcoma, while liposarcomas and undifferentiated pleomorphic sarcoma are most common in legs. But pathologists (doctors who specialize in diagnosing cancers by how they look under the microscope), may not always agree on the exact type of sarcoma. Sarcomas of uncertain type are very common. (American Cancer Society, Cancer Facts & Figures 2019)
Manufacturing
We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of any of our product candidates. We rely on a small number of third-party manufacturers to produce our compounds and expect to continue to do so to meet the preclinical and clinical requirements of our potential product candidates as well as for all of our commercial needs. We do not have long-term agreements with any of these third parties. We require in our manufacturing and processing agreements that all third-party contract manufacturers and processors produce active pharmaceutical ingredients, or API, and finished products in accordance with the FDA’s current Good Manufacturing Practices, or cGMP, and all other applicable laws and regulations. We maintain confidentiality agreements with potential and existing manufacturers in order to protect our proprietary rights related to our drug candidates.
Patents and Trademarks
Immuno-oncology platform
University of Minnesota License Agreement
We (through our wholly owned subsidiary Oxis Biotech, Inc.) are party to an exclusive worldwide license agreement with the Regents of the University of Minnesota, to further develop and commercialize cancer therapies using TriKE technology developed by researchers at the university to target NK cells to cancer. Under the terms of the agreement, we receive exclusive rights to conduct research and to develop, make, use, sell, and import TriKE technology worldwide for the treatment of any disease, state or condition in humans. We shall be responsible for obtaining all permits, licenses, authorizations, registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as the TriKE technology, including without limitation the FDA in the United States and the European Agency for the Evaluation of Medicinal Products in the European Union. Under the agreement, the University of Minnesota will receive an upfront license fee, royalty fees ranging from 4% to 6%, minimum annual royalty payments of $250,000 beginning in 2022, $2,000,000 in 2025, and $5,000,000 in 2027 and certain milestone payments totaling $3,100,000.
The following is a list of the patent applications that we licensed from the University of Minnesota:
Appl. No. | | Title | | Country | | Status |
U.S. Patent Application Number 62/237,835 | | Therapeutic compounds and its uses | | US | | Expired |
PCT Patent Application Number PCT/US2016/055722 | | Therapeutic compounds and methods | | US | | Pending |
Daniel A. Vallera, Ph.D. License Agreement
We are party to an exclusive worldwide license agreement with Daniel A. Vallera, Ph.D. and his co-inventor Jeffrey Lion, or jointly, Dr. Vallera, to further develop and commercialize DT2219ARL (GTB-1550), a novel therapy for the treatment of various human cancers. Under the terms of the agreement, we receive exclusive rights to conduct research and to develop, make, use, sell, and import DT2219ARL worldwide for the treatment of any disease, state or condition in humans. We shall be responsible for obtaining all permits, licenses, authorizations, registrations and regulatory approvals required or granted by any governmental authority anywhere in the world that is responsible for the regulation of products such as DT2219ARL, including without limitation the FDA in the United States and the European Agency for the Evaluation of Medicinal Products in the European Union. Under the agreement, Dr. Vallera will receive an upfront license fee, royalty fees ranging from 3% for net sales and 25% of net sublicensing revenues, and certain milestone payments totaling $1,500,000.
The following is a list of the patent applications and patents that we licensed from Dr. Vallera under our license agreements:
Pat./Pub. No. | | Title | | Country | | Status |
U.S. Patent Application Number 61/160,530 | | Methods and compositions for bi-specific targeting of cd19/cd22 | | US | | Expired |
U.S. Patent Number 9,371,386 | | Methods and compositions for bi-specific targeting of cd19/cd22 | | US | | Issued |
U.S. Patent Application Number 15/187,579 | | Methods and compositions for bi-specific targeting of cd19/cd22 | | US | | Pending |
ID4 License Agreement
Pursuant to a patent license agreement with ID4, dated December 31, 2014, or the ID4 License Agreement, we received an exclusive, worldwide license to certain intellectual property, including intellectual property related to treating a p62mediated disease (e.g., multiple myeloma). The terms of this license require us to pay ID4 royalties equal to 3% of net sales of products and 25% royalty of net sublicensing revenues. The license will expire upon expiration of the last patent contained in the licensed patent rights, unless terminated earlier. We may terminate the licensing agreement with ID4 by providing ID4 with 30 days written notice.
We will owe the following cash amounts to ID4 Pharma upon the attainment of the following milestones:
(i)
Filing of an investigational new drug application with a competent regulatory authority anywhere in the world $50,000.
(ii)
Initiation of Phase I Human Clinical Trial: $50,000.
(iii)
Initiation of Phase II Human Clinical Trial: $100,000.
(iv)
Initiation of pivotal Phase III Human Clinical Trial: $250,000. and
(v)
Receipt of the first marketing approval: $250,000
The following is a list of the patent applications and patent that we licensed from ID4 under the ID4 license agreement:
Pat./Appl. No. | | Title | | Country | | Status |
U.S. Patent Number 9,580,382 | | P62zz chemical inhibitor | | US | | Issued |
U.S. Patent Application Number 61/521,287 | | P62zz chemical inhibitor | | US | | Expired |
PCT Patent Application Number PCT/US2012/049911 | | P62zz chemical inhibitor | | PCT | | Expired |
U.S. Patent Application Number 14/727,710 | | P62zz chemical inhibitor | | US | | Pending |
Chinese Patent Application 201280048718 | | P62zz chemical inhibitor | | US | | Pending |
Central Nervous System
Patents for AccuBreak Tablets
We have in-licensed the rights to use the AccuBreak patents with drugs that, like carbamazepine, are voltage-gated sodium channel blockers in North America. The license field includes voltage gated sodium channels inhibitors and blockers for the treatment of epilepsy, neuropathic pain, and bipolar disorder.
Under the agreement, AccuBreak received an upfront license fee of $35,000, royalty fees ranging from 2.5% to 5%, minimum annual royalty payments, and 20% of net sublicensing revenues.
We will owe the following cash amounts to AccuBreak upon the attainment of the following milestones:
●
$50,000 six months after the first approval of the first indication by the FDA;
●
$50,000 nine months after the first approval of the first indication by the FDA;
●
$100,000 12 months after the first approval of the first indication by the FDA;
●
$25,000 upon achievement of $25,000,000 of cumulative net sales in the world;
●
$50,000 upon achievement of $50,000,000 of cumulative net sales in the world; and
●
$100,000 upon achievement of $75,000,000 of cumulative net sales in the world.
Four formulation patents protect the AccuBreak Technology:
Pat. No. | | Title | | Country | | Status |
U.S. Patent Number 7,838,031 | | Method for administering a partial dose using a segmented pharmaceutical tablet | | US | | Issued |
U.S. Patent Number 7,879,352 | | Scored pharmaceutical tablets comprising a plurality of segments | | US | | Issued |
U.S. Patent Number 8,158,148 | | Pharmaceutical tablets comprising two or more unitary segments | | US | | Issued |
U.S. Patent Number 8,231,902 (ABT- 054) | | Segmented pharmaceutical dosage forms | | US | | Issued |
The core patent expires in 2025.
Patent Applications for GTP-004
Four patent applications filed by GTP in 2017 with the U.S. PTO protect the combination of pyridostigmine or neostigmine + an antiemetic for the treatment of myasthenia gravis. We plan to file extensions under the Patent Cooperation Treaty, or PCT, in 2018. All patents list below are owned by the Company.
Pat. No. | | Title | | Country | | Status |
U.S. Patent Application Number 62/443,904 | | Use and composition for treating Myasthenia Gravis | | US | | Expired |
U.S. Patent Application Number 62/449,699 | | Neostigmine combination for treating Myasthenia Gravis | | US | | Expired |
U.S. Patent Application Number 62/536,595 | | Method and composition for treating Myasthenia Gravis | | US | | Pending |
U.S. Patent Application Number62/536,580
| | Neostigmine pharmaceutical combination for treating Myasthenia Gravis | | US | | Pending |
PCT Application Number PCT/US/18/12754 | | Use and composition for treating Myasthenia Gravis | | PCT | | Claims priority from US 62/443,904 |
Taiwan Application Number 107100813 | | | | TW | | Awaiting FC Report |
PCT Application Number PCT/US18/014700 | | Neostigmine pharmaceutical combination for treating Myasthenia Gravis | | PCT | | Claims priority from US 62/449,699 |
Taiwan Application Number | | | | TW | | Awaiting FC Report |
Patent Application for GTP-011
One patent application filed by GTP in 2017 with the U.S. PTO protects a 72-hour patch of oxybutynin for the treatment of motion sickness. We plan to file a PCT extension in 2018. All patents list below are owned by the Company.
Appl. No. | | Title | | Country | | Status |
U.S. Patent Application Number 62/440,575 | | Use and composition for preventing and treating motion sickness | | US | | Expired |
US Patent Application Number 62/595,667 | | Use, method, and device for the prevention and treatment of motion sickness | | US | | Pending* |
PCT Application Number PCT/US/17/68944 | | Use and composition for preventing and treating motion sickness | | PCT | | Claims priority from US 62/440,575 |
Taiwan Application Number 107100079 | | | | TW | | Awaiting FC Report |
* This application is pending, but was used as priority document of the PCT ‘944, including its subject matter
Employees
As of September 3, 2019, we had two employees. Many of our activities are outsourced to consultants who provide services to us on a project basis. As business activities require and capital resources permit, we will hire additional employees to fulfill our company’s needs.
Form and Year of Organization
In 1965, the corporate predecessor of GT Biopharma, Diagnostic Data, Inc. was incorporated in the State of California. Diagnostic Data changed its incorporation to the State of Delaware in 1972; and changed its name to DDI Pharmaceuticals, Inc. in 1985. In 1994, DDI Pharmaceuticals merged with International BioClinical, Inc. and Bioxytech S.A. and changed its name to OXIS International, Inc. On July 17, 2017, we amended our Certificate of Incorporation for the purpose of changing our name from Oxis International, Inc. to GT Biopharma, Inc.
Legal Proceedings
On December 24, 2018, Empery Asset Master, Empery Tax Efficient, LP, and Empery Tax Efficient II, LP (collectively, “Plaintiffs) filed in the N.Y. Supreme Court, Index No. 656408/2018, alleging causes of action against the Company for Breach of Contract, Liquidated Damages, Damages, and Indemnification. The claims arose out of a securities purchase agreement entered into between Plaintiffs and the Company pursuant to which the Company issued convertible notes and warrants to Plaintiffs in or around January 2018. Plaintiffs allege, inter alia, that the Company failed to pay Plaintiffs’ outstanding principal on or before the July 23, 2018 maturity date of said notes, failed to convert a portion of said notes in response to Plaintiffs’ conversion notice, and failed to timely adjust the exercise price of said warrants. At issue are notes issued to Plaintiffs in the aggregate principal amount of approximately $2.2 million and warrants representing the right of Plaintiffs to acquire an aggregate of 480,352 shares of common stock in the Company.
The following table sets forth the name, age and position held by each of our executive officers and directors as of September 30, 2016.2019. Directors are elected for a period of one year and thereafter serve until the next annual meeting at which their successors are duly elected by the stockholders.
Name | | | | Position |
Anthony J. Cataldo | | 6567 | | Chief Executive Officer and Chairman of the Board |
Steven Weldon | | 4044 | | Chief Financial Officer, Principal Accounting Officer and Director |
Anthony J. Cataldowas appointed to the Board of Directors on July 31, 2014 and he was appointed Chief Executive Officer and Chairman on March 15, 2019. Previously he served as Vice Chairman of the Board since January 2019. Mr. Cataldo has extensive experience with the Company, having served on the Board of Directors from July 2014 until November 19, 2014. Most recently, From2018, also serving as Chief Executive Officer from November 2014 to September 2017 and Executive Chairman of the Board from September 2017 to February 2018 during that time. Prior to joining the Company, from February 2011 tountil June 2013, Mr. Cataldo served as Chairman and CEO/Founder of Genesis Biopharma, Inc. (Now(now known as Lion Biotechnologies,Iovance Biotherapeutics, Inc. Trading symbol, LBIO)). Mr. Cataldo createdis credited with developing the Stage Four Cancer treatment for melanoma known as Lion/Genesis with the inclusion ofusing assets purchaseacquired from the National Cancer Institute (NIH) for their novel treatment of Stage Four Cancer treatment for melanoma.
Mr. Cataldo also served as Chairman of the board of directors of Brand Partners Group, Inc., a provider of integrated products and services dedicated to providing financial services and traditional retail clients with turn-key environmental solutions, from October 2003 through August 2006.
. Mr. Cataldo also served as non-executive co-chairman of the board of directors of MultiCell Technologies, Inc., a supplier of functional, non-tumorigenic immortalized human hepatocytes from February 2005 throughuntil July 2006. Mr. Cataldo has also served as Executive Chairman of Calypte Biomedical Corporation, a publicly traded biotechnology company, involved in the development and sale of urine based HIV-1 screening tests from May 2001 through November 2004. Mr. Cataldo served as the
Steven Weldonwas appointed Chief ExecutiveFinancial Officer and Chairmanto our board of directors on March 20, 2019. Previously Mr. Weldon was appointed to the Board of Directors of Miracle Entertainment, Inc., a Canadian film production company, from May 1999 through May 2002 where he was the executive producer or producer of several motion pictures. From August 1995 to December 1998, Mr. Cataldo served as President and Chairman of the Board of Senetek, PLC, a publicly traded biotechnology company involved in age-related therapies.
Steven Weldon was appointed to our Board of DirectorsCompany in September 2014 and as our President and Chief Financial Officer in November 2014.2014 until October 2018.. Mr. Weldon has over 15 years of financial and accounting experience. The majority of his career has been focused on tax planning, preparation, and CFO consulting. Mr. Weldon'sWeldon’s financial background includes experience in managerial, private accounting and planning. He has served on the board of several publicly traded companies as both, Chief Executive Officerchief executive officer and Chief Financial Officer. For several years, he taught accounting and tax courses to undergrad students at Florida Southern College. He received his Bachelor of Science degree and his Masters in Business Administration from Florida Southern College.chief financial officer. Mr. Weldon was appointed as Chief Financial Officerchief financial officer and as a member of the board of directors of GrowbloxGB Sciences, Inc., a Delaware corporation (OTCMKTS:GBLX) in September 2005 and served in both positions until November 2014. Mr. Weldon also served as chief executive officer of GrowbloxGB Sciences from December 29, 2009, through May 2, 2011, and from April 18, 2012, through March 13, 2014.
During the past five For several years, nonehe taught accounting and tax courses to undergrad students at Florida Southern College. He received his bachelor of our directors, executive officers, promoters or control persons was:
1) | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
2) | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
3) | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
4) | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
Director Independence
We do not have any independent directors serving on our Board of Directors. The definition the Company uses to determine whether a director is independent is NASDAQ Rule 4200(a)(15). See Exhibit 99 hereto.
Scientific & Medical Advisory Board
To assist with the developmentscience degree and commercialization of our drug platforms, we previously established a Scientific & Medical Advisory Board consisting of scientists and clinicians experienced with the development and use of the treatments of cancer. Under their advisory agreements, the members of our Scientific & Medical Advisory Board received a monthly advisory fee.
Jeffrey S. Miller, M.D., is the Deputy Director of the University of Minnesota Masonic Comprehensive Cancer Center. He is also a Professor of Medicine at the University of Minnesota. Dr. Miller has more than 20 years of experience studying the biology of NK cells and other immune effector cells and their usehis Master’s in clinical immunotherapy with over 170 peer-reviewed publications. He is a member of numerous societies such as the American Society of Hematology and the American Association of Immunologists. Dr. Miller has been a member of the American Society of Clinical Investigation since 1999. He serves on the editorial board for BloodBusiness Administration from Florida Southern College and is a reviewer for a number of journals and NIH grants.
Dr. Miller received a Bachelor of Science degree from Northwestern University in Evanston, Illinois, and received his M.D. from Northwestern University School of Medicine. He completed an internship and residency in Internal Medicine at the University of Iowa in Iowa City. After completing a post-doctoral fellowship in Hematology, Oncology and Transplantation at the University of Minnesota, he joined the faculty in 1991.
Daniel A. Vallera, Ph.D. is an expert in developmental cancer therapeutics who oversees groundbreaking leukemia drug development and testing with the University of Minnesota, Scott and White Cancer Center, and MD Anderson Cancer Center. He is the Tumor Biology and Progression Professor at the University of Minnesota. He is also the Division of Radiation Oncology Section Head and the Molecular Cancer Therapeutics Lion Scholar. He joined the Masonic Cancer Center in 1984 where he conducts research on the development of new recombinant biological anti-cancer agents. Dr. Vallera has been published in International Journal of Cancer, the Clinical Cancer Research Journal, and Leukemia Research.
Dr. Vallera received his Ph.D. in Microbiology (Immunology) from the Ohio State University, Columbus, Ohio. He conducted post-doctoral traininglicensed Certified Public Accountant in the laboratoryState of Dr. John H. Kersey, Dept. of Laboratory Medicine/Pathology at the University of Minnesota.
Cassian Yee, M.D.,Florida. University of Texas MD Anderson Cancer Center.Cassian Yee, M.D., Professor, Department of Immunology, Division of Cancer Medicine, and Director, Solid Tumor Cell Therapy, Center for Cancer Immunology Research at the University of Texas MD Anderson Cancer Center and a Professor, Department of Melanoma Medical Oncology, Division of Cancer Medicine at the University of Texas MD Anderson Cancer. Dr. Yee previously held the position of Professor in Division of Oncology at the University of Washington, and was a Member in the Department of Immunology, Clinical Research Division of the Fred Hutchinson Cancer Research Center. Dr. Yee received his medical degree from the University of Manitoba in Canada, and trained as a research fellow at the Ontario Cancer Institute in Toronto before continuing his medical residency at Stanford University. Dr. Yee completed his fellowship in medical oncology, and postdoctoral research studies at the University of Washington and the Fred Hutchinson Cancer Research Center. Dr. Yee is a recipient of the Cancer Research Institute Investigator Award, and the Damon Runyon Walter Winchell Clinical Investigator Award. Dr. Yee is also a Burroughs Wellcome Scientist in Translational Research, and has been elected a member of the American Society for Clinical Investigation.
Xing-Qun (Sean) Xie, MD, PHD, EMBA, University of Pittsburgh. Sean Xie, MD, PhD, EMBA is a tenured Professor at the Department of Pharmaceutical Sciences/Drug Discovery Institute at University of Pittsburgh and Associate Dean for Research Innovation at the School of Pharmacy. He is Principal Investigator of an integrated research laboratory of CompuGroup, BioGroup and ChemGroup, and Founding Director of Computational Chemical Genomics Screening Center. Dr. Xie is also Director/PI of NIH funded National Center of Excellence for Computational Drug Abuse Research. Dr. Xie holds joint faculty positions at the Departments of Computational System Biology and Structural Biology, and Pittsburgh Cancer Institute MT/DD Program. He serves as an invited guest editor for AAPS Journal, Editorial Board of American Journal of Molecular Biology, and Associate Editor of BMC Pharmacology and Toxicology. In 2013, he was named an honorary professor of Chinese Academy of Medical Sciences & Peking Union Medical College. Dr. Xie is a recipient of the 2014 American Association of Pharmaceutical Scientists (AAPS) Outstanding Research Achievement Award.
Dr. Lisa A. Haile, Ph.D., DLA Piper. Dr. Lisa A. Haile, Ph.D. currently serves as Co-Chair, Global Life Sciences Sector at DLA Piper. Dr. Haile has special technical expertise in molecular biology and immunology. She has particular experience with patentability, non-infringement and validity opinions; licensing strategies; FDA counseling; due diligence work in connection with venture capital, private and public financing; mergers and acquisitions in the life sciences industry; and strategic counseling for comprehensive life sciences patent portfolio management and value creation. Dr. Haile is a member of DLA Piper's Executive Committee.
Dr. Haile's experience includes US and international patent preparation and prosecution as well as IP reviews for investors relating to technologies including novel genetically altered organisms, antisense, RNA and siRNA molecules, peptides, proteins, DNA, antibodies, vaccines, diagnostics and therapeutics.
Dr. Stephen M. Chang, PH.D., New York Stem Cell Foundation. Dr. Stephen M. Chang is Vice President-Research & Development at New York Stem Cell Foundation, Chief Scientific Officer at Stemgent, Inc., and Independent Director at MultiCell Technologies, Inc. Dr. Chang was previously employed as Chief Scientific Officer & Vice President by Canji, Inc., Chief Scientific Officer & Vice President at Schering-Plough Research Institute, and President and Chief Executive Officer at MultiCell Immunotherapeutics, Inc. He served on the Board of Directors at Histogen, Inc. Dr. Chang received his undergraduate degree from the University of Michigan and a doctorate degree from the University of California, Irvine.
Committees of the Board of Directors
Due to the small number of directors, at the present time the duties of an Audit Committee, Nominating and Governance Committee, and Compensation Committee are performed by the board of directors as a whole. At such time as we have more directors on our board of directors, these committees will be reconstituted.
EXECUTIVE COMPENSATION
CompensationA copy of the company’s code of ethics is attached to this annual report as exhibit 14.1.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than 10% of a registered class of the company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Executive Officersofficers, directors and greater than 10% stockholders are required by SEC regulations to furnish the company with copies of all Section 16(a) forms they file. All of our executive officers and directors filed the required reports; however, Kathleen Clarence-Smith and Raymond Urbanski filed one Form 3 late and Raymond Urbanski, Anthony J. Cataldo and Steven Weldon each filed one Form 4 late.
The following table setsets forth certain information concerning the annual and long-term compensation for services rendered to us in all capacities for the fiscal years ended December 31, 20152018 and 20142017 of all persons who served as our principal executive officers and as our principal financial officer during the fiscal year ended December 31, 2015.2018. No other executive officers received total annual compensation during the fiscal year ended December 31, 20152018 in excess of $100,000. The principal executive officer and the other named officers are collectively referred to as the "Named“Named Executive Officers."
Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Awards | | Option Awards(1) ($) | | Non-Equity Incentive Plan Compensation Earnings ($) | | Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($) | | Total |
Anthony J. Cataldo, | | 2015 | | $216,000 | | $134,000 | | $ ---- | | $ 102,535 | | $ ––– | | $ ––– | | $ ––– | | $ 452,535 |
Chairman(2) | | 2014 | | $154,000 | | $ ––– | | $ 402,291 | | $ 139,079 | | $ ––– | | $ ––– | | $ ––– | | $ 695,370 |
| | | | | | | | | | | | | | | | | | |
Kenneth Eaton, | | 2015 | | $ ––– | | $ ––– | | $ ––– | | $ ––– | | $ ––– | | $ ––– | | $ ––– | | $ ––– |
Chief Executive Officer (Principal Executive Officer) (3) | | 2014 | | $ 224,560 | | $ ––– | | $ ––– | | $ ––– | | $ ––– | | $ ––– | | $ ––– | | $ 224,560 |
| | | | | | | | | | | | | | | | | | |
Steven Weldon, | | 2015 | | $168,000 | | $ ––– | | $ 197,845 | | $ ––– | | $ ––– | | $ ––– | | $ ––– | | $365,845 |
Chief Financial Officer (Principal Financial Officer) (4) | | 2014 | | $ 25,500 | | $ ––– | | $ 57,945 | | $ ––– | | $ ––– | | $ ––– | | $ ––– | | $83,445 |
”
(1) | This column represents option awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions with respect to the option grants, refer to Note 1 of our financial statements in this Annual Report. These amounts do not correspond to the actual value that will be recognized by the named executives from these awards. |
(2) | Mr. Cataldo served as our Chief Executive Officer from March 2009 to August 2011 and again in November 2014, and was appointed Chairman of the Board of Directors on July 25, 2014. |
Name and Principal Position | | | | | All Other Compensation ($) (2) | |
| | | | | | |
Anthony J. Cataldo | 2018 | - | - | - | 404,151 | 404,151 |
CEO (6) | 2017 | 310,667 | 90,000 | 77,275,253 | - | 77,675,920 |
| | | | | |
Steven Weldon | 2018 | 230,000 | - | - | - | 230,000 |
CFO (5) | 2017 | 245,333 | - | 38,472,797 | - | 38,718,130 |
| | | | | |
Raymond Urbanski, M.D. | 2018 | 321,154 | - | 7,644,490 | - | 7,965,644 |
Former CEO (3) | 2017 | 133,333 | - | 7,644,490 | - | 7,777,823 |
| | | | | |
Shawn Cross | 2018 | 233,942 | 20,000 | - | - | 253,942 |
Former CEO (4) | 2017 | 104,165 | - | - | - | 104,165 |
| | | | | |
Kathleen Clarence-Smith | 2018 | 278,846 | - | - | - | 278,846 |
Former CEO (7) | 2017 | 166,667 | - | - | - | 166,667 |
(3) | Mr. Eaton was appointed Chief Executive Officer in November 2013 and resigned in November 2014. |
(4) | Mr. Weldon was appointed Chief Financial Officer on November 3, 2014. |
(1)
The amounts in this column represent the aggregate grant date fair value of the restricted stock awards and restricted stock units, determined in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718. GT Biopharma determines the grant date fair value of the awards by multiplying the number of units granted by the closing market price of one share of GT Biopharma common stock on the award grant date. These amounts do not reflect the actual economic value that will be realized by the named executive officer upon the vesting or the sale of the common stock awards.
(2)
The amount in this column represents compensation earned under Consultant Agreements with the Company.
(3)
Dr. Urbanski was appointed Chief Medical Officer on September 1, 2017, President of May 9, 2018, and Chief Executive Officer on July 3, 2018. He resigned as Chief Executive Officer on March 15, 2019.
(4)
Mr. Cross was appointed President and Chief Operating Officer on October 15, 2017 and Chairman and Chief Executive Officer on February 14, 2018. Mr. Cross resigned from the Company on July 2, 2018.
(5)
Mr. Weldon was appointed Chief Financial Officer on March 20, 2019. He was previously the Chief Financial Officer from November 3, 2014 until October 11, 2018.
(6)
Mr. Cataldo was appointed Chief Executive Officer on March 15, 2019. Mr. Cataldo previously served as our Chief Executive Officer from March 2009 to August 2011 and again in November 2014 to September 1, 2017. He was Executive Chairman from September 1, 2017 to February 14, 2018, and has been providing services to the Company under a Consultant Agreement since February 14, 2018.
(7)
Dr. Clarence-Smith was Chief Executive Officer from September 1, 2017 to February 14, 2018. Dr. Clarence-Smith served as our Vice-Chairwoman and President of the Neurology Division from February 14, 2018 until her resignation from the Company on October 9, 2018. Employment Agreements
Employment Agreements
TheOn October 18, 2018, the Company has entered into employment agreementsa Consultant Agreement with Anthony J. Cataldo and Steven Weldon. Pursuant to the agreements, Mr. Cataldo and Mr. Weldon receive annual salaries of $216,000 and $168,000 respectively, as well as bonuses under certain circumstances and as awarded by the Board of Directors.Cataldo. The term of employment underthe Consultant Agreement shall remain in effect until September 30, 2019. This Agreement supersedes the Consultant Agreement dated February 14, 2018 and will pay Mr. Cataldo's agreement is for three years with a year to year renewal option thereafter. TheCataldo $25,000 per month during the term of employment under Mr. Weldon'sthe Agreement.
On October 19, 2018, the Company entered into an Executive Employment Agreement with Dr. Urbanski, reflecting his current position as Chief Executive Officer of the Company. Under the terms of this agreement, Dr. Urbanski’s annual salary is for two years withessentially unchanged from his previous positions. Dr. Urbanski is also entitled to participate in the Company’s bonus plans. Under the Executive Employment Agreement, the Company has agreed that upon shareholder approval of a yearStock Option Plan, it will recommend to year renewalthe Board that the Company grant Dr. Urbanski a Non-Qualified stock option thereafter.to purchase 2,971,102 shares of the Company’s common stock having an exercise equal to the fair market value of the shares on the date of the Agreement. The stock option grant would vest according to the following schedule: (i) 1,250,000 fully vested shares upon signing of the agreement, (ii) 1,250,000 shares on January 1, 2019, and (iii) 471,102 shares on January 1, 2020. On March 15, 2019, Dr, Urbanski resigned his position as Chief Executive Officer, President and Chairman of the Board.
Stock Option Grants
The following table sets forth information as of December 31, 2015,2018, concerning unexercised options, unvested stock and equity incentive plan awards for the executive officers named in the Summary Compensation Table.
28 | |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | |
Steven Weldon | - | - | - | $- | |
Anthony Cataldo | 358 | - | - | $750 | 7/1/2019 |
Anthony Cataldo | 358 | - | - | $1,500 | 7/1/2019 |
Anthony Cataldo | 358 | - | - | $2,250 | 7/1/2019 |
OUTSTANDING EQUITY AWARDS AT YEAR ENDED DECEMBER 31, 2015
| Option Awards | Stock Awards |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
| | | | | | | | | |
Anthony Cataldo | 321,833 | - | - | $2.50 | 07/01/19 | | | | |
Anthony Cataldo | 321,833 | - | - | $5.00 | 07/01/19 | | | | |
Anthony Cataldo | 321,833 | 321,833 | - | $7.50 | 07/01/19 | | | | |
Director Compensation
Beginning in January 2012,2018, non-employee members of the Board of Directors are to receive $3,000$42,500 per quarter either in cash or registered shares,year, plus an option to purchase 25,000 shares at the market price at the end$15,000 annually for Chairing a Committee and $5,000 annually as a member of each quarter. Thea Committee. Also, upon shareholder approval of a Stock Option Plan, Directors will be granted 150,000 options willthat vest equally over a one yearthree-year period. There was no compensation paid to non-employee directors during fiscal 2015.Vesting will accelerate if the Company undergoes a change of control transaction for cash.
VOTING
Name | Fees Earned or Paid in Cash ($) | | | |
Dr. John Bonfiglio (1) | $- | $- | $- | $- |
Dr. Peter Kiener (1) | $8,173 | $- | $- | $8,173 |
Geoffrey Davis (1) | $26,250 | $- | $- | $26,250 |
Anthony Cataldo | $- | $- | $- | $- |
Federica O'Brien (2) | $8,173 | $- | $- | $8,173 |
(1) Dr. Bonfiglio, Dr. Kiener and Mr. Davis resigned from the Board on March 20, 2019 |
(1)Ms. O'Brien resigned from the Board on July 2, 2018 |
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of August 10, 2016September 11, 2019, (a) by each person known by us to own beneficially 5% or more of any class of our common stock, (b) by each of our Named Executive Officers,named executive officers, (c) by each of our directors and (d) by all of our current executive officers and directors as a group. As of November 10, 2016September 11, 2019, there were30,241,30566,401,060 shares of our common stock issued and outstanding. Shares of common stock subject to stock options and warrantspreferred stock that are currently exercisable or exercisable within 60 days of June 30, 2016September 11, 2019 are deemed to be outstanding for the purposepurposes of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Except as otherwise indicated, the address of each stockholder is c/o OXIS International,GT Biopharma, Inc. at 100 South Ashley Street,9350 Wilshire Blvd. Suite 600, Tampa, FL 33602.203, Beverly Hills, CA 90212.
Name and Address of Beneficial Owner | Number of Shares of Common Stock Beneficially Owned | | Percent of Shares of Outstanding Common Stock |
Security Ownership of Certain Beneficial Owners: | | | |
Bristol Investment Fund, Ltd. | 1,525,472 (1) | | 5.44% |
Theorem Group, LLC (2) | 2,096,480 (2) | | 7.47% |
Alpha Capital Anstalt | 2,034,830(3) | | 7.25% |
James W. Heavener | 1,684,100(4) | | 6.00% |
Security Ownership of Management: | | | |
Anthony J. Cataldo | 4,030,731 | | 15.22% |
Steven Weldon | 601,610 | | 2.27% |
| | | |
Executive officers and directors as a group — 2 persons | 4,632,341 | | 17.49% |
(1) | As reported on SC 13G/A filed with the SEC on April 4, 2016. Paul Kessler, manager of Bristol Capital Advisors, LLC, the investment advisor to Bristol Investment Fund, Ltd., has voting and investment control over the securities held by Bristol Investment Fund, Ltd. Mr. Kessler disclaims beneficial ownership of these securities. |
(2) | As reported on SC 13D/A filed with the SEC on January 26, 2016. Anshuman Dube, manager of Theorem Group, LLC, has voting and investment control over the securities. Mr. Dube disclaims beneficial ownership of these securities. |
(3) | As reported on SC 13G filed with the SEC on January 26, 2016 Konrad Ackermann, director of Alpha Capital Anstalt, has voting and investment control over the securities. |
(4) | As reported on SC 13G filed with the SEC on February 9, 2016 James W. Heavener has voting and investment control over the securities. |
| | |
| | |
| | |
| | |
| | |
Name and Address of Beneficial Owner | | |
Security Ownership of Certain Beneficial Owners: | | |
Kathleen Clarence-Smith, M.D., Ph.D. (7) | 7,521,051 | 11.33% |
Mark Silverman (7) | 7,226,108 | 10.88% |
William Heavener (1) | 4,674,749 | 7.04% |
Bristol Investment Fund, Ltd. (2) | 4,534,795 | 06.83% |
Adam Kasower (3) | 3,645,620 | 5.49% |
Theorem Group, LLC (4) | 3,540,130 | 5.33% |
| | |
| | |
Security Ownership of Management and Directors: | | |
Anthony J. Cataldo (5) | 10,734,320 | 16.16% |
Steven Weldon (5) | 6,769,707 | 10.19% |
| | |
Executive officers and directors as a group — 2 people | 17,504,027 | 26.35% |
29(1)
As reported on Schedule 13G/A filed with the SEC on February 5, 2019. The address of William Heavener is 3300 University Blvd, Suite 218, Winter Park, FL 32792DESCRIPTION OF OUR CAPITAL STOCK
(2)
As reported on Schedule 13G/A filed with the SEC on February 12, 2019. Paul Kessler, manager of Bristol Capital Advisors, LLC, the investment advisor to Bristol Investment Fund, Ltd., has voting and investment control over the securities held by Bristol Investment Fund, Ltd. Mr. Kessler disclaims beneficial ownership of these securities except to the extent of his pecuniary interest therein. The address of Bristol Capital Advisors, LLC is 662 N. Sepulveda Blvd., Suite 300, Los Angeles, California 90049.
(3)
Includes 1,011,274 shares issuable upon conversion of principal on outstanding convertible debentures and 120,088 shares available through exercise of warrants
(4)
As reported on Schedule 13G filed with the SEC on November 14, 2017. The address of Theorem Group LLC is 315 Beverly Drive, Suite 502, Beverly Hills, CA 90212
(5)
Security interest in some of these shares has been granted to various holders of the Company’s senior convertible notes to secure the Company’s obligations under these notes in accordance with a Stock Pledge Agreement dated August 2, 2018.
General
Equity Compensation Plan Information
The following is a summary of our equity compensation plans at December 31, 2018:
Plan Category | Number of Securities To be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (b) | Number of Securities Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) |
| | | |
Equity compensation plans approved by security holders (1) | 1,113 | $1,320 | - |
Equity compensation plans not approved by security holders | - | $- | - |
| | | |
Total | 1,113 | $1,320 | - |
(1) As of December 31, 2018, we had options issued and outstanding to purchase 1,113 shares of common stock under our 2014 Stock Incentive Plan.
This prospectus relates in part to our registering the resale of 41,473,822 shares of common stock of the Company by Selling Stockholders who may acquire such shares upon the conversion of notes. There can be no assurance that the Selling Stockholders will sell any or all of their common stock offered by this prospectus. We do not know if, when, or in what amounts, the selling stockholders may offer the common stock for sale.
Selling Stockholders
The following table sets forth:
●
the names of the Selling Stockholders;
●
the number of shares of common stock that can be acquired by each of the Selling Stockholders through the conversion of notes and preferred stock before the offering;
●
the number of shares of common stock being registered with respect to each Selling Stockholder;
●
the number of shares of common stock owned by each of the Selling Stockholders after the offering assuming all notes and applicable shares of preferred stock are converted and all common shares acquired are sold; and
●
the person with voting or investment control if the stockholder is not a natural person.
As of September 11, 2019, there were 66,401,060 shares of common stock outstanding. To the extent that any successor(s) to the named selling stockholder(s) wish to sell under this prospectus, we will file a prospectus supplement identifying such successors as selling stockholders.
Selling Stockholders | Shares Acquirable upon Conversion of Notes and Preferred Stock | | Shares Owned After the Offering Assuming all Notes and Preferred Stock are Converted and all Shares Sold | Person with Voting or Investment Control |
Bristol Investment Fund, Ltd. | 5,625,207 | 5,625,207(1) | 6,745,117 | Paul Kessler |
Bristol Capital LLC | 3,375,694 | 3,375,694(2) | * | Paul Kessler |
James Heavener | 5,317,562 | 5,317,562 | 3,892,882 | |
Adam Kasower | 1,901,658 | 1,901,658 | 1,091,664 | |
Red Mango Enterprises Limited | 2,171,350 | 2,171,350 | 1,365,180 | Chris Parker |
Alpha Capital Anstalt | 3,850,000 | 3,850,000 | * | Nicola Feuerstein |
The Rosalinde and Arthur Gilbert Foundation | 5,601,647 | 5,601,647 | 2,360,565 | Martin H. Blank |
Hewlett Fund LP | 1,296,429 | 1,296,429 | * | Martin Chopp |
Clearview Bio LLC | 825,000 | 825,000 | * | Tisno Onggara |
Clearview Ventures Inc | 412,500 | 412,500 | * | Tisno Onggara |
Brio Capital Master Fund, Ltd | 942,857 | 942,857 | * | Shaye Hirsch |
Jeffrey Bronfman Revocable Living Trust | 1,347,849 | 1,347,849 | * | Jeffrey Bronfman |
Robert H. Lipp Separate Property Trust | 712,130 | 712,130 | * | Robert H. Lipp |
The RSZ Trust | 2,027,620 | 2,027,620 | * | Richard Ziman |
Diane S. Lipp Separate Property Trust | 162,945 | 162,945 | * | Diane S. Lipp |
Lipp Irrevocable Trust | 300,445 | 300,445 | * | Diane S. Lipp |
Martin H. Blank and Linda M. Blank Rev Trust | 127,286 | 127,286 | * | Martin H. Blank |
The Runnels Family Trust DTD 1-11-2000 | 1,178,571 | 1,178,571 | * | G. Tyler Runnels |
District 2 Capital Fund LP | 2,082,143 | 2,082,143 | * | Eric J. Schlanger |
Bigger Capital Fund, LP | 550,000 | 550,000 | * | Michael Bigger |
Michael Breen | 235,714 | 235,714 | * | |
Greg Suess | 235,714 | 235,714 | * | |
Jeff Bronfman Revocable Living Trust | 407,786 | 407,786 | * | Jeffrey Bronfman |
Contreras Family Trust | 235,714 | 235,714 | * | |
Lipp Revocable Trust | 550,000 | 550,000 | | Robert H. Lipp |
*It is unknown to the Company whether the Selling Stockholder holds shares other than those being registered.
(1) Of the 5,625,207 shares being registered, 3,957,584 are issuable upon the conversion of a convertible note and 1,667,623 are issuable upon the conversion of shares of Series J-1 Preferred stock.
(2) All 3,375,694 shares being registered are issuable upon the conversion of shares of Series J-1 Preferred stock.
We are registering 41,473,822 shares of our common stock for possible sale by the selling stockholders.
We will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock.
The selling stockholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions,
●
on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
●
in the over-the-counter market;
●
in transactions otherwise than on these exchanges or systems or in the over-the- counter market;
●
through the writing of options, whether such options are listed on an options exchange or otherwise;
●
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
●
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
●
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
●
an exchange distribution in accordance with the rules of the applicable exchange;
●
privately negotiated transactions;
●
sales pursuant to Rule 144;
●
broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;
●
a combination of any such methods of sale; and
●
any other method permitted pursuant to applicable law.
If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest in some or all of the senior convertible notes, warrants or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms a part.
The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.
We will pay all expenses of the registration of the shares of common stock pursuant to the registration rights agreement, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that a selling stockholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreements, or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling stockholder specifically for use in this prospectus, in accordance with the related registration rights agreement, or we may be entitled to contribution.
Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.
DESCRIPTION OF CAPITAL STOCK The following description of our capital stock, together with any additional information we include in any applicable prospectus supplement or any related free writing prospectus, summarizes the material terms and provisions of our common stock. For the complete terms of our common stock, please refer to our amended and restated certificate of incorporation, the and our amended and restated bylaws that are incorporated by reference into the registration statement of which this prospectus is a part or may be incorporated by reference in this prospectus or any applicable prospectus supplement. The terms of these securities may also be affected by Delaware General Corporation Law. The summary below and that contained in any applicable prospectus supplement or any related free writing prospectus are qualified in their entirety by reference to our amended and restated certificate of incorporation and our amended and restated bylaws.
General
As of the date of this Prospectus, our authorized capital stock consists of 150,000,000750,000,000 shares of common stock, par value $0.001 per share, and 15,000,000 shares of preferred stock, par value $0.001 per share. As of November 10, 2016,June 15, 2019, there were 30,241,305approximately 51.3 million shares of our common stock outstanding,issued and 1,787,897 shares of our preferred stock outstanding.
Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to receive dividends ratably, if any, as may be declared by our board of directors out of legally available funds, subject to any preferential dividend rights of any preferred stock then outstanding. In the event of our dissolution, liquidation or winding up, holders of our common stock are entitled to share ratably in our net assets legally available after the payment of all of our debts and other liabilities, subject to the liquidation preferences of any preferred stock then outstanding. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. All outstanding shares of our common stock are fully paid and nonassessable. Except as described below in "Anti-Takeover Effects of“Anti-Takeover Provisions Under Our Charter and Bylaws and Delaware Law, Provisions of Our Amended and Restated Certificate of Incorporation and Our Amended and Restated By-Laws,"” a majority vote of common stockholders is generally required to take action under our amended and restated certificate of incorporation and amended and restated by-laws.
bylaws.
Anti-Takeover Provisions Under Our Charter and Bylaws and Delaware Law
Certain provisions of Delaware law, our amended and restated certificate of incorporation and our bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, may have the effect of discouraging coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Amended and Restated Certificate of Incorporation
Undesignated Preferred Stock
. Our board of directors is authorized, withouthas the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.
Special Meetings of Stockholders. Our bylaws provide that special meetings of our stockholders may be called only by our chairman of the board, our president or our board of directors, thus prohibiting a stockholder from calling a special meeting. This provision might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.
Board Vacancies Filled Only by Majority of Directors. Vacancies and newly created seats on our board may be filled only by a majority of the directors then in office. Only our board of directors may determine the number of directors on our board. The inability of stockholders to determine the number of directors or to fill vacancies or newly created seats on our board of directors makes it more difficult to change the composition of our board of directors, but these provisions promote a continuity of existing management.
No Cumulative Voting. The Delaware General Corporation Law, or DGCL, provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation and bylaws do not expressly provide for cumulative voting.
Directors Removed Only by Special Meeting of Stockholders. A director can be removed only by the affirmative vote of a majority of the votes of the issued and outstanding stock entitled to vote for the election of directors of the corporation given at a special meeting of the stockholders called and held for this purpose.
Amendment of Charter Provisions. In order to designateamend certain of the above provisions in our amended and issue up to 15,000,000 sharesrestated certificate of preferred stock in one or more series. In the pastincorporation and our bylaws, the board has designated series lettered A through Iof directors is expressly authorized to adopt, alter or repeal the bylaws, subject to the rights of the stockholders entitled to vote. Stockholders can vote at any stockholder meeting and issued sharesrepeal, alter, or amend the bylaws by the affirmative vote of a majority of the stockholders entitled to vote in those series. Assuch meeting.
Delaware Anti-takeover Statute
We are subject to Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of this prospectus, only preferred sharesthe transaction in which the series designated C, H,person became an interest stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales and I have shares issuedother transactions in which the interested stockholder receives or could receive a financial benefit on other than a pro rata basis with other stockholders. An “interested stockholder” is a person who, together with affiliates and outstanding. In connection with this Offering, the board has recently designated series J which is being offered in the Offering as part of the B Units. Our board of directors can fixassociates, owns, or alter the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting a class or series. The issuance of preferred stock could, under certain circumstances, result in onewithin three years did own, 15% or more of the following adverse effects:
corporation’s outstanding voting stock. This provision has an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for the shares of our market price. With approval of our stockholders, we could amend our amended and restated certificate of incorporation in the future to avoid the restrictions imposed by this anti-takeover law.
decreasing The provisions of Delaware law and our amended and restated certificate of incorporation could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock;stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
restricting dividends on our common stock;Transfer Agent and Registrar
diluting the voting power ofOur transfer agent and registrar for our common stock;capital stock is ComputerShare. The transfer agent’s address is 350 Indiana Street, Golden, Colorado 80401, and its telephone number is (303) 262-0600.
impairing the liquidation rights of our common stock; orListing
delaying or preventing a change in control of us without further action by our stockholders.
Our board of directors will make any determination to issue such shares based on its judgment as to our best interests and the best interests of our stockholders. We have no current plans to issue any shares of preferred stock.
The 96,230 shares of Series C preferred stock are convertible into 111 shares of the Company's common stock at the option of the holders at any time. The conversion ratio is basedlisted on the average closing bidOTCQB under the symbol “GTBP.” The last reported sale price of the common stock for the fifteen consecutive trading days ending on the date immediately preceding the date notice of conversion is given, but cannot be less than .20 or more than .2889 common shares for each Series C preferred share. The conversion ratio may be adjusted under certain circumstances such as stock splits or stock dividends. The Company has the right to automatically convert the Series C preferred stock into common stock if the Company lists its shares ofour common stock on the Nasdaq National Market and the average closing bid price of the Company'sOTCQB on August 30, 2019, was $0.175 per share. Our common stock is also quoted on several European-based exchanges including Berlin (GTBP.BE), Frankfurt (GTBP.DE), the Nasdaq National Market for 15 consecutive trading days exceeds $3,000.00. Each share of Series C preferred stock is entitled to the number of votes equal to .26 divided by the average closing bid price of the Company's common stock during the fifteen consecutive trading days immediately prior to the date such shares of Series C preferred stock were purchased. In the event of liquidation, the holders of the Series C preferred stock shall participate on an equal basis with the holders of the common stock (as if the Series C preferred stock had converted into common stock) in any distribution of any of the assets or surplus funds of the Company. The holders of Series C preferred stock are entitled to noncumulative dividends ifEuronext (GTBP.NX) and when declared by the Company's board of directors. No dividends to Series C preferred stockholders were issued or unpaid through June 30, 2016.
Series H
Effective February 10, 2010, the Company issued 25,000 shares of its new Series H Convertible Preferred Stock (the "Series H Preferred") in exchange for the 25,000 shares of Series G Stock
The Certificate of Designation of the Series H Preferred is based on, and substantially similar to the form and substance of the Certificate of Designation of the Series G Preferred. Some of the corrections, changes and differences between the Certificate of Designation of the Series G Preferred and the Certificate of Designation of the Series H Preferred include the following:
| · | As previously disclosed, the holder of the Series H Preferred is entitled to vote with the common stock, and is entitled to a number of votes equal to (i) the number of shares of common stock it can convert into (without any restrictions or limitations on such conversion), (ii) multiplied by 100. |
| · | The holder of the Series H Preferred cannot convert such preferred stock into shares of common stock if the holder and its affiliates after such conversion would own more than 9.9% of the Company's then issued and outstanding shares of common stock. |
| · | The Series G Preferred contained a limitation that the holder of the Series G Preferred could not convert such preferred shares into more than 19.999% of the issued and outstanding shares of common stock without the approval of the stockholders if the rules of the principal market on which the common stock is traded would prohibit such a conversion. Since the rules of the Company's principal market did not require such a limitation, that provision has been deleted. |
Series I
The holder of the Series I Preferred Stock is entitled to receive, out of funds legally available, dividends in cash at the annual rate of 8.0% of the Preference Amount ($0.15), when, as, and if declared by the Board. No dividends or other distributions shall be made with respect to any shares of junior stock until dividends in the same amount per share on the Series I Preferred Stock shall have been declared and paid or set apart during that fiscal year. Dividends on the Series I Preferred Stock are not cumulative and no right accrues to the Series I Preferred Stock by reason of the fact that the Company may fail to declare or pay dividends on the Series I Preferred Stock in the amount of the Dividend Rate per share or in any amount in any previous fiscal year of the Company, whether or not the earnings of the Company in that previous fiscal year were sufficient to pay such dividends in whole or in part.
Each share of Series I Preferred Stock entitles the holder thereof to such number of votes per share as shall equal the number of shares of Common Stock (rounded to the nearest whole number) into which such share of Series I Preferred Stock is then convertible.
Upon any liquidation of the Company, subject to the rights of any series of Preferred Stock that may from time to time come into existence, before any distribution or payment shall be made to the holders of any Junior Stock, the holders of the shares of Series I Preferred Stock then outstanding are entitled to receive and be paid out of the assets of the Company legally available for distribution to its stockholders liquidating distributions in cash or property at its fair market value as determined by the Board in the amount of $0.15 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares)Paris (GTBP.PA).
Shares of Series I Preferred Stock may, at the option of the holder thereof, be converted at any time or from time to time into fully paid and non-assessable shares of Common Stock. The number of shares of Common Stock which a holder of shares of Series I Preferred Stock shall be entitled to receive upon conversion of such shares shall be the product obtained by multiplying the Conversion Rate by the number of shares of Series I Preferred Stock being converted. Initially, the Series I Preferred Stock is convertible into 6,667 shares of common stock.
In the event that the per-share Market Price of the Common Stock over a period of 20 consecutive trading days is equal to at least 130% of the initial conversion price (130% of $0.15), all outstanding shares of Series I Preferred Stock shall be converted automatically into the number of shares of Common Stock into which such shares of Series I Preferred Stock are then convertible without any further action by the holders of such shares and whether or not the certificates representing such shares of Series I Preferred Stock are surrendered to the Company or its transfer agent.
As of the date of this prospectus, there are 1,666,667 shares of Series I Preferred Stock issued and outstanding.
Warrants
As of September 30, 2016, Oxis has warrants issued and outstanding for the purchase of 3,721,768 shares of its common stock.
DESCRIPTION OF SECURITIES WE ARE OFFERING
We are offering up to $10,000,000 of Class A Units and Class B Units. Class A Units consist of one share of our common stock and a Series A warrant to purchase one share of our common stock at an exercise price equal to the public offering price of the Class A Units, ("Series A warrant"). Class B Units consist of one share of our Class J Convertible Preferred Stock with a stated value of $1,000 and convertible into shares of our common stock at the public offering price of the Class A Units, together with the equivalent number of Series A warrants as would have been issued to such purchaser if they had purchased Class A Units based on the public offering price. The shares of common stock and Series A warrant part of a Class A Unit and the Series J Preferred, and Series A warrant part of a Class B Unit are each immediately separable and will be issued separately in this offering.
The material terms of our common stock are described in the section of this prospectus titled "Description of Capital Stock" beginning on page 29 of this prospectus.
Series J Convertible Preferred Stock
The following summary of certain terms and provisions of our Series J Preferred Stock offered in this offering is subject to, and qualified in its entirety by reference to, the terms and provisions set forth in our certificate of designation of preferences, rights and limitations of Series J Convertible Preferred Stock.
General. Our certificate of incorporation authorizes our board of directors to issue up to 15,000,000 shares of our preferred stock, par value $0.001 per share of which 1,787,897 are issued and outstanding.
Subject to the limitations prescribed by our certificate of incorporation, our board of directors is authorized to establish the number of shares constituting each series of preferred stock and to fix the designations, powers, preferences and rights of the shares of each of those series and the qualifications, limitations and restrictions of each of those series, all without any further vote or action by our stockholders. Our board of directors has designated 13,000,000 of the 15,000,000 authorized shares of preferred stock as Series J Preferred Stock. When issued, the shares of Series J Preferred Stock will be validly issued, fully paid and non-assessable.
Rank. The Series J Preferred Stock will rank:
| | | senior to all of our common stock to the extent of its liquidation preference of $0.001 per share;
|
| | | senior to any class or series of our capital stock hereafter created specifically ranking by its terms junior to the Series J Preferred Stock to the extent of its liquidation preference of $0.001 per share;
|
| | | on parity to any class or series of our capital stock hereafter created specifically ranking by its terms on parity with the Series J Preferred Stock.
|
Conversion. Each share of the Series J Preferred Stock is convertible into ten shares of our common stock (subject to adjustment as provided in the related certificate of designation of preferences) at any time at the option of the holder, provided that the holder will be prohibited from converting Series J Preferred Stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of our common stock then issued and outstanding. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to us.
Liquidation Preference. In the event of our liquidation, dissolution or winding up, holders of the Series J Preferred Stock will receive a payment equal to $0.001 per share of Series J Preferred Stock before any proceeds are distributed to the holders of our common stock. Following the payment described in the preceding sentence, the holders of the Series J Preferred Stock will participate, on an as-if-converted-to-common stock basis, in any distributions to the holders of common stock.
Voting Rights. Shares of Series J Preferred Stock will generally have no voting rights, except as required by law and except that the consent of the holders of the outstanding Series J Preferred Stock will be required to amend any provision of our certificate of incorporation that would have a materially adverse effect on the rights of the holders of the Series J Preferred Stock.
Dividends. Shares of Series J Preferred Stock will not be entitled to receive any dividends, unless and until specifically declared by our board of directors. The holders of the Series J Preferred Stock will participate, on an as-if-converted-to-common stock basis, in any dividends to the holders of common stock.
Redemption. We are not obligated to redeem or repurchase any shares of Series J Preferred Stock. Shares of Series J Preferred Stock are not otherwise entitled to any redemption rights or mandatory sinking fund or analogous fund provisions.
Restrictive Covenant. We are restricted from selling equity securities for the first 60 days following the closing, subject to certain exceptions.
Warrants to Purchase Common Stock
The material terms of the Series A warrants to be issued are summarized below. This summary does not purport to be complete in all respects. This description is subject to and qualified entirely by the terms of the form of warrant filed as an exhibit to the registration statement of which this prospectus is a part.
The Series A warrants to be issued with each Unit will have an exercise price of $ per share (equal to the public offering price of the Class A Units) and will be exercisable from their date of issuance and at any time up to the date that is five years after their original date of issuance.
The Series A warrants may not be exercised by the holder to the extent that the holder, together with its affiliates, would beneficially own, after such exercise more than 4.99% of the shares of common stock then outstanding (subject to the right of the holder to increase or decrease such beneficial ownership limitation upon notice to us, provided that such limitation cannot exceed 9.99%) and provided that any increase in the beneficial ownership limitation shall not be effective until 61 days after such notice is delivered.
The warrants are exercisable for cash or, solely in the absence of an effective registration statement or prospectus, by cashless exercise.
The exercise price of the warrants is subject to adjustment in the case of stock dividends or other distributions on shares of common stock or any other equity or equity equivalent securities payable in shares of common stock, stock splits, stock combinations, reclassifications or similar events affecting our common stock, and also, subject to limitations, upon any distribution of assets, including cash, stock or other property to our stockholders.
Prior to the exercise of any warrants to purchase common stock, holders of the warrants will not have any of the rights of holders of the common stock purchasable upon exercise, including voting rights, however, the holders of the warrants will have certain rights to participate in distributions or dividends paid on our common stock to the extent set forth in the warrants.
In addition, the warrants provide that if, at any time while such warrants are outstanding, we (1) consolidate or merge with or into another corporation, (2) sell all or substantially all of our assets or (3) are subject to or complete a tender or exchange offer pursuant to which holders of our common stock are permitted to tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (4) effect any reclassification, reorganization or recapitalization of our common stock or any compulsory share exchange pursuant to which our common stock is converted into or exchanged for other securities, cash or property, or (5) engage in one or more transactions with another party that results in that party acquiring more than 50% of our outstanding shares of common stock (each, a "Fundamental Transaction"), then the holder of such warrants shall have the right thereafter to receive, upon exercise of the warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of warrant shares then issuable upon exercise of the warrant, and any additional consideration payable as part of the Fundamental Transaction. Any successor to us or surviving entity shall assume the obligations under the warrant.
The provisions of the Series A warrants may be amended if we obtain the written consent of holders representing not less than a majority of shares of our common stock then exercisable under the Series A warrants collectively (in which case such amendments shall be binding on all holders of the warrants). However, the number of shares of our common stock exercisable, the exercise price or the exercise period may not be amended without the written consent of the holder of each such warrant.
We do not plan on applying to list the Series J Preferred or any of the warrants on the NASDAQ Capital Market, any other national securities exchange or any other nationally recognized trading system.
We engaged H.C. Wainwright & Co., LLC ("Wainwright" or the "placement agent") to act as our exclusive placement agent to solicit offers to purchase the securities offered by this prospectus. Wainwright is not purchasing or selling any securities, nor are they required to arrange for the purchase and sale of any specific number or dollar amount of securities, other than to use their "reasonable best efforts" to arrange for the sale of Units by us. Therefore, we may not sell the entire amount of Units being offered. We intend to offer and sell the securities offered hereby to institutional investors in certain states. However, we will not make any offer of these securities in any jurisdiction where the offer is not permitted or exempted. We will enter into a securities purchase agreement directly with certain institutional investors who purchase our securities in this offering. We will not enter into securities purchase agreements with all other investors and such investors shall rely solely on this prospectus in connection with the purchase of our securities in this offering. Wainwright may engage one or more sub-placement agents or selected dealers to assist with the offering.
Upon the closing of this offering, we will pay the placement agent a cash transaction fee equal to 8.0% of the gross proceeds to us from the sale of the Units in the offering and we will issue to the placement agent the Placement Agent Warrants as outlined below.
The following table shows the per Unit and total placement agent fees we will pay in connection with the sale of the securities in this offering, assuming the purchase of all of the securities we are offering.
| | | | |
Per Class A Unit | | $ | | |
Per Class B Unit | | $ | | |
Total | | $ | | |
We estimate the total expenses of this offering, which will be payable by us, excluding the placement agent fees, will be approximately $71,000. After deducting the fees due to the placement agent and our estimated offering expenses, we expect the net proceeds from this offering to be approximately $8,979,000.
In addition, we to issue Wainwright on August 5, 2016, 1,000,000 shares of Common Stock (the "Shares"). We will also reimburse the placement agent for its accountable expenses incurred in connection with the offering, including up to $100,000 for legal fees and expenses, up to $15,000 for road show expenses, up to $4,000 per background checks on individuals, not to exceed $20,000 in the aggregate, up to $5,000 for tombstone and other advertising efforts, and up to $10,000 of the fees and expenses of the placement agent's clearing firm.
Subject to certain conditions, we granted to the placement agent in this offering, for a period of twelve months after the date of effectiveness of this registration statement, a right of first refusal to act as lead underwriter, financial advisor or agent in connection with any offering of equity or debt securities, any financing or refinancing of indebtedness or any merger, acquisition or disposition transaction.
Also, we agreed to grant compensation warrants to the placement agent (the "Placement Agent Warrants") to purchase a number of shares of our common stock equal to 8% of the number of shares of Common Stock sold in this offering (including the number of shares of Common Stock issuable upon conversion of shares of Series J Convertible Preferred Stock but excluding any shares of Common Stock underlying the warrants issued in this offering). The compensation warrants will have an exercise price of $ ______ (110% of the per share equivalent paid by the investors in this offering) and will terminate on the five year anniversary of the effective date of the registration statement of which this prospectus is a part. Pursuant to FINRA Rule 5110(g), the compensation warrants and any shares issued upon exercise of the compensation warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of this offering, except the transfer of any security:
by operation of law or by reason of reorganization of our company;
to any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction set forth above for the remainder of the time period;
if the aggregate amount of securities of our company held by the holder of the compensation warrants or related persons do not exceed 1% of the securities being offered;
that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or
the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction set forth above for the remainder of the time period.
The placement agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act and any fees received by it and any profit realized on the sale of the securities by it while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. The placement agent will be required to comply with the requirements of the Securities Act and the Exchange Act of 1934, as amended (the "Exchange Act"), including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of our securities by the placement agent. Under these rules and regulations, the placement agent may not (i) engage in any stabilization activity in connection with our securities; and (ii) bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until they have completed their participation in the distribution.
Certain legal matters in connection with this offering will be passed upon for us by Gary R. Henrie, Attorney at Law, Nauvoo, Illinois. These legal matters include that shares of common stock to be sold by the selling shareholders isSelling Shareholders are validly issued, fully paid and non-assessable. Mr. Henrie's address is POP.O. Box 107, Nauvoo, Illinois 62354.5174, Etna, Wyoming 83118. Mr. Henrie is licensed to practice law in the Statesstates of UtahNevada and Nevada.Utah.
DISCLOSUREDISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.unenforceable.
EXPERTS
The unauditedconsolidated financial statements, as of September 30, 2016 and the auditedrelated financial statements December 31, 2015 includedstatement schedule, incorporated in this prospectusProspectus by reference to our Annual Report on Form 10-K have been audited by Seligson & Giannattasio, LLP, an independent registered public accounting firm, as stated in their report, appearing elsewherewhich is incorporated herein by reference. Such financial statements and are includedfinancial statement schedule have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHEREWHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act with the Securities and Exchange Commission with respect to the sale or resale of an aggregate of 41,473,822 shares of our common stock offered by this prospectus.stock. This prospectus was filed as a part of that registration statement but does not contain all of the information contained in the registration statement and exhibits. Reference is thus made to the omitted information. Statements made in this prospectus are summaries of the material terms of contracts, agreements and documents and are not necessarily complete; however, all information we considered material has been disclosed. Reference is made to each exhibit for a more complete description of the matters involved and these statements are qualified in their entirety by the reference. You may inspect the registration statement, exhibits and schedules filed with the Securities and Exchange Commission at the Securities and Exchange Commission's principle office in Washington, D.C. Copies of all or any part of the registration statement may be obtained from the Public Reference Section of the Securities and Exchange Commission, 100 F. Street, N.E., Washington, D.C. 20549. The Securities and Exchange Commission also maintains a web site (http://www.sec.gov) that contains this filed registration statement, reports, proxy statements and information regarding us that we have filed electronically with the Commission. For more information pertaining to our company and the sale or resale of an aggregate of 41,473,822 shares of common stock, offered in this prospectus, reference is made to the registration statement.
GT BIOPHARMA, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 AND FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
Contents Page | |
| F-1 |
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Consolidated Financial Statements | |
| F-2 |
| F-3 |
| F-4 |
| F-5 |
| F-6 |
| F-20 |
| F-21 |
| F-22 |
| F-23 |
Upon
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the effective dateBoard of this registration statementDirectors and thereafter, we will fileStockholders of GT Biopharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of GT Biopharma, Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries as of December 31, 2018 and 2017 and the consolidated results of its operations and its consolidated cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis of Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission annual and quarterly periodic reports on forms 10-Kthe PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and 10-Q respectively and current reports on form 8-K as needed. Weperform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to deliver annual reportshave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our shareholdersaudits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and at this time weperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant recurring losses. The realization of a major portion of its assets is dependent upon its ability to meet its future financing needs and the success of its future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not intend to do so. We encourage our shareholders, however, to access and review all materialsinclude any adjustments that we will file with the Securities and Exchange Commission at http://www.sec.gov. Our SEC file number is 000-08092.
FINANCIAL STATEMENTSmight result from this uncertainty.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES/s/ Seligson & Giannattasio, LLP
CONSOLIDATED FINANCIAL STATEMENTS Seligson & Giannattasio, LLP
SEPTEMBER 30, 2016
(UNAUDITED)
We have served as the Company’s auditor since 2008.White Plains, New York
March 29, 2019
37GT Biopharma, Inc. and Subsidiaries
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of September 30, 2016(in thousands, except par value and December 31, 2015share data)
| | September 30, 2016 | | | December 31, 2015 | | |
| | (unaudited) | | | | | | |
ASSETS | | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 154,000 | | | $ | 47,000 | | $60 | $576 |
Prepaid expenses | | | 2,000 | | | | 2,000 | | 30 | - |
Total Current Assets | | | 156,000 | | | | 49,000 | | 90 | 576 |
| | |
Intangible assets | | 25,262 | 253,777 |
Deposits | | 12 | 9 |
Fixed assets, net | | | 4,000 | | | | 5,000 | | 35 | 6 |
Total Other Assets | | | 4,000 | | | | 5,000 | | 25,309 | 253,792 |
TOTAL ASSETS | | $ | 160,000 | | | $ | 54,000 | | $25,399 | $254,368 |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
Current Liabilities: | | | | | | | | | |
Accounts payable | | | 1,814,000 | | | | 893,000 | | $1,762 | $2,546 |
Accrued interest | | | 3,480,000 | | | | 2,391,000 | | |
Accrued expenses | | | 597,000 | | | | 4,326,000 | | 1,455 | 102 |
Line of credit | | | 31,000 | | | | 31,000 | | 31 |
Warrant liability | | | 184,000 | | | | 44,531,000 | | |
Settlement note payable | | | 691,000 | | | | 691,000 | | |
Demand notes payable | | | 452,000 | | | | 452,000 | | |
Convertible debentures, current portion, net of discount of $1,596,000 and $900,000 | | | 8,678,000 | | | | 6,820,000 | | |
Note Payable to Related Party | | 100 | - |
Deferred Rent | | 8 | - |
Convertible debentures | | | 1,039,000 | | | | 1,039,000 | | 10,673 | - |
Total current liabilities | | | 16,966,000 | | | | 61,174,000 | | |
Long term liabilities: | | | | | | | | | |
Convertible debt, net of discount of $470,000 and $2,536,000 | | | 400,000 | | | | 714,000 | | |
Total long term liabilities | | | 400,000 | | | | 714,000 | | |
Total Current Liabilities | | 14,029 | 2,679 |
| | |
Total liabilities | | | 17,366,000 | | | | 61,888,000 | | 14,029 | 2,679 |
| | | | | | | | | |
Stockholders' Deficit: | | | | | | | | | |
Stockholders’ Equity: | | |
Convertible preferred stock - $0.001 par value; 15,000,000 shares authorized: | | | | | | | | | |
Series C - 96,230 and 96,230 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively | | | 1,000 | | | | 1,000 | | |
Series H – 25,000 and 25,000 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively | | | - | | | | - | | |
Series I – 1,666,667 and 1,666,667 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively | | | 2,000 | | | | 2,000 | | |
Common stock - $0.001 par value; 150,000,000 shares authorized; 28,218,365 and 2,400,000 shares issued and outstanding at September 30, 2016 and December 31, 2015 | | | 28,000 | | | | 2,000 | | |
Series C - 96,230 and 96,230 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively | | 1 |
Series J – 1,163,548 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively | | 1 |
Common stock - $0.001 par value; 750,000,000 shares authorized; and 50,650,478 and 50,117,977 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively | | 51 | 50 |
Additional paid-in capital | | | 104,752,000 | | | | 84,012,000 | | 540,171 | 521,305 |
Accumulated deficit | | | (121,820,000 | ) | | | (145,682,000 | ) | (528,685) | (269,499) |
Noncontrolling interest | | | (169,000 | ) | | | (169,000 | ) | (169) |
Total Stockholders' Deficit | | | (17,206,000 | ) | | | (61,834,000 | ) | |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 160,000 | | | $ | 54,000 | | |
Total Stockholders’ Equity | | 11,370 | 251,689 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $25,399 | $254,368 |
The accompanying condensed notes are an integral part of these consolidated financial statements.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIESGT Biopharma, Inc. and SubsidiariesConsolidated Statements of Operations
(in thousands except per share data)
| |
| | |
Operating expenses: | | |
Research and development | $9,067 | $1,068 |
Selling, general and administrative expenses | 12,487 | 134,502 |
Loss on impairment | 228,515 | - |
Total operating expenses | 250,069 | 135,570 |
Loss from operations | (250,069) | (135,570) |
Other income (expense): | | |
Interest expense | (9,117) | (8,602) |
Total other income (expense) | (9,117) | (8,602) |
Loss before provision for income taxes | (259,186) | (144,172) |
Provision for income tax | - | - |
Net loss | $(259,186) | $(144,172) |
Net loss per common share – basic and diluted | $(5.16) | $(8.60) |
Weighted average common shares outstanding – basic and diluted | 50,240 | 16,769 |
The accompanying notes are an integral part of these consolidated financial statements.
GT Biopharma, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity
For the Nine MonthsYears Ended September 30, 2016December 31, 2018 and 20152017
(in thousands)
| | | | | | |
| | | | |
| | | | | | |
Balance at December 31, 2016 | 1,788 | $2 | 104 | $0 | $105,891 | $(124,649) |
Issuance of common stock for acquisition | | | 16,928 | 17 | 253,901 | |
Issuance of common and preferred stock for convertible notes and interest | 909 | 1 | 17,678 | 18 | 25,254 | |
Issuance of common and preferred stock for warrants | 5 | 0 | 497 | 0 | 5,819 | |
Issuance of common for preferred stock | (2,042) | (2) | 5,678 | 6 | (4) | |
Issuance of common and preferred stock for compensation | 600 | 1 | 9,233 | 9 | 129,766 | |
Change in accounting method for debt and warrants | | | | | 678 | (678) |
Net loss | | | | | | (144,172) |
Balance at December 31, 2017 | 1,260 | $2 | 50,118 | $50 | $521,305 | $(269,499) |
Issuance of warrants | | | | | 8,304 | |
Issuance of common stock for convertible notes | | | 162 | 0 | 325 | |
Beneficial conversion feature on convertible notes | | | | | 544 | |
Issuance of common stock for compensation | | | 370 | 1 | 9,693 | |
Net loss | | | | | | (259,186) |
Balance at December 31, 2018 | 1,260 | $2 | 50,650 | $51 | $540,171 | $(528,685) |
The accompanying notes are an integral part of these consolidated financial statements.
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Product revenues | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
License revenue | | | - | | | | - | | | | - | | | | 27,000 | |
Total revenue | | | - | | | | - | | | | - | | | | 27,000 | |
Cost of product revenue | | | - | | | | - | | | | - | | | | - | |
Gross profit | | | - | | | | - | | | | - | | | | 27,000 | |
Operating expenses | | | | | | | | | | | | | | | | |
Research and development | | | 250,000 | | | | 225,000 | | | | 725,000 | | | | 475,000 | |
Selling, general and administrative expenses | | | 2,280,000 | | | | 2,552,000 | | | | 7,827,000 | | | | 5,571,000 | |
Total operating expenses | | | 2,530,000 | | | | 2,777,000 | | | | 8,552,000 | | | | 6,046,000 | |
Loss from operations | | | (2,530,000 | ) | | | (2,777,000 | ) | | | (8,552,000 | ) | | | (6,019,000 | ) |
Other income (expense) | | | | | | | | | | | | | | | | |
Change in value of warrant and derivative liabilities | | | 436,000 | | | | 2,809,000 | | | | 37,195,000 | | | | 20,683,000 | |
Interest expense | | | (1,536,000 | ) | | | (1,724,000 | ) | | | (4,781,000 | ) | | | (10,012,000 | ) |
Total other income (expense) | | | 1,100,000 | | | | 1,085,000 | | | | 32,414,000 | | | | 10,671,000 | |
Income before minority interest and provision for income taxes | | | (3,630,000 | ) | | | (1,692,000 | ) | | | 23,862,000 | | | | 4,652,000 | |
Plus: net (income) loss attributable to the noncontrolling interest | | | - | | | | - | | | | - | | | | | |
Income before provision for income taxes | | | (3,630,000 | ) | | | (1,692,000 | ) | | | 23,862,000 | | | | 4,652,000 | |
Provision for income tax | | | - | | | | - | | | | - | | | | - | |
Net income | | | (3,630,000 | ) | | | (1,692,000 | ) | | | 23,862,000 | | | | 4,652,000 | |
Weighted average common shares outstanding – basis and diluted | | | | | | | | | | | | | | | | |
Basic | | | 27,462,111 | | | | 2,400,000 | | | | 22,656,666 | | | | 2,392,683 | |
Diluted | | | 27,462,111 | | | | 2,400,000 | | | | 22,656,666 | | | | 4,764,753 | |
Net income per share | | | | | | | | | | | | | | | | |
Basic | | $ | 0.13 | | | $ | 0.71 | | | $ | 1.05 | | | $ | 1.94 | |
Diluted | | $ | 0.13 | | | $ | 0.71 | | | $ | 1.05 | | | $ | 0.98 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
GT Biopharma, Inc. and Subsidiaries Consolidated Statements of Cash Flows
(In thousands)
| Twelve Months Ended December 31, |
| | |
| | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | |
Net loss | $(259,186) | $(144,172) |
Adjustments to reconcile net loss to net cash used in operating activities: | | |
Depreciation | 7 | 2 |
Loss on impairment of long-lived assets | 228,515 | - |
Stock compensation expense for options and warrants issued to employees and non-employees | 9,696 | 130,124 |
Amortization of debt discounts | 8,663 | 4,914 |
Note Allonge | - | 100 |
Non-cash interest expense | 441 | 2,197 |
Amortization of loan costs | 1,076 | - |
Changes in operating assets and liabilities: | | |
Prepaid Expenses | (30) | - |
Other assets | (3) | (7) |
Other liabilities | 8 | |
Accounts payable and accrued liabilities | 136 | 1,412 |
Net cash used in operating activities | (10,677) | (5,430) |
CASH FLOWS FROM INVESTING ACTIVITIES: | | |
Acquisition of fixed assets | (36) | (4) |
Net cash used by investing activities | (36) | (4) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | |
Proceeds from notes payable | 15,145 | 5,991 |
Loan costs | (533) | - |
Repayment of note payable | (4,415) | - |
Net cash provided by financing activities | 10,197 | 5,991 |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (516) | 557 |
CASH AND CASH EQUIVALENTS - Beginning of period | 576 | 19 |
CASH AND CASH EQUIVALENTS - End of period | $60 | $576 |
| | |
Supplemental cash flow disclosures: | | |
Issuance of common stock upon conversion of convertible notes | $325 | $- |
Acquisition of intangibles through issuance of common stock | $- | $253,777 |
Issuance of common stock for interest expense | $- | $5,179 |
Issuance of common stock for debt | $- | $19,166 |
The accompanying condensed notes are an integral part of these consolidated financial statements.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2016 and 2015
| | Nine months Ended September 30, | |
| | 2016 (unaudited) | | | 2015 (unaudited) | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income/(loss) | | $ | 23,862,000 | | | $ | 4,652,000 | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | | | | | | | | |
Depreciation | | | 1,000 | | | | 1,000 | |
Amortization of intangible assets | | | - | | | | - | |
Stock compensation expense for options and warrants issued to employees and non-employees | | | 5,812,000 | | | | 1,820,000 | |
Non-cash interest expense | | | 1,697,000 | | | | 7,717,000 | |
Amortization of debt discounts | | | 1,625,000 | | | | 1,732,000 | |
Change in value of warrant and derivative liabilities | | | (37,195,000 | ) | | | (20,683,000 | ) |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | - | | | | - | |
Other assets | | | - | | | | 25,000 | |
Accounts payable and accrued expenses | | | 2,403,000 | | | | 1,023,000 | |
Net cash used in operating activities | | | (1,795,000 | ) | | | (3,713,000 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Repayment of note payable | | | - | | | | - | |
Proceeds of notes payable | | | 1,902,000 | | | | 2,900,000 | |
Net cash provided by financing activities | | | 1,902,000 | | | | 2,900,000 | |
Minority interest | | | - | | | | - | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | | | 107,000 | | | | (813,000 | ) |
| | | | | | | | |
CASH AND CASH EQUIVALENTS - Beginning of period | | | 47,000 | | | | 855,000 | |
CASH AND CASH EQUIVALENTS - End of period | | $ | 154,000 | | | $ | 42,000 | |
| | | | | | | | |
Supplemental Disclosures | | | | | | | | |
| | | | | | | | |
Interest paid | | $ | - | | | $ | - | |
Income taxes paid | | $ | - | | | $ | - | |
| | | | | | | | |
Supplemental non-cash activities: | | | | | | | | |
| | | | | | | | |
Common stock issued upon conversion of convertible notes | | $ | 1,794,000 | | | $ | - | |
Common stock issued upon conversion of accrued interest and penalty | | $ | 346,000 | | | $ | 247,000 | |
1.
The accompanying condensed notes are an integral part of these consolidated financial statements.Company
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
1. The Company and Summary of Significant Accounting Policies
OXIS International, Inc. (collectively, “OXIS” or the “Company”) is engaged in discovering, developing and commercializing novel therapeutics from our proprietary product platform in a broad range of disease areas. Currently, OXIS develops innovative drugs focused on the treatment of cancer. OXIS' lead drug candidate, OXS-2175, is a small molecule therapeutic candidate targeting the treatment of triple-negative breast cancer. In in vitro and in vivo models of TNBC, OXS-2175 demonstrated the ability to inhibit metastasis. OXIS' lead drug candidate, OXS-4235, also a small molecule therapeutic candidate, targets the treatment of multiple myeloma and associated osteolytic lesions. In in vitro and in vivo models of multiple myeloma, OXS-4235 demonstrated the ability to kill multiple myeloma cells, and decrease osteolytic lesions in bone. OXIS' lead drug candidate, OXS-1550, is a bispecific scFv recombinant fusion protein-drug conjugate composed of the variable regions of the heavy and light chains of anti-CD19 and anti-CD22 antibodies and a modified form of diphtheria toxin as its cytotoxic drug payload. OXS-1550 has demonstrated success in early human clinical trials in patients with relapsed/refractory B-cell lymphoma or leukemia.Business
In 1965, the corporate predecessor of OXIS,GT Biopharma, Diagnostic Data, Inc. was incorporated in the State of California. Diagnostic Data changed its incorporation to the State of Delaware in 1972; and changed its name to DDI Pharmaceuticals, Inc. in 1985. In 1994, DDI Pharmaceuticals merged with International BioClinical, Inc. and Bioxytech S.A. and changed its name to OXIS International, Inc. In July 2017, the Company changed its name to GT Biopharma, Inc.
We are a clinical stage biopharmaceutical company focused on the development and commercialization of novel immuno-oncology products based off our proprietary Natural Killer (NK) cell engager (Tri-specific Killer Engager (TriKE) & Tetra-specific Killer Engager (TetraKE)) and bi-specific Antibody Drug Conjugate (bispecific-ADC) technology platforms. Our TriKE and TetraKE platforms generate proprietary moieties designed to harness and enhance the cancer killing abilities of a patient’s own natural killer, or NK, cells. Once bound to an NK cell, our moieties are designed to stimulate the NK cell and precisely direct it to one or more specifically-targeted proteins (tumor antigens) expressed on a specific type of cancer, ultimately resulting in the cancer cell’s death. TriKEs and TetraKEs are made up of recombinant fusion proteins, can be designed to target tumor antigens on hematologic malignancies, sarcomas or solid tumors and do not require patient-specific customization. They are designed to be dosed in an outpatient setting and are expected to have reasonably low cost of goods. Our bispecific-ADC platform can generate product candidates that are ligand-directed single-chain fusion proteins that simultaneously target two tumor antigens. We believe our bispecific-ADC moieties represents the next generation of ADCs.
Also, in connection with the acquisition of Georgetown Translational Pharmaceuticals on September 1, 2017, we acquired a portfolio of IPR&D CNS assets consisting of innovative reformulations and/or repurposing of existing therapies. These CNS assets address disease states such as chronic neuropathic pain, myasthenia gravis and motion sickness.
Basis of PresentationConsolidation and Comprehensive Income
The accompanying unaudited interim condensed consolidated financial statements include the accounts of GT Biopharma, Inc. and its subsidiaries. All intercompany balances and transactions have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and disclosures required by U.S. GAAP for complete consolidatedeliminated. The Company's financial statements have been condensed or omitted herein. The interim condensed consolidated financial statements should be read in conjunction withare prepared using the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2015. The unaudited interim condensed consolidated financial information presented herein reflects all normal adjustments that are, in the opinionaccrual method of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The Company is responsible for the unaudited interim consolidated financial statements included in this report. The results of operations of any interim period are not necessarily indicative of the results for the full year.accounting.
Going Concern
As shown in the accompanying consolidated financial statements, the Company has incurred an accumulated deficit of $121,820,000$528,685,000 through September 30, 2016.December 31, 2018. On a consolidated basis, the Company had cash and cash equivalents of $154,000$60,000 at September 30, 2016. December 31, 2018. The Company's plan is to raise additional capital until such time that the Company generates sufficient revenues to cover its cash flow needs and/or it achieves profitability. However, the Company cannot assure that it will accomplish this task and there are many factors that may prevent the Company from reaching its goal of profitability.
The current rate of cash usage raises substantial doubt about the Company’s ability to continue as a going concern, absent any sources of significant cash flows. In an effort to mitigate this near-term concern the Company intends to seek additional equity or debt financing to obtain sufficient funds to sustain operations. However, the Company cannot provide assurance that it will successfully obtain equity or debt or other financing, if any, sufficient to finance its goals or that the Company will generate future product related revenues. The Company’s financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue in existence.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Basis of Consolidation and Comprehensive Income
The accompanying consolidated financial statements include the accounts of OXIS International, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated. The Company's financial statements are prepared using the accrual method of accounting.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Concentrations of Credit Risk
The Company's cash and cash equivalents, marketable securities and accounts receivable are monitored for exposure to concentrations of credit risk. The Company maintains substantially all of its cash balances in a limited number of financial institutions. The balances are each insured by the Federal Deposit Insurance Corporation up to $250,000. The Company does not have balances in excess of this limit at September 30, 2016.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, inventory, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The fair value of debt is based upon current interest rates for debt instruments with comparable maturities and characteristics and approximates the carrying amount.
Stock Based Compensation to Other than Employees
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
Impairment of Long Lived Assets
The Company's long-lived assets currently consist of capitalized patents. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If any of the Company's long-lived assets are considered to be impaired, the amount of impairment to be recognized is equal to the excess of the carrying amount of the assets over the fair value of the assets.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, whereby deferred income tax assets and liabilities are recognized for the estimated future tax effects, based on current enacted tax laws, of temporary differences between financial and tax reporting for current and prior periods. Deferred tax assets are reduced, if necessary, by a valuation allowance if the corresponding future tax benefits may not be realized.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period, plus the potential dilutive effect of common shares issuable upon exercise or conversion of outstanding stock options and warrants during the period. The weighted average number of potentially dilutive common shares excluded from the calculation of net income (loss) per share totaled in 38,410,084 and 2,039,480 as of September 30, 2016 and 2015, respectively.
Patents
Acquired patents are capitalized at their acquisition cost or fair value. The legal costs, patent registration fees and models and drawings required for filing patent applications are capitalized if they relate to commercially viable technologies. Commercially viable technologies are those technologies that are projected to generate future positive cash flows in the near term. Legal costs associated with patent applications that are not determined to be commercially viable are expensed as incurred. All research and development costs incurred in developing the patentable idea are expensed as incurred. Legal fees from the costs incurred in successful defense to the extent of an evident increase in the value of the patents are capitalized.
Capitalized cost for pending patents are amortized on a straight-line basis over the remaining twenty year legal life of each patent after the costs have been incurred. Once each patent is issued, capitalized costs are amortized on a straight-line basis over the shorter of the patent's remaining statutory life, estimated economic life or ten years.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which are 3 to 10 years for machinery and equipment and the shorter of the lease term or estimated economic life for leasehold improvements.
Fair Value
The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels are defined as follows:
● Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. The Company’s Level 1 assets include cash equivalents, primarily institutional money market funds, whose carrying value represents fair value because of their short-term maturities of the investments held by these funds.
● Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The Company’s Level 2 liabilities consist of liabilities arising from the issuance of convertible securities and in accordance with ASC 815-40: a warrant liability for detachable warrants, as well as an accrued derivative liability for the beneficial conversion feature. These liabilities are remeasured each reporting period. Fair value is determined using the Black-Scholes valuation model based on observable market inputs, such as share price data and a discount rate consistent with that of a government-issued security of a similar maturity.
● Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
The following table represents the Company's assets and liabilities by level measured at fair value on a recurring basis at September 30, 2016.
Description | Level 1 | | Level 2 | | Level 3 | |
| | | | | | |
Assets | | | | | | |
| | $ | — | | | $ | — | | | $ | — | |
Liabilities | | | | | | | | | | | | |
Warrant liability | | | — | | | | 184,000 | | | | — | |
Research and Development
Research and development costs are expensed as incurred and reported as research and development expense. Research and development costs totaling $725,000 and $475,000 for the nine months ended September 30, 2016 and 2015, respectively.
Revenue Recognition
License Revenue
License arrangements may consist of non-refundable upfront license fees, exclusive licensed rights to patented or patent pending technology, and various performance or sales milestones and future product royalty payments. Some of these arrangements are multiple element arrangements.
Non-refundable, up-front fees that are not contingent on any future performance by us, and require no consequential continuing involvement on our part, are recognized as revenue when the license term commences and the licensed data, technology and/or compound is delivered. We defer recognition of non-refundable upfront fees if we have continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elements of the arrangement. In addition, if we have continuing involvement through research and development services that are required because our know-how and expertise related to the technology is proprietary to us, or can only be performed by us, then such up-front fees are deferred and recognized over the period of continuing involvement.
Payments related to substantive, performance-based milestones in a research and development arrangement are recognized as revenue upon the achievement of the milestones as specified in the underlying agreements when they represent the culmination of the earnings process.
Use of Estimates
The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Segment Information
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as one segment operating in the United States of America.
2.
Summary of Significant Accounting Policies
Advertising and promotional fees
Advertising expenses consist primarily of costs incurred in the design, development, and printing of Company literature and marketing materials. The Company expenses all advertising expenditures as incurred. There were no advertising expenses for the years ended December 31, 2018 and 2017, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Concentrations of Credit Risk
The Company's cash and cash equivalents, marketable securities and accounts receivable are monitored for exposure to concentrations of credit risk. The Company maintains substantially all of its cash balances in a limited number of financial institutions. The balances are each insured by the Federal Deposit Insurance Corporation up to $250,000. The Company had no balances in excess of this limit at December 31, 2018.
Stock Based Compensation to Employees
The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification (“ASC”) 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period.
The Company granted no stock options during the years ended December 31, 2018 and 2017, respectively.
Long-Lived Assets
Our long-lived assets include property, plant and equipment, capitalized costs of filing patent applications and other indefinite lived intangible assets. We evaluate our long-lived assets for impairment, other than indefinite lived intangible assets, in accordance with ASC 360, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Estimates of future cash flows and timing of events for evaluating long-lived assets for impairment are based upon management’s judgment. If any of our intangible or long-lived assets are considered to be impaired, the amount of impairment to be recognized is the excess of the carrying amount of the assets over its fair value.
Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment.
Impairment of Long-Lived Assets
The Company's long-lived assets currently consist of indefinite lived intangible assets associated with IPR&D (“In-Process Research & Development”) projects and related capitalized patents acquired in the acquisition of Georgetown Translational Pharmaceuticals, Inc. as described in Note 3 below. Intangible assets associated with IPR&D projects are not amortized until approval by the Food and Drug Administration (FDA) is obtained in a major market subject to certain specified conditions and management judgment. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated.
The Company evaluates indefinite lived intangible assets for impairment at least annually and whenever impairment indicators are present in accordance with ASC 350. When necessary, the Company records an impairment loss for the amount by which the fair value is less than the carrying value of these assets. The fair value of intangible assets other than goodwill is typically determined using the “relief from royalty method”, specifically the discounted cash flow method utilizing Level 3 fair value inputs. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
The Company performs impairment testing for all other long-lived assets whenever impairment indicators are present. When necessary, the Company calculates the undiscounted value of the projected cash flows associated with the asset, or asset group, and compares this estimated amount to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, whereby deferred income tax assets and liabilities are recognized for the estimated future tax effects, based on current enacted tax laws, of temporary differences between financial and tax reporting for current and prior periods. Deferred tax assets are reduced, if necessary, by a valuation allowance if the corresponding future tax benefits may not be realized.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period, plus the potential dilutive effect of common shares issuable upon exercise or conversion of outstanding stock options and warrants during the period.
The computation of basic and diluted net loss per share for the years ended December 31, 2018 and 2017 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
| |
| | |
Exercise of common stock warrants | 1,813,053 | - |
Conversion of preferred stock into common stock | 1,163,659 | 1,163,659 |
Conversion of convertible debentures into common stock | 5,704,543 | - |
Exercise of common stock options | 1,113 | 1,246 |
| 8,682,368 | 1,164,905 |
Patents
Acquired patents are capitalized at their acquisition cost or fair value. The legal costs, patent registration fees and models and drawings required for filing patent applications are capitalized if they relate to commercially viable technologies. Commercially viable technologies are those technologies that are projected to generate future positive cash flows in the near term. Legal costs associated with patent applications that are not determined to be commercially viable are expensed as incurred. All research and development costs incurred in developing the patentable idea are expensed as incurred. Legal fees from the costs incurred in successful defense to the extent of an evident increase in the value of the patents are capitalized.
Capitalized costs for pending patents are amortized on a straight-line basis over the remaining twenty-year legal life of each patent after the costs have been incurred. Once each patent is issued, capitalized costs are amortized on a straight-line basis over the shorter of the patent's remaining statutory life, estimated economic life or ten years.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which are 3 to 10 years for machinery and equipment and the shorter of the lease term or estimated economic life for leasehold improvements.
Fair Value
The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels are defined as follows:
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Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. The Company’s Level 1 assets include cash equivalents, primarily institutional money market funds, whose carrying value represents fair value because of their short-term maturities of the investments held by these funds.
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Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The Company’s Level 2 liabilities consist of liabilities arising from the issuance of convertible securities and in accordance with ASC 815-40: a warrant liability for detachable warrants, as well as an accrued derivative liability for the beneficial conversion feature. These liabilities are remeasured each reporting period. Fair value is determined using the Black-Scholes valuation model based on observable market inputs, such as share price data and a discount rate consistent with that of a government-issued security of a similar maturity. There were no such liabilities at December 31, 2018.
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Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Research and Development
Research and development costs are expensed as incurred and reported as research and development expense. Research and development costs totaled $9.1 million and $1.1 million for the years ended December 31, 2018 and 2017, respectively. Research and development costs for the year ended December 31, 2018 included non-cash compensation of $6.8 million.
Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, “Leases.” This ASU requires all lessees to be recognized on the balance sheet as right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and for interim periods therein. The Company is in the process of assessing the impact the adoption this ASU will have on its consolidated financial position, results of operations and cash flows. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted. Early adoption of this ASU is permitted. At December 31, 2018, the Company’s undiscounted future minimum payments outstanding for lease obligations (including those currently included as capital lease obligations) were approximately $200,878.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and for interim periods therein. The provisions of this ASU may be applied retroactively or on a modified retrospective (cumulative effect) basis. The Company adopted the standard using the modified retrospective approach beginning January 1, 2018. Adoption of this ASU did not have a significant impact on the Company’s consolidated financial position, results of operations and cash flows.
On September 1, 2017, the Company entered into an Agreement and Plan of Merger whereby it acquired 100% of the issued and outstanding capital stock of Georgetown Translational Pharmaceuticals, Inc. (GTP). In exchange for the ownership of GTP, the Company issued a total of 16,927,878 shares of its common stock, having a share price of $15.00 on the date of the transaction, to the three prior owners of GTP which represented 33% of the issued and outstanding capital stock of the Company on a fully diluted basis. $253.8 million of the value of shares issued was allocated to intangible assets consisting of a portfolio of three CNS development candidates, which are classified as IPR&D.
For the year ended December 31, 2018, the Company recorded an intangible asset impairment charge of $228.5 million related to the portfolio of CNS IPR&D assets within Operating Expenses, which represents the excess carrying value compared to fair value. The impairment charge was the result of both internal and external factors. In the 3rd quarter of 2018, the Company experienced changes in key senior management, led by the appointment of a new CEO with extensive experience in oncology drug development. These changes resulted in the prioritization of immuno-oncology development candidates relative to CNS development candidates. In conjunction with these strategic changes, limited internal resources have delayed the development of the CNS IPR&D assets. The limited resources, changes in senior leadership, and favorable market conditions for immuno-oncology development candidates have resulted in the Company choosing to focus on development of its immuno-oncology portfolio. In light of this shift in market strategy, the Company performed a commercial assessment and a valuation of the CNS IPR&D assets, both to assess fair value and support potential future licensing efforts. The valuation indicated an excess carrying value over the fair value of these assets, resulting in the impairment charge noted above.
The fair value of the CNS IPR&D assets was determined using the discounted cash flow method which utilized significant estimates and assumptions surrounding the amount and timing of the projected net cash flows, which includes the probability of commercialization, the assumption that the assets would be out-licensed to third-parties for continued development for upfront licensing fees and downstream royalty payments based on net sales, and expected impact of competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
Convertible debenturesNotes
On October 25, 2006,January 22, 2018, the Company entered into a securities purchase agreementSecurities Purchase Agreement (“2006 Purchase Agreement”SPA”) with fourfourteen accredited investors (the “2006 Purchasers”). In conjunction with(individually, a “Buyer” and collectively, the signing of the 2006 Purchase Agreement, the Company issued secured convertible debentures (“2006 Debentures”) and Series A, B, C, D, and E common stock warrants (“2006 Warrants”) to the 2006 Purchasers, and the parties also entered into a security agreement (the “2006 Security Agreement”“Buyers”) pursuant to which the Company agreed to grantissue to the 2006 Purchasers, pari passu, a security interestBuyers senior convertible notes in substantially allan aggregate principal amount of $7,760,510 (the “Notes”), which Notes shall be convertible into the Company’s assets.common stock, par value $0.001 per share (the “Common Stock”) at a price of $4.58 per share, and five-year warrants to purchase the Company’s Common Stock representing the right to acquire an aggregate of approximately 1,694,440 shares of Common Stock (the “Warrants”).
Pursuant to the terms of SPA the 2006Notes were subject to an original issue discount of 10% resulting in proceeds to the Company of $7,055,000 from the transaction.
Upon the purchase of the Notes, the Buyers received Warrants to purchase 1,694,440 shares of Common Stock. Such Warrants are exercisable for (5) years from the date the shares underlying the Warrants are freely saleable. The initial Exercise Price is $4.58. According to the terms of the warrant agreement, the Warrants are subject to certain adjustments depending upon the price and structure of a subsequent financing, including a qualified financing with gross proceeds of at least $20 million, as defined in the agreements.
The issuance of the Notes and Warrants were made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act.
Contemporaneously with the execution and delivery of the SPA, the Company and the Buyers executed and delivered a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.
Senior Convertible Debentures
On August 2, 2018, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement with the purchasers identified on the signature pages thereto (individually, a “Purchaser,” and collectively, the “Purchasers”) pursuant to which the Company issued to the 2006Purchasers one year 10% Senior Convertible Debentures in an aggregate principal amount of $1,694,250 to the 2006 Purchasers. The 2006$5,140,000 (the “Debentures”), which Debentures are subject to an original issue discount of 20.318% resulting in proceeds to the Company of $1,350,000 from the transaction. The 2006 Debentures were due on October 25, 2008. The 2006 Debentures areshall be convertible at the option of the 2006 Purchasers, at any time prior to payment in full, into shares of common stock of the Company. As a result of the full ratchet anti-dilution provision the current conversion price is $2.50 per share (the “2006 Conversion Price”). Beginning on the first of the month beginning February 1, 2007, the Company was required to amortize the 2006 Debentures in equal installments on a monthly basis resulting in a complete repayment by the maturity date (the “Monthly Redemption Amounts”). The Monthly Redemption Amounts could have been paid in cash or in shares, subject to certain restrictions. If the Company chose to make any Monthly Redemption Amount payment in shares of common stock, the price per share would have been the lesser of the Conversion Price then in effect and 85% of the weighted average price for the 10-trading days prior to the due date of the Monthly Redemption Amount. The Company did not make any of the required monthly redemption payments.
Pursuant to the provisions of the 2006 Debentures, such non-payment was an event of default and penalty interest has accrued on the unpaid redemption balance at an interest rate equal to the lower of 18% per annum and the maximum rate permitted by applicable law. In addition, each of the 2006 Purchasers has the right to accelerate the cash repayment of at least 130% of the outstanding principal amount of the 2006 Debenture (plus accrued but unpaid liquidated damages and interest) and to sell substantially all of the Company’s assets pursuant to the provisions of the 2006 Security Agreement to satisfy any such unpaid balance. On June 6, 2008, the Company received notification from Bristol Investment Fund, Ltd (“Bristol”), that the collateral held under the 2006 Security Agreement would be sold to the highest qualified bidder on Thursday, June 19, 2008. On June 19, 2008, the Company received a Notice of Disposition of Collateral from Bristol in which Bristol notified the Company that Bristol, acting as the agent for itself and the three other 2006 Purchasers, purchased certain assets held as collateral under the 2006 Security Agreement. Bristol purchased 111,025 shares of common stock of BioCheck, Inc., the Company’s majority owned subsidiary, on a credit bid of $50,000, and Bristol also purchased 1,000 shares of the capital stock of OXIS Therapeutics, Inc., a wholly owned subsidiary of OXIS, for a credit bid of $10,000. In December 2005, OXIS purchased the 111,025 shares of common stock of BioCheck, Inc. for $3,060,000. After crediting the aggregate amount of $60,000 to the aggregate amount due under the 2006 Debentures, plus fees and charges due through June 19, 2008, Bristol notified the Company that the Company remains obligated to the 2006 Purchasers in a deficiency in an aggregate amount of $2,688,000 as of June 19, 2008. As a result of the disposition of the collateral, the Company recorded a net loss aggregating $2,978,000.
Under the 2006 Purchase Agreement, the 2006 Purchasers also have a right of first refusal to participate in up to 100% of any future financing undertaken by the Company until the 2006 Debentures are no longer outstanding. In addition, the Company is also prohibited from effecting any subsequent financing involving a variable rate transaction until such time as no 2006 Purchaser holds any of the 2006 Debentures. Furthermore, so long as any 2006 Purchaser holds any of the securities issued under the 2006 Purchase Agreement, if the Company issues or sells any common stock or instruments convertible into common stock which a 2006 Purchaser reasonably believes is on terms more favorable to such investors than the terms pursuant to the 2006 Debentures or 2006 Warrants, the Company is obligated to permit such 2006 Purchaser the benefits of such better terms.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Of the 2006 Warrants issued by the Company to the 2006 Purchasers, only the Series A Warrants remain outstanding. The Series A Warrants, which now expire in July 2019, permit the holders to purchase 9,681 shares of common stock at an original exercise price of $87.50 per share. Such exercise price is adjustable pursuant to a full ratchet anti-dilution provision and upon the occurrence of a stock split or a related event.
During 2009, Bristol converted $177,900 of the principal amount of 2006 Debentures for 71,160 shares of the Company’s common stock. During 2010, Bristol converted an additional $401,000 of the principal amount of 2006 Debentures for 160,400 shares of the Company’s common stock. During 2011, an additional $605,000 of the principal amount of 2006 Debentures was converted into 242,000 shares of the Company’s common stock. During 2012, an additional $369,625 of the principal amount of 2006 Debentures was converted into 350,619 shares of the Company’s common stock.
The 2006 Debentures do not meet the definition of a “conventional convertible debt instrument” since they are not convertible into a fixed number of shares. The Monthly Redemption Amounts can be paid with common stock at a conversion price that is a percentage of the market price; therefore the number of shares that could be required to be delivered upon “net-share settlement” is essentially indeterminate. Therefore, the 2006 Debentures are considered “non-conventional,” which means that the conversion feature must be bifurcated from the debt and shown as a separate derivative liability. This beneficial conversion liability has been calculated to be $690,000 on October 25, 2006. In addition, since the 2006 Debentures are convertible into an indeterminate number of shares of common stock, it is assumed that the Company could never have enough authorized and unissued shares to settle the conversion of the 2006 Warrants issues in this transaction into common stock. Therefore, the 2006 Warrants have a fair value of $2,334,000 at October 25, 2006. The value of the 2006 Warrant was calculated using the Black-Scholes model using the following assumptions: Discount rate of 4.5%, volatility of 158% and expected term of 1 to 6 years. The fair value of the beneficial conversion feature and the 2006 Warrant liability will be adjusted to fair value on each balance sheet date with the change being shown as a component of net loss. The fair value of the beneficial conversion feature and the 2006 Warrants at the inception of the 2006 Debentures were $690,000 and $2,334,000, respectively. The first $1,350,000 of these discounts was amortized over the term of the 2006 Debenture and the excess of $1,674,000 was shown as financing costs in statement of operations.
The Company and Bristol entered into a Forbearance Agreement on December 3, 2015, pursuant to which Bristol agreed to refrain and forbear from exercising certain rights and remedies with respect the 2006 Debentures for three months. In exchange for the Forbearance Agreement, the Company issued an allonge in the amount of $250,000 increasing the principal amount if the 2006 Debentures.
On October 1, 2009, the Company entered into a financing arrangement with several accredited investors (the “2009 Investors”), pursuant to which it sold various securities in consideration of a maximum aggregate purchase price of $2,000,000 (the “2009 Financing”). In connection with the 2009 Financing, the Company issued the following securities to the 2009 Investors:
● 0% Convertible Debentures in the principal amount of $2,000,000 due 24 months from the date of issuance (the “ 2009 Debentures”), convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a price of $2 per share conversion price equalshare. The Company used a portion of these proceeds to $12.50 per share;repay $4.4 million of the notes issued on January 22, 2018. Additionally, the remaining $3.3 million of the notes issued on January 22, 2018 were converted into the Debentures at the same terms discussed above.
● Series A warrantOn September 7, 2018, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement with the purchasers identified on the signature pages thereto (individually, a “Purchaser,” and collectively, the “Purchasers”) pursuant to purchase such numberwhich the Company has issued to the Purchasers one year 10% Senior Convertible Debentures in an aggregate principal amount of shares of$2,050,000 (the “Debentures”), which Debentures shall be convertible into the Company’s common stock, equal to 50% of the principal amount invested by each 2009 Investor (the “2009 Class A Warrants” ) resulting in the issuance of Class A Warrants to purchase 80,000 shares of common stock of the Company.
● Series B warrant to purchase such number of shares of the Company’s common stock equal to 50% of the principal amount invested by each 2009 Investor (the “2009 Class B Warrants”) resulting in the issuance of Class B Warrants to purchase 80,000 shares of common stock of the Company.
The Class A Warrants and Class B Warrants (collectively, the “ 2009 Warrants”) are exercisable for up to five years from the date of issue at apar value $0.001 per share exercise price equal to $15.625 and $18.75 for the Class A Warrants and the Class B Warrants, respectively, on a cash or cashless basis. The 2009 Debentures and the 2009 Warrants are collectively referred to herein as the “2009 Securities”.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
In connection with the sale of the 2009 Securities by the Company, the Company and Bristol entered a Standstill and Forbearance Agreement, pursuant to which Bristol agreed to refrain and forbear from exercising certain rights and remedies with respect to (i) the 2006 Debentures and (ii) certain demand notes (the “Bridge Notes”“Common Stock”) issued by the Company on October 8, 2008, March 19, 2009, April 7, 2009, April 28, 2009, May 21, 2009 and June 25, 2009 and discussed under the caption “Demand Notes” below. In connection with the sale of the 2009 Securities by the Company, the Company and Bristol have also entered into a waiver agreement (the “Waiver Agreement”) pursuant to which Bristol waived certain rights with respect to the 2006 Debentures and Bridge Notes.
The conversion price of the 2009 Debentures and the exercise price of the 2009 Warrants are subject to full ratchet anti-dilution adjustment in the event that the Company thereafter issues common stock or common stock equivalents, at a price per share less than the conversion price or the exercise price, respectively, and to other normal and customary anti-dilution adjustment upon certain other events. So long as the 2009 Debentures are outstanding, if the Company effects a subsequent financing, the October 2009 Investors may elect, in their sole discretion, to exchange all or some of the October 2009 Debentures (but not the 2009 Warrants) for any securities or units issued in a subsequent financing on a $1.00 for $1.00 basis or to have any particular provisions of the subsequent financing legal documents apply to the documents utilized for the October 2009 Financing.
The Company also agreed that if it determines to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others, then it shall include the shares of common stock underlying the 2009 Securities on such registration statement. The 2009 Investors have contractually agreed to restrict their ability to convert the 2009 Debentures and exercise the 2009 Warrants and receive shares of our common stock such that the number of shares of the Company common stock held by a 2009 Investor and its affiliates after such conversion or exercise does not exceed 4.9% of the Company’s then issued and outstanding shares of common stock.
During 2010, 2009 Investors converted $1,335,000 of the principal amount of 2009 Debentures for 106,800 shares of the Company’s common stock. During 2011, 2009 Investors converted $610,000 of the principal amount of 2009 Debentures for 48,800 shares of the Company’s common stock.
The Company entered into a Forbearance Agreement on December 3, 2015, pursuant to which the remaining 2009 Debenture holder agreed to refrain and forbear from exercising certain rights and remedies with respect the 2009 Debentures for three months. In exchange for the Forbearance Agreement, the Company issued an allonge in the amount of $250,000 increasing the principal amount of the 2009 Debentures to $305,000 as of March 31,2016.
On June 1, 2011, the Company entered into a financing arrangement with several accredited investors (the “June 2011 Investors”), pursuant to which it sold various securities in consideration of a maximum aggregate purchase price of $500,000 (the “June 2011 Financing”). In connection with the June 2011 Financing, the Company issued the following securities to the June 2011 Investors:
● 12% Convertible Debentures in the principal amount of $500,000 due April 15, 2012, convertible into shares of the Company’s common stock at a per share conversion price equal to $25.00 per share; and
● Warrants to purchase 20,000 of shares of the Company’s common stock. The warrants are exercisable, on a cash or cashless basis, for up to two years from the date of issue at a per share exercise price equal to $37.50. During 2015, the exercise price was adjusted to $1.25 and the exercise date was extended to June 2019.
In November, 2011, the Company entered into a financing arrangement with several accredited investors (the “November 2011 Investors”), pursuant to which it sold various securities in consideration of a maximum aggregate purchase price of $275,000 (the “November 2011 Financing”). In connection with the November 2011 Financing, the Company issued the following securities to the November 2011 Investors:
● 8% Convertible Debentures in the principal amount of $275,000 due in two years, convertible into shares of the Company’s common stock at a per share conversion price equal to $12.50 per share; and
● Warrants to purchase 22,000 of shares of the Company’s common stock. The Class A Warrants and Class B Warrants (collectively, the “Warrants”) are exercisable for up to five years from the date of issue at a per share exercise price equal to $15.625 and $18.75 for the Class A Warrants and the Class B Warrants, respectively, on a cash or cashless basis.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
In March, 2012, the Company entered into a financing arrangement with several accredited investors pursuant to which it sold various securities in consideration of a maximum aggregate purchase price of $617,500 (the “March 2012 Financing”). In connection with the March 2012 Financing, the Company issued the following securities to the investors:
● 8% Convertible Debentures in the principal amount of $617,500 due in two years, convertible into shares of the Company’s common stock at a per share conversion price equal to $12.50 per share; and
● Warrants to purchase 49,400 of shares of the Company’s common stock. The Class A Warrants and Class B Warrants (collectively, the “ March 2012 Warrants”) are exercisable for up to five years from the date of issue at a per share exercise price equal $15.625 and $18.75 for the Class A Warrants and the Class B Warrants, respectively, on a cash or cashless basis.
In April 2012, the Company agreed to an adjustment as negotiated to enable inducement of further financing of the Company. Pursuant to the anti-dilution provisions in the convertible instruments, the conversion price of certain
convertible instruments is now $2.50 (with the exception of the conversion price of the October 2006 Debenture which is already priced at the lesser of $2.50 and 60% of the average of the lowest three trading prices occurring at any time during the 20 trading days preceding conversion).
In May, 2012, the Company entered into a financing arrangement with several accredited investors pursuant to which it sold various securities in consideration of a maximum aggregate purchase price of $275,000 (the “May 2012 Financing”). In connection with the May 2012 Financing, the Company issued the following securities to the investors:
● 8% Convertible Debentures in the principal amount of $275,000 due May 2014, convertible into shares of the Company’s common stock at a per share conversion price equal to $12.50 per share; and
● Warrants to purchase 22,000 of shares of the Company’s common stock. The Class A Warrants and Class B Warrants (collectively, the “ May 2012 Warrants”) are exercisable for up to five years from the date of issue at a per share exercise price equal to $15.625 and $18.75 for the Class A Warrants and the Class B Warrants, respectively, on a cash or cashless basis.
On August 8, 2012, a Settlement Agreement and Mutual General Release ("Agreement") was made by and between OXIS and Bristol Investment Fund, Ltd., in order to settle certain claims regarding certain convertible debentures held by Bristol.
Pursuant to the Agreement, OXIS shall pay Bristol (half of which payment would redound to Theorem Capital LLC (“Theorem”)) a total of $1,119,778 as payment in full for the losses suffered and all costs incurred by Bristol in connection with the Transaction. Payment of such $1,119,778 shall be made as follows: OXIS shall issue restricted common stock to each of Bristol and Merit, in an amount such that each Bristol and Theorem shall hold no more than 9.99% of the outstanding shares of OXIS (including any shares that each may hold as of the date of issuance). The shares so issued represent $417,475.65 of the $1,119,778 payment (111,327 shares at $3.75 per share, of which 36,675 will be retained by Bristol and 74,652 will be issued to Theorem). The remaining balance of the payment shall be made in the form of two convertible promissory notes in the respective amounts of $422,357.75 for Bristol and $279,944.60 for Theorem (collectively, the “Notes”) with a maturity of December 1, 2017 having an 8% annual interest rate, with interest only accruing until January 1, 2013, and then level payments of $3,750 each beginning January 1, 2013 until paid in full on December 1, 2017. In the event a default in the monthly payments on the Notes has occurred and is continuing each holder of the Notes shall be permitted to convert the unpaid principal and interest of the Notes into shares of OXIS at $2.50 cents per share. In the absence of such continuing default no conversion of the Notes will be permitted. OXIS will have the right to repay the Notes in full at any time without penalty.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Effective April, 2013 the Company entered into a securities purchase agreement with one accredited investor to sell 10% convertible debentures with an initial principal balance of $75,000.
In October and November, 2013, the Company entered into a securities purchase agreement with four accredited investors to sell 10% convertible debentures with an initial principal balance of $172,000 and warrants to acquire up to 98,286 shares of the Company’s common stock at an exercise price of $2.50 per share.
In December, 2013, the Company entered into a convertible demand promissory note with an initial principal balance of $189,662 convertible at $1.75 per share and warrants to acquire up to 108,378 shares of the Company’s common stock at an exercise price of $2.50 per share.
In January, 2014, the Company entered into a securities purchase agreement with one accredited investor to sell 10% convertible debentures with an initial principal balance of $50,000 and warrants to acquire up to 28,571 shares of the Company’s common stock at an exercise price of $2.50 per share.
In April, 2014, the Company entered into a securities purchase agreement with three accredited investors to sell 10% convertible debentures with an initial principal balance of $49,000 and warrants to acquire up to 22,286 shares of the Company’s common stock at an exercise price of $2.50 per share.
In July 2014, the Company agreed to an adjustment as negotiated to enable inducement of further financing of the Company. Pursuant to the anti-dilution provisions in the convertible instruments, the conversion price of certain
convertible instruments is now $1.75 (with the exception of the conversion price of the October 2006 Debenture which is already priced at the lesser of $1.75 and 60% of the average of the lowest three trading prices occurring at any time during the 20 trading days preceding conversion).
On July 24, 2014, the Company entered into a securities purchase agreement with ten accredited investors to sell 10% convertible debentures, with an exercise price of $1.75, with an initial principal balance of $1,250,000 and warrants to acquire up to 714,286 shares of the Company’s common stock at an exercise price of $2.50 per share.
Also on July 24, 2014, the Company sold to Kenneth Eaton, the Company’s Chief Executive Officer, a $175,000 debenture, with an exercise price of $1.75, as payment in full for all accrued and unpaid salary and fees owed to Mr. Eaton. This note was converted on the second quarter of 2016.
On October 15, 2014, the Company entered into a securities purchase agreement with three accredited investors to sell 10% convertible debentures, with an exercise price of $2.50, with an initial principal balance of $1,250,000 and warrants to acquire up to 400,000 shares of the Company’s common stock at an exercise price of $5.00$2 per share.
On February 23, 2015, the CompanySeptember 24, 2018, GT Biopharma, Inc. (the “Company”) entered into a securities purchase agreement with ten accredited investors to sell 10% convertible debentures, with an exercise price of $6.25, with an initial principal balance of $2,350,000 and warrants to acquire up to 376,000 shares of the Company’s common stock at an exercise price of $7.50 per share.
Effective July 2015, the Company entered into a securities purchase agreement with three accredited investors to sell 10% convertible debentures, with an exercise price of $5.00, with an initial principal balance of $550,000 and warrants to acquire up to 111,765 shares of the Company’s common stock at an exercise price of $6.25 per share.
Effective October 2015, the Company entered into a securities purchase agreement with three accredited investors to sell 10% convertible debentures, with an exercise price of $2.50, with an initial principal balance of $500,000 and warrants to acquire up to 200,000 shares of the Company’s common stock at an exercise price of $2.50 per share.
Effective November 2015, the Company entered into a securities purchase agreement with two accredited investors to sell 10% convertible debentures, with an exercise price of $2.50, with an initial principal balance of $100,000 and warrants to acquire up to 80,000 shares of the Company’s common stock at an exercise price of $2.50 per share.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
Effective December 2015, the Company entered into a securities purchase agreement with two accredited investors to sell 10% convertible debentures, with and an exercise price of $1.25, with an initial principal balance of $350,000 and warrants to acquire up to 280,000 shares of the Company’s common stock at an exercise price of $1.25 per share.
In December 2015, the Company agreed to an adjustment as negotiated to enable inducement of further financing of the Company. Pursuant to the anti-dilution provisions in all the convertible instruments, the conversion price of certain convertible instruments is now $1.25 (with the exception of the conversion price of the October 2006 Debenture which is already priced at the lesser of $1.25 and 60% of the average of the lowest three trading prices occurring at any time during the 20 trading days preceding conversion).
In January 2016, the Company entered into a securities purchase agreement with one accredited investor to sell 10% convertible debentures, with and an exercise price of $1.25, with an initial principal balance of $150,000 and warrants to acquire up to 80,000 shares of the Company’s common stock at an exercise price of $1.25 per share.
In May 2016, the Company agreed to an adjustment as negotiated to enable inducement of further financing of the Company. Pursuant to the anti-dilution provisions in all the convertible instruments, the conversion price of certain convertible instruments is now $0.40 (with the exception of the conversion price of the October 2006 Debenture which is already priced at the lesser of $0.40 and 60% of the average of the lowest three trading prices occurring at any time during the 20 trading days preceding conversion).
In May 2016, the Company entered into a securities purchase agreement with twenty accredited investors to sell 10% convertible debentures, with and an exercise price of $0.40, with an initial principal balance of $1,390,044 and warrants to acquire up to 3,475,111 shares of the Company’s common stock at an exercise price of $0.45 per share.
In July 2016, the Company entered into a securities purchase agreement with one accredited investor to sell 10% convertible debentures, with and an exercise price of $0.40, with an initial principal balance of $112,135 and warrants to acquire up to 280,338 shares of the Company’s common stock at an exercise price of $0.45 per share.
In August 2016, the Company entered into a securities purchase agreement with one accredited investor to sell 10% convertible debentures up $1,000,000, with and an exercise price of $0.40, with an initial principal balance of $250,000 and warrants to acquire up to 2,500,000 shares of the Company’s common stock at an exercise price of $0.45 per share.
Allonges
On August 18, 2015, the Company entered into a settlement agreement with three noteholders. In accordanceSecurities Purchase Agreement with the July 24, 2014 Security Purchase Agreements, The Company was required to establishpurchasers identified on the signature pages thereto (individually, a “Purchaser,” and maintain a reserve of shares of its common stock from its duly authorized shares of Common Stock for issuance in an amount equal to 150% of a required minimum by December 21, 2014 which did not occur. As compensation forcollectively, the default, the Company issued allonges to the noteholders for a total of $837,500, increasing the principal amount of the convertible notes.
On October 7, 2015, the Company entered into a settlement agreement with two noteholders. In accordance with the July 24, 2014 Security Purchase Agreements, The Company was required to establish and maintain a reserve of shares of its common stock from its duly authorized shares of Common Stock for issuance in an amount equal to 150% of a required minimum by December 21, 2014 which did not occur. As compensation for the default, the Company issued allonges to the noteholders for a total of $537,500, increasing the principal amount of the convertible notes.
On November 5, 2015, the Company entered into a Second Settlement Agreement with three noteholders. On August 18, 2015 the Company entered into a Settlement Agreement that required the Company to increase its authorized shares to not less 8,000,000 shares and reserve 150% of the number of shares of its Common Stock no later than the earlier of (1) two days after Oxis obtaining all corporate and regulatory approvals necessary to increase it authorized shares; or (2) September 30, 2015 which did not occur. As compensation for the default, the Company issued additional allonges to the noteholders for a total of $837,500, increasing the principal amount of the convertible notes.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
On Dec 5, 2015, the Company entered into a Second Settlement Agreement with three noteholders. On October 7, 2015 the Company entered into a Settlement Agreement that required the Company to increase its authorized shares to not less than 8,000,000 shares and reserve 150% of the number of shares of its Common Stock no later than the earlier of (1) two days after Oxis obtaining all corporate and regulatory approvals necessary to increase it authorized shares; or (2) September 30, 2015 which did not occur. As compensation for the default, the Company issued additional allonges to the noteholders for a total of $537,500, increasing the principal amount of the convertible notes.
On July 15, 2015, the Company entered into a settlement agreement with one noteholder. In accordance with a 10% Convertible Debenture Due July 24, 2016, The Company was required pay accrued interest in case upon a conversion of the debt within three business days for the conversion which did not occur. As compensation for the default, the Company issued allonges to the noteholders for a total of $40,000, increasing the principal amount of the convertible notes.
Demand Notes
On May 15, 2009, the Company entered into a convertible demand promissory note with Bristol Capital, LLC for certain consulting services totaling $100,000. The note does not provide for any interest and is due upon demand by the holder. The note has been converted into common stock of the Company.
On June 22, 2009, the Company entered into a convertible demand promissory note with Theorem Group (“Theorem”“Purchasers”) pursuant to which Theorem purchasedthe Company has issued to the Purchasers one year 10% Senior Convertible Debentures in an aggregate principal amount of $31,375 of$800,000 (the “Debentures”), which Debentures shall be convertible demand promissory notes for an aggregate purchase price of $25,000 (the “ 2009 Theorem Note”). The 2009 Theorem Note was subsequently sold as described below.
Simultaneously withinto the issuance of the 2009 Theorem Note, the Company issued Theorem a seven-year warrant (the “2009 Theorem Warrant”) to purchase 12,550 shares ofCompany’s common stock, of the Companypar value $0.001 per share (the “Common Stock”), at a price equal to the lower of (i) $2.50 and (ii) 60% of the average of the three (3) lowest trading prices occurring at any time during the 20 trading days preceding the issue date of the Theorem Note (the “Exercise Price”). The 2009 Theorem Warrant may be exercised on a cashless basis if the shares of common stock underlying the 2009 Theorem Warrant are not then registered pursuant to an effective registration statement. In the event the 2009 Theorem Warrant is exercised on a cashless basis, we will not receive any proceeds.
On December 1, 2009, Theorem sold the 2009 Theorem Note to Net Capital Partners, Inc. (“Net Capital”). In December 2009, Net Capital converted $24,000 of the principal for 9,600 shares of the Company’s common stock. In January 2010, Net Capital converted the remaining $7,375 of principal amount for an additional 2,950 shares of the Company’s common stock.
On February 7, 2011 the Company entered into a convertible demand promissory note with Bristol pursuant to which Bristol purchased an aggregate principal amount of $31,375 of convertible demand promissory notes for an aggregate purchase price of $25,000 (the “February 2011 Bristol Note”). The February 2011 Bristol Note is convertible into shares of common stock of the Company at a price equal to $12.50$2 per share.
Simultaneously with theThe issuance of the February 2011 Bristol Note, the Company issued Bristol a Series A Warrant (the “February 2011 Bristol Series A Warrants”) to purchase 1,255 shares of the Company’s common stock at a per share exercise price of $15.625, and a Series B Warrant (the “February 2011 Bristol Series B Warrants” and, together with the February 2011 Bristol Series A Warrants, the “February 2011 Bristol Warrants”) to purchase 1,255 shares of the Company’s common stock at a per share exercise price of $18.75. The February 2011 Warrants are exercisable for up to seven years from the date of issue. The February 2011 Warrants may be exercised on a cashless basis if the shares of common stock underlying the February 2011 Warrants are not then registered pursuant to an effective registration statement. In the event the February 2011 Bristol Warrants are exercised on a cashless basis, the Company will not receive any proceeds.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
On February 7, 2011 the Company entered into a convertible demand promissory note with Net Capital pursuant to which Net Capital purchased an aggregate principal amount of $31,375 of convertible demand promissory notes for an aggregate purchase price of $25,000 (the “February 2011 Net Capital Note”). The February 2011 Net Capital Note is convertible into shares of common stock of the Company at a price equal to $12.50 per share. As of September, 2012, the February 2011 Net Capital Note had been converted into shares of the Company’s common stock.
Simultaneously with the issuance of the February 2011 Net Capital Note, the Company issued Net Capital a Series A Warrant (the “February 2011 Net Capital Series A Warrants”) to purchase 1,255 shares of the Company’s common stock at a per share exercise price of $15.625, and a Series B Warrant (the “February 2011 Net Capital Series B Warrants” and, together with the February 2011 Net Capital Series A Warrants, the “February 2011 Net Capital Warrants”) to purchase 1,255 shares of the Company’s common stock at a per share exercise price of $18.75. The February 2011 Net Capital Warrants are exercisable for up to seven years from the date of issue. The February 2011 Net Capital Warrants may be exercised on a cashless basis if the shares of common stock underlying the February 2011 Net Capital Warrants are not then registered pursuant to an effective registration statement. In the event the February 2011 Net Capital Warrants are exercised on a cashless basis, the Company will not receive any proceeds.
On March 4, 2011 the Company entered into a convertible demand promissory note with Bristol pursuant to which Bristol purchased an aggregate principal amount of $31,375 of convertible demand promissory notes for an aggregate purchase price of $25,000 (the “March 2011 Bristol Note”). The March 2011 Bristol Note is convertible at the option of the holder at any time into shares of common stock, at a price equal to $12.50.
Simultaneously with the issuance of the March 2011 Bristol Note, the Company issued Bristol a Series A Warrant (the “March 2011 Bristol Series A Warrants”) to purchase 1,255 shares of the Company’s common stock at a per share exercise price of $15.625, and a Series B Warrant (the “March 2011 Bristol Series B Warrants” and, together with the March 2011 Bristol Series A Warrants, (the “March 2011 Bristol Warrants”) to purchase 1,255 shares of the Company’s common stock at a per share exercise price of $18.75. The March 2011 Warrants are exercisable for up to seven years from the date of issue. The March 2011 Warrants may be exercised on a cashless basis if the shares of common stock underlying the March 2011 Warrants are not then registered pursuant to an effective registration statement. In the event the March 2011 Warrants are exercised on a cashless basis, the Company will not receive any proceeds.
On April 4, 2011 the Company entered into a convertible demand promissory note with Net Capital pursuant to which Net Capital purchased an aggregate principal amount of $31,375 of convertible demand promissory notes for an aggregate purchase price of $25,000 (the “April 2011 Net Capital Note”). The April 2011 Net Capital Note is convertible into shares of common stock of the Company, at a price equal to $12.50 per share. As of September, 2012, the April 2011 Net Capital Note had been converted into shares of the Company’s common stock.
Simultaneously with the issuance of the Net Capital Note, the Company issued Net Capital a Series A Warrant (the “April 2011 Net Capital Series A Warrants”) to purchase 1,255 shares of common stock of the Company at a per share exercise price of $15.625, and a Series B Warrant (the “April 2011 Net Capital Series B Warrants” and, together with the April 2011 Net Capital Series A Warrants, the “April 2011 Net Capital Warrants”) to purchase 1,255 shares of common stock of the Company at a per share exercise price of $18.75. The April 2011 Net Capital Warrants are exercisable for up to seven years from the date of issue. The April 2011 Net Capital Warrants may be exercised on a cashless basis if the shares of common stock underlying the April 2011 Net Capital Warrants are not then registered pursuant to an effective registration statement. In the event the April 2011 Net Capital Warrants are exercised on a cashless basis, we will not receive any proceeds.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
On October 26, 2011 the Company entered into a convertible demand promissory note with Theorem pursuant to which Theorem purchased an aggregate principal amount of $200,000 of convertible demand promissory notes for an aggregate purchase price of $157,217 (the “October 2011 Theorem Note”). The October 2011 Theorem Note is convertible into shares of common stock of the Company, at a price equal to $12.50 per share.
Simultaneously with the issuance of the October 2011 Theorem Note, the Company issued Theorem a Series A Warrant (the “October 2011 Series A Warrant”) to purchase 40,000 shares of common stock of the Company at a per share exercise price of $15.625, and a Series B Warrant (the “October 2011 Series B Warrants” and, together with the October 2011 Series A Warrants, the “October 2011 Warrants”) to purchase 40,000 shares of common stock of the Company at a per share exercise price of $18.75. The October 2011 Warrants are exercisable for up to
seven years from the date of issue. The October 2011 Warrants may be exercised on a cashless basis if the shares of common stock underlying the October 2011 Warrants are not then registered pursuant to an effective registration statement. In the event the October 2011 Warrants are exercised on a cashless basis, we will not receive any proceeds.
All of the foregoing securities were issuedSenior Convertible Debentures was made in reliance upon anon the exemption from the registration requirements pursuant toprovided by Section 4(2)4(a)(2) of the Securities Act of 1933, as amended.amended (the “Securities Act”), for the offer and sale of securities not involving a public offering and Regulation D promulgated under the Securities Act.
On December 7, 2012, the Company entered into, and made its initial $315,000 borrowing under, a short-term loan agreement with two lenders pursuant to which it is permitted to borrow up to an aggregate of $350,000. The loans made under the loan agreement are evidence by the Company’s notes and secured pursuant to a Security Agreement, that is junior to the Company’s existing security arrangements under the Company’s October 26, 2006 Debentures but cover the same assets of the Company.
Interest on the Notes is at the rate of 18% per annum, payable on the first day of each month until maturity on May 1, 2013. On April 1, 2013, the Company was required to pay 25.7143% of the Loan, with the remaining balance due on May 1, 2013.
The full principal amount of the Loans may be due upon default under the terms of the Loan Agreement, the Notes or the Security Agreement.
Under the Loan Agreement, the Company is required to issue 266.67 shares of its common stock for each $1,000 of Loans made. Accordingly, on December 7, 2012, the Company issued 84,000 shares of its common stock. Assuming the entire amounts of Loans permitted under the Loan Agreement are borrowed, the Company will issue 93,334 shares in connection with the Loan Agreement.
In March 2013, the Company entered into, and made an additional $35,000 borrowing under, a short-term loan agreement with two lenders the Company entered into in December 2012, pursuant to which it is permitted to borrow up to an aggregate of $350,000. The loans made under the loan agreement are evidence by the Company’s notes and secured pursuant to a Security Agreement, that is junior to the Company’s existing security arrangements under the Company’s October 26, 2006 Debentures but cover the same assets of the Company.
Financing AgreementGoing Concern
On November 8, 2010, the Company entered into a financing arrangement with Gemini Pharmaceuticals, Inc., a product development and manufacturing partner of the Company, pursuant to which Gemini Pharmaceuticals made a $250,000 strategic equity investmentAs shown in the Company and agreed to make a $750,000 purchase order line of credit facility available to the Company. The outstanding principal of all Advances under the Line of Credit will bear interest at the rate of interest of prime plus 2 percent per annum. There is $31,000 due on this credit line at September 30, 2016.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
3. Stockholders' Equity
Common Stock
In January 2015, the Company agreed to issue 39,657 shares of common stock as a price protection to a note holder that originally converted notes at a price of $2.50 and continues to hold these shares. These additional shares would have been issued if the conversion shares price was $1.75. As of December 31, 2015, 33,142 shares of common stock have been issued and $247,000 of interest expense was recorded for this issuance. During January 2016 the remaining 6,515 share were issued and $20,000 of interest expense was recorded.
During the nine months ending September 30, 2016, the Company issued anaggregate of 12,580,183 shares of common stock to a total of 34 persons or entities in exchange of the cancellation of warrants on a cashless basis. The shares issued were exempt from the registration requirements of Section 5 of the Securities Act of 1933 (the “Act”) pursuant to Section 4(2) of the Act since the shares were issued to persons or entities closely associated with the Company and there was no public offering of the shares.
During the nine months ending September 30, 2016, the Company also issued anaggregate of 2,022,230 shares of common stock to a total of 17 persons as payment for consulting services provided to the Company. The average valuation of these shares was $2.00 per share. These shares were also exempt from the registration requirements of Section 5 of the Act pursuant toSection 4(2) of the Act since the shares were also issued to persons closely associated with the Company and there was no public offering of the shares.
During the nine months ending September 30, 2016, the Company also issued an aggregate of 4,612,341 shares of common stock to two executive officers of the Company in fulfilment of contractual rights held by the officers pursuant to their employment agreements. These shares were also exempt from the registration requirements of Section 5 of the Act pursuant to Section 4(2) of the Act since the shares were also issued to persons closely associated with the Company and there was no public offering of the shares.
During the nine months ending September 30, 2016, the Company also issued anaggregate of 5,503,551 shares of common stock to a total of 18 persons as payment for the conversion of certain note and the related accrued interest. The conversion price of these shares was $0.40 per share. These shares were also exempt from the registration requirements of Section 5 of the Act pursuant toSection 4(2) of the Act since the shares were also issued to persons closely associated with the Company and there was no public offering of the shares.
In August 2016, the Company issued 1,115,000 shares of common stock to H.C. Wainwright and Co., LLC as payment for investment banking services provided to the Company.
Preferred Stock
On January 8, 2016 the Company entered into an Exchange Agreement with certain investors together holding 25,000 shares of Series H Preferred Stock and 1,666,667 shares of Series I Preferred Stock have agreed to convert all such shares of Preferred Stock into an aggregate of 4,075,000 shares of Common Stock upon successful completion by the Company of a $6 million financing.
4. Stock Options and Warrants
Stock Options
Following is a summary of the stock option activity:
| | Options Outstanding | | | Weighted Average Exercise Price | |
Outstanding as of December 31, 2015 | | | 374,800 | | | $ | 4.88 | |
Granted | | | - | | | | - | |
Forfeited | | | 20 | | | | 67.5 | |
Exercised | | | - | | | | - | |
Outstanding as of September 30, 2016 | | | 374,780 | | | $ | 4.88 | |
Warrants
Following is a summary of the warrant activity:
| | Warrants Outstanding | | | Weighted Average Exercise Price | |
Outstanding as of December 31, 2015 | | | 12,525,721 | | | $ | 1.25 | |
Granted | | | 5,101,500 | | | | 0.45 | |
Forfeited | | | (339,932) | | | | 1.25 | |
Exercised | | | (12,610,183) | | | | 1.25 | |
Outstanding as of September 30, 2016 | | | 4,677,106 | | | $ | 0.45 | |
6. Subsequent Events
In October 2016 the Company issued anaggregate of 453,431 shares of common stock to one noteholder as payment for the conversion of certain accrued interest. The conversion price of these shares was $0.40 per share. These shares were also exempt from the registration requirements of Section 5 of the Act pursuant toSection 4(2) of the Act since the shares were also issued to persons closely associated with the Company and there was no public offering of the shares.
In October 2016 the Company issued anaggregate of 594,530 shares of common stock to one noteholder as payment for the conversion of a certain note. The conversion price of these shares was $0.0841 per share based on 60% of the average of the lowest three trading prices occurring at any time during the 20 trading days preceding conversion These shares were also exempt from the registration requirements of Section 5 of the Act pursuant toSection 4(2) of the Act since the shares were also issued to persons closely associated with the Company and there was no public offering of the shares.
In November 2016 the Company issued an aggregate of 975,039 shares of common stock to one noteholder as payment for the conversion of a certain note. The conversion price of these shares was $0.0513 per share based on 60% of the average of the lowest three trading prices occurring at any time during the 20 trading days preceding conversion These shares were also exempt from the registration requirements of Section 5 of the Act pursuant to Section 4(2) of the Act since the shares were also issued to persons closely associated with the Company and there was no public offering of the shares.
OXIS International, Inc. and Subsidiaries
Consolidated Financial Statements
December 31, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
Oxis International, Inc.
We have audited the accompanying consolidated balance sheetsfinancial statements, the Company has incurred an accumulated deficit of Oxis International, Inc. (the "Company") and subsidiaries as of$528,685,000 through December 31, 2015 and 2014 and2018. On a consolidated basis, the related consolidated statements of operations, changes in stockholders' deficitCompany had cash and cash flows forequivalents of $60,000 at December 31, 2018. The Company's plan is to raise additional capital until such time that the two years then ended. These consolidatedCompany generates sufficient revenues to cover its cash flow needs and/or it achieves profitability. However, the Company cannot assure that it will accomplish this task and there are many factors that may prevent the Company from reaching its goal of profitability.
The current rate of cash usage raises substantial doubt about the Company’s ability to continue as a going concern, absent any sources of significant cash flows. In an effort to mitigate this near-term concern the Company intends to seek additional equity or debt financing to obtain sufficient funds to sustain operations. However, the Company cannot provide assurance that it will successfully obtain equity or debt or other financing, if any, sufficient to finance its goals or that the Company will generate future product related revenues. The Company’s financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue in existence.
Use of Estimates
The financial statements and notes are the responsibilityrepresentations of the Company's management. Our responsibilitymanagement, which is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we planresponsible for their integrity and perform the auditsobjectivity. These accounting policies conform to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Oxis International, Inc. and subsidiaries as of December 31, 2015 and 2014 and the consolidated results of their operations and their consolidated cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.America and have been consistently applied in the preparation of the financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
The accompanying consolidatedSegment Information
Operating segments are identified as components of an enterprise about which separate discrete financial statements have been prepared assuminginformation is available for evaluation by the Company will continue as a going concern. As discussedchief operating decision-maker in Note 1 to the financial statements,making decisions regarding resource allocation and assessing performance. To date, the Company has incurred significant recurring losses. The realizationviewed its operations and manages its business as one segment operating in the United States of a major portion of its assets is dependent upon its ability to meet its future financing needs and the success of its future operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from this uncertainty.America.
/s/ Seligson & Giannattasio, LLP
Seligson & Giannattasio, LLP
White Plains, New York
March 30, 2016
OXIS International, Inc. and Subsidiaries |
December 31, 2015 and 2014 |
Consolidated Balance Sheets |
|
| | December 31, 2015 | | | December 31, 2014 | |
ASSETS | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 47,000 | | | $ | 855,000 | |
Prepaid expenses | | | 2,000 | | | | 27,000 | |
Total Current Assets | | | 49,000 | | | | 882,000 | |
Fixed assets, net | | | 5,000 | | | | 6,000 | |
Total Other Assets | | | 5,000 | | | | 6,000 | |
TOTAL ASSETS | | $ | 54,000 | | | $ | 888,000 | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
Current Liabilities: | | | | | | | | |
Accounts payable | | $ | 893,000 | | | $ | 412,000 | |
Accrued interest | | | 2,391,000 | | | | 2,025,000 | |
Accrued expenses | | | 4,326,000 | | | | 3,085,000 | |
Line of credit | | | 31,000 | | | | 28,000 | |
Warrant liability | | | 44,531,000 | | | | 21,581,000 | |
Settlement note payable | | | 691,000 | | | | 691,000 | |
Demand notes payable, net of discount of $-0- and $-0- | | | 452,000 | | | | 252,000 | |
Convertible debentures, net of discount of $900,000 and $-0-, current portion | | | 6,820,000 | | | | 1,207,000 | |
Convertible debentures | | | 1,039,000 | | | | 547,000 | |
Total Current Liabilities | | | 61,174,000 | | | | 29,828,000 | |
| | | | | | | | |
Long term liabilities: | | | | | | | | |
Convertible debentures, net of discount of $2,536,000 and $2,302,000 | | | 714,000 | | | | 634,000 | |
Total long term liabilities | | | 714,000 | | | | 634,000 | |
Total liabilities | | | 61,888,000 | | | | 30,462,000 | |
| | | | | | | | |
Stockholders’ Deficit: | | | | | | | | |
Convertible preferred stock - $0.001 par value; 15,000,000 shares authorized: | | | | | | | | |
Series C - 96,230 and 96,230 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively | | | 1,000 | | | | 1,000 | |
Series H – 25,000 and 25,000 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively | | | — | | | | — | |
Series I – 1,666,667 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively | | | 2,000 | | | | 2,000 | |
Common stock - $0.001 par value; 2,400,000 shares authorized; and 2,400,000 and 2,366,588 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively | | | 2,000 | | | | 2,000 | |
Additional paid-in capital | | | 84,012,000 | | | | 83,546,000 | |
Accumulated deficit | | | (145,682,000) | | | | (112,956,000) | |
Noncontrolling interest | | | (169,000) | | | | (169,000) | |
Total Stockholders’ Deficit | | | (61,834,000) | | | | (29,574,000) | |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | $ | 54,000 | | | $ | 888,000 | |
The accompanying notes are an integral part of these consolidated financial statements.
OXIS International, Inc. and Subsidiaries | |
December 31, 2015 and 2014 | |
Statements of Operations | |
| |
| | December 31, | |
| | 2015 | | | 2014 | |
Revenue: | | | | | | |
Product revenues | | $ | - | | | $ | 28,000 | |
License revenues | | | 27,000 | | | | 33,000 | |
TOTAL REVENUE | | | 27,000 | | | | 61,000 | |
Cost of Product Revenue | | | - | | | | 57,000 | |
Gross profit | | | 27,000 | | | | 4,000 | |
Operating Expenses: | | | | | | | | |
Research and development | | | 1,000,000 | | | | - | |
Selling, general and administrative | | | 7,954,000 | | | | 2,400,000 | |
Total operating expenses | | | 8,954,000 | | | | 2,400,000 | |
Loss from Operations | | | (8,927,000 | ) | | | (2,396,000 | ) |
Other income (expense) | | | | | | | | |
Change in value of warrant and derivative liabilities | | | (6,760,000 | ) | | | (15,963,000 | ) |
Interest expense/income | | | (17,039,000 | ) | | | (5,146,000 | ) |
Total Other Income (Expense) | | | (23,799,000 | ) | | | (21,109,000 | ) |
Loss before minority interest and provision for income taxes | | | (32,726,000 | ) | | | (23,505,000 | ) |
Less: Net loss attributable to the noncontrolling interests | | | 0 | | | | 16,000 | |
Loss before provision for income taxes | | | (32,726,000 | ) | | | (23,489,000 | ) |
Provision for income taxes | | | - | | | | - | |
Net loss | | | (32,726,000 | ) | | | (23,489,000 | ) |
Loss Per Share – basic and diluted | | $ | (13.67 | ) | | $ | (10.09 | ) |
| | | | | | | | |
Weighted Average Shares Outstanding – basic and diluted | | | 2,394,540 | | | | 2,327,873 | |
2.The accompanying notes are an integral part of these consolidated financial statements.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES |
Consolidated Statement of Stockholders' Deficit |
For the Years Ended December 31, 2015 and 2014 |
| | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | | Common Stock | | | Additional Paid-in | | | Accumulated | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | |
Balance at December 31, 2013 | | | 1,787,897 | | | $ | 3,000 | | | | 2,292,206 | | | $ | 2,000 | | | $ | 83,281,000 | | | $ | (89,467,000 | ) |
Issuance of stock options | | | | | | | | | | | | | | | | | | | 162,000 | | | | | |
Issuance of common stock for accrued expenses | | | | | | | | | | | 74,652 | | | | - | | | | 103,000 | | | | | |
Net loss | | | | | | | | | | | | | | | | | | | | | | | (501,000 | ) |
Balance at December 31, 2014 | | | 1,787,897 | | | $ | 3,000 | | | | 2,366,588 | | | $ | 2,000 | | | $ | 83,546,000 | | | $ | (112,956,000 | ) |
Issuance of stock options | | | | | | | | | | | | | | | | | | | 220,000 | | | | | |
Issuance of common stock for accrued expenses | | | | | | | | | | | 33,412 | | | | | | | | 246,000 | | | | (32,680,000 | ) |
Net loss | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2015 | | | 1,787,897 | | | $ | 3,000 | | | | 2,400,00 | | | $ | 2,000 | | | $ | 84,012,000 | | | $ | (145,682,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES | |
Consolidated Statements of Cash Flows | |
For the Years Ended December 31, 2015 and 2014 | |
| | | | | | | | |
| | | 2015 | | | | 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
Net loss | | $ | (32,726,000) | | | $ | (23,489,000) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
Depreciation | | | 2,000 | | | | - | |
Amortization of intangible assets | | | - | | | | 22,000 | |
Stock compensation expense for options and warrants issued to employees and non-employees | | | 3,761,000 | | | | 2,630,000 | |
Note Allonges | | | 3,667,000 | | | | - | |
Amortization of debt discounts | | | 2,494,000 | | | | 2,759,000 | |
Non-cash interest expense | | | 9,840,000 | | | | 2,764,000 | |
Change in value of warrant and derivative liabilities | | | 7,400,000 | | | | 13,962,000 | |
Note settlement | | | - | | | | (176,000) | |
Changes in operating assets and liabilities: | | | | | | | | |
Inventory | | | - | | | | 42,000 | |
Other assets | | | 25,000 | | | | 13,000 | |
Accounts payable and accrued liabilities | | | 880,000 | | | | (276,000) | |
Net cash used in operating activities | | | (4,657,000) | | | | (1,749,000) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Acquisition of fixed assets | | | (1,000) | | | | (6,000) | |
Net cash used by investing activities | | | (1,000) | | | | (6,000) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Proceeds from notes payable | | | 3,850,000 | | | | 2,589,000 | |
Repayment of note payable | | | - | | | | (6,000) | |
Net cash provided by financing activities | | | 3,850,000 | | | | 2,583,000 | |
Minority interest | | | - | | | | (16,000) | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (808,000) | | | | 812,000 | |
CASH AND CASH EQUIVALENTS - Beginning of period | | | 855,000 | | | | 43,000 | |
CASH AND CASH EQUIVALENTS - End of period | | $ | 47,000 | | | $ | 855,000 | |
The accompanying notes are an integral part of these consolidated financial statements.
OXIS International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
1. The Company and Summary of Significant Accounting Policies
OXIS International, Inc. (collectively, "OXIS"
Advertising and promotional fees
Advertising expenses consist primarily of costs incurred in the design, development, and printing of Company literature and marketing materials. The Company expenses all advertising expenditures as incurred. There were no advertising expenses for the years ended December 31, 2018 and 2017, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Concentrations of Credit Risk
The Company's cash and cash equivalents, marketable securities and accounts receivable are monitored for exposure to concentrations of credit risk. The Company maintains substantially all of its cash balances in a limited number of financial institutions. The balances are each insured by the Federal Deposit Insurance Corporation up to $250,000. The Company had no balances in excess of this limit at December 31, 2018.
Stock Based Compensation to Employees
The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification (“ASC”) 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period.
The Company granted no stock options during the years ended December 31, 2018 and 2017, respectively.
Long-Lived Assets
Our long-lived assets include property, plant and equipment, capitalized costs of filing patent applications and other indefinite lived intangible assets. We evaluate our long-lived assets for impairment, other than indefinite lived intangible assets, in accordance with ASC 360, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Estimates of future cash flows and timing of events for evaluating long-lived assets for impairment are based upon management’s judgment. If any of our intangible or long-lived assets are considered to be impaired, the amount of impairment to be recognized is the excess of the carrying amount of the assets over its fair value.
Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the "Company") is engagedstatutory or contractual term in discovering, developingthe case of patents. Estimates of useful lives and commercializing novel therapeutics from our proprietary product platform in a broad rangeperiods of disease areas. Currently, OXIS develops innovative drugs focused on the treatment of cancer. OXIS' lead drug candidate, OXS-2175, is a small molecule therapeutic candidate targeting the treatment of triple-negative breast cancer. In in vitroexpected revenue generation are reviewed periodically for appropriateness and in vivo models of TNBC, OXS-2175 demonstrated the ability to inhibit metastasis. OXIS' lead drug candidate, OXS-4235, also a small molecule therapeutic candidate, targets the treatment of multiple myeloma and associated osteolytic lesions. In in vitro and in vivo models of multiple myeloma, OXS-4235 demonstrated the ability to kill multiple myeloma cells, and decrease osteolytic lesions in bone. OXIS' lead drug candidate, OXS-1550, is a bispecific scFv recombinant fusion protein-drug conjugate composed of the variable regions of the heavy and light chains of anti-CD19 and anti-CD22 antibodies and a modified form of diphtheria toxin as its cytotoxic drug payload. OXS-1550 has demonstrated success in early human clinical trials in patients with relapsed/refractory B-cell lymphoma or leukemia.are based upon management’s judgment.
In 1965, the corporate predecessor
Impairment of OXIS, Diagnostic Data, Inc. was incorporatedLong-Lived Assets
The Company's long-lived assets currently consist of indefinite lived intangible assets associated with IPR&D (“In-Process Research & Development”) projects and related capitalized patents acquired in the Stateacquisition of California. Diagnostic Data changed its incorporationGeorgetown Translational Pharmaceuticals, Inc. as described in Note 3 below. Intangible assets associated with IPR&D projects are not amortized until approval by the Food and Drug Administration (FDA) is obtained in a major market subject to certain specified conditions and management judgment. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated.
The Company evaluates indefinite lived intangible assets for impairment at least annually and whenever impairment indicators are present in accordance with ASC 350. When necessary, the Company records an impairment loss for the amount by which the fair value is less than the carrying value of these assets. The fair value of intangible assets other than goodwill is typically determined using the “relief from royalty method”, specifically the discounted cash flow method utilizing Level 3 fair value inputs. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
The Company performs impairment testing for all other long-lived assets whenever impairment indicators are present. When necessary, the Company calculates the undiscounted value of the projected cash flows associated with the asset, or asset group, and compares this estimated amount to the Statecarrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of Delawarebook value over fair value.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, whereby deferred income tax assets and liabilities are recognized for the estimated future tax effects, based on current enacted tax laws, of temporary differences between financial and tax reporting for current and prior periods. Deferred tax assets are reduced, if necessary, by a valuation allowance if the corresponding future tax benefits may not be realized.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period, plus the potential dilutive effect of common shares issuable upon exercise or conversion of outstanding stock options and warrants during the period.
The computation of basic and diluted net loss per share for the years ended December 31, 2018 and 2017 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
| |
| | |
Exercise of common stock warrants | 1,813,053 | - |
Conversion of preferred stock into common stock | 1,163,659 | 1,163,659 |
Conversion of convertible debentures into common stock | 5,704,543 | - |
Exercise of common stock options | 1,113 | 1,246 |
| 8,682,368 | 1,164,905 |
Patents
Acquired patents are capitalized at their acquisition cost or fair value. The legal costs, patent registration fees and models and drawings required for filing patent applications are capitalized if they relate to commercially viable technologies. Commercially viable technologies are those technologies that are projected to generate future positive cash flows in 1972;the near term. Legal costs associated with patent applications that are not determined to be commercially viable are expensed as incurred. All research and changeddevelopment costs incurred in developing the patentable idea are expensed as incurred. Legal fees from the costs incurred in successful defense to the extent of an evident increase in the value of the patents are capitalized.
Capitalized costs for pending patents are amortized on a straight-line basis over the remaining twenty-year legal life of each patent after the costs have been incurred. Once each patent is issued, capitalized costs are amortized on a straight-line basis over the shorter of the patent's remaining statutory life, estimated economic life or ten years.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which are 3 to 10 years for machinery and equipment and the shorter of the lease term or estimated economic life for leasehold improvements.
Fair Value
The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels are defined as follows:
●
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. The Company’s Level 1 assets include cash equivalents, primarily institutional money market funds, whose carrying value represents fair value because of their short-term maturities of the investments held by these funds.
●
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The Company’s Level 2 liabilities consist of liabilities arising from the issuance of convertible securities and in accordance with ASC 815-40: a warrant liability for detachable warrants, as well as an accrued derivative liability for the beneficial conversion feature. These liabilities are remeasured each reporting period. Fair value is determined using the Black-Scholes valuation model based on observable market inputs, such as share price data and a discount rate consistent with that of a government-issued security of a similar maturity. There were no such liabilities at December 31, 2018.
●
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Research and Development
Research and development costs are expensed as incurred and reported as research and development expense. Research and development costs totaled $9.1 million and $1.1 million for the years ended December 31, 2018 and 2017, respectively. Research and development costs for the year ended December 31, 2018 included non-cash compensation of $6.8 million.
Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, “Leases.” This ASU requires all lessees to be recognized on the balance sheet as right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and for interim periods therein. The Company is in the process of assessing the impact the adoption this ASU will have on its name to DDIconsolidated financial position, results of operations and cash flows. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted. Early adoption of this ASU is permitted. At December 31, 2018, the Company’s undiscounted future minimum payments outstanding for lease obligations (including those currently included as capital lease obligations) were approximately $200,878.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and for interim periods therein. The provisions of this ASU may be applied retroactively or on a modified retrospective (cumulative effect) basis. The Company adopted the standard using the modified retrospective approach beginning January 1, 2018. Adoption of this ASU did not have a significant impact on the Company’s consolidated financial position, results of operations and cash flows.
On September 1, 2017, the Company entered into an Agreement and Plan of Merger whereby it acquired 100% of the issued and outstanding capital stock of Georgetown Translational Pharmaceuticals, Inc. (GTP). In exchange for the ownership of GTP, the Company issued a total of 16,927,878 shares of its common stock, having a share price of $15.00 on the date of the transaction, to the three prior owners of GTP which represented 33% of the issued and outstanding capital stock of the Company on a fully diluted basis. $253.8 million of the value of shares issued was allocated to intangible assets consisting of a portfolio of three CNS development candidates, which are classified as IPR&D.
For the year ended December 31, 2018, the Company recorded an intangible asset impairment charge of $228.5 million related to the portfolio of CNS IPR&D assets within Operating Expenses, which represents the excess carrying value compared to fair value. The impairment charge was the result of both internal and external factors. In the 3rd quarter of 2018, the Company experienced changes in 1985.key senior management, led by the appointment of a new CEO with extensive experience in oncology drug development. These changes resulted in the prioritization of immuno-oncology development candidates relative to CNS development candidates. In 1994, DDI Pharmaceuticals mergedconjunction with International BioClinical, Inc.these strategic changes, limited internal resources have delayed the development of the CNS IPR&D assets. The limited resources, changes in senior leadership, and Bioxytech S.A.favorable market conditions for immuno-oncology development candidates have resulted in the Company choosing to focus on development of its immuno-oncology portfolio. In light of this shift in market strategy, the Company performed a commercial assessment and changed its namea valuation of the CNS IPR&D assets, both to OXIS International, Inc.assess fair value and support potential future licensing efforts. The valuation indicated an excess carrying value over the fair value of these assets, resulting in the impairment charge noted above.
The fair value of the CNS IPR&D assets was determined using the discounted cash flow method which utilized significant estimates and assumptions surrounding the amount and timing of the projected net cash flows, which includes the probability of commercialization, the assumption that the assets would be out-licensed to third-parties for continued development for upfront licensing fees and downstream royalty payments based on net sales, and expected impact of competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
Convertible Notes
On January 22, 2018, the Company entered into a Securities Purchase Agreement (“SPA”) with fourteen accredited investors (individually, a “Buyer” and collectively, the “Buyers”) pursuant to which the Company agreed to issue to the Buyers senior convertible notes in an aggregate principal amount of $7,760,510 (the “Notes”), which Notes shall be convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a price of $4.58 per share, and five-year warrants to purchase the Company’s Common Stock representing the right to acquire an aggregate of approximately 1,694,440 shares of Common Stock (the “Warrants”).
Pursuant to the terms of SPA the Notes were subject to an original issue discount of 10% resulting in proceeds to the Company of $7,055,000 from the transaction.
Upon the purchase of the Notes, the Buyers received Warrants to purchase 1,694,440 shares of Common Stock. Such Warrants are exercisable for (5) years from the date the shares underlying the Warrants are freely saleable. The initial Exercise Price is $4.58. According to the terms of the warrant agreement, the Warrants are subject to certain adjustments depending upon the price and structure of a subsequent financing, including a qualified financing with gross proceeds of at least $20 million, as defined in the agreements.
The issuance of the Notes and Warrants were made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act.
Contemporaneously with the execution and delivery of the SPA, the Company and the Buyers executed and delivered a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.
Senior Convertible Debentures
On August 2, 2018, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement with the purchasers identified on the signature pages thereto (individually, a “Purchaser,” and collectively, the “Purchasers”) pursuant to which the Company issued to the Purchasers one year 10% Senior Convertible Debentures in an aggregate principal amount of $5,140,000 (the “Debentures”), which Debentures shall be convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a price of $2 per share. The Company used a portion of these proceeds to repay $4.4 million of the notes issued on January 22, 2018. Additionally, the remaining $3.3 million of the notes issued on January 22, 2018 were converted into the Debentures at the same terms discussed above.
On September 7, 2018, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement with the purchasers identified on the signature pages thereto (individually, a “Purchaser,” and collectively, the “Purchasers”) pursuant to which the Company has issued to the Purchasers one year 10% Senior Convertible Debentures in an aggregate principal amount of $2,050,000 (the “Debentures”), which Debentures shall be convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a price of $2 per share.
On September 24, 2018, GT Biopharma, Inc. (the “Company”) entered into a Securities Purchase Agreement with the purchasers identified on the signature pages thereto (individually, a “Purchaser,” and collectively, the “Purchasers”) pursuant to which the Company has issued to the Purchasers one year 10% Senior Convertible Debentures in an aggregate principal amount of $800,000 (the “Debentures”), which Debentures shall be convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a price of $2 per share.
The issuance of the Senior Convertible Debentures was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), for the offer and sale of securities not involving a public offering and Regulation D promulgated under the Securities Act.
Going Concern
As shown in the accompanying consolidated financial statements, the Company has incurred an accumulated deficit of $145,636,000$528,685,000 through December 31, 2015.2018. On a consolidated basis, the Company had cash and cash equivalents of $47,000$60,000 at December 31, 2015. 2018. The Company's plan is to raise additional capital until such time that the Company generates sufficient revenues to cover its cash flow needs and/or it achieves profitability. However, the Company cannot assure that it will accomplish this task and there are many factors that may prevent the Company from reaching its goal of profitability.
The current rate of cash usage raises substantial doubt about the Company'sCompany’s ability to continue as a going concern, absent any sources of significant cash flows. In an effort to mitigate this near-term concern the Company intends to seek additional equity or debt financing to obtain sufficient funds to sustain operations. The Company plans to increase revenues by introducing new nutraceutical products primarily based on its ergothioneine assets. However, the Company cannot provide assurance that it will successfully obtain equity or debt or other financing, if any, sufficient to finance its goals or that the Company will generate future product related revenues. The Company'sCompany’s financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue in existence.
Accounts receivableUse of Estimates
The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as one segment operating in the United States of America.
The Company carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on a history
2.
Summary of past write-offs and collections and current credit conditions.Significant Accounting Policies
OXIS International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
Advertising and promotional fees
Advertising expenses consist primarily of costs incurred in the design, development, and printing of Company literature and marketing materials. The Company expenses all advertising expenditures as incurred. There were no advertising expenses for the years ended December 31, 20152018 and 2014,2017, respectively.
Basis of Consolidation and Comprehensive Income
The accompanying consolidated financial statements include the accounts of OXIS International, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated. The Company's financial statements are prepared using the accrual method of accounting.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Concentrations of Credit Risk
The Company's cash and cash equivalents, marketable securities and accounts receivable are monitored for exposure to concentrations of credit risk. The Company maintains substantially all of its cash balances in a limited number of financial institutions. The balances are each insured by the Federal Deposit Insurance Corporation up to $250,000. The Company does not havehad no balances in excess of this limit at December 31, 20152018.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, inventory, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The fair value of debt is based upon current interest rates for debt instruments with comparable maturities and characteristics and approximates the carrying amount.
Stock Based Compensation to Employees
The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification ("ASC"(“ASC”) 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period.
The Company granted no stock options to purchase 52,000 and 321,941 shares of the Company's common stock to employees and directors during the yearyears ended December 31, 20152018 and 2014, respectively. The fair values of employee stock options are estimated for the calculation of the pro forma adjustments at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions during 2015: expected volatility of 90%; average risk-free interest rate of 1.50% initial expected life of 5 years; no expected dividend yield; and amortized over the vesting period of typically one to four years. The Company reported an expense for share-based compensation for its employees and directors of $311,000 and $162,000 for the year ended December 31, 2015 and 2014,2017, respectively.
OXIS International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
Impairment of Long LivedLong-Lived Assets
The Company'sOur long-lived assets currently consistinclude property, plant and equipment, capitalized costs of capitalized patents The Company evaluates itsfiling patent applications and other indefinite lived intangible assets. We evaluate our long-lived assets for impairment, other than indefinite lived intangible assets, in accordance with ASC 360, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Estimates of future cash flows and timing of events for evaluating long-lived assets for impairment are based upon management’s judgment. If any of the Company'sour intangible or long-lived assets are considered to be impaired, the amount of impairment to be recognized is equal to the excess of the carrying amount of the assets over its fair value.
Applicable long-lived assets are amortized or depreciated over the shorter of their estimated useful lives, the estimated period that the assets will generate revenue, or the statutory or contractual term in the case of patents. Estimates of useful lives and periods of expected revenue generation are reviewed periodically for appropriateness and are based upon management’s judgment.
Impairment of Long-Lived Assets
The Company's long-lived assets currently consist of indefinite lived intangible assets associated with IPR&D (“In-Process Research & Development”) projects and related capitalized patents acquired in the acquisition of Georgetown Translational Pharmaceuticals, Inc. as described in Note 3 below. Intangible assets associated with IPR&D projects are not amortized until approval by the Food and Drug Administration (FDA) is obtained in a major market subject to certain specified conditions and management judgment. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated.
The Company evaluates indefinite lived intangible assets for impairment at least annually and whenever impairment indicators are present in accordance with ASC 350. When necessary, the Company records an impairment loss for the amount by which the fair value is less than the carrying value of these assets. The fair value of intangible assets other than goodwill is typically determined using the “relief from royalty method”, specifically the discounted cash flow method utilizing Level 3 fair value inputs. Some of the assets.more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
The Company performs impairment testing for all other long-lived assets whenever impairment indicators are present. When necessary, the Company calculates the undiscounted value of the projected cash flows associated with the asset, or asset group, and compares this estimated amount to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, whereby deferred income tax assets and liabilities are recognized for the estimated future tax effects, based on current enacted tax laws, of temporary differences between financial and tax reporting for current and prior periods. Deferred tax assets are reduced, if necessary, by a valuation allowance if the corresponding future tax benefits may not be realized.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period, plus the potential dilutive effect of common shares issuable upon exercise or conversion of outstanding stock options and warrants during the period.
The weighted average numbercomputation of basic and diluted net loss per share for the years ended December 31, 2018 and 2017 excludes the common stock equivalents of the following potentially dilutive common shares excluded from the calculation of net income (loss) per share totaled in 12,525,721 in 2015 and 3,092,737 in 2014.securities because their inclusion would be anti-dilutive:
| |
| | |
Exercise of common stock warrants | 1,813,053 | - |
Conversion of preferred stock into common stock | 1,163,659 | 1,163,659 |
Conversion of convertible debentures into common stock | 5,704,543 | - |
Exercise of common stock options | 1,113 | 1,246 |
| 8,682,368 | 1,164,905 |
Patents
Acquired patents are capitalized at their acquisition cost or fair value. The legal costs, patent registration fees and models and drawings required for filing patent applications are capitalized if they relate to commercially viable technologies. Commercially viable technologies are those technologies that are projected to generate future positive cash flows in the near term. Legal costs associated with patent applications that are not determined to be commercially viable are expensed as incurred. All research and development costs incurred in developing the patentable idea are expensed as incurred. Legal fees from the costs incurred in successful defense to the extent of an evident increase in the value of the patents are capitalized.
Capitalized costcosts for pending patents are amortized on a straight-line basis over the remaining twenty yeartwenty-year legal life of each patent after the costs have been incurred. Once each patent is issued, capitalized costs are amortized on a straight-line basis over the shorter of the patent's remaining statutory life, estimated economic life or ten years.
Fixed Assets
Fixed assets isare stated at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which are 3 to 10 years for machinery and equipment and the shorter of the lease term or estimated economic life for leasehold improvements.
OXIS International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
Fair Value
The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels are defined as follows:
| · | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. The Company's Level 1 assets include cash equivalents, primarily institutional money market funds, whose carrying value represents fair value because of their short-term maturities of the investments held by these funds. |
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Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. The Company’s Level 1 assets include cash equivalents, primarily institutional money market funds, whose carrying value represents fair value because of their short-term maturities of the investments held by these funds.
| · | ● Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The Company's Level 2 liabilities consist of liabilities arising from the issuance of convertible securities and in accordance with ASC 815-40: a warrant liability for detachable warrants, as well as an accrued derivative liability for the beneficial conversion feature. These liabilities are remeasured each reporting period. Fair value is determined using the Black-Scholes valuation model based on observable market inputs, such as share price data and a discount rate consistent with that of a government-issued security of a similar maturity. |
| · | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The following table represents the Company's assets and liabilities by level measured at fairin active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The Company’s Level 2 liabilities consist of liabilities arising from the issuance of convertible securities and in accordance with ASC 815-40: a warrant liability for detachable warrants, as well as an accrued derivative liability for the beneficial conversion feature. These liabilities are remeasured each reporting period. Fair value is determined using the Black-Scholes valuation model based on observable market inputs, such as share price data and a recurring basisdiscount rate consistent with that of a government-issued security of a similar maturity. There were no such liabilities at December 31, 2015.2018.
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Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Description | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | |
Assets | | | | | | | | | |
| | $ | — | | | $ | — | | | $ | — | |
Liabilities | | | | | | | | | | | | |
Warrant liability | | | — | | | | 44,531,000 | | | | — | |
Accrued expense | | | | | | | 4,326,000 | | | | | |
Research and Development
Research and development costs are expensed as incurred and reported as research and development expense. Research and development costs totaling $900,000totaled $9.1 million and $-0-$1.1 million for the years ended December 31, 20152018 and 2014,2017, respectively. Research and development costs for the year ended December 31, 2018 included non-cash compensation of $6.8 million.
Revenue RecognitionRecently Issued Accounting Standards
Product Revenue
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, “Leases.” This ASU requires all lessees to be recognized on the balance sheet as right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and for interim periods therein. The Company manufactures,is in the process of assessing the impact the adoption this ASU will have on its consolidated financial position, results of operations and cash flows. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted. Early adoption of this ASU is permitted. At December 31, 2018, the Company’s undiscounted future minimum payments outstanding for lease obligations (including those currently included as capital lease obligations) were approximately $200,878.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and for interim periods therein. The provisions of this ASU may be applied retroactively or has manufactured on a contract basis, fine chemicalsmodified retrospective (cumulative effect) basis. The Company adopted the standard using the modified retrospective approach beginning January 1, 2018. Adoption of this ASU did not have a significant impact on the Company’s consolidated financial position, results of operations and nutraceutical products, which are its primary products to be sold to customers. Revenue from the sale of its products, including shipping fees, will be recognized when title to the products is transferred to the customer which usually occurs upon shipment or delivery, depending upon the terms of the sales order and when collectability is reasonably assured. Revenue from sales to distributors of its products will be recognized, net of allowances, upon delivery of product to the distributors. According to the terms of individual distributor contracts, a distributor may return product up to a maximum amount and under certain conditions contained in its contract. Allowances are calculated based upon historical data, current economic conditions and the underlying contractual terms.cash flows.
OXIS International, Inc.On September 1, 2017, the Company entered into an Agreement and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
License Revenue
License arrangements may consistPlan of non-refundable upfront license fees, exclusive licensed rights to patented or patent pending technology, and various performance or sales milestones and future product royalty payments. Some of these arrangements are multiple element arrangements.
Non-refundable, up-front fees that are not contingent on any future performance by us, and require no consequential continuing involvement on our part, are recognized as revenue when the license term commences and the licensed data, technology and/or compound is delivered. We defer recognition of non-refundable upfront fees if we have continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elementsMerger whereby it acquired 100% of the arrangement.issued and outstanding capital stock of Georgetown Translational Pharmaceuticals, Inc. (GTP). In addition, if we have continuing involvement through research and development services that are required because our know-how and expertise related toexchange for the technology is proprietary to us, or can only be performed by us, then such up-front fees are deferred and recognized overownership of GTP, the periodCompany issued a total of continuing involvement.
Payments related to substantive, performance-based milestones in16,927,878 shares of its common stock, having a research and development arrangement are recognized as revenue upon the achievementshare price of the milestones as specified in the underlying agreements when they represent the culmination of the earnings process.
Use of Estimates
The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities revenues and expenses and disclosures of contingent assets and liabilities at$15.00 on the date of the financial statements. Actual results could differ from those estimates.transaction, to the three prior owners of GTP which represented 33% of the issued and outstanding capital stock of the Company on a fully diluted basis. $253.8 million of the value of shares issued was allocated to intangible assets consisting of a portfolio of three CNS development candidates, which are classified as IPR&D.
For the year ended December 31, 2018, the Company recorded an intangible asset impairment charge of $228.5 million related to the portfolio of CNS IPR&D assets within Operating Expenses, which represents the excess carrying value compared to fair value. The impairment charge was the result of both internal and external factors. In the 3rd quarter of 2018, the Company experienced changes in key senior management, led by the appointment of a new CEO with extensive experience in oncology drug development. These changes resulted in the prioritization of immuno-oncology development candidates relative to CNS development candidates. In conjunction with these strategic changes, limited internal resources have delayed the development of the CNS IPR&D assets. The limited resources, changes in senior leadership, and favorable market conditions for immuno-oncology development candidates have resulted in the Company choosing to focus on development of its immuno-oncology portfolio. In light of this shift in market strategy, the Company performed a commercial assessment and a valuation of the CNS IPR&D assets, both to assess fair value and support potential future licensing efforts. The valuation indicated an excess carrying value over the fair value of these assets, resulting in the impairment charge noted above.
The fair value of the CNS IPR&D assets was determined using the discounted cash flow method which utilized significant estimates and assumptions surrounding the amount and timing of the projected net cash flows, which includes the probability of commercialization, the assumption that the assets would be out-licensed to third-parties for continued development for upfront licensing fees and downstream royalty payments based on net sales, and expected impact of competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
2.Patents
| | December 30, 2015 | | | December 31, 2014 | |
Capitalized patent costs | | $ | 642,000 | | | $ | 642,000 | |
Accumulated amortization | | | (642,000 | ) | | | (642,000 | ) |
| | $ | - | | | $ | - | |
4.
Debt
Periodically, the Company reviews its patent portfolio and has determined that certain patent applications no longer possessed commercial viability or were abandoned since they were inconsistent with the Company's business development strategy.