1. Description of Business

XOMA Corporation (referred to as “XOMA” or the “Company”), a Delaware corporation, has a long history of discovering and developing innovative therapeutics derived from our unique platform of antibody technologies. The Company has typically sought to license these therapeutic assets to licensees who take on the responsibilities of later stage development, approval and commercialization. In addition, XOMA has licensed antibody technologies on a non-exclusive basis to other companies who desire to access this platform for their own discovery efforts. As XOMA’s business model is based on the goal of out-licensing to other pharmaceutical companies for them to commercialize and market any resultant products, the Company expects that a significant portion of its future revenue will be based on payments it may receive from its licensees.

XOMA’s asset base includes antibodies with unique properties including several that interact at allosteric sites on a specific protein rather than the orthosteric, or active, sites. These compounds are designed to either enhance or diminish the target protein’s activity as desired.

Going Concern

The Company has incurred operating losses since its inception resulting in an accumulated deficit of $1.2 billion, has a working capital deficiency of $5.3 million and $43.2 million in total outstanding debt at December 31, 2016. Management expects operating losses and negative cash flows to continue for the foreseeable future and, as a result, the Company will require additional capital to fund its operations and execute its business plan. As of December 31, 2016, the Company had $25.7 million in cash and cash equivalents, which is available to fund future operations. In February 2017, the Company received net proceeds of $24.9 million from a registered direct offering. Taking into account the net proceeds of $24.9 million from the registered direct offering in February 2017, the repayment of its outstanding debt classified within current liabilities on the Company’s consolidated balance sheet as of December 31, 2016, and without the receipt of additional funds from license and collaboration agreements or additional equity or debt financing, it will be unable to fund its operations and make scheduled loan payments beyond February 2018. Therefore, the Company determined there is substantial doubt about its ability to continue as a going concern within one year after the date the consolidated financial statements are issued. The analysis used to determine the Company’s ability to continue as a going concern does not include cash sources outside of XOMA’s direct control that management expects to be available within the next twelve months. 

The Company may not be able to obtain sufficient additional funding through monetizing certain of its existing assets, entering into new license and collaboration agreements, issuing additional equity or debt instruments or any other means, and if it is able to do so, they may not be on satisfactory terms. The Company’s ability to raise additional capital in the equity and debt markets, should the Company choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for the Company’s common stock, which itself is subject to a number of pharmaceutical development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company. Consistent with the actions the Company has taken in the past, including the restructuring in December 2016, it will take steps intended to enable the continued operation of the business which may include out-licensing or sale of assets and reducing other expenditures that are within the Company’s control. These reductions in expenditures may have a material adverse impact on the Company’s ability to achieve certain of its planned objectives. Even if the Company is able to source additional funding, it may be forced to significantly reduce its operations if its business prospects do not improve. If the Company is unable to source additional funding, it may be forced to shut down operations altogether. These consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event the Company can no longer continue as a going concern.

Reverse Stock Split

In October 2016, the Company’s stockholders voted at a special meeting of stock holders to approve a series of alternate amendments to the Company’s Amended Certificate of Incorporation to effect a reverse stock split of the Company’s issued and outstanding common stock. The Company’s Board of Directors then approved a specific reverse split ratio of 1-for-20. The par value per share of the Company’s common stock and preferred stock remained at $0.0075 and $0.05, respectively. The consolidated financial statements have been retroactively adjusted to reflect the reverse stock split for all periods presented.