UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
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þ Annual report under Section 13 or
15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2007.
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¨ Transition report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
transition period from _____ to
_____.
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Commission
File Number 0-8092
(Exact
name of small business issuer as specified in its charter)
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Delaware
(State
or other jurisdiction of
incorporation
or organization)
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94-1620407
(I.R.S.
employer
identification
number)
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323
Vintage Park Drive, Suite B, Foster City, CA 94404
(Address
of principal executive offices and zip code)
(650)
212-2568
(Registrant’s
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act: NONE
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $.001 par value
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. ¨
Check
mark whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES þ NO ¨
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES ¨ NO þ
The
issuer’s revenues for its fiscal year ended December 31, 2007 were
$6,049,000.
Aggregate
market value of the common equity held by non-affiliates of the issuer as of
April 4, 2008 was $2,107,539.
Number of
shares outstanding of the issuer’s common stock as of April 4, 2008: 46,850,809
shares.
PART
I
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
annual report on Form 10-KSB and the documents incorporated by reference include
“forward-looking statements.” To the extent that the information presented in
this report discusses financial projections, information or expectations about
our business plans, results of operations, products or markets, or otherwise
makes statements about future events, such statements are forward-looking. Such
forward-looking statements can be identified by the use of words such as “may,”
“will,” “should,” “might,” “would,” “intends,” “anticipates,” “believes,”
“estimates,” “projects,” “forecasts,” “expects,” “plans,” and “proposes.”
Although we believe that the expectations reflected in these forward-looking
statements are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements. These include, among others, the cautionary
statements in the “Risk Factors” and “Management’s Discussion and Analysis and
Plan of Operation” sections of this report. These cautionary statements identify
important factors that could cause actual results to differ materially from
those described in the forward-looking statements. When considering
forward-looking statements in this report, you should keep in mind the
cautionary statements in the “Risk Factors” section and “Management’s Discussion
and Analysis or Plan of Operation” section below, and other sections of
this report.
The
statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including,
without limitation, statements regarding our expectations, objectives,
anticipations, plans, hopes, beliefs, intentions or strategies regarding the
future.
All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. It is important to note that our actual results
could differ materially from those included in such forward-looking statements.
For a more detailed explanation of such risks, please see “Risk Factors” below.
Such risks, as well as such other risks and uncertainties, are detailed in our
SEC reports and filings including a discussion of the factors that could cause
actual results to differ materially from the forward-looking
statements..
The
following discussion should be read in conjunction with the audited consolidated
financial statements and the notes included in this report on Form 10-KSB and
the section entitled “Management’s Discussion and Analysis or Plan of Operation”
included in this report on Form 10-KSB.
ITEM
1. DESCRIPTION OF
BUSINESS
Recent
Events
On
January 11, 2007, Matthew Spolar, Vice President, Product Technology for Atkins
Nutritionals, Inc., was appointed to our board of directors.
In March
2007, we retained Kevin Pickard, a certified public accountant, to provide
management with support and assistance with regard to certain matters previously
handled by Michael Centron, our former Chief Financial Officer.
In April
2007, we entered into an Amended and Restated Exclusive License Agreement with
Alteon, Inc. (now Synvista Therapeutics, Inc.), under which we granted Alteon an
exclusive, sole, worldwide license to develop, manufacture and market BXT-51072
and related compounds covered by certain patent rights, with the right to
sublicense. This license agreement amends and supersedes the
Exclusive License and Supply Agreement previously entered into between OXIS and
HaptoGuard, Inc. (now part of Alteon) on September 28, 2004, as
amended. For additional details regarding this license agreement, see
the section entitled “Exclusive License Agreement with
Alteon” on page 26 of this report.
On April
12, 2007, Steven T. Guillen resigned from our board of directors.
On
September 24, 2007 our board of directors appointed Gary M. Post as the Chief
Operating Officer of OXIS International, effective immediately.
On
October 11, 2007, we entered into an Amendment to Advisory Agreement with
Ambient Advisors LLC. The Advisory Agreement between OXIS and Ambient
Advisors was originally signed on November 6, 2006. Gary M. Post, the
Chief Operating Officer of OXIS and a member of the OXIS board of directors, is
the manager of Ambient Advisors LLC. Pursuant to the Amendment, we agreed to
increase the Advisory Fee from $85,000 to $125,000 per annum, retroactive to the
October 15, 2007 (the Commencement Date of the Advisory Agreement) in
recognition of the fact that Mr. Post has spent approximately 50% of his time
providing the advisory services to us rather than the 33% originally
contemplated in the Advisory Agreement. A copy of the amended advisory agreement
is included as Exhibit 10.46 filed with this annual report on Form
10-KSB.
On
October 22, 2007, we entered into an engagement letter with Burrill &
Company, LLC, an investment banking and asset management firm based in San
Francisco, California. We engaged Burrill to explore strategic
alternatives and advise us with respect to potential merger and acquisitions,
partnering/licensing transactions and financing transactions.
On
December 20, 2007, Matthew Spolar resigned as a member of our board of
directors.
2006
Convertible Debenture and Warrant Financing
On
October 25, 2006, we completed a $1,694,250 financing with four accredited
investors, in which we issued convertible notes and warrants. The
debentures are subject to an original issue discount of 20.318% resulting in
proceeds to OXIS of $1,350,000 from the transaction. The debentures
are convertible at a conversion price of $0.35 per share, and the warrants are
exercisable at prices ranging from $0.35 to $0.385 per share, as adjusted
pursuant to a full ratchet anti-dilution provision. The debentures
mature on October 25, 2008 and are secured with substantially all of our
assets. Further, the debentures are redeemable in cash or in stock
(subject to certain conditions) on a monthly basis beginning on February 1,
2007. We filed a registration statement to cover the resale of the
common stock underlying the debentures and warrants, on December 8, 2006, which
was declared effective on February 12, 2007. For further details
regarding the terms of this financing, refer to the section below entitled
“Recent Sales of Unregistered Securities” on page 20 of this
report.
We have
not made required monthly redemption payments beginning on February 1, 2007 to
purchasers of debentures issued in October 2006. Pursuant to the
provisions of the Secured Convertible Debentures, such non-payment is an event
of default. Penalty interest accrues on any unpaid redemption balance
at an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law until such amount is paid in full. Upon
an event of default, each purchaser has the right to accelerate the cash
repayment of at least 130% of the outstanding principal amount of the debenture
plus accrued but unpaid liquidated damages and interest. If we fail
to make such payment in full, the purchasers have the right sell substantially
all of our assets pursuant to their security interest to satisfy any such unpaid
balance. The Monthly Redemption Amount is approximately $85,000 and
as of March 1, 2008 we were 14 months behind. We would have to issue
approximately 6,839,271 shares of common stock to satisfy the Monthly Redemption
Amount and unpaid interest totaling approximately $904,000 in
arrears. We are in active negotiations with the debenture holders to
amend the debentures in a manner which would remove the current status of
technical default. Until final agreement is reached on such potential
amendments, we cannot give any assurance that the debenture holders will
continue to forbear from enforcing the terms applicable in the case of
default.
BioCheck
Acquisition
On
September 19, 2005, we entered into a stock purchase agreement with BioCheck,
Inc., a privately held California corporation, or BioCheck, and its stockholders
to purchase all of its common stock for $6.0 million in cash. In
September 2005 we acquired a 51% interest in BioCheck and in the third quarter
of 2007 we purchased an additional 2% of BioCheck shares. We have the option to
purchase the remaining 47% of BioCheck, Inc. For additional details
regarding this transaction, refer to the description of the business of BioCheck
on page 9 of this report.
BUSINESS
We are
presenting the business descriptions of the parent company OXIS International,
Inc. (“OXIS, the Company, parent”), followed by that of our 53% owned
subsidiary, BioCheck, Inc., in separate sections for greater
clarity.
OXIS
INTERNATIONAL, INC.
OXIS
International, Inc. focuses on the research and development of technologies and
therapeutic products in the field of oxidative stress/inflammatory reaction,
diseases that are associated with damage from free radicals and reactive oxygen
species. Biological free radicals are the result of naturally occurring
processes such as oxygen metabolism and inflammatory reactions. Free radicals
react with key organic substances such as lipids, proteins and DNA. Oxidation of
these biomolecules can damage them, disturbing normal functions and may
contribute to a variety of disease states. Organ systems that are predisposed to
oxidative stress and damage are the pulmonary system, the brain, the eye,
circulatory system, and reproductive systems. OXIS has invested
significant resources to build a substantial patent position on our portfolio of
antioxidant therapeutic technologies and selected oxidative stress/inflammatory
reaction assays. A prime objective of OXIS is to use its broad
portfolio of oxidative stress biomarkers to identify associations between
reactive biomarker signals and various disease etiologies and
conditions.
We
presently derive our revenues primarily from sales of research diagnostic
reagents and assays to medical research laboratories. Our products include
approximately 45 research reagents and 26 assays to measure markers of oxidative
stress. We hold
the rights to four therapeutic classes of compounds in the area of oxidative
stress and inflammation. One such compound is L-Ergothioneine, a potent
antioxidant produced by OXIS that may be appropriate for sale over-the-counter
as a dietary supplement.
Marketed
Products
We have
developed, commercialized and marketed an extensive product line that provides
several types of tools for researchers to identify and measure the balance
between oxidative, nitrosative, antioxidant and inflammatory biomarkers in
biological samples. We offer more than 70 research products for sale, including
26 research assay test kits for markers of oxidative and nitrosative
stress. We also market antibodies, enzymes and controls for use primarily in
research laboratories. The antibodies provide detection of oxidative,
nitrosative, antioxidant and inflammatory markers in some cases different from
those measured by our assay test kits. The enzymes have been shown in early
in vitro studies and
preclinical animal studies to allow manipulation and control of oxidative
biomarkers of protein and DNA, nitric oxide, antioxidant enzymes and
inflammatory neutrophils. Our assays are useful, as shown in controlled in vitro studies and in vivo preclinical studies,
in monitoring oxidative biomarkers of lipids, proteins and DNA, and nitrosative
and antioxidant biomarkers. In addition, we have marketed the antioxidant
Ergothioneine to selected customers, including prominent industry leaders in the
cosmetics industry.
OXIS
Research Assays
Our
primary research assay product line is comprised of 26 assay test kits which
measure key markers in free radical biochemistry for oxidative and nitrosative
stress. Specifically, these assays measure levels of general and
specific antioxidant activity, oxidative alterations to lipid, protein and DNA
substrates, and pro-oxidant activation of specific white blood cells. As of the
date of this report, we along with BioCheck are manufacturing research assays
under a Mutual Services Agreement between BioCheck and us. If
BioCheck ceased participating in the manufacture of our research assays before
we engaged an alternative manufacturer, our business would be adversely
affected. Ten other research assays are manufactured by third party
suppliers pursuant to private label arrangements or in-house development and
manufacture.
Our
research assay test kits utilize either chemical (colorimetric) or
immunoenzymatic (EIA) reactions that can be read using laboratory
spectrophotometers and/or microplate readers, respectively. We
believe our assays offer advantages over other laboratory methods, including
ease of use, speed, specificity, accuracy and proprietary
technology. Our research assays for markers of oxidative stress are
generally protected by trade secrets, and to some extent,
patents. Five U.S. patents and eight international patents have been
issued with respect to these assays. The oxidative stress assays are sold under
the registered trademark “Bioxytech.” We continue to offer a few
proprietary antioxidants and specialty chemicals but our product development
focus and support are directed at assays, antibodies and enzymes in the area of
oxidative and nitrosative stress.
Ergothioneine
L-Ergothioneine
(ERGO) is a naturally occurring, water soluble, antioxidant amino acid molecule
found in most animals and plants. It is considered one of the most potent
biological antioxidants known. ERGO neutralizes hydroxyl free
radicals and hypochlorous acid, which are common products of immune and
inflammatory responses in vivo. This nutrient increases respiration
and oxidation of fat, protects the mitochondria from damage due to environmental
ultraviolet radiation and aids in the detoxification of the liver. We
have developed the only published and patented method for producing commercial
quantities of enantiomerically pure ERGO, which is analytically
indistinguishable from the biological material. We hold the patents and
patent applications for the protective effect of ERGO on mitochondria, the
commercial preparation process and the neuroprotective effects of
ERGO.
OXIS has
sold ERGO to selected customers in past years as a potentially anti-aging component in
skin care products sold by the cosmetics industry and to a new customer for use
in veterinary fertility. Sales of ERGO were $49,753 in 2007 and
$1,000 in 2006. Sales during 2007 were made to Minitube of America
which utilizes ERGO as part of a cocktail of compounds added to animal semen as
a cellular preservative to improve artificial insemination. Sales during 2006
were made to three customers in research quantities. We have not received any
indication that additional orders are expected. We can give no
assurances that sales of ERGO to this customer or cosmetics industry customers
will continue.
Mutual
Services Agreement with BioCheck
On June
23, 2006, we entered into a mutual services agreement with BioCheck. Each of
OXIS and BioCheck will provide certain services to the other corporation to be
charged monthly at an hourly rate with an overhead surcharge. The services that
BioCheck will provide include assisting as requested in manufacturing
of our research assay test kits, assisting as requested in packaging
and shipping such research assay test kits to our customers, and undertaking
research and development of certain new OXIS research assay test kits on a
case-by-case basis to be agreed upon between the parties. We will provide
services to BioCheck, including marketing and sales and materials requirement
and control systems.
The
agreement terminates on December 6, 2009, or earlier upon mutual consent of the
parties, upon 90 day prior written notice by either party, by either party if a
monthly billing is unpaid after 60 days if a 15 day notice and opportunity to
cure has been provided, or upon a material breach of the Agreement after 30
days’ notice and opportunity to cure the breach.
Marketing
We market
products and technologies related to oxidative stress. Oxidative stress occurs
as a result of an imbalance between damaging free-radicals and related molecules
and their inactivation by antioxidants. Oxidative stress can cause tissue injury
by triggering cell death or inciting a tissue-damaging inflammatory
response.
During
2007, we continued to market our research diagnostic assay products to
professional scientists in academia, industry and government through our OXIS
Research catalog. Our marketing program is centered on targeting
medical, environmental and various industry audiences interested in oxidative
and nitrosative stress. Nitrosative stress occurs when the generation
of reactive nitrogen species in a system exceeds the system’s ability to
neutralize and eliminate them. Primary vehicles for this marketing
program include printed literature, the OXIS Research website and attendance at
conferences targeting neuroscience, cancer, cardiac and nutritional
researchers.
Our
assays for markers of oxidative stress are currently being sold both directly by
us and through a network of distributors to researchers primarily in the United
States, Europe and the Pacific Rim. We estimate that there are more
than 10,000 scientists and clinicians who are working directly in research on
free radical biochemistry, and who are potential customers for these research
diagnostic assays. We continue to seek to strengthen our
international distribution network by adding new distributors around the world.
These distributors are primarily focused on sales of research products in the
life science market. In 2007, 48 distributors accounted for approximately 42% of
our total revenues. Although we have not recruited distributors for
Ergothioneine, we intend to establish and implement a plan to do so in the
future.
During
2007, approximately 10% of our total revenues were from Funakoshi, a distributor
customer located in Japan. We expect revenues from sales to Funakoshi
for fiscal year 2008 to be similar to those in 2007.
Foreign
Operations and Export Sales
Revenues
attributed to countries outside the United States based on the location of
customers were:
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2006
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2007
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|||||||
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Japan
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$ | 149,000 | $ | 133,000 | ||||
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Korea
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55,000 | 55,000 | ||||||
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Poland
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53,000 | 42,000 | ||||||
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France
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50,000 | 41,000 | ||||||
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Canada
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37,000 | 46,000 | ||||||
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Other
foreign countries
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277,000 | 232,000 | ||||||
Revenues
to other foreign countries included sales in more than 40
countries. International revenue accounted for 45% of our 2007
revenues.
Other
OXIS Therapeutic Compounds
Our
therapeutic and nutraceutical product portfolio includes four classes of
antioxidant molecules: glutathione peroxidase mimics including BXT-51072 which
has been out-licensed and is discussed below concerning out licensed technology,
Ergothioneine analogs, lipid soluble antioxidants and superoxide dismutase
(Palosein/Orgotein).
Ergothioneine
as a Veterinary Product
On March
21, 2007, we signed a supply agreement for ERGO with Golden Gourmet Mushrooms
(GGM) of San Marcos, CA, a leading marketer to the human and veterinary industry
of natural organic dietary supplements. OXIS will allow GGM to market
the product for veterinary use under our owned trademark, ERGOLDTM. GGM
currently markets Mushroom Matrix to the United States human market, equine
market and small animal pet market as a natural organic dietary
supplement. GGM’s marketing plan is
to add ERGO (ERGOLDTM) to the
Mushroom Matrix product to produce nutritional products with the ability to
improve normal cellular and immune function in the veterinary
field. Research data revealing the in-vitro potency of ERGO as an
antioxidant and also its ability to suppress viral replication was shown in a
recently published paper entitled “Activity of the Dietary Antioxidant
Ergothioneine in a Virus Gene-Based Assay for Inhibitors of HIV
Transcription.” Potential future markets include making this product
available to domestic animals such as dogs and cats.
Ergothioneine
as a Nutraceutical Supplement
We
believe that our Ergothioneine compound may be well suited for development as a
nutraceutical supplement that can be sold over the counter in the human and
veterinary markets and we intend to pursue the development of Ergothioneine for
use in such markets. We have outsourced the manufacturing of the raw
material and we are working to expand this manufacturing capacity as well as
reduce the cost of producing this product. We are currently
discussing with our manufacturer the production of increased quantities of ERGO
at a purity level that is acceptable for the human and veterinary
market. Minituble of America has undertaken a large animal fertility
study with ERGO and, with the help of OXIS, is evaluating new uses of ERGO as
well as promoting increased use of this product by veterinary
practitioners.
Lipid
Soluble Antioxidants Patented Compound Group
Our lipid
soluble antioxidant molecules are designed to mimic the activity of the body’s
natural cell membrane-protecting antioxidant, vitamin E. Molecules
from this series are 20 to 40 fold more potent than vitamin E and move into cell
membranes much more quickly, making them more appropriate as drugs than the
natural vitamin. The primary disease targets for this series of
molecules will include neurodegenerative diseases such as Alzheimer’s and
Parkinson’s disease as well as cardiovascular diseases.
Bovine
Superoxide Dismutase (bSOD)
bSOD is a
naturally occurring genzyme found in essentially all living
organisms. bSOD catalyzes the destruction of the “Superoxide”
molecule. OXIS bSOD, under the brand name Orgotein, was marketed in
Europe by Tedec-Meiji until about two years ago. The marketing of
Orgotein ceased after Diosynth, a manufacturing division of Akzo Nobel, stopped
producing products derived from animal sources. OXIS is cooperating
with Tedec-Meiji to find another suitably acceptable manufacturer of GMP
biologic products. This product has been used in Spain for many years
in the prevention of Radiation Fibrosis and scarring in patients with Colerectal
Carcinoma undergoing radiation treatment. Palosein (bovine superoxide
dismutase) is our proprietary free radical scavenger, which has demonstrated
clinical efficacy as a potent anti-inflammatory drug for tendon and ligament
injuries, arthritis and disc disease in dogs and horses. The product
had been marketed under the brand name Palosein for veterinary use in the United
States. The FDA notified us in 2000 that an updated release
formulation protocol must be submitted to the agency for approval prior to any
further marketing in the U.S. of this product. As a result of the FDA
action, our stored supply of Palosein is currently under
quarantine. We are currently evaluating various paths to facilitate
reintroduction of Palosein/Orgotein to the marketplace.
OXIS
International Inc and Dr. Zeljko Vujaskovic, Department of Radiation Therapy,
Duke University Medical Center, Raleigh Durham, NC, have established a
scientific relationship to research and develop the OXIS portfolio of superoxide
dismutase drugs in the prevention and treatment of radiation-induced human
diseases. This scientific collaboration was established with the
submission of a research grant proposal to BARDA and the National Institute of
Allergy and Infectious Diseases. BARDA manages Project BioShield,
which includes the procurement and advanced development of medical
countermeasures for chemical, biological, radiological, and nuclear agents, as
well as the advanced development and procurement of medical countermeasures for
pandemic influenza and other emerging infectious diseases that fall outside the
auspices of Project BioShield. In addition, BARDA manages the
Public Health Emergency Countermeasures Enterprise (PHEMCE).
We intend
to focus on and intensify our efforts to form diagnostic, pharmaceutical and
nutraceutical relationships and strategic partnerships with larger companies for
the purpose of further developing and exploiting our antioxidant
molecules. No assurance can be given that our efforts will generate
the results anticipated by our management or will in the future be favorable to
us.
Out-Licensed
Technology
Our lead
therapeutic drug candidate, BXT-51072 (BXT), is a low molecular weight oral drug
that mimics the antioxidant enzyme known as glutathione peroxidase. BXT directly
neutralizes hydrogen peroxide and appears to protect cells from peroxide
mediated damage. It also inhibits nucleic transcription and prevents the
activation of cytokines, adhesion molecules and inflammatory enzymes, which are
all mediators of inflammation. We completed a Phase IIA clinical trial in
inflammatory bowel disease with BXT-51072 in 1999. This Phase IIA trial was a
multi-center, nonrandomized, open-label, two-arm study which assessed the
safety, pharmacokinetics, and efficacy of BXT-51072; clinical results showed
potential promise as a therapeutic agent in GI disease. Due to the lack of
financial resources, we ceased further testing of BXT-51072 at that time until
further funding could be obtained.
In
September 2004, we entered into an Exclusive License and Supply Agreement
relating to BXT-51072 and related compounds with HaptoGuard, Inc., a New York
based biopharmaceutical company which has since been merged into Alteon Inc.
Under the agreement, we granted Alteon exclusive worldwide rights, in certain
defined areas of cardiovascular indications, to develop, manufacture and market
BXT-51072 and related compounds from our library of such antioxidant compounds.
Under the license agreement, Alteon (as successor of Haptoguard) is responsible
for worldwide product development programs with respect to the licensed
compounds. We received an upfront license fee of $450,000, and Alteon is
obligated to pay royalties on net sales of certain licensed products, and
additional fees in excess of US $21 million for the achievement of development
milestones as well as regulatory approvals. There can be no assurances that
royalty payments will result or that milestone payments will be
realized.
On April
2, 2007 we entered into an Amended and Restated Exclusive License Agreement with
Alteon, Inc. pursuant to which we granted Alteon an exclusive, sole, worldwide
license to develop, manufacture and market BXT-51072 and related compounds
covered by certain patent rights, with the right to sublicense. In
July 2007, Alteon changed its name to Synvista Therapeutics,
Inc. This license agreement amends and supersedes the Exclusive
License and Supply Agreement previously entered into between OXIS and
HaptoGuard, Inc. (now part of Alteon) on September 28, 2004, as
amended. Under the new agreement, Alteon agreed to invest a minimum
of $7.5 million over a three-year period following the effective date of the
agreement, in its development program for the development, discovery and
manufacture of licensed products based on the processes and compounds covered
under the license. Alteon’s lead compound under the previous license,
ALT-2074 (formerly BXT 51072) is currently in a Phase 2 clinical study for
cardiovascular indications and is one of a family of licensed compounds that are
orally bioavailable organoselenium compounds that have demonstrated potent
anti-oxidant and anti-inflammatory properties in clinical and preclinical
studies. Unlike the previous license agreement with HaptoGuard, in
this Amended and Restated Exclusive License Agreement, the license is not
limited in relation to particular clinical indications. Under the license
agreement, Alteon is responsible for funding product development programs with
respect to the licensed compounds. OXIS received a non-refundable up-front
license fee of $500,000 and Alteon is obligated to pay royalties on net sales of
licensed products, with certain adjustments under certain conditions, as well as
additional fees for the achievement of certain development and regulatory
approval milestones. There can be no assurances that royalty payments
will result or that milestone payments will be realized. In addition,
on August 3, 2007, Alteon purchased 2,083,333 shares of common stock at $0.24
per share resulting in net proceeds to us of $500,000. Alteon shall
control, prosecute and maintain all licensed patents and shall be responsible
for all costs and expenses in connection with the filing, prosecution and
maintenance of the licensed patents.
We have
the right to terminate the license agreement if Alteon fails to pay us any
required payments under the license agreement and such failure is not cured
after written notice. Alteon may terminate the agreement by providing
us with 180 days’ written notice. Either party may terminate the agreement upon
30 days’ written notice upon certain events relating to the other party’s
bankruptcy, insolvency, dissolution, winding up or assignment for the benefit of
creditors, or upon the other party’s uncured breach of any material provision of
the agreement. Otherwise, the license agreement terminates upon the expiration
of the underlying patents relating to the licensed compounds, on a country by
country basis. A copy of the license agreement is included as Exhibit 10.45
filed with this annual report on Form 10-KSB.
BIOCHECK,
INC.
Our
majority-held subsidiary, BioCheck, is a leading producer of clinical diagnostic
assays, including high quality enzyme immunoassay research services and
immunoassay kits for cardiac and tumor markers, infectious diseases, thyroid
function, steroids, and fertility hormones designed to improve the accuracy,
efficiency, and cost-effectiveness of in vitro (outside the body)
diagnostic testing in clinical laboratories. BioCheck focuses primarily on the
immunoassay segment of the clinical diagnostics market. BioCheck manufactures
over 40 clinical diagnostic assays in its 15,000 square-foot, U.S. Food and Drug
Administration, or FDA, certified Good Manufacturing Practices
device-manufacturing facility in Foster City, California.
On
September 19, 2005, we entered into a stock purchase agreement with BioCheck and
its stockholders to purchase all of its common stock for $6.0 million in cash.
BioCheck is a leading producer of enzyme immunoassay diagnostic kits for
clinical laboratories. On December 6, 2005, we purchased 51% of the shares of
BioCheck’s common stock from each of its stockholders on a pro rata basis for
$3,060,000 in cash. In the third quarter of 2007 we purchased an additional 2%
of BioCheck shares.
John
Chen, Ph.D., co-founded BioCheck in January 1997 and has since served as Chief
Executive Officer and Chairman of the Board. He is a biochemist and clinical
chemist with 30 years of research and development and assay development
expertise. Dr. Chen has developed over 50 enzyme immunoassay and rapid tests, a
number of which have been approved for marketing by the FDA. His technical
expertise in immunology and biochemistry is complemented by his ability to
facilitate technology transfer from research and development to
manufacturing.
Prior to
co-founding BioCheck, Dr. Chen co-founded Medix Biotech, Inc. in 1983,
specializing in monoclonal/polyclonal antibodies, enzyme immunoassay test kits,
and rapid test kits. Following Medix Biotech’s acquisition by Genzyme
Corporation in 1992, Dr. Chen remained as Vice President of Research and
Development until 1995. Between 1981 and 1983, he co-founded Pacific
Biotech Inc. that was subsequently acquired by Eli Lilly and Company in
1990. At Pacific Biotech, Dr. Chen was instrumental in the
development of the first rapid pregnancy test. He also previously served
research scientist roles at Sigma Chemical, Mallinckrodt, and Beckman
Instruments. Dr. Chen co-founded Rapid Diagnostics, Inc. in 1998,
specializing in the development of rapid diagnostic test kits for the drugs of
abuse. The company was acquired by ICN Pharmaceuticals, Inc. in 2002.
Dr. Chen holds a B.S. in Chemistry from Tunghai University in Taiwan and a Ph.D.
in Biochemistry from the University of Alberta, Edmonton, Canada.
Effective
December 6, 2005 and in connection with our initial acquisition of a 51%
majority stake in BioCheck, Dr. Chen entered into an executive
employment agreement, under which Dr. Chen became employed as President of
BioCheck. Dr. Chen has agreed to devote not less than 90% of his
business time and efforts to the primary business of BioCheck. In the event that
BioCheck terminates the employment of Dr. Chen at any time other than for cause,
Dr. Chen will receive an amount equal to 12 months of his then-current base
salary.
BioCheck
Products and Services
BioCheck
offers its clinical laboratory and in vitro diagnostics
customers over 40 clinical diagnostic assays manufactured in its 15,000
square-foot, U.S. Food and Drug Administration, or FDA, certified Good
Manufacturing Practices device-manufacturing facility in Foster City,
California. Of the 40 total clinical diagnostic assays offered by
BioCheck, 17 clinical diagnostic assays have been cleared by the FDA for
marketing and sales and a number of its products have FDA certificates to
foreign governments and certificates of exportability. BioCheck’s
clinical diagnostic kits have been registered in Brazil, China, India, Italy,
Taiwan, Turkey, and the United Kingdom, and BioCheck’s distributors deliver its
products to countries in Central and South America, Europe, the Middle East, and
Asia.
BioCheck
Clinical Diagnostics
The
clinical diagnostics market consists of companies that develop and manufacture a
wide array of instruments, immunoassays reagents and data analysis
tools. Diagnostic instruments are the key hardware components, such
as automated immunoassay analyzers, used in the automatic processing of the
diagnostic tests. Reagents are the bioactive test ingredients which,
when combined with the biologically derived samples, provide the diagnostic test
results. The analysis tools, such as software programs and
applications, assist the researchers and clinicians in the interpretation of
data collected from high-volume analyzers and reagents.
BioCheck
focuses primarily on the immunoassay segment of the clinical diagnostics
market. The simplified, basic components of any immunoassay system
are: an antigen, an antibody specific to this antigen, and a system to measure
the amount of the antigen in a given sample. The commonly used
immunoassays share four common components required to produce a high quality
immunoassay product: a supply of high-purity antigens, a supply of high quality,
specific monoclonal or polyclonal antibodies, a stable detection system, and a
precise method for separating the bound detection system at the end of the
reaction. The ability to develop, isolate and maintain the antibodies
is a critical component of immunoassay technology.
BioCheck’s
primary product line consists of enzyme linked immunoassay, or ELISA, kits that
are widely used in medical laboratory settings. An ELISA test
consists of linking an antibody or antigen to an enzyme in order to detect a
match between the antibody and antigen. An ELISA test is used to
detect specific antigens in a biological sample and the presence of antibodies
attached to specific antigenic sites on proteins or other molecules in a
biological sample.
The
primary antibody development platform of BioCheck utilizes hybridoma
technology. This process creates monoclonal antibodies to precisely
measure very low concentrations of proteins in blood and plasma. The
ability to express, isolate and maintain high-quality antibodies is a critical
component of immunoassay test kit technology. BioCheck uses standard
chromatography technology and its proprietary antibody conjugation methods for
its antibody purification services and antibody conjugates. We
believe that BioCheck’s products and services exceed industry average standards
for stability and purity.
Test kits
manufactured by BioCheck identify the existence, and in some cases the amount,
of a specific molecule, or marker, that is an indicator of a condition or
disease state. These test kits are applicable to cardiac markers;
tumor markers for liver, ovarian, breast, prostate and gastrointestinal
conditions; infectious diseases including pregnancy-related panel screens for
toxoplasmosis, rubella, cytomegalovirus, and the herpes virus; thyroid function;
steroids including Estradiol, Progesterone, Testosterone, and Estriol; and
fertility hormones.
BioCheck’s
revenues from product shipments were $3.9 million in 2007, $3.7 million in 2006
and $3.5 million in 2005.
BioCheck
Research Reagents and Assay Kits
BioCheck
currently has several products under development for cancer,
cardiac/inflammatory and angiogenesis research applications. Among these
products, BioCheck has marketed the following ELISA kits to the research market
in 2006 and early 2007:
|
·
|
Reagents
for the detection of HMGA2, a marker for aggressive breast
cancer;
|
|
·
|
Research
assays for the detection of HMGA2;
and
|
|
·
|
A
new myeloperoxidase research assay, based on an inflammatory protein that
has utility as a prognostic marker for cardiac
events;
|
A
research assay and reagents for the detection of HMGA2, a marker for aggressive
breast cancer, have been marketed since July 2006. Myeloperoxidase is
an inflammatory protein that has utility as a prognostic marker for cardiac
events. A new myeloperoxidase research assay has been developed that resulted in
commercial sales in November 2006. Id proteins play a
central role in cell differentiation, and Id1 and Id3 play a central and
critical role in tumor related angiogenesis. BioCheck has developed research
assays and rabbit monoclonal antibodies for the detection of human and mouse Id
proteins. BioCheck began making Id protein reagents commercially
available in January 2007, and the Id protein assays were launched commercially
in the first quarter of 2007.
BioCheck
Cardiovascular Markers
Coronary
heart disease, or CHD, is the most common form of heart disease caused by a
narrowing of the coronary arteries that feed the heart. It is the number one
cause of mortality for both men and women in the U.S. Approximately
seven million Americans suffer from CHD and more than 500,000 Americans die of
heart attacks caused by CHD every year. The National Heart, Lung, and
Blood Institute sponsored a multi-center epidemiologic study in 2003. Increased
levels of lipoprotein-associated phospholipase, or Lp-PLA2, in patients followed
in this study have been linked to increased risk of CHD. In collaboration with
diaDexus, BioCheck has developed and manufactures an FDA cleared clinical
diagnostic test for Lp-PLA2 called the PLAC test. While the PLAC test
is not a stand-alone test for predicting CHD, it provides supportive evidence
when used with clinical evaluation and other tools for patient risk
assessment. An elevated PLAC level with an LDL-cholesterol level of
less than 130 mg/dL suggests that patients have two to three times the risk of
having coronary heart disease when compared with patients having lower PLAC test
results. BioCheck manufactures the PLAC test and diaDexus promotes and sells it
to the medical community. BioCheck’s revenues from PLAC test manufacturing and
services were approximately $131,000 in 2007, $520,000 in 2006 and $340,000 in
2005. OXIS management does not expect that BioCheck’s sales to diaDexus will be
a significant source of revenue in 2008.
BioCheck
Research Services
In
addition to clinical and research assay products, BioCheck provides various
research services to pharmaceutical and diagnostic companies
worldwide. Research services consist primarily of highly specialized
laboratory testing that enhances the speed, and lowers the clinical risk, of the
pharmaceutical development process. The services include custom
immunoassay development, antibody purification and conjugation, and immunoassay
assembly.
|
·
|
Custom Immunoassay
Development. With over 30 years of experience and the development
over 40 immunoassay products, BioCheck’s in-house research and development
team provides antibodies and antigens, and assists biotechnology and
pharmaceutical customers with the development of their immunoassay test
kits.
|
|
·
|
Antibody Purification and
Conjugation. Using chromatography technology and proprietary
antibody conjugation methods, BioCheck offers antibody purification
services and antibody conjugates. Stability testing has indicated that
BioCheck’s conjugates remain active for five
years.
|
|
·
|
Immunoassay Assembly Services.
Having developed over 40 immunoassay products, BioCheck has
exceptional test kit packaging experience and can provide custom
immunoassay assembly services for our
customers.
|
Further
Information Regarding OXIS and BioCheck
Research
and Development
BioCheck
invested $112,000, $518,000 and $432,000 in research and development in the
years 2007, 2006 and 2005, respectively. As of December 31, 2007,
BioCheck employed four employees in research and development. During 2007,
BioCheck’s research staff was primarily used to produce compounds for diagnostic
use and optimize methods for binding these compounds to biological reagents such
as antibodies. BioCheck employs a proprietary process for antibody
conjugation resulting in highly stable products. BioCheck also developed
proprietary clinical diagnostics tests that include promising new angiogenesis
tumor markers and an aggressive breast cancer marker, which were launched in the
fourth quarter of 2006.
Angiogenesis
Tumor Markers
In April
2004, BioCheck entered into a development and marketing agreement with
AngioGenex, Inc., a New York based development stage biopharmaceutical company
focused on creating products for the treatment, diagnosis and
prognosis of cancer (“AngioGenex”), for the diagnostic/prognostic
applications of Id proteins in angiogenesis, which is the formation of blood
vessels. The therapeutic and diagnostic applications of this process
were patented by Memorial Sloan-Kettering Cancer Center and Albert Einstein
Medical College and licensed to AngioGenex. The diagnostic
application was subsequently licensed to BioCheck.
Id genes
are expressed at high levels to produce Id proteins in many tissues during human
embryonic development, but are generally not expressed, or expressed at very low
levels, in adults except in some tumor cell types and tumor blood vessels. Id1,
Id2 and Id3 proteins have been closely implicated in tumor-associated
angiogenesis. Interfering with the action of the Id proteins may
prove to be very effective in preventing the growth and metastases of both early
and established tumors. Id proteins play a central role in cell
differentiation, and Id1 and Id3 play a central and critical role in tumor
related angiogenesis. The effectiveness of this approach has been demonstrated
in commercially available therapeutic drugs, such as Avastin™, which targets the
vascular endothelial growth factor. Such therapeutics have been
modestly effective, suggesting the need for research and development to identify
more powerful and specific agents for cancer therapy.
BioCheck’s
goal is to clinically validate an Id-based diagnostic/prognostic product in
collaboration with AngioGenex. During 2006, BioCheck’s research staff continued
to work on the clinical validation of potential diagnostic products based on Id
proteins related to tumor angiogenesis. Monoclonal antibodies to the
Id proteins are required in order to develop highly sensitive ELISA diagnostic
and prognostic tests. BioCheck has developed rabbit monoclonal anti-Id1, Id2,
Id3 and Id4 antibodies that can be used in cell and tissue extracts through
commonly utilized detection methods including Western Blot analysis,
immunohistochemistry staining and ELISA tests. Western Blot analysis
is a method of separating proteins by mass through a gel based process.
Immunohistochemistry staining is a process of localizing proteins in cells by
tagging their respective antibodies with color producing tags. ELISA tests are
used for measuring the amount of Id1, Id2, Id3 and Id4 proteins in cell culture
supernatants, and cell and tissue extracts. BioCheck began making Id
protein reagents commercially available in January 2007, and the Id protein
assays were launched commercially in the first quarter of 2007.
Aggressive
Breast Cancer Marker
In 2005,
BioCheck entered into a development and marketing agreement with HMGene, Inc.,
or HMGene, based in Piscataway, New Jersey for the development and manufacturing
of an ELISA test for the HMGA2 gene. The HMGA2 gene has been implicated in
aggressive forms of breast cancer. The detection technology for
tissue staining and peripheral blood samples related to the HMGA2 gene has been
patented by HMGene and licensed to BioCheck for the development of rabbit
polyclonal and monoclonal anti-HMGA2 antibodies. These antibodies can
be used for Western Blot analyses, immunohistochemistry staining and ELISA
assays.
While we
believe that these are potentially promising diagnostic products, no assurances
can be given that the company will have sufficient funding and resources to
continue research, development and commercialization of these
technologies.
Patents
and Trademarks
OXIS
Patent Portfolio
We are
substantially dependent on our ability to obtain and maintain patents and
proprietary rights for our marketed products and to avoid infringing the
proprietary rights of others. We have an extensive portfolio of
patents for diagnostic assays and several series of small molecular weight
molecules to detect, treat and monitor diseases associated with damage from free
radicals and reactive oxygen species. This portfolio provides
opportunities to apply our technologies to a wide range of diseases and
conditions of oxidative stress.
Patent
coverage includes aspects of all four of our classes of small molecular weight
antioxidant molecules. We hold the patents and patent applications for the
protective effect of Ergothioneine on mitochondria, the commercial preparation
process and the neuroprotectant methods and compositions of Ergothioneine. We have sublicensed to
HaptoGuard, Inc. (now Synvista Thereapeutics) three patents and one patent
application related to BXT-51072. Our assays for markers of oxidative
stress are generally protected by trade secrets, and to some extent,
patents. Five U.S. patents and eight international patents have been
issued with respect to these assays. The oxidative stress assays are
sold under the registered trademark BioxytechÒ. Associated
foreign patents have been issued in most cases and foreign patent applications
have been filed associated with the listed patents and patent
applications.
Below we
have listed selected patents and patent applications relating to our core
business including marketed products and sublicenses.
OXIS
Research Assay Patents
|
·
|
U.S.
Patent 5,726,063 issued March 10, 1998 for “Method of Colorimetric
Analysis of Malonic Dialdehyde and 4-Hydroxy-2-Enaldehydes as Indexes of
Lipid Peroxidation, Kits for Carrying Out Said Method, Substituted Indoles
for Use in Said Method and their Preparation” will expire on May 6,
2014.
|
|
·
|
U.S.
Patent 5,543,298 issued August 6, 1996 for “Method for Assaying the SOD
Activity by Using a Self-Oxidizable Compound Necessary for its
Implementation, Self-Oxidizable Compounds and Preparation Thereof” will
expire on August 6, 2013.
|
|
·
|
U.S.
Patent 6,235,495 issued May 1, 2001 for “Methods for the Quantiation of In
Vivo Levels of Oxidized Glutathione” will expire on November 12,
2019.
|
|
·
|
U.S.
Patent 5,861,262 issued January 19, 1999 for “Method of the Specific
Immunoassay of Human Plasma Glutathione Peroxidase, Kit for its
Implementation, Oligopeptides and Antibodies Specific for the Method” will
expire on January 19, 2016.
|
|
·
|
U.S.
Patent 5,817, 520 issued October 6, 1998 for “Spectrophotometric Methods
for Assaying Total Mercaptans, Reduced Glutathione (GSH) and Mercaptans
other than GSH in an Aqueous Medium, Reagents and Kits for Implementing
Same” will expire on December 15,
2012.
|
OXIS
Ergothioneine Patents
|
·
|
U.S.
Patent 5,438,151 issued August 1, 1995 entitled “Process for the
Preparation of Ergothioneine” will expire on February 8,
2014.
|
|
·
|
U.S.
Patent 6,103,746 issued August 8, 2000 entitled “Methods and Compositions
for the Protection of Mitochondria” will expire on February 19,
2018.
|
|
·
|
Patent
Application Serial No. 60/367,845 filed March 26, 2002 entitled
“Neuroprotectant Methods, Compositions and Screening Methods
Thereof”.
|
Selected
Licensed BXT-51072 Patents
|
·
|
U.S.
Patent 5,968,920 issued October 19, 1999 entitled “Novel Compounds having
a Benzoisoelen-Azoline and -Azine Structure, Method for Preparing Same and
Therapeutic Uses Thereof” will expire on April 7, 2015.
|
|
·
|
U.S.
Patent 6,093,532 issued July 25, 2000 entitled “Method for Storing a
Biological Organ Transplant Graft Using a Benzisoelen-Azoline or -Azine
Compound” will expire on April 7, 2015.
|
|
·
|
U.S.
Patent 5,973,009 issued October 26, 1999 entitled “Aromatic Diselenides
and Selenosulfides, their Preparation and their Uses, more Particularly
their Therapeutic Use” will expire on December 23,
2017.
|
|
·
|
U.S.
Patent 6,525,040 issued February 25, 2003 entitled “Cyclic Organoselenium
Compounds, their Preparation and their Uses” will expire on December 23,
2017.
|
These
patents can expire earlier if they are abandoned or are not adequately
maintained. We cannot assure you that corresponding patents will be
issued or that the scope of the coverage claimed in our patent applications will
not be significantly reduced prior to any patent being issued.
BioCheck
Patent Applications and Other Rights
As of
December 31, 2007, BioCheck had filed two patent applications covering research
and diagnostic assays to detect Id1 and Id2 related to tumor
angiogenesis. Angiogenesis is the formation of blood vessels in
tumors.
In April
2004, AngioGenex and BioCheck entered into an agreement to develop cancer
diagnostic and prognostic products based on the Id-gene platform technology
licensed exclusively to AngioGenex by the Albert Einstein College of Medicine
and the Memorial Sloan Kettering Cancer Center. The agreement assigns
to BioCheck exclusive rights to develop and market diagnostics based on
AngioGenex’s Id technology in return for royalties.
A
critical component of the clinical validation of an Id protein-based
diagnostic/prognostic product is the development of monoclonal antibodies, or
mAbs, to the Id proteins. Id proteins play a significant role in the process of
tumor related angiogenesis and other functions related to blood vessel
formation. BioCheck has developed rabbit monoclonal anti-Id1, Id2 and
Id3 antibodies for Western Blot analyses and immunohistochemistry staining, and
ELISA tests for measuring Id1, Id2 and Id3 in cell culture supernatants, and
cell and tissue extracts.
AngioGenex
and BioCheck have filed joint patent applications for the mAbs to the Id
proteins. Under the joint patent application, BioCheck has the exclusive rights
to the diagnostic applications of the Id proteins while AngioGenex owns the
rights for the therapeutic drug applications. U.S. Provisional Application
Serial No. 60/691,060 was filed on June 16, 2005 related to the Id1 protein,
titled “Novel Rabbit Monoclonal Antibodies to Id1”. The patent
application related to the Id3 protein, titled “Rabbit Monoclonal Antibody
Against Human Id3 Protein” was filed on January 27, 2006.
BioCheck
has filed a patent application for a clinical diagnostic related to the troponin protein complex.
Certain types of troponin including cardiac troponin I and T are highly
sensitive and specific indicators of damage to the heart muscle. Myocardial
infarction, or a heart attack, can be differentiated from unstable angina, or
pain, by measuring troponin in the blood in patients with chest pain. Patent
application serial number 11/116,290 was filed April 28, 2005 titled
“Immunoassay for Cardiac Troponin-I in Non-Human Mammalian Species.” John Chen
is a co-inventor of the immunoassay that is the subject of this patent
application.
Competition
According
to Boston Biomedical Consultants and Morgan Stanley Research estimates, the
worldwide clinical diagnostics market including instruments, immunoassays, rapid
diagnostic tests and data analysis tools was approximately $22 billion in sales
revenue in 2004 and increased approximately 9% from the previous year.
Competition in the clinical diagnostics market is intense and highly fragmented,
with the largest competitor, Roche Diagnostics, holding a 16% market
share.
BioCheck’s
direct competitors are developers and manufacturers of research and clinical
diagnostic products and include, but are not limited to, Adaltis Inc., BioSource
International, Inc., Diagnostic Products Corporation, Monobind, Inc. and
BioClone Australia Pty Ltd.
In order
to continue to successfully market BioCheck’s products and services, the company
will be required to demonstrate that its immunoassay products meet or exceed the
industry standards for quality as measured by high levels of purity, stability,
precision of measurement and cost effectiveness. The company’s
competitors may succeed in developing or marketing products that are more
effective or commercially attractive. The launch of these competitive
products may adversely impact the market pricing for BioCheck’s products as some
of these competitors have substantially greater financial, technical, research
and development resources and more established marketing, sales, distribution
and service organizations.
Government
Regulation
In the
United States, our current products and manufacturing practices are not subject
to regulation by the United States Food and Drug Administration, or FDA,
pursuant to the Federal Food, Drug and Cosmetic Act as it relates to research
products. Development, manufacture and marketing of clinical diagnostic products
which we are currently pursuing and therapeutic compounds are regulated by the
FDA. We believe that we currently are in compliance with all such
regulations and intend that in the future all of our diagnostic and therapeutic
developments will be in compliance with these regulations, as
needed.
Employees
As of
December 31, 2007, we had five full time employees, including two scientists in
manufacturing/research and development, two employees in administrative and
operational support and one executive officer. None of our employees
are subject to a collective bargaining agreement. We believe our
relationship with our employees is good, and we have never experienced an
employee-related work stoppage.
As of
December 31, 2007, BioCheck employed 23 full-time employees. Included among
BioCheck’s full-time are 14 technicians in manufacturing, four scientists and
research associates in research and development, two specialists in quality
control functions, and professionals in administrative and operational
support.
Facilities
We
maintain a facility adjacent to BioCheck at 323 Vintage Park Drive, Suite B,
Foster City, CA 94404, which also serves as our corporate
headquarters. BioCheck occupies a 15,000 square foot facility
adjacent to us, at Vintage Park, 323 Vintage Park Drive, Foster City, CA 94404.
For further details regarding our facilities, please refer to Item 2 --
“Description of Property” below, which is incorporated by
reference.
ITEM
2. DESCRIPTION OF
PROPERTY
In
December 6, 2005 we purchased 51% of BioCheck and initiated a transition plan to
consolidate all operations at BioCheck’s manufacturing
facility. Consequently, during 2006, we entered into a three-year
lease agreement commencing on April 1, 2006 for 4,136 square feet of space
immediately adjacent to BioCheck at 323 Vintage Park Drive, Suite B, Foster
City, CA 94404. These premises serve to accommodate the relocation
and consolidation of our corporate headquarters and operations.
BioCheck
occupies approximately 15,000 square feet of administrative, laboratory and
manufacturing space located at Vintage Park, 323 Vintage Park Drive, Foster
City, CA 94404, pursuant to a lease expiring in December 2008. The
facility has been certified according to the U.S. Food and Drug Administration,
or FDA, Good Manufacturing Practice standards, which are subject to annual
audits by the FDA. In addition, the facility has been certified to meet
the highest international manufacturing standard (ISO 13485) generally accepted
in Europe and Asia, according to the International Organization for
Standardization, or ISO. BioCheck believes that it is in compliance with all
other regulatory certifications applicable to its line of business, including
Device Manufacturing License for the state of California, Registration of Device
Establishment, Certificate of Foreign Government and Certificate of
Exportability.
ITEM
3. LEGAL PROCEEDINGS
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
We held
our Annual Meeting of Stockholders on November 9, 2007. Set forth below is
a summary of each matter voted upon at the meeting and the number of votes cast
for, against, withheld or abstained.
Proposal #1: The election of
Marvin S. Hausman, M.D., S. Colin Neill, John E. Repine, M.D., Gary M. Post and
Matthew Spolar to serve on our Board of Directors:
|
Nominee
|
Total
Votes For All Nominees
|
Total
Votes Withheld From All Nominees
|
||
|
Marvin
S. Hausman, M.D.
|
33,746,566
|
1,942,555
|
||
|
S.
Colin Neill
|
33,747,313
|
1,941,808
|
||
|
John
E. Repine, M.D.
|
33,748,908
|
1,940,213
|
||
|
Gary
M. Post
|
29,879,268
|
5,809,853
|
||
|
Matthew
Spolar
|
33,769,184
|
1,919,937
|
Proposal #2: Ratification of
the appointment of Williams & Webster, P.S. as our independent auditors for
the year ending December 31, 2007:
|
Total
Votes For
|
Total
Votes Against
|
Abstained
|
||
|
34,595,659
|
1,013,735
|
79,727
|
PART
II
|
MARKET FOR COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES
|
Our
common stock continues to be traded in the Over-The-Counter Bulletin
Board and remains listed in France on the Nouveau Marché and in Germany on
the Frankfurt Stock Exchange.
The
market represented by the OTCBB is limited and the price for our common stock
quoted on the OTCBB is not necessarily a reliable indication 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 periods noted, as reported on the
OTCBB. Quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
|
YEAR
|
PERIOD
|
HIGH
|
LOW
|
||||||
|
Fiscal
Year 2006
|
First
Quarter
|
$ | 0.38 | $ | 0.26 | ||||
|
Second
Quarter
|
$ | 0.44 | $ | 0.32 | |||||
|
Third
Quarter
|
$ | 0.36 | $ | 0.21 | |||||
|
Fourth
Quarter
|
$ | 0.28 | $ | 0.18 | |||||
|
Fiscal
Year 2007
|
First
Quarter
|
$ | 0.29 | $ | 0.20 | ||||
|
Second
Quarter
|
$ | 0.29 | $ | 0.15 | |||||
|
Third
Quarter
|
$ | 0.17 | $ | 0.10 | |||||
|
Fourth
Quarter
|
$ | 0.11 | $ | 0.07 | |||||
Stockholders
As of
April 4, 2008, we had approximately 46,850,809 shares of common stock issued and
outstanding which were held by approximately 1,044 stockholders of record, which
total does not include stockholders who hold their shares in street name. The
transfer agent for our common stock is ComputerShare, whose address is 250
Royall Street, Canton, Massachusetts 02021.
DIVIDEND
POLICY
Our board
of directors determines any payment of dividends. We utilize our
assets to develop our business and, consequently, we have never paid a dividend
and do not expect to pay dividends in the foreseeable future. Any
future decision with respect to dividends will depend on future earnings,
operations, capital requirements and availability, restrictions in future
financing agreements and other business and financial
considerations.
Recent
Sales of Unregistered Securities
October 2006 Convertible Debenture
and Warrant Financing. On October 25, 2006, we entered into a Securities
Purchase Agreement, or Purchase Agreement, with four accredited investors, or
the Purchasers. In conjunction with the signing of the Purchase Agreement, we
issued Secured Convertible Debentures, or Debentures, and Series A, B, C, D, and
E Common Stock Warrants, or Warrants, to the Purchasers, and the parties also
entered into a registration rights agreement and a Security Agreement, or
collectively, the Transaction Documents.
Pursuant
to the terms of the Purchase Agreement, we issued the Debentures in an aggregate
principal amount of $1,694,250 to the Purchasers. The Debentures are subject to
an original issue discount of 20.318% resulting in proceeds to OXIS of
$1,350,000 from the transaction. The Debentures mature on October 25, 2008, but
may be prepaid by us at any time provided that the common stock issuable upon
conversion and exercise of the Warrants is covered by an effective registration
statement. The Debentures are convertible, at the option of the Purchasers, at
any time, into shares of common stock at $0.35 per share, as adjusted pursuant
to a full ratchet anti-dilution provision, or the Conversion Price. Beginning on
February 1, 2007, we were required to amortize the Debentures in
equal installments on a monthly basis resulting in a complete repayment by the
maturity date, or the Monthly Redemption Amounts. The Monthly Redemption Amounts
can be paid in cash or in shares, subject to certain restrictions. If we choose
to make any Monthly Redemption Amount payment in shares of common stock, the
price per share is 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.
Pursuant
to the Debentures, we covenanted that we will not incur additional indebtedness
for borrowed money, other than our current Bridge Bank Promissory Note which was
owing at the time the Debenture financing was completed. The Bridge Bank
Promissory Note was paid in full in February 2007. We also covenant that we will
not pledge, grant or convey any new liens on its assets. The obligation to pay
all unpaid principal will be accelerated upon an event of default, including
upon failure to perform our obligations under the Debenture covenants, failure
to make required payments, default on any of the Transaction Documents or any
other material agreement, lease, document or instrument to which we are
obligated, the bankruptcy of OXIS or related events. The Purchasers have a right
of first refusal to participate in up to 100% of any future financing undertaken
by us until the later of the date that the Debentures are no longer outstanding
and the one year anniversary of the effective date of the registration
statement. We are restricted from issuing shares of common stock or instruments
convertible into common stock for 90 days after the effective date of the
registration statement with certain exceptions. We are also prohibited from
completing any subsequent financing involving a variable rate transaction until
such time as no Purchaser holds any of the Debentures. In addition, until such
time as any Purchaser holds any of the securities issued in the Debenture
transaction, if we issue or sell any common stock or instruments convertible
into common stock which a Purchaser reasonably believes is on terms more
favorable to such investors than the terms pursuant to the Transaction
Documents, we are obligated to amend the terms of the Transaction Documents to
such Purchaser the benefit of such better terms. We may prepay the entire
outstanding principal amount of the Debentures, plus accrued interest and other
amounts payable, at our option at any time without penalty, provided that a
registration statement is available for the resale of shares underlying the
Debentures and Warrants, as more fully described in the Debentures. The purpose
of this Debenture transaction is to provide us with intermediate term financing
as we seek longer term financing.
On
October 25, 2006 in conjunction with the signing of the Purchase Agreement, we
issued to the Purchasers five year Series A Warrants to purchase an aggregate of
2,420,357 shares of common stock at an initial exercise price of $0.35 per
share, one year Series B Warrants to purchase 2,420,357 shares of common stock
at an initial exercise price of $0.385 per share, and two year Series C Warrants
to purchase an aggregate of 4,840,714 shares of common stock at an initial
exercise price of $0.35 per share. In addition, we issued to the Purchasers
Series D and E Warrants which become exercisable on a pro-rata basis only upon
the exercise of the Series C warrants. The six year Series D Warrants to
purchase 2,420,357 shares of common stock have an initial exercise price of
$0.35 per share. The six year Series E Warrants to purchase 2,420,357 shares of
common stock have an initial exercise price of $0.385 per share. The initial
exercise prices for each warrant are adjustable pursuant to a full ratchet
anti-dilution provision and upon the occurrence of a stock split or a related
event.
Pursuant
to the registration rights agreement, we filed a registration statement covering
the public resale of the shares underlying the Series A, B, C, D and E Warrants
and the Debentures within 45 days of the closing of the transaction and caused
the registration to be declared effective within 120 days of the closing date,
The registration statement was declared effective by the SEC on February 12,
2007.
Pursuant
to the Security Agreement, we agreed to grant the Purchasers a security interest
in substantially all of our assets. We also agreed to pledge our respective
ownership interests in our wholly-owned subsidiaries, OXIS Therapeutics, OXIS
Isle of Man, and our partial subsidiary, BioCheck, Inc. Our subsidiaries, OXIS
Therapeutics and OXIS Isle of Man, also provided a subsidiary guarantee to the
Purchasers in connection with the transaction.
We
have not made required monthly redemption payments beginning on February 1, 2007
to purchasers of debentures issued in October 2006. Pursuant to the
provisions of the Secured Convertible Debentures, such non-payment is an event
of default. Penalty interest accrues on any unpaid redemption balance
at an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law until such amount is paid in full. Upon
an event of default, each purchaser has the right to accelerate the cash
repayment of at least 130% of the outstanding principal amount of the debenture
plus accrued but unpaid liquidated damages and interest. If we fail
to make such payment in full, the purchasers have the right sell substantially
all of our assets pursuant to their security interest to satisfy any such unpaid
balance. The Monthly Redemption Amount is approximately $85,000 and
as of March 1, 2008 we were 14 months behind. We would have to issue
approximately 6,839,271 shares of common stock to satisfy the Monthly Redemption
Amount and unpaid interest totaling approximately $904,000 in
arrears.
As of
March 1, 2008 we were in technical default under the October 2006 debentures,
because of non-payment of the monthly redemption payments which became due
beginning on February 1, 2007, We are in active negotiations with the
debenture holders to amend the debentures in a manner which would remove the
current status of technical default. Until final agreement is reached
on such potential amendments, we cannot give any assurance that the debenture
holders will continue to forbear from enforcing the terms applicable in the case
of default.
Anti-dilution Adjustments Under
Warrant to Fagan Capital. In connection with a loan, we issued a warrant
to Fagan Capital on June 2, 2006, for the purchase of up to 1,158,857 shares of
our common stock at an exercise price of $0.35 per share. This warrant contained
an anti-dilution clause, which if triggered, would cause the warrant to be
adjusted to increase the number of shares of common stock purchasable, and would
lower the exercise price of the warrant. Specifically, the anti-dilution
provision provides that if the Company should issue common stock for a per share
price below $0.35, excluding up to 2.3 million shares issued for any purpose,
then the exercise price (initially $0.35 per share) would be adjusted downward
to equal the per-share price net of selling expenses received by the Company for
such common stock (including the issuance of warrants or options with an
exercise price below $0.35 per share). The warrant further provides that each
time that an adjustment is required to be made to the exercise price of the
warrant, proportionate adjustments will also be made to the number of shares
which may be purchased under the warrant, so that the total proceeds payable to
the Company upon exercise in full of the warrant immediately prior to such
adjustment to the exercise price shall equal the total proceeds payable to the
Company upon exercise in full of the warrant immediately after such adjustment
to the exercise price. In November 2006, we issued options and warrants for the
purchase of shares in excess of the 2.3 million limit, at an exercise price as
low as $0.18, to various officers and consultants. As a result, the warrant
issued to Fagan Capital was adjusted automatically pursuant to its terms, such
that it became exercisable for up to a maximum of 2,253,333 shares of common
stock, and an exercise price of $0.18 per share.
Investment by
Alteon. Under the license agreement dated April 2, 2007
between Alteon, Inc and us, Alteon (now named Synvista Therapeutics, Inc. ) made
an equity investment in our common stock, at a per-share price of $0.24 per
share, resulting in net proceeds to us of $500,000.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OR PLAN OF
OPERATION
|
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
discussion contains forward-looking statements based upon our current
expectations and involves risks and uncertainties. To the extent that
the information presented in this report discusses financial projections,
information or expectations about our business plans, results of operations,
products or markets, or otherwise makes statements about future events, such
statements are forward-looking. Such forward-looking statements can
be identified by the use of words such as “may,” “will,” “should,” “might,”
“would,” “intends,” “anticipates,” “believes,” “estimates,” “projects,”
“forecasts,” “expects,” “plans,” and “proposes.” Although we believe that the
expectations reflected in these forward-looking statements are based on
reasonable assumptions, there are a number of risks and uncertainties that could
cause actual results to differ materially from such forward-looking
statements. These include, among others, the cautionary statements in
the “Risk Factors” and “Management’s Discussion and Analysis and Plan of
Operation” sections of this report. These cautionary statements
identify important factors that could cause actual results to differ materially
from those described in the forward-looking statements. When
considering forward-looking statements in this report, you should keep in mind
the cautionary statements in the “Risk Factors” and “Management’s Discussion and
Analysis or Plan of Operation” sections below, and other sections of this
report.
The
statements contained in this Form 10-KSB that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including,
without limitation, statements regarding our expectations, objectives,
anticipations, plans, hopes, beliefs, intentions or strategies regarding the
future.
All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. It is important to note that our actual results
could differ materially from those included in such forward-looking statements.
For a more detailed explanation of such risks, please see “Risk Factors” below.
Such risks, as well as such other risks and uncertainties as are detailed in our
SEC reports and filings for a discussion of the factors that could cause actual
results to differ materially from the forward-looking statements.
The
following discussion and analysis or plan of operation should be read in
conjunction with the consolidated financial statements and related
notes.
Overview
OXIS
International, Inc. focuses on the research and development of technologies and
therapeutic products in the field of oxidative stress/inflammatory reaction,
diseases that are associated with damage from free radicals and reactive oxygen
species. Biological free radicals are the result of naturally occurring
processes such as oxygen metabolism and inflammatory reactions. Free radicals
react with key organic substances such as lipids, proteins and DNA. Oxidation of
these biomolecules can damage them, disturbing normal functions and may
contribute to a variety of disease states. Organ systems that are
predisposed to oxidative stress and damage are the pulmonary system, the brain,
the eye, the circulatory and reproductive systems. A prime objective
of OXIS is to use its broad portfolio of oxidative stress biomarkers to identify
associations between reactive biomarker signals and various disease etiologies
and conditions.
We
presently derive our revenues primarily from sales of research diagnostic
reagents and assays to medical research laboratories. Our diagnostic products
include approximately 45 research reagents and 26 assays to measure markers of
oxidative stress. We
hold the rights to four therapeutic classes of compounds in the area of
oxidative stress and inflammation. One such compound is L-Ergothioneine, a
potent antioxidant produced by OXIS, that may be appropriate for sale
over-the-counter as a dietary supplement. In September 2005 we
acquired a 51% interest in BioCheck and in the third quarter of 2007 we
purchased an additional 2% of BioCheck shares and have the option to purchase
the remaining 47% of BioCheck, Inc.
Our
majority-held subsidiary, BioCheck, Inc. is a leading producer of clinical
diagnostic assays, including high quality enzyme immunoassay research services
and immunoassay kits for cardiac and tumor markers, infectious diseases, thyroid
function, steroids, and fertility hormones designed to improve the accuracy,
efficiency, and cost-effectiveness of in vitro (outside the body)
diagnostic testing in clinical laboratories. BioCheck focuses primarily on the
immunoassay segment of the clinical diagnostics market. BioCheck offers over 40
clinical diagnostic assays manufactured in its 15,000 square-foot, U.S. Food and
Drug Administration, or FDA, certified Good Manufacturing Practices
device-manufacturing facility in Foster City, California.
We generated
net income of $471,000 in 2007 and incurred net losses of $4,940,000
in 2006. Net income in 2007 was primarily affected by non-cash income
relating to decrease in warrant and derivative liabilities. For year
ended December 31, 2007 such non-cash income was $2,659,000 compared
to $32,000 during the year ended December 31, 2006. During 2006, we
obtained debt financing in the amount of $1,350,000. Such financing resulted in
non-cash financing charges of $1,674,000 in 2006.
As shown
in the accompanying consolidated financial statements, we have incurred an
accumulated deficit of $69,848,000 through December 31, 2007. On a consolidated
basis, we had cash and cash equivalents of $1,140,000 at December 31, 2007 of
which $950,000 was held by BioCheck. Since BioCheck has been and is expected to
continue to be cash flow positive, management believes that BioCheck’s cash will
be sufficient to sustain its operating activities, however, OXIS does not have
access to the funds held by BioCheck as BioCheck is not a wholly owned
subsidiary. The cash held by the OXIS parent company was $190,000 at
December 31, 2007. We will need to seek additional loan and/or equity
financing to pay for basic operating costs, or to expand operations, implement
our marketing campaign, or hire additional personnel. During the three
months ended September 30, 2007, we purchased an additional 2% of Bio Check
shares for $132,000. Additionally, we may decide to acquire the
remaining 47% of BioCheck that we currently do not own, which would require
additional financing. However, we may not successfully obtain debt or
equity financing on terms acceptable to us, or at all, that will be sufficient
to finance our operating costs in 2008 and our other goals. These
consolidated 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 we cannot
continue our operations.
See the
Risk Factors beginning on page 34 concerning disclosure of the significant risks
to our business.
Recent
Developments
Current
significant financial and operating events and strategies are summarized as
follows:
Product
Development
OXIS
product development is focused on the development of four new oxidative stress
assays and the improvement of several existing oxidative stress assays adapting
them for high throughput applications.
BioCheck
currently has several products under development for cancer,
cardiac/inflammatory and angiogenesis research applications. Among
these products, BioCheck has marketed the following ELISA kits to the research
market in 2006 and early 2007:
|
·
|
Reagents
for the detection of HMGA2, a marker for aggressive breast
cancer;
|
|
·
|
Research
assays for the detection of HMGA2;
and
|
|
·
|
A
new myeloperoxidase research assay, based on an inflammatory protein that
has utility as a prognostic marker for cardiac
events;
|
In
addition, BioCheck has developed research assays and rabbit monoclonal
antibodies for the detection of human and mouse Id proteins. Id
proteins play a central role in cell differentiation, and Id1 and Id3 play
a central and critical role in tumor related angiogenesis. BioCheck began
making Id protein reagents commercially available in January 2007, and the Id
protein assays were launched commercially in the first quarter of
2007.
Management
Team and Board of Directors
Effective
January 11, 2007, Matthew Spolar, Vice President, Product Technology for Atkins
Nutritionals, Inc., was appointed to our board of directors. Also on
January 11, 2007, the board of directors approved an amendment to our bylaws to
fix the number of authorized directors at six. In March 2007, we
retained Kevin Pickard, a certified public accountant, to provide management
with support and assistance with regard to certain matters previously handled by
Michael Centron, our former Chief Financial Officer. On April 12,
2007, Steve Guillen resigned from the board of directors of OXIS. His
resignation was pursuant to a separation agreement described in Item 12 Certain
Relationships and Related Transactions on page 64 below.
Loan
On
December 6, 2005, we entered into a non-revolving one-year loan agreement with
KeyBank, N.A., or KeyBank, and received funds of $3,060,000 to purchase 51% of
BioCheck’s common stock. As security for our repayment obligations, we granted a
security interest to KeyBank in our $3,060,000 certificate of deposit at
KeyBank. This loan was repaid during February 2006 and a new one-year loan
agreement for $3,060,000 was entered into with Bridge Bank. As part of the loan
arrangement with Bridge Bank, we granted a security interest in a $3,060,000
certificate of deposit moved from KeyBank to Bridge Bank. The loan bore interest
at 3.0% and the certificate of deposit bore interest at 1.0%. This
loan was paid in full in February 2007 primarily from the proceeds from the
non-renewal of the certificate of deposit.
Debt
Financing
On
October 25, 2006, we entered into a Securities Purchase Agreement, or Purchase
Agreement, with four accredited investors, or the Purchasers. In conjunction
with the signing of the Purchase Agreement, we issued Secured Convertible
debentures, or debentures, and Series A, B, C, D, and E common stock warrants,
and we also provided the investors with registration rights under a registration
rights agreement, and a security interest in our assets under a security
agreement to secure the performance of our obligations under the
debentures.
Pursuant
to the terms of the Purchase Agreement, we issued the debentures in an aggregate
principal amount of $1,694,250 to the Purchasers. The debentures were issued
with an original issue discount of 20.318%, and resulted in proceeds to us of
$1,350,000. The debentures are convertible, at the option of the holders, at any
time into shares of common stock at $0.35 per share, as adjusted in accordance
with a full ratchet anti-dilution provision (referred to in this report as the
“conversion price”). Pursuant to the terms of the debentures,
beginning on February 1, 2007, we began to amortize the 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 can be paid in cash or in shares, subject to certain
restrictions. If we choose to make any Monthly Redemption Amount payment in
shares of common stock, the price per share is the lesser of the conversion
price then in effect and 85% of the weighted average price for the ten trading
days prior to the due date of the Monthly Redemption Amount. See Note
2: Notes Payable in the Condensed Notes to Consolidated Financial Statements for
a full description of the terms of the debentures and related
agreements.
We have
not made required monthly redemption payments beginning on February 1, 2007 to
purchasers of debentures issued in October 2006. Pursuant to the
provisions of the Secured Convertible Debentures, such non-payment is an event
of default. Penalty interest accrues on any unpaid redemption balance
at an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law until such amount is paid in full. Upon
an event of default, each purchaser has the right to accelerate the cash
repayment of at least 130% of the outstanding principal amount of the debenture
plus accrued but unpaid liquidated damages and interest. If we fail
to make such payment in full, the purchasers have the right sell substantially
all of our assets pursuant to their security interest to satisfy any such unpaid
balance. The Monthly Redemption Amount is approximately $85,000 and
as of March 1, 2008 we were 14 months behind . We would have to issue
approximately 6,839,271 shares of common stock to satisfy the Monthly Redemption
Amount and unpaid interest totaling approximately $904,000 in
arrears. We cannot give any assurance that the debenture holders will
continue to forbear from enforcing the terms applicable in the case of
default.
Exclusive
License Agreement with Alteon
On April
2, 2007, we entered into an Amended and Restated Exclusive License Agreement
with Alteon, Inc. (recently renamed Synvista Therapeutics, Inc.), under which we
granted Alteon worldwide exclusive rights to a family of orally bioavailable
organoselenium compounds that have demonstrated potent anti-oxidant and
anti-inflammatory properties in clinical and preclinical
studies. Previously, OXIS was a party to a license agreement dated
September 28, 2004 with HaptoGuard, Inc., which was subsequently acquired by
Alteon. The amended and restated exclusive license agreement
supercedes and replaces the prior agreement with HaptoGuard. The new
agreement expands the scope of the original agreement to also include
non-cardiovascular indications.
Under the
new agreement, Alteon agreed to invest a minimum of $7.5 million over a
three-year period following the effective date of the agreement, in its
development program for the development, discovery and manufacture of licensed
products based on the processes and compounds covered under the
license. Alteon agreed to pay us a non-refundable sum of $500,000,
payable in six monthly installments of $50,000, with the remaining $200,000
payable upon the closing of a financing of Alteon approved by Alteon’s
shareholders. As of December 31, 2007, we have received the entire
$500,000. The agreement also provides for milestone payments to us
upon certain significant milestone events in the development of a potential drug
product. The agreement also entitles us to various levels of
sublicensing fees and royalties based on a percentage of net sales of the
licensed product.
As part
of the agreement, Alteon agreed to make an equity investment in our common
stock, at a per-share price equal to 125% of the trading price on the trading
day immediately proper to such purchase, and no less than $0.24 per
share. On August 3, 2007, Alteon purchased 2,083,333 shares at $0.24
per share resulting in net proceeds to us of $500,000.
The
agreement is terminable for cause by either party, by Alteon with or without
cause with 180 days’ prior written notice, or by us if Alteon does not make
timely payments under the license.
Lawsuit
On
September 13, 2007, the lawsuit initiated by Applied Genetics Incorporated
Dermatics (“AGI”) against OXIS on or about April 13, 2007 was dismissed without
prejudice by agreement of both parties. The original complaint by AGI
alleged that certain actions taken by OXIS to protect and enforce its patents
have caused damage to AGI, and asserted claims of unfair competition, tortuous
interference with prospective economic advantage and contractual
relations. The complaint also challenged the validity of one of OXIS’
patents. OXIS subsequently counterclaimed alleging that AGI’s
production, use and sale of L-ergothioneine infringes certain patents held by
OXIS. The parties have agreed to pursue mediation on the dispute, and
subsequently arbitration if mediation proves unsuccessful.
Results
of Operations
Revenues
The
following table presents the changes in revenues from 2006 to 2007:
|
Increase
(Decrease) from 2006
|
||||||||||||||||
|
2007
|
2006
|
Amount
|
%
|
|||||||||||||
|
Product
revenues
|
$ | 5,205,000 | $ | 5,201,000 | $ | 4,000 | 0 | % | ||||||||
|
License
revenues
|
844,000 | 575,000 | 269,000 | 47 | % | |||||||||||
|
Total
revenues
|
$ | 6,049,000 | $ | 5,776,000 | $ | 273,000 | 5 | % | ||||||||
The
product revenues for the year ended December 31, 2007 were slightly higher than
2006. However, we are developing new diagnostic test kits and evaluating
our product offerings, pricing and distribution network in order to increase
sales volume.
The
increase in license revenues was attributable to the Amended and Restated
Exclusive License Agreement with Alteon. Specifically, the Company
recorded revenues of $500,000 related to the non-refundable fees associated with
entering into the Agreement.
Cost
of product revenues
The
following table presents the changes in cost of product revenues from 2006 to
2007:
|
Increase
(Decrease) from 2006
|
||||||||||||||||
|
2007
|
2006
|
Amount
|
%
|
|||||||||||||
|
Cost
of product revenues
|
$ | 3,261,000 | $ | 3,084,000 | $ | 177,000 | 6 | % | ||||||||
The
change in cost of product revenues is attributable to higher raw material, labor
and manufacturing overhead costs in 2007.
Gross
profit was $2,788,000 for the year ended December 31, 2007 compared to
$2,692,000 for the year ended December 31, 2006. Gross profit as a
percentage of revenues was 46% compared to 46% for the year ended December
31, 2007 and 2006, respectively. The increase in gross profit
percentage is due to the increase in licensing revenues which does not have an
associated cost of sales while the gross profit on our product sales increased
by 2.9%.
Research
and development expenses
The
following table presents the changes in research and development expenses from
2006 to 2007:
|
Increase
(Decrease) from 2006
|
||||||||||||||||
|
2007
|
2006
|
Amount
|
%
|
|||||||||||||
|
Research
and development
|
$ | 1,037,000 | $ | 708,000 | $ | 329,000 | 46 | % | ||||||||
The
increase in research and development expenses is primarily attributable to a
change in the mix to currently expensed research and development towards patent
development and other capitalized research programs and projects. Further,
patent amortization increased in 2007 primarily due to a $150,000 write-off of
impaired patents. However, the actual amount of research and development
expenses will fluctuate with the availability of attractive projects and the
availability of the associated required funding.
Selling,
general and administrative expenses
The
following table presents the changes in selling, general and administrative
expenses from 2006 to 2007:
|
Increase
(Decrease) from 2006
|
||||||||||||||||
|
2007
|
2006
|
Amount
|
%
|
|||||||||||||
|
Selling,
general and administrative
|
$ | 2,867,000 | $ | 4,654,000 | $ | (1,787,000 | ) | (38 | %) | |||||||
The
decrease in selling, general and administrative expenses is primarily
attributable to financing costs of $1,674,000 incurred in 2006 in connection
with the issuance of convertible debentures on October 25, 2006.
Interest
Income
Interest
income was $52,000 compared to $80,000 for the year ended December 31, 2007 and
2006, respectively. The decrease is primarily due to the decrease in
cash available for investment activities.
Change
in value of warrant and derivative liabilities
The change in
the value of warrant and derivative liabilities relates to the change in fair
value of these liabilities recorded by us as a result of the convertible
debentures issued in October 2006. When Oxis entered into the convertible
debentures with the warrants on October 25, 2006, the beneficial conversion
feature was valued at $690,000 and the warrants were valued at $2,334,000. The
Company recognized an increase in income of $2,659,000 and $32,000 for the years
ended December 31, 2007 and 2006, respectively.
Interest
Expense
Interest
expense was $1,014,000 compared to $484,000 for the year ended December 31, 2007
and 2006, respectively. The increase is due to the interest on the
convertible debentures and the amortization of the debt issuance costs
associated with the convertible debentures as well as penalty interest
associated with the delinquent payment of the issued debentures.
Liquidity
and Capital Resources
On a
consolidated basis, we had cash and cash equivalents of $1,140,000 at December
31, 2007 of which $950,000 was held by BioCheck. The cash held by the
OXIS parent company was $190,000 at December 31, 2007. Cash used in
operating activities was $270,000 during the year ended December 31,
2007. In February 2008, we received $150,000 from BioCheck for
reimbursement of management, market research, sales efforts, accounting fees and
general corporate expenses incurred on their behalf. The cash held by
the OXIS parent company of $190,000 at December 31, 2007, with the additional
$150,000 received in 2008 from BioCheck is not sufficient to sustain our
operations through the second quarter of 2008. Since BioCheck has been and
is expected to continue to be cash flow positive, management believes that
BioCheck’s cash will be sufficient to sustain BioCheck’s operating activities
for the next 12 months.
The
current rate of cash usage at our parent level raises substantial doubt about
our ability to continue as a going concern, absent any new sources of
significant cash flows. In an effort to mitigate this near-term
concern we are seeking additional equity financing to obtain sufficient funds to
sustain operations. We plan to increase revenues by introducing new
products. However, we cannot provide assurance that we will
successfully obtain equity or other financing, if any, sufficient to finance our
goals or that we will increase product related revenues. Our
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 we
cannot continue in existence.
Cash
provided by investing activities was $2,762,000 during the year ended December
31, 2007. Cash used in financing activities was $2,560,000 during the year
ended, December 31, 2007. During the year ended December 31, 2007, the Company
received $3,060,000 in proceeds from a restricted certificate of deposit
(investing activity) and used the proceeds to repay short-term borrowings
(financing activity) from Bridge Bank.
As of
December 31, 2007 we have received a license fee of $500,000 from Alteon
pursuant to the terms of our license agreement with Alteon. In
addition, in connection with our license agreement with Alteon, Alteon made an
equity investment in our common stock, at a per-share price equal $0.24 per
share, which resulted in net proceeds to us of $500,000. Since
BioCheck has been and is expected to continue to be cash flow positive,
management believes that BioCheck’s cash will be sufficient to sustain
BioCheck’s operating activities. However, we cannot access the cash
held by our majority-held subsidiary, BioCheck, to pay for our parent level
operating expenses.
On
October 25, 2006, we completed a private placement of debentures and warrants
under a securities purchase agreement with four accredited investors. In this
financing we issued secured convertible debentures in an aggregate principal
amount of $1,694,250 (referred to in this report as the “debentures”), and
Series A, B, C, D, and E common stock warrants (referred to in this report as
the “warrants”). We also provided the investors registration rights under a
registration rights agreement, and a security interest in our assets under a
security agreement to secure performance of our duties and obligations under the
debentures. Under the warrants, the investors have the right to purchase an
aggregate of approximately 14.5 million shares of our common stock, at initial
exercise prices ranging from $0.35 to $0.385 per share, and these exercise
prices are adjustable according to a full ratchet anti-dilution provision, i.e.,
the exercise price may be adjusted downward in the event that we conduct a
financing at a price per share below $0.35 or $0.385 per share, respectively.
The Series D and E warrants are only exercisable pro rata subsequent to the
exercise of the Series C warrants. The debentures were issued with an original
issue discount of 20.318%, and resulted in proceeds to us of $1,350,000. The
debentures are convertible, at the option of the holders, at any time into
shares of common stock at $0.35 per share, as adjusted in accordance with a full
ratchet anti-dilution provision (referred to in this report as the “conversion
price”). Pursuant to the terms of the debentures, beginning on
February 1, 2007, we began to amortize the 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 can be
paid in cash or in shares, subject to certain restrictions. If we choose to make
any Monthly Redemption Amount payment in shares of common stock, the price per
share is the lesser of the conversion price then in effect and 85% of the
weighted average price for the ten trading days prior to the due date of the
Monthly Redemption Amount.
We have
not made the required Monthly Redemption Amounts and we are currently in default
on these payments. We have not made required monthly redemption payments
beginning on February 1, 2007 to purchasers of debentures issued in October
2006. Pursuant to the provisions of the Secured Convertible
Debentures, such non-payment is an event of default. Penalty interest
accrues on any unpaid redemption balance at an interest rate equal to the lesser
of 18% per annum or the maximum rate permitted by applicable law until such
amount is paid in full. Upon an event of default, each purchaser has
the right to accelerate the cash repayment of at least 130% of the outstanding
principal amount of the debenture plus accrued but unpaid liquidated damages and
interest. If we fail to make such payment in full, the purchasers
have the right sell substantially all of our assets pursuant to their security
interest to satisfy any such unpaid balance. The Monthly Redemption
Amount is approximately $85,000 and as of March 1, 2008 we were 14 months
behind . We would have to issue approximately 6,839,271 shares
of common stock to satisfy the Monthly Redemption Amount and unpaid interest
totaling approximately $904,000 in arrears.
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’
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. On December 6, 2005, we purchased 51% of
the common stock of BioCheck. In addition during the third quarter of
2007 we purchased an additional 2% of BIoCheck. This acquisition was
accounted for by the purchase method of accounting according to Statement of
Financial Accounting Standards, or SFAS, No. 141, “Business
Combinations.
Revenue
Recognition
Product Revenue
We manufacture, or have manufactured on a contract basis, research and clinical diagnostic assays and fine chemicals, which are our primary products sold to customers. Revenue from the sale of our products, including shipping fees, is 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 collectibility is reasonably assured. Revenue from sales to distributors of our products is 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. Our mix of product sales are substantially at risk to market conditions and demand, which may change at any time.
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.
Royalty
Revenue
We
recognize royalty revenues from licensed products when earned in accordance with
the terms of the license agreements. Net sales figures used for calculating
royalties include deductions for costs of unsaleable returns, managed care
chargebacks, cash discounts, freight and warehousing, and miscellaneous
write-offs.
Inventories
Inventories
are stated at the lower of cost to purchase and/or manufacture the inventory or
the current estimated market value of the inventory. We regularly review our
inventory quantities on hand and record a provision for excess and obsolete
inventory based primarily on our estimated forecast of product demand and/or our
ability to sell the products and production requirements. Demand for our
products can fluctuate significantly. Factors which could affect demand for our
products include unanticipated changes in consumer preferences, general market
conditions or other factors, which may result in cancellations of advance orders
or a reduction in the rate of reorders placed by customers and/or continued
weakening of economic conditions. Additionally, our estimates of future product
demand may be inaccurate, which could result in an understated or overstated
provision required for excess and obsolete inventory. Our estimates are based
upon our understanding of historical relationships which can change at
anytime.
Long-Lived
Assets
Our
long-lived assets include property, plant and equipment, capitalized costs of
filing patent applications and goodwill and other assets. See Notes 1, 2,
3 and 4 to the audited consolidated financial statements for the year ended
December 31, 2007 included in Form 10-KSB for more detail regarding our
long-lived 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” 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.
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.
Share-Based
Compensation
In
December 2004, the FASB issued SFAS 123R, which replaces FASB Statement No. 123,
“Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” or APB Opinion No. 25. SFAS 123R
establishes standards for the accounting for share-based payment transactions in
which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity’s equity
instruments or that may be settled by the issuance of those equity instruments.
SFAS 123R covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. SFAS 123R requires a
public entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the fair value of the award on the grant
date (with limited exceptions). That cost will be recognized in the entity’s
financial statements over the period during which the employee is required to
provide services in exchange for the award. Management implemented SFAS 123R
effective January 1, 2006. Methodologies used for calculations such as the
Black-Scholes option-pricing models and variables such as volatility and
expected life are based upon management’s judgment. Such methodologies and
variables are reviewed and updated periodically for appropriateness and affect
the amount of recorded charges.
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.
Changes
or Disagreements with Accountants
There
were no changes in, or disagreements with, our independent registered public
accounting firm during 2006 or 2007.
Risks
Related to Our Business
We
operate in a rapidly changing environment that involves a number of risks, some
of which are beyond our control. The following discussion highlights some of
these risks and others are discussed elsewhere in this report.
We
will need to raise additional capital to fund our general and administrative
expenses, and if we are unable to raise such capital, we will have to curtail or
cease operations.
We had
cash and cash equivalents of $190,000 at our parent level at December 31, 2007.
We cannot access the cash held by our majority-held subsidiary, BioCheck, to pay
for our operating expenses at the parent level, since currently BioCheck is not
our wholly-owned subsidiary. We are seeking additional debt or equity financing
to obtain sufficient funds to sustain operations, including our development and
commercialization programs and purchase the remaining 47% share of BioCheck that
we currently do not own. We have incurred significant obligations in relation to
the termination of our former president and chief executive
officer. If we are unable to raise additional capital in the first
half of 2008, we may have to curtail or cease operations. If we raise short term
capital by incurring additional debt, we will have to obtain equity financing
sufficient to repay such debt and accrued interest. Further, incurring
additional debt may make it more difficult for us to successfully consummate
future equity financings.
Repayment
of recently issued debentures in shares and the exercise of recently issued
warrants would cause substantial dilution to our stockholders and would likely
to depress our stock price, making it more difficult for us to consummate future
equity financings.
In our
October 25, 2006 debenture financing with four accredited purchasers, we issued
secured convertible debentures in an aggregate principal amount of $1,694,250.
We also issued Series A, B, C, D, and E warrants to the purchasers of the
debentures, which provide them the right to purchase of an aggregate of
approximately 14.5 million shares of our common stock, at initial exercise
prices ranging from $0.35 to $0.385 per share, subject to adjustment as provided
in the warrants, including a full ratchet anti-dilution provision which will
lower the exercise price in the event that we conduct a financing at a price per
share below $0.35 or $0.385 per share, respectively. The Series D and E warrants
are only exercisable on a pro rata basis, if the Series C warrants are
exercised. The debentures were issued with an original issue discount of
20.318%, and resulted in proceeds to us of $1,350,000. The debentures are
convertible, at the option of the holders, at any time into shares of common
stock at $0.35 per share, as adjusted in accordance with a full ratchet
anti-dilution provision (referred to in this report as the “conversion price”).
Pursuant to the terms of the debentures, beginning on February 1, 2007, we began
to amortize the 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 can be paid in cash or in shares, subject to
certain restrictions. If we choose to make any Monthly Redemption Amount payment
in shares of common stock, the price per share is the lesser of the conversion
price then in effect and 85% of the weighted average price for the ten trading
days prior to the due date of the Monthly Redemption Amount.
Due to
the floating conversion price of the debentures that applies when we choose to
repay the debentures in shares, we would need to issue approximately ten million
shares to the holders of the debentures, assuming that stock prices remain in
their recent price range. The number of shares that we may have to issue to the
debenture holders could increase significantly if our stock price declines from
the current price range. In addition, we would have to issue approximately five
million shares if the debenture holders exercise their Series A and B warrants,
an additional approximately five million shares would be issued upon exercise of
their Series C warrants and finally, an additional approximately five million
shares would be issued upon exercise of their Series D and E warrants pro rata
subsequent to the exercise of the Series C warrants. The future potential
dilution due to exercise of the above warrants could be increased if the full
ratchet anti-dilution provision applicable to the exercise price of the warrants
is triggered. This future potential dilution would likely depress our stock
price, making it difficult for us to consummate a future equity
financing.
As of
March 1, 2008 we were in technical default under the October 2006 debentures,
because of non-payment of the Monthly Redemption Amounts which became due
beginning on February 1, 2007. Pursuant to the provisions of the
Secured Convertible Debentures, such non-payment is an event of
default. Penalty interest accrues on any unpaid redemption balance at
an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law until such amount is paid in full. Upon
an event of default, each purchaser has the right to accelerate the cash
repayment of at least 130% of the outstanding principal amount of the debenture
plus accrued but unpaid liquidated damages and interest. If we fail
to make such payment in full, the purchasers have the right sell substantially
all of our assets pursuant to their security interest to satisfy any such unpaid
balance. The Monthly Redemption Amount is approximately $85,000 and
as of March 1, 2008 we were 14 months behind. We would have to issue
approximately 6,839,271 shares of common stock to satisfy the Monthly Redemption
Amount and unpaid interest totaling approximately $904,000 in
arrears. We are in active negotiations with the debenture holders to
amend the debentures in a manner which would remove the current status of
technical default. Until final agreement is reached on such potential
amendments, we cannot give any assurance that the debenture holders will
continue to forbear from enforcing the terms applicable in the case of
default.
If
we fail to close a strategic transaction which generates sufficient capital to
repay the secured debt on the October 2006 debentures, the debenture holders are
likely to enforce the default provisions.
In order to repay the debentures issued
in October 2006 with interest at a default rate of 18% on the monthly redemption
payments we have not made since February 1, 2007 which total approximately $2.2
million as of March 1, 2008, we have engaged Burrill & Company, LLC, an
investment banking and asset management firm based in San Francisco, California
to explore strategic alternatives and advise us with respect to potential merger
and acquisitions, partnering/licensing transactions and financing transactions
which could provide us with sufficient funds to repay our secured debt and
provide working capital for the company going forward. There can be
no assurance that a strategic transaction can be closed on commercially
reasonable terms in a timely manner which will provide sufficient capital to
repay our secured debt. If we are unable to repay our secured debt
before the maturity date of the debentures on October 25, 2008, the debenture
holders are likely to enforce the default and seize substantially all of our
assets.
Restrictions
on our ability to repay the debentures in shares rather than in cash may deplete
our cash resources and will require future financings to avoid
default.
Under the
terms of the debentures we issued in October 2006, our right to make monthly
redemption payments is conditioned upon several factors. Beginning on February
1, 2007, we are obligated to amortize the debentures in equal installments on a
monthly basis resulting in a complete repayment by the maturity date either in
cash or in shares. The monthly redemptions, if made in cash to all debenture
holders would equal approximately $85,000 per month. We may not make the monthly
redemption in shares if, among other conditions, the issuance of the shares to
the debenture holders would cause any debenture holder to beneficially own in
excess of either 9.99% or 4.99% of our total outstanding shares at that time
(depending on the particular debenture holder, either the 9.99% or the 4.99%
threshold applies). One of the debenture holders currently beneficially owns
approximately 9% of our total outstanding shares. In addition, we may not make
monthly redemption payments to any debenture holder in shares rather than cash
if the daily trading volume for our common stock does not exceed 50,000 shares
per trading day for a period of twenty trading days prior to any applicable date
in question beginning after April 25, 2007. If we must make all or a substantial
amount of our monthly redemption payments to the debenture holders in cash
rather than shares, our cash reserves will be depleted and we will have to raise
substantial additional capital to avoid default of the debentures.
Raising
additional capital may be necessary in order to complete our acquisition of the
outstanding shares of BioCheck that we do not own, assuming we decide to do so,
which constitutes 47% of BioCheck’s issued and outstanding shares.
On
September 19, 2005 we entered into a stock purchase agreement with BioCheck and
the stockholders of BioCheck pursuant to which we undertook to purchase up to
all of the outstanding shares of common stock of BioCheck for an aggregate
purchase price of $6.0 million in cash. On December 6, 2005,
pursuant to the terms of the stock purchase agreement with BioCheck, at the
initial closing, we purchased an aggregate of fifty-one percent (51%) of the
outstanding shares of common stock of BioCheck from each of the stockholders of
BioCheck on a pro rata basis, for an aggregate of $3,060,000 in cash. In the
third quarter of 2007 we purchased an additional 2% of BioCheck
shares. Pursuant to the stock purchase agreement, we will use our
reasonable best efforts to consummate a follow-on financing transaction to raise
additional capital with which to purchase the remaining outstanding shares of
BioCheck in one or more additional closings. The purchase price for
any BioCheck shares purchased after the initial closing will be increased by an
additional 8% per annum from the date of the initial closing through the date of
such purchase. Under the terms of our purchase agreements with BioCheck and its
stockholders, BioCheck’s earnings (specifically, its earnings before interest,
taxes, depreciation and amortization expenses, or EBITDA), if any, will be used
to repurchase the remaining outstanding BioCheck shares at one or more
additional closings. There can be no assurance that BioCheck will
generate any earnings in the next several years which would be sufficient to
purchase additional shares of BioCheck pursuant to the stock purchase
agreement. Even if BioCheck generates earnings, there can be no
assurance that such earnings would be sufficient to complete our acquisition of
the remaining 47% of BioCheck’s outstanding shares.
To avoid
an increase in the purchase price of the remaining shares of BioCheck at the
rate of 8% per annum, we would need to consummate a financing transaction to
complete the acquisition of the remaining 47% of the outstanding shares of
BioCheck. The successful completion of our acquisition of BioCheck in
this manner is dependent upon obtaining financing on acceptable
terms. No assurances can be given that we will be able to complete
such a financing sufficient to undertake our acquisition of the outstanding
shares of BioCheck on terms favorable to us, or at all. Any financing
that we do undertake to finance the acquisition of BioCheck would likely involve
dilution of our common stock if it is an equity financing, or will involve the
assumption of significant debt by us. We are not contractually
required to complete our acquisition of BioCheck and may choose not to do
so.
We
will need additional financing in order to complete our development and
commercialization programs.
As of
December 31, 2007, we had an accumulated deficit of approximately $69,848,000.
We currently do not have sufficient capital resources to complete the
development and commercialization of our antioxidant therapeutic technologies
and oxidative stress assays, and no assurances can be given that we will be able
to raise such capital in the future on terms favorable to us, or at all. The
lack of availability of additional capital could cause us to cease or curtail
our operations and/or delay or prevent the development and marketing of our
potential products. In addition, we may choose to abandon certain issued United
States and international patents that we consider to be of lesser importance to
our strategic direction, in an effort to preserve our financial
resources.
Our
future capital requirements will depend on many factors including the
following:
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continued
scientific progress in our research and development programs and the
commercialization of additional products;
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the
cost of our research and development and commercialization activities and
arrangements, including sales and marketing;
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the
costs associated with the scale-up of manufacturing;
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the
success of pre-clinical and clinical trials;
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the
establishment of and changes in collaborative
relationships;
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the
time and costs involved in filing, prosecuting, enforcing and defending
patent claims;
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the
time and costs required for regulatory approvals;
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the
acquisition of additional technologies or businesses;
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technological
competition and market developments; and
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the
cost of complying with the requirements of the Autorité des Marchés
Financiers, or AMF, the French regulatory agency overseeing the Nouveau
Marché in France.
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We will
need to raise additional capital to fund our development and commercialization
programs. Our current capital resources are not sufficient to sustain operations
and our development program with respect to our Ergothioneine as a nutraceutical
supplement. We have granted a licensee exclusive worldwide rights, to develop,
manufacture and market BXT-51072 and related compounds from our library of such
antioxidant compounds. The licensee is responsible for worldwide product
development programs with respect to the licensed compounds. Due to the lack of
financial resources, we ceased further testing of BXT-51072 but continue to
review the possibility of further developing applications for BXT-51072 and
related compounds outside of the areas defined in the license. However, further
development and commercialization of antioxidant therapeutic technologies,
oxidative stress assays or currently unidentified opportunities, or the
acquisition of additional technologies or businesses, may require additional
capital. The fact that further development and commercialization of a product or
technology would require us to raise additional capital, would be an important
factor in our decision to engage in such further development or
commercialization. No assurances can be given that we will be able to raise such
funds in the future on terms favorable to us, or at all.
If
we complete our acquisition of BioCheck, our business could be materially and
adversely affected if we fail to adequately integrate the operations of the two
companies.
If we
complete the acquisition of BioCheck as planned, and we do not successfully
integrate the operations of the two companies, or if the benefits of the
transaction do not meet the expectations of financial or industry analysts, the
market price of our common stock may decline. The acquisition could result in
the use of significant amounts of cash, dilutive issuances of equity securities,
or the incurrence of debt or expenses related to goodwill and other intangible
assets, any of which, or all taken together, could materially adversely affect
our business, operating results and financial condition.
We may
not be able to successfully integrate the BioCheck business into our existing
business in a timely and non-disruptive manner, or at all. In addition, the
acquisition may result in, among other things, substantial charges associated
with acquired in-process research and development, future write-offs of goodwill
that is deemed to be impaired, restructuring charges related to consolidation of
operations, charges associated with unknown or unforeseen liabilities of
acquired businesses and increased general and administrative expenses.
Furthermore, the acquisition may not produce revenues, earnings or business
synergies that we anticipate.
In
addition, in general, acquisitions such as these involve numerous risks,
including:
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difficulties
in assimilating the operations, technologies, products and personnel of an
acquired company;
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risks
of entering markets in which we have either no or limited prior
experience;
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diversion
of management’s attention from other business concerns; and
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potential
loss of key employees of an acquired
company.
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The time,
capital management and other resources spent on the acquisition, if it fails to
meet our expectations, could cause our business and financial condition to be
materially and adversely affected.
We
may experience disruption or may fail to achieve any benefits in connection with
the recent changes in executive management and in board membership.
During
the second quarter of 2004, our former Chief Executive Officer retired, and
during the third quarter of 2004 our Chief Operating and Financial Officer
resigned from his position at our company. As a result, others who had limited
experience within our senior management were appointed to serve as acting Chief
Executive Officer, acting Chief Operating Officer and acting Chief Financial
Officer. On February 28, 2005, the Board appointed Mr. Steven T.
Guillen as our President and Chief Executive Officer, and as a member of our
board. On January 6, 2006, we hired Michael D. Centron as our Vice President and
Chief Financial Officer. On September 15, 2006, Mr. Guillen’s employment as
President and Chief Executive Officer was terminated, and Marvin S. Hausman,
M.D. was appointed our new President and Chief Executive Officer. On November
15, 2006 Michael Centron, our Vice President and Chief Financial Officer
resigned. In addition, during 2004 and early 2005, following the acquisition of
a then-majority interest in our company by Axonyx, eight directors resigned from
our board resulting in a four-person board. During 2005 we added independent
director John E. Repine, M.D., and Gary M. Post joined our board of directors on
March 15, 2006, resulting in a six-person board. Timothy C. Rodell, M.D.,
declined to stand for re-election at the Annual Meeting of Stockholders held on
August 1, 2006. On January 11, 2007, Matthew Spolar was appointed to our board
of directors. On April 12, 2007, Steve Guillen resigned from the board, and on
December 20, 2007, Matthew Spolar resigned from the board. All four directors
currently serving on the board commenced their service on the board during the
period of 2004 through the date hereof.
One
impact of such changes has been to delay our sales promotions in the research
assay market and in the development of Ergothioneine market opportunities.
Further, we narrowed our strategic focus to concentrate resources, including
discontinuing our Animal Health Profiling program. In addition, the decreased
sales at our parent company level during 2006 and 2007 are attributable to lower
sales volume that was caused, in part, by the disruption arising from relocating
our operations from Portland, Oregon to Foster City, California, the
consolidation of our product offerings, and the lowering of sale prices for some
of our products for competitive reasons. There can be no assurances that these
changes will not cause further disruptions in, or otherwise adversely affect,
our business and results of operations.
If
we fail to attract and retain key personnel, our business could
suffer.
Our
future depends, in part, on our ability to attract and retain key personnel. We
may not be able to hire and retain such personnel at compensation levels
consistent with our existing compensation and salary structure. In 2005, we
deferred the hiring of senior management personnel in order to allow our
newly-engaged full time Chief Executive Officer to select such key personnel. We
cannot predict whether we will be successful in finding suitable new candidates
for our key management positions. On September 15, 2006, Mr. Guillen’s
employment as President and Chief Executive Officer was terminated, and Marvin
S. Hausman, M.D. was appointed our new President and Chief Executive Officer. On
November 15, 2006, Michael Centron resigned as our Vice President and Chief
Financial Officer. Dr. Hausman has assumed the role of chief financial and
accounting officer on an interim basis. While we have entered into an employment
agreement with Dr. Hausman, he is free to terminate his employment “at will.”
Further, we cannot predict whether Dr. Hausman will be successful in his role as
our President and Chief Executive Officer, or whether senior management
personnel hires will be effective. The loss of services of executive officers or
key personnel, any transitional difficulties with our new Chief Executive
Officer or the inability to attract qualified personnel could have a material
adverse effect on our financial condition and business. As we currently do not
have a Chief Financial Officer, it is crucial that we find a qualified
individual to fill that role and to oversee and certify the periodic reports we
must file with the Securities and Exchange Commission. As we currently have
limited cash resources, if any of our key personnel leaves, replacing them will
be difficult. We do not have any key employee life insurance policies with
respect to any of our executive officers.
The
success of our business depends upon our ability to successfully develop and
commercialize products.
We cannot
assure you that our efforts to develop and commercialize a cardiac predictor
product, an Ergothioneine nutraceutical product or any other products will be
successful. The cost of such development and commercialization efforts can be
significant and the likelihood of success of any such programs is difficult to
predict. The failure to develop or commercialize such new products could be
materially harmful to us and our financial condition.
Our
future profitability is uncertain.
We cannot
predict our ability to increase our revenues or achieve profitability. We may be
required to increase our research and development expenses in order to develop
potential new products. As evidenced by the substantial net losses during and
2007 and 2006, losses and expenses may increase and fluctuate from quarter to
quarter. There can be no assurance that we will ever achieve profitable
operations.
Our
ability to successfully develop and commercialize our nutraceutical or clinical
diagnostic product candidates, and make them available for sale, is
uncertain.
All of
our nutraceutical and clinical diagnostic candidates are at an early stage of
development and all of such nutraceutical and clinical diagnostic candidates
will require expensive and lengthy testing and regulatory clearances. None of
our nutracutical or clinical diagnostic candidates have been approved by
regulatory authorities. We may not be able to make many of our product
candidates commercially available for several years, if at all. There are many
reasons we may fail in our efforts to develop our nutraceutical and clinical
diagnostic candidates, including:
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our
nutraceutical and clinical diagnostic candidates may be ineffective, toxic
or may not receive regulatory clearances,
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our
nutraceutical and clinical diagnostic candidates may be too expensive to
manufacture or market or may not achieve broad market
acceptance,
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third
parties may hold proprietary rights that may preclude us from developing
or marketing our nutraceutical and clinical diagnostic candidates,
or
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third
parties may market equivalent or superior
products.
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Clinical
development is inherently uncertain and expense levels may fluctuate
unexpectedly because we cannot accurately predict the timing and level of such
expenses.
Our
future success may depend in part upon the results of clinical trials undertaken
by us or our licensees designed to assess the safety and efficacy of our
potential products. We do not have substantial experience in developing and
running clinical trials. The completion of clinical trials often depends
significantly upon the rate of patient enrollment, and our expense levels will
vary depending upon the rate of enrollment. In addition, the length of time
necessary to complete clinical trials and submit an application for marketing
and manufacturing approvals varies significantly and is difficult to predict.
The expenses associated with each phase of development depend upon the design of
the trial. The design of each phase of trials depends in part upon results of
prior phases, and additional trials may be needed at each phase. As a result,
the expense associated with future phases cannot be predicted in advance.
Further, if we undertake clinical trials, we may decide to terminate or suspend
ongoing trials. Failure to comply with extensive FDA regulations may result in
unanticipated delay, suspension or cancellation of a trial or the FDA’s refusal
to accept test results. The FDA may also suspend our clinical trials at any time
if it concludes that the participants are being exposed to unacceptable risks.
As a result of these factors, we cannot predict the actual expenses that we will
incur with respect to clinical trials for any of our potential products, and we
expect that our expense levels will fluctuate unexpectedly in the
future.
Competition
in most of our primary current and potential market areas is intense and
expected to increase.
The
diagnostic, pharmaceutical and nutraceutical industries are highly competitive.
The main commercial competition at present in our research assay business is
represented by, but not limited to, the following companies: Cayman Chemical
Company, Assay Designs and Randox Laboratories Ltd. In addition, our competitors
and potential competitors include large pharmaceutical/nutraceutical companies,
universities and research institutions. Compared to us, these competitors may
have substantially greater capital resources, research and development staffs,
facilities, as well as greater expertise manufacturing and making products. In
addition, these companies, as well as others, may have or may develop new
technologies or use existing technologies that are, or may in the future be, the
basis for competitive products. There can be no assurance that we can compete
successfully.
In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of our
current and prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect our ability to commercialize existing technologies or new
technologies on terms favorable to us. Further, competitive pressures could
require us to reduce the price of our products and technologies, which could
materially adversely affect our business, operating results and financial
condition. We may not be able to compete successfully against current and future
competitors and any failure to do so would have a material adverse effect upon
our business, operating results and financial condition.
TorreyPines
Therapeutics, Inc. holds significant stockholder voting power, and may be in a
position to influence matters affecting us.
TorreyPines
Therapeutics, Inc. or TorreyPines, which merged with Axonyx Inc. in October
2006, currently owns approximately 30% of our issued and outstanding
stock. Given these circumstances, TorreyPines may influence our
business direction and policies, and, thus, may have the ability to control
certain material decisions affecting us. In addition, such
concentration of voting power could have the effect of delaying, deterring or
preventing a change of control or other business combination that might
otherwise be beneficial to our stockholders. Section 203 of the Delaware General
Corporation Law prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years unless
the transaction meets certain conditions. Section 203 also limits the
extent to which an interested stockholder can receive benefits from our assets.
These provisions could complicate or prohibit certain transactions (including a
financing transaction between us and TorreyPines), or limit the price that other
investors might be willing to pay in the future for shares of our common
stock.
If
we are unable to develop and maintain alliances with collaborative partners, we
may have difficulty developing and selling our products and
services.
Our
ability to realize significant revenues from new products and technologies is
dependent upon, among other things, our success in developing business alliances
and licensing arrangements with nutraceutical, biopharmaceutical and/or health
related companies to develop and market these products. To date, we have had
limited success in establishing foundations for such business alliances and
licensing arrangements and there can be no assurance that our efforts will
result in the development of mature relationships or that any such relationships
will be successful. Further, relying on these or other alliances is risky to our
future success because:
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our
partners may develop products or technologies competitive with our
products and technologies;
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our
partners may not devote sufficient resources to the development and sale
of our products and technologies;
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our
collaborations may be unsuccessful; or
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we
may not be able to negotiate future alliances on acceptable
terms.
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Our
revenues and quarterly results have fluctuated historically and may continue to
fluctuate, which could cause our stock price to decrease.
Our
revenues and operating results may fluctuate due in part to factors that are
beyond our control and which we cannot predict. Material shortfalls in revenues
will materially adversely affect our results and may cause us to experience
losses. In particular, our revenue growth and profitability depend on sales of
our research assays and fine chemicals. Factors that could cause sales for these
products and other products to fluctuate include:
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an
inability to produce products in sufficient quantities and with
appropriate quality;
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an
inability to obtain sufficient raw materials;
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the
loss of or reduction in orders from key customers;
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variable
or decreased demand from our customers;
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the
receipt of relatively large orders with short lead
times;
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our
customers’ expectations as to how long it takes us to fill future
orders;
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customers’
budgetary constraints and internal acceptance review
procedures;
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there
may be only a limited number of customers that are willing to purchase our
research assays and fine chemicals;
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a
long sales cycle that involves substantial human and capital resources;
and
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potential
downturns in general or in industry specific economic
conditions.
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Each of
these factors has impacted, and may in the future impact, the demand for and
availability of our products and our quarterly operating results.
If the
sales or development cycles for research assays and fine chemicals lengthen
unexpectedly, our revenues may decline or not grow as anticipated and our
results from operations may be harmed.
Changes
in accounting standards regarding stock option plans could increase our reported
losses, cause our stock price to decline and limit the desirability of granting
stock options.
In
December 2004, the FASB issued SFAS 123R. SFAS 123R replaces SFAS No. 123 and
supersedes APB Opinion No. 25. SFAS 123R establishes standards for the
accounting for share-based payment transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity’s equity instruments or that may be
settled by the issuance of those equity instruments. SFAS 123R covers a wide
range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights and
employee share purchase plans. SFAS 123R requires a public entity to measure the
cost of employee services received in exchange for an award of equity
instruments based on the fair value of the award on the grant date (with limited
exceptions). That cost will be recognized in the entity’s financial statements
over the period during which the employee is required to provide services in
exchange for the award. Management implemented SFAS 123R effective January 1,
2006. Expensing such stock options will add to our losses or reduce our profits,
if any. In addition, stock options are an important employee recruitment and
retention tool, and we may not be able to attract and retain key personnel if we
reduce the scope of our employee stock option program.
Our
income may suffer if we receive relatively large orders with short lead times,
or our manufacturing capacity does not otherwise match our demand.
Because
we cannot immediately adapt our production capacity and related cost structures
to rapidly changing market conditions, when demand does not meet our
expectations, our manufacturing capacity will likely exceed our production
requirements. Fixed costs associated with excess manufacturing capacity could
adversely affect our income. Similarly, if we receive relatively large orders
with short lead times, we may not be able to increase our manufacturing capacity
to meet product demand, and, accordingly, we will not be able to fulfill orders
in a timely manner. During a market upturn, we may not be able to purchase
sufficient supplies to meet increasing product demand. In addition, suppliers
may extend lead times, limit supplies or increase prices due to capacity
constraints or other factors. These factors could materially and adversely
affect our results.
Our
success will require that we establish a strong intellectual property position
and that we can defend ourselves against intellectual property claims from
others.
Maintaining
a strong patent position is important to us in order to establish and maintain a
competitive advantage. Litigation on patent-related matters has been
prevalent in our industry and we expect that this will continue. Patent law
relating to the scope of claims in the technology fields in which we operate is
still evolving and the extent of future protection is highly uncertain, so there
can be no assurance that the patent rights we have or may obtain will be
valuable. Others may have filed, or may in the future file, patent applications
that are similar or identical to ours. To determine the priority of inventions,
we may have to participate in interference proceedings declared by the United
States Patent and Trademark Office that could result in substantial costs in
legal fees and could substantially affect the scope of our patent protection. We
cannot assure investors that any such patent applications will not have priority
over our patent applications. Further, we may choose to abandon certain issued
United States and international patents that we consider to be of lesser
importance to our strategic direction, in an effort to preserve our financial
resources. Abandonment of patents could substantially affect the scope of our
patent protection. In addition, we may in future periods incur substantial costs
in litigation to defend against patent suits brought by third parties or if we
initiate such suits.
In
addition to patent protection, we also rely upon trade secret protection for our
confidential and proprietary information. There can be no assurance, however,
that such measures will provide adequate protection for our trade secrets or
other proprietary information. In addition, there can be no assurance that trade
secrets and other proprietary information will not be disclosed, that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to or disclose our trade secrets and
other proprietary information. If we cannot obtain, maintain or enforce our
intellectual property rights, competitors may seize the opportunity to design
and commercialize competing technologies.
We may
face challenges from third parties regarding the validity of our patents and
proprietary rights, or from third parties asserting that we are infringing their
patents or proprietary rights, which could result in litigation that would be
costly to defend and could deprive us of valuable rights.
Extensive
litigation regarding patents and other intellectual property rights has been
common in the biotechnology and pharmaceutical industries. The defense and
prosecution of intellectual property suits, United States Patent and Trademark
Office interference proceedings, and related legal and administrative
proceedings in the United States and internationally involve complex legal and
factual questions. As a result, such proceedings are costly and time-consuming
to pursue and their outcome is uncertain. Litigation may be necessary
to:
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enforce
patents that we own or license;
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protect
trade secrets or know-how that we own or license; or
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determine
the enforceability, scope and validity of the proprietary rights of
others.
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Our
involvement in any litigation, interference or other administrative proceedings
could cause us to incur substantial expense and could significantly divert the
efforts of our technical and management personnel. An adverse determination may
subject us to loss of our proprietary position or to significant liabilities, or
require us to seek licenses that may not be available from third parties. An
adverse determination in a judicial or administrative proceeding, or a failure
to obtain necessary licenses, may restrict or prevent us from manufacturing and
selling our products. Costs associated with these arrangements may be
substantial and may include ongoing royalties. Furthermore, we may not be able
to obtain the necessary licenses on satisfactory terms, if at all. These
outcomes could materially harm our business, financial condition and results of
operations.
We
may be exposed to liability due to product defects.
The risk
of product liability claims is inherent in the testing, manufacturing, marketing
and sale of our products. We may seek to acquire additional insurance for
liability risks. We may not be able to obtain such insurance or general product
liability insurance on acceptable terms or in sufficient amounts. A product
liability claim or recall could have a serious adverse effect on our business,
financial condition and results of operations.
Disclosure
controls are no assurance that the objectives of the control system are
met.
Although
we have an extensive operating history, resources are limited for the
development and maintenance of our control environment. We have a very limited
number of personnel and therefore segregation of duties can be somewhat limited
as to their scope and effectiveness. We believe, however, that we are in
reasonable compliance with the best practices given the environment in which we
operate. Although existing controls in place are deemed appropriate for the
prevention, detection and minimization of fraud, theft and errors, they may
result in only limited assurances, at best, that the total objectives of the
control system are met. Due to the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, can be detected and/or prevented and as such
this is a risk area for investors to consider.
Risks
Related to Our Common Stock
Our
common stock is traded on the OTCBB, our stock price is highly volatile, and you
may not be able to sell your shares of our common stock at a price greater than
or equal to the price you paid for such shares.
Our
shares of common stock are currently traded on the Over the Counter Bulletin
Board, or OTCBB. Stocks traded on the OTCBB generally have limited trading
volume and exhibit a wide spread between bid and ask quotations. The market
price of our common stock is extremely volatile. To demonstrate the volatility
of our stock price, during 2007, the volume of our common stock traded on any
given day ranged from 0 to 236,000 shares. Moreover, during that period, our
common stock traded as low as $0.07 per share and as high as $0.29 per share, a
314% difference. This may impact an investor’s decision to buy or sell our
common stock. As of December 31, 2007 there were approximately 3,500 holders of
our common stock. Factors affecting our stock price include:
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our
financial results;
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fluctuations
in our operating results;
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announcements
of technological innovations or new commercial health care products or
therapeutic products by us or our competitors;
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government
regulation;
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developments
in patents or other intellectual property rights;
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developments
in our relationships with customers and potential customers;
and
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general
market conditions.
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Furthermore,
volatility in the stock price of other companies has often led to securities
class action litigation against those companies. Any such securities litigation
against us could result in substantial costs and divert management’s attention
and resources, which could seriously harm our business and financial
condition.
Our
common stock may be subject to “penny stock” rules which may be detrimental to
investors.
Our
common stock may be, or may become, subject to the regulations promulgated by
the SEC for “penny stock.” SEC regulation relating to penny stock is presently
evolving, and the OTCBB may react to such evolving regulation in a way that
adversely affects the market liquidity of our common stock. Penny stock
currently includes any non-NASDAQ equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. The regulations
require that prior to any non-exempt buy/sell transaction in a penny stock, a
disclosure schedule set forth by the SEC relating to the penny stock market must
be delivered to the purchaser of such penny stock. This disclosure must include
the amount of commissions payable to both the broker-dealer and the registered
representative and current price quotations for the common stock. The
regulations also require that monthly statements be sent to holders of penny
stock that disclose recent price information for the penny stock and information
of the limited market for penny stocks. These requirements may adversely affect
the market liquidity of our common stock.
Sales
of our common stock may require broker-dealers to make special suitability
determinations regarding prospective purchasers.
Our
common stock may be, or may become, subject to Rule 15g-1 through 15g-9 under
the Exchange Act, which imposes certain sales practice requirements on
broker-dealers which sell our common stock to persons other than established
customers and “accredited investors” (generally, individuals with a net worth in
excess of $1,000,000 or an annual income exceeding $200,000 (or $300,000
together with their spouses)). For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser’s written consent to the transaction prior to
the sale. Applicability of this rule would adversely affect the ability of
broker-dealers to sell our common stock and purchasers of our common stock to
sell their shares of such common stock. Accordingly, the market for our common
stock may be limited and the value negatively impacted.
We
will incur expenses in connection with registration of our shares which may be
significant.
We are
required to pay fees and expenses incident to the registration with the SEC of
the shares issued in the private placements of equity which closed on January 6,
2005 and October 25, 2006 and maintain adequate disclosure in connection with
such registration, including updating prospectuses and under certain
circumstances, filing amended registration statements. These expenses were
approximately $21,000 in 2006 and $39,000 in 2007, and we may incur significant
additional expenses in the future related to maintaining effective registration
statements for prior financings and any additional registrations related to
future financings. We have also agreed to indemnify such selling security
holders against losses, claims, damages and liabilities arising out of relating
to any misstatements or omissions in our registration statement and related
prospectuses, including liabilities under the Securities Act. In the event such
a claim is made in the future, such losses, claims, damages and liabilities
arising therefrom could be significant in relation to our revenues.
A
large number of additional shares may be sold into the public market in the near
future, which may cause the market price of our common stock to decline
significantly, even if our business is successful.
Sales of
a substantial amount of common stock in the public market, or the perception
that these sales may occur, could adversely affect the market price of our
common stock. After our October 25, 2006 debenture and warrant financing, and
assuming the full conversion of the debentures and full exercise of the Series
A, B, C, D and E warrants for the maximum number of shares for which such
warrants are exercisable, we would have approximately 64 million shares of
common stock outstanding (assuming no other issuances of common stock). Upon
full issuance of these shares of common stock upon conversion of the debentures
and exercise of the warrants, the market price of our common stock could drop
significantly if the holders of these shares sell them or are perceived by the
market as intending to sell them.
A
large number of common shares are issuable upon exercise of outstanding common
share options and warrants and upon conversion of our outstanding debentures.
The exercise or conversion of these securities could result in the substantial
dilution of your investment in terms of your percentage ownership in OXIS as
well as the book value of your common shares. The sale of a large amount of
common shares received upon exercise of these options and warrants on the public
market to finance the exercise price or to pay associated income taxes, or the
perception that such sales could occur, could substantially depress the
prevailing market prices for our shares.
As of
December 31, 2007, we had a total of 31,562,895 outstanding warrants and
5,280,272 outstanding options to purchase our common stock. These
include warrants entitling the debenture holders to purchase up to a maximum of
9,681,429 common shares at an exercise price of $0.35 per share and a maximum of
2,420,357 common shares at an exercise price of $0.385 per
share. There are also debentures outstanding which are convertible
into a maximum of 4,840,740 common shares at a conversion price per common share
of $0.35 per common share. Further, we have relied heavily on option and warrant
grants as an alternative to cash as a means of compensating our officers,
advisors and consultants. In 2006, we issued options and warrants to officers,
director and consultants for the purchase of approximately 4.4 million shares of
our common stock, with exercise prices ranging from $0.18 to $0.39 per
share. In 2007, we issued options to employees and directors for the
purchase of 80,000 shares of our common stock, with exercise prices ranging from
$0.10 to $0.22. The exercise price for all of the aforesaid options and warrants
may be less than your cost to acquire our common shares. In the event of the
exercise and/or conversion of these securities, you could suffer substantial
dilution of your investment in terms of your percentage ownership in the company
as well as the book value of your common shares. In addition, the holders of the
options and warrants may sell underlying common shares in tandem with their
exercise of those warrants to finance that exercise, or may resell the shares
purchased in order to cover any income tax liabilities that may arise from their
exercise of the options and warrants.
If
we fail to maintain the adequacy of our internal controls, our ability to
provide accurate financial statements and comply with the requirements of the
Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price
to decrease substantially.
We are
continuing to take measures to address and improve our financial reporting and
compliance capabilities and we are in the process of instituting changes to
satisfy our obligations in connection with being a public company. We plan to
obtain additional financial and accounting resources to support and enhance our
ability to meet the requirements of being a public company. We will need to
continue to improve our financial and managerial controls, reporting systems and
procedures, and documentation thereof. If our financial and managerial controls,
reporting systems or procedures fail, we may not be able to provide accurate
financial statements on a timely basis or comply with the Sarbanes-Oxley Act of
2002 as it applies to us. Any failure of our internal controls or our ability to
provide accurate financial statements could cause the trading price of our
common stock to decrease substantially.
Our
common shares are thinly traded and, if you are a holder of debentures, you may
be unable to sell at or near ask prices or at all if you need to convert your
debentures into common stock and sell your shares to raise money or otherwise
desire to liquidate such shares.
We cannot
predict the extent to which an active public market for our common stock will
develop or be sustained. Our common shares have historically been sporadically
or “thinly-traded” on the “Over-The-Counter Bulletin Board,” meaning that the
number of persons interested in purchasing our common shares at or near bid
prices at any given time may be relatively small or non-existent. This situation
is attributable to a number of factors, including the fact that we are a small
company which is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our shares
is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. We cannot give you any assurance
that a broader or more active public trading market for our common stock will
develop or be sustained, or that current trading levels will be
sustained.
The
market price for our common stock is particularly volatile given our status as a
relatively small company with a small and thinly traded “float” and lack of
current revenues that could lead to wide fluctuations in our share price. The
price at which you convert your debentures into our common stock many be
indicative of the price that will prevail in the trading market. You may be
unable to sell your common stock at or above your purchase price if at all,
which may result in substantial losses to you.
The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price is attributable to a number of factors. First,
as noted above, our common shares are sporadically and/or thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small
quantities of shares by its shareholders may disproportionately influence the
price of those shares in either direction. The price for its shares could, for
example, decline precipitously in the event that a large number of our common
shares are sold on the market without commensurate demand, as compared to a
seasoned issuer which could better absorb those sales without adverse impact on
its share price. Secondly, an investment in us is a speculative or “risky”
investment due to our lack of revenues or profits to date and uncertainty of
future market acceptance for current and potential products. As a consequence of
this enhanced risk, more risk-adverse investors may, under the fear of losing
all or most of their investment in the event of negative news or lack of
progress, be more inclined to sell their shares on the market more quickly and
at greater discounts than would be the case with the stock of a seasoned
issuer.
Investors
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (2)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups by
selling broker-dealers; and (5) the wholesale dumping of the same securities by
promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to be
in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.
We
do not anticipate paying any cash dividends.
We
presently do not anticipate that we will pay any dividends on any of our capital
stock in the foreseeable future. The payment of dividends, if any, would be
contingent upon our revenues and earnings, if any, capital requirements, and
general financial condition. The payment of any dividends will be within the
discretion of our board of directors. We presently intend to retain all
earnings, if any, to implement our business plan; accordingly, we do not
anticipate the declaration of any dividends in the foreseeable
future.
ITEM
7. FINANCIAL
STATEMENTS
The
Audited Financial Statements for this Form 10-KSB appear on pages F-1 through
F-30 following the signature page below.
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CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
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None.
ITEM
8A(T). CONTROLS
AND PROCEDURES
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Evaluation of Disclosure
Controls and Procedures.
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Our management, including our principal
executive officer and our principal financial officer, has evaluated the
effectiveness of our “disclosure controls and procedures” (as such term is
defined in Rules 13a-15(e) and 15d-15(e) of the United States Securities
Exchange Act of 1934, as amended), as of December 31, 2007. As
described below in the Management’s Report on Internal Control over Financial
Reporting, management has reported material weaknesses in the internal control
over financial reporting as of December 31, 2007. Based on that
evaluation, our principal executive officer and our principal financial officer
have concluded that our disclosure controls and procedures were not effective as
of December 31, 2007 due to the reported material weakness.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange
Act of 1934, as amended, as a process designed by, or under the supervision of,
a company’s principal executive and principal financial officers and effected by
a company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
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Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
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Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and
directors of the company; and
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Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
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All internal
control systems, no matter how well designed, have inherent limitations and can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of our internal control over
financial reporting as of December 31, 2007 using criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated
Framework and Internal
Control over Financial Reporting-Guidance for Smaller Public
Companies. In the course of the assessment, material
weaknesses were identified in the Company’s internal control over financial
reporting.
Ineffective Control
Environment. Fundamental elements of an effective control
environment were missing or inadequate as of December 31,
2007. Through a Code of Ethics or Code of Conduct, individuals at the
highest levels of the organization have not established, documented, and
communicated effectively and with appropriate rigor the organization’s
commitment to ethical and acceptable business conduct. In addition,
the Audit Committee has not established a whistleblower mechanism for the
confidential, anonymous submission by employees of concerns related to
questionable accounting, auditing, or ethics-related matters. As a
result of the lack of a formal anonymous avenue of communication for employee
concerns, matters may not be communicated to the appropriate levels of
management or the Board of Directors.
Inadequate Procedures
for Intangible Impairment Evaluation. Management has not
established and implemented accounting policies and procedures for the periodic
evaluation for impairment of intangible assets such as goodwill and
patents. As a result, impairment testing of the company’s intangible
assets was not performed by management prior to the commencement of the audit of
the financial statements.
Based on the
material weaknesses identified above, management has concluded that internal
control over financial reporting was not effective as of December 31,
2007.
This annual
report does not include an attestation report of the company’s registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management’s report
in this annual report.
We intend to
remedy the material weaknesses identified above as soon as practicable,
including developing and implementing a code of conduct or ethics, establishing
a whistleblower mechanism, and developing and implementing appropriate
accounting policies and procedures for intangible asset impairment
evaluation.
Changes in Internal Control Over
Financial Reporting
There has
been no change in our internal control over financial reporting that occurred
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 8B. OTHER INFORMATION
None.
PART
III
|
DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
|
The
following table sets forth certain information with respect to each of our
directors and executive officers as of April 4, 2008.
|
Name
|
Age
|
Principal
Occupation
|
Served
as
Director
Since
|
|||
|
Marvin
S. Hausman, M.D. (2)
|
66
|
President,
Chief Executive Officer, Acting Chief Financial Officer and Chairman of
the Board
|
2004
|
|||
|
S.
Colin Neill (1) (3)
|
61
|
Secretary,
Director
|
2004
|
|||
|
John
E. Repine, M.D. (1)(3)
|
63
|
Director
|
2005
|
|||
|
Gary
M. Post (1)(4)
|
59
|
Chief
Operating Officer, Director
|
2006
|
|
(1)
|
Member
of the Audit Committee.
|
|
|
(2)
|
Appointed
President and Chief Executive Officer on September 15, 2006. Member of the
Compensation Committee. In addition, on November 15, 2006, following the
resignation of Michael Centron as our Vice President and Chief Financial
Officer, Dr. Hausman has assumed the role of chief financial and
accounting officer on an interim basis.
|
|
|
(3)
(4)
|
Member
of the Nominating Committee.
Appointed
Chief Operating Officer on September 24,
2007.
|
|
Since
October 1995, Dr. Hausman has been the President of Northwest Medical Research
Partners, Inc., a medical technology and transfer company. He was a member of
the board of directors of Medco Research, Inc. from inception (1978) through
1992 and from May 1996 to July 1998. Dr. Hausman was a member of the board of
directors of Regent Assisted Living, Inc., a company specializing in building
assisted living centers including care of senile dementia residents, from March
1996 to April 2001.
S. Colin Neill, Secretary and
Director. Mr. Neill was appointed to the board of directors in April 2004. He
has served as Secretary of OXIS since January 2005. Mr.Neill became
President of Pharmos in January 2008, and has served as Chief Financial Officer,
Secretary, and Treasurer of Pharmos since October 2006. Prior to becoming
President, he also served as Senior Vice President from October 2006 to January
2008. From September 2003 to October 2006, Mr. Neill served as Chief Financial
Officer, Treasurer and Secretary of Axonyx Inc., a biopharmaceutical company
that develops products and technologies to treat Alzheimer's disease and other
central nervous system disorders, where he played an integral role in the merger
between Axonyx and TorreyPines Therapeutics Inc., a privately-held
biopharmaceutical company. Mr. Neill served as Senior Vice President, Chief
Financial Officer, Secretary and Treasurer of ClinTrials Research Inc., a $100
million publicly traded global contract research organization in the drug
development business, from 1998 to its successful sale in 2001. Following that
sale from April 2001 to September 2003 Mr. Neill served as an independent
consultant assisting small start-up and development stage companies in raising
capital. Earlier experience was gained as Vice President Finance and Chief
Financial Officer of BTR Inc., a $3.5 billion US subsidiary of BTR plc, a
British diversified manufacturing company, and Vice President Financial Services
of The BOC Group Inc., a $2.5 billion British owned industrial gas company with
substantial operations in the health care field. Mr. Neill served four years
with American Express Travel Related Services, first as chief internal auditor
for worldwide operations and then as head of business planning and financial
analysis. Mr. Neill began his career in public accounting with Arthur Andersen
LLP in Ireland and later with Price Waterhouse LLP as a senior manager in New
York City. He also served with Price Waterhouse for two years in Paris, France.
Mr. Neill graduated from Trinity College, Dublin with a first class honors
degree in Business/Economics and he holds a masters degree in Accounting and
Finance from the London School of Economics. He is a Certified Public Accountant
in New York State and a Chartered Accountant in Ireland. Mr. Neill serves on the
board of Pro Pharmaceuticals, Inc.
Gary M. Post, Chief Operating
Officer and Director. Mr. Post has served as a director of OXIS since
March 15, 2006 and currently, though an advisory agreement, serves part-time as
Chief Operating Officer. Since 1999 Mr. Post has been the Managing Director and
Investment Principal of Ambient Advisors, LLC. Ambient Advisors primarily
invests its own and its partners’ capital in private and public companies with a
particular interest in the health care and life sciences sector and certain
other special situations. Ambient Advisors also actively advises these
companies, sometimes taking interim management roles. In his capacity as
Managing Director at Ambient Advisors, Mr. Post has acted as an interim Chief
Executive Officer in two private early to mid stage companies that Ambient had
invested in, Opticon Medical, Inc., a medical device company and OccMeds Billing
Services, Inc., a worker’s compensation pharmacy payment processing company. Mr.
Post also served as a President and CEO of VoIP, Inc., a leading provider of
Voice over Internet Protocol (VoIP) communications solutions for service
providers, resellers and consumers during 2006 and continues as a member of the
VoIP, Inc. Board of Directors. Mr. Post holds a MBA from the U.C.L.A. Graduate
School of Management and an A.B. in Economics from Stanford
University.
John E. Repine, M.D.,
Director. Dr. Repine has served as a director of OXIS since October 2005. Since
1996, Dr. Repine has been the James J. Waring Professor of Medicine and
Pediatrics at the University of Colorado Health Sciences Center. Since 1993, Dr.
Repine has been the Chief Executive Officer and President of the Webb-Waring
Institute for Cancer, Aging and Antioxidant Research. Dr. Repine
graduated from the School of Medicine and completed training in internal
medicine and pulmonary medicine at the University of Minnesota. Dr. Repine
has received many national awards for his research including an Established
Investigator Award from the American Heart Association, the Alton Ochsner Award
Relating Smoking and Health and the Senior Scholar in Aging Award from the
Ellison Medical Foundation. Dr. Repine was the Principal Investigator for 10
years for one of six National Specialized Centers of Research (SCOR) of the
National Institutes of Health for the Study of Acute Lung Injury. Dr.
Repine is a recognized expert in the study of vascular disorders, inflammation,
oxidants and antioxidants. Dr. Repine has served in various capacities
with a number of biotechnology companies.
There are
no family relationships between the officers and directors.
On March
8, 2007, we entered into a Confidential Separation Agreement (dated February 12,
2007) with Steven T. Guillen, our former chief executive officer, under which we
agreed to pay Mr. Guillen the sum of $250,000 in twelve equal monthly
installments, subject to standard payroll deductions and withholdings. We also
agreed that Mr. Guillen’s stock options would immediately vest, and that to the
extent the shares underlying such options are not registered, Mr. Guillen would
be granted piggyback registration rights to cover these shares. Mr. Guillen
would have the right to exercise his options until February of 2010. We also
agreed to pay Mr. Guillen’s health insurance premiums for the twelve-month
separation period in accordance with the Consolidated Omnibus Budget
Reconciliation Act of 1985. In exchange for these payments and benefits, Mr.
Guillen and OXIS agreed to mutually release all claims, dismiss all complaints
as applicable, and neither party shall pursue any future claims regarding Mr.
Guillen’s prior employment and compensation arrangements with us. A copy of the
separation agreement is included as Exhibit 10.43 to this annual report on Form
10-KSB.
None of
our directors, officers or affiliates, and no owner of record or beneficial
owner of more than five percent (5%) of our securities, or any associate of any
such director, officer or security holder is a party adverse to OXIS or any of
its subsidiaries or has a material interest adverse to OXIS or any of its
subsidiaries in reference to pending litigation.
Section
16(a) Beneficial Ownership Reporting Compliance
No
director, officer or beneficial owner of more than 10% of any class of our
equity securities failed to file a Form 3 or Form 4 on a timely basis in
2007.
Code
of Ethics
The Board
of Directors has adopted a Code of Ethics and Business Conduct to provide
guidance to its directors, officers and employees regarding standards for
conduct of the Company’s business, which code has been delivered to all
directors, officers and employees of the Company. The full text of our Code of
Ethics and Business Conduct is available on our website at
www.oxis.com. To the extent required by law, any amendments to, or
waivers from, any provision of the code of ethics will promptly be disclosed to
the public. To the extent permitted by such legal requirements, we intend to
make such public disclosure by posting the relevant material on our website in
accordance with SEC rules.
Audit
Committee and Audit Committee Financial Expert
We are not a
“listed company” under SEC rules and are therefore not required to have an audit
committee comprised of independent directors. We do, however, have an audit
committee consisting of three members of our board of directors, including S.
Colin Neill, John E. Repine, M.D., and Gary M. Post. The board of directors has
determined that S. Colin Neill, the Chairman of our Audit Committee, qualifies
as an “audit committee financial expert” as defined by the rules of the
Securities and Exchange Commission. In addition, the board of directors has
determined that each of the members of the audit committee is able to read and
understand fundamental financial statements and has substantial business
experience that results in that member's financial sophistication. Accordingly,
the board of directors believes that each member of the audit committee has
sufficient knowledge and experience necessary to fulfill such member’s duties
and obligations as an audit committee member.
|
EXECUTIVE
COMPENSATION
|
Our
compensation and benefits program is designed to attract, retain and motivate
employees to operate and manage our company for the best interests of its
constituents. Executive compensation is designed to provide
incentives for those senior members of management who bear responsibility for
our goals and achievements. The compensation philosophy is based on a
base salary, bonuses and a stock option program.
The
following table sets forth compensation information for services rendered to us
by one of our executive officers ( our company’s “Named Executive Officer”) in
all capacities, other than as directors, during each of the prior two fiscal
years. Other than as set forth below, no executive officer’s salary
and bonus exceeded $100,000 in our fiscal year ending December 31,
2007. The following information includes the dollar value of base
salaries, bonus awards, the number of stock options granted and certain other
compensation, if any. Shares issued in lieu of compensation are listed in the
year the salary was due.
SUMMARY COMPENSATION
TABLE
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option/
Warrant
Awards (1)
|
Non-Equity
Incentive
Plan Compen-sation
|
All
Other Compensation
|
Total
|
||||||||||||||||
|
Dr.
Marvin S. Hausman (2)
|
2007
|
$
|
—
|
|
|
$
|
—
|
$
|
—
|
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Chairman
of the Board,
|
2006
|
$
|
52,083
|
(3
|
)
|
$
|
—
|
$
|
164,977
|
(3)
|
$
|
208,870
|
$
|
—
|
$
|
—
|
$
|
425,930
|
||||||
|
Chief
Executive Officer
|
||||||||||||||||||||||||
|
Acting
Chief
|
||||||||||||||||||||||||
|
Financial
Officer
|
||||||||||||||||||||||||
|
(1)
|
Reflects
dollar amount expensed by the company during applicable fiscal year for
financial statement reporting purposes pursuant to FAS 123R. FAS 123R
requires the company to determine the overall value of the options as of
the date of grant based upon the Black Scholes method of valuation, and to
then expense that value over the service period over which the options
become exercisable (vest). As a general rule, for time in
service based options, the company will immediately expense any option or
portion thereof which is vested upon grant, while expensing the balance on
a pro rata basis over the remaining vesting term of the
option.
|
|
(2)
|
Dr.
Hausman served as Acting Chief Executive Officer from December 8, 2004 to
February 28, 2005 and as Acting Chief Financial Officer from December 8,
2004 until January 6, 2006. On September 15, 2006, Dr. Hausman was
appointed as Chairman of the board of directors, President and Chief
Executive Officer and Acting Chief Financial Officer.
|
|
(3)
|
Dr.
Hausman was issued 330,769 shares of common stock on October 12, 2006, as
payment for compensation and expenses owed by us to NW Medical Research
Partners, Inc., of which Dr. Hausman is the sole member and manager. The
amount owed was $67,477, and the shares were valued at approximately
$0.204 per share, and are not subject to repurchase. Also includes dollar
amount expensed by the company during 2006 for financial statement
reporting purposes pursuant for FAS 123R in connection with a grant to Dr.
Hausman of 500,000 restricted shares of common stock vesting over a 180
day period, for agreeing to serve as our Chief Executive Officer and
President.
|
Additional
Narrative Disclosure
Dr. Hausman and Gary M. Post, our COO,
have opted under their respective employment and advisory agreements not to
receive quarterly issuances of shares and warrants as compensation pursuant to
those agreements, but will receive cash compensation in an amount up to $200,000
each upon the closing of a strategic transaction involving proceeds of at least
$1.5 million to OXIS, which cash payment would be credited against their accrued
salaries under their respective agreements.
Employment
Agreements
On
November 6, 2006, we entered into an employment agreement with Dr. Hausman that
commenced retroactively at October 15, 2006, referred to as the commencement
date. Under the terms of our agreement:
|
·
|
Dr.
Hausman will serve as our President and Chief Executive Officer for a
three year term from the commencement date of his employment, and after
this period, on a year-to-year basis;
|
|
·
|
Dr.
Hausman will receive annual compensation in the amount of $250,000,
payable quarterly in advance in cash, common stock based on a price equal
to 85% of average of the five closing prices for the five trading days
prior to the date that the issuance is authorized by the board of
directors, or in ten year warrants equal to that number of warrants equal
to 1.5 times the number of shares that would otherwise be
received;
|
|
·
|
For
the initial quarterly payment, Dr. Hausman was issued 347,222 restricted
shares of common stock;
|
|
·
|
During
the three year term of the agreement, Dr. Hausman will receive an annual
bonus based upon the attainment of agreed upon goals and milestones as
determined by the board of directors and its compensation
committee;
|
|
·
|
During
the remainder of calendar year 2006, Dr. Hausman’s bonus will be pro rated
on an annual bonus rate in the range of 25% to 50% of his base salary, and
the bonus for subsequent years of the term of the agreement will be in a
similar target range;
|
|
·
|
The
bonuses payable will be paid in cash, although at Dr. Hausman’s sole
option, they may be paid in stock (or in the form of ten year warrants
with cashless exercise provisions, with 1.5 times the number of warrant
shares to be issued in lieu of the number of shares of common stock),
based upon the average of the closing bid and asked prices for the 5
trading days immediately prior to the awarding to Dr. Hausman of the bonus
for a particular year;
|
|
·
|
Once
we have raised at least $2.5 million in one or more financings (equity,
debt or convertible debt, in addition to the financing closed on October
25, 2006) or in a strategic transaction, Dr. Hausman may elect, at any
time, in lieu of receiving a quarterly issuance of stock (or warrants in
lieu thereof), to receive his base salary in cash, payable monthly on our
regular pay cycle for professional employees;
|
|
·
|
As
part of his compensation, we granted Dr. Hausman a ten year a
non-qualified option to purchase 495,000 shares of our common stock at an
exercise price of $0.20 per share, vesting as follows: (i) 247,500 option
shares vesting in four equal quarterly installments commencing on January
15, 2007 and every three months thereafter and (ii) and the remaining
247,500 option shares vesting in eight quarterly installments over two
years;
|
|
·
|
Additionally,
we granted Dr. Hausman, as a sign on bonus, 500,000 restricted shares of
common stock and a ten year common stock purchase warrant to purchase
1,505,000 shares at an exercise price of $0.20 per share, with vesting in
six equal installments, commencing on November 14, 2006, through the 180th
day after the Commencement Date;
|
|
·
|
We
are providing Dr. Hausman with an annual office expense allowance of
$50,000, for the costs of maintaining an office in the Stevenson,
Washington area, payable quarterly in advance in the form of common stock,
at a price equal to 85% of the market price;
|
|
·
|
For
the first installment, representing $12,500 of the above office expense
allowance, Dr. Hausman was issued 69,444 restricted shares of common
stock;
|
|
·
|
Once
we have completed a qualifying financing, the above office expense
allowance will be paid in cash in advance, commencing for the quarter next
following the quarter in which the Qualifying Financing
occurred.
|
|
·
|
Additionally,
Dr. Hausman will receive family health and dental insurance benefits and
short-term and long-term disability
policies;
|
|
·
|
Upon
termination for cause, all compensation due to Dr. Hausman under the
agreement will cease, other than a right to participate in continued group
health insurance for a certain period of time (this applies to all
terminations, except if Dr, Hausman terminates without good reason) and
any unexercised portions of his stock options shall expire upon such
termination;
|
|
·
|
In
the event that we terminate Dr. Hausman’s employment within one year of a
change of control, Dr. Hausman shall receive an amount equal to twelve
months of his base salary for the then current term of the agreement
(which is in addition to the base salary paid to Dr. Hausman after our
delivery of notice of termination and the actual date of termination) plus
an amount equal to his bonus in the prior year (and if occurring before
the determination of the 2007 bonus, an amount equal to 50% of the then
current base salary), and the full vesting of Dr. Hausman’s stock options,
and extended exercisability of the options until their respective
expiration dates.
|
|
·
|
In
the event that we terminate our relationship with Dr. Hausman, including a
non-renewal of the agreement by us, but other than upon a change of
control, death, disability or cause, Dr. Hausman shall receive the
following: (i) if employment was terminated during the calendar year 2006,
an amount equal to six months of the then current base salary; if
employment was terminated commencing in the calendar year 2007 or if we
elect not to renew the agreement, an amount equal to twelve months of base
salary for the then current term of the agreement plus an amount equal to
the prior year’s bonus (and if occurring before the bonus for 2007 has
been determined, an amount equal to 50% of the then current base salary);
(ii) if employment was terminated during the calendar year 2006, 50% of
the previously unvested portion of the Initial Option Grant shall vest and
such vested options shall be exercisable until their respective expiration
dates; if employment was terminated commencing in the calendar year 2007
and thereafter or if we elect not to renew the agreement following the
initial three year term or any additional term, all stock options granted
to Dr. Hausman (including without limitation the Initial Option Grant)
shall immediately vest and shall remain exercisable until their respective
expiration dates.
|
|
·
|
In
the event Dr. Hausman terminates his relationship with us for good reason
within one (1) year of the occurrence of the event which established good
reason, or for good reason within one year of a change of control, Dr.
Hausman shall receive the following: (i) if the termination occurred
during the calendar year 2006 for good reason, an amount equal to six
months of base salary; if the termination occurred during the calendar
year 2006 due to a change of control, an amount equal to twelve months of
base salary; if termination for good reason occurred during the calendar
year 2007 or thereafter, an amount equal to twelve months of the then
current base salary plus an amount equal to the prior year’s bonus (and if
occurring before the bonus for 2007 has been determined, an amount equal
to 50% of the then current base salary); (ii) if termination occurred
during the calendar year 2006, 50% of the previously unvested portion of
the Initial Option Grant shall vest and such vested options shall be
exercisable until their respective expiration dates, except that if
termination is by Dr. Hausman for good reason subsequent to a change of
control, then 100% of any option grants to Dr. Hausman (including, without
limitation, the Initial Option Grant) shall vest and shall remain
exercisable until its respective expiration dates; if employment was
terminated commencing in the calendar year 2007 and thereafter, all stock
options granted to Dr. Hausman (including, without limitation, the Initial
Option Grant) shall immediately vest and shall remain exercisable until
their respective expiration dates.
|
On
February 28, 2005, we entered into a Letter Agreement, effective as of February
28, 2005, with Steven T. Guillen under which he was hired as our President and
Chief Executive Officer. On September 15, 2006, Mr. Guillen’s employment as
President and Chief Executive Officer was terminated by the board of directors.
On March 8, 2007, we entered into a Separation Agreement with Mr. Guillen under
which, among other things, Mr. Guillen agreed to resign from the board of
directors.
Outstanding
Equity Awards at Fiscal Year-End
The
following table summarizes the amount of our named executive officer’s
equity-based compensation outstanding at the fiscal year ended December 31,
2007.
|
Outstanding
Equity Awards at Fiscal Year-End
|
||||||||||||||||||||||||||||
|
Options
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
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
|
|||||||||||||||||||
|
(#)
|
(#)
|
(#)
|
( $
)
|
(#)
|
($)
|
(#)
|
($)
|
|||||||||||||||||||||
|
Dr.
Marvin S. Hausman
|
30,000
|
—
|
—
|
$
|
0.22
|
06/14/12
|
347,500
|
$
|
78,500
|
—
|
$
|
—
|
||||||||||||||||
|
5,000
|
—
|
—
|
$
|
0.42
|
06/18/13
|
|||||||||||||||||||||||
|
11,695
|
—
|
—
|
$
|
0.57
|
12/03/13
|
|||||||||||||||||||||||
|
50,000
|
—
|
—
|
$
|
0.59
|
10/11/14
|
|||||||||||||||||||||||
|
5,000
|
—
|
—
|
$
|
0.34
|
06/22/15
|
|||||||||||||||||||||||
|
108,000
|
—
|
—
|
$
|
0.37
|
10/05/15
|
|||||||||||||||||||||||
|
400,000
|
100,000
|
—
|
$
|
0.29
|
12/28/15
|
|||||||||||||||||||||||
|
5,000
|
—
|
—
|
$
|
0.27
|
07/31/16
|
|||||||||||||||||||||||
|
247,500
|
247,500
|
—
|
$
|
0.20
|
11/05/16
|
|||||||||||||||||||||||
|
1,505,000
|
—
|
—
|
$
|
0.20
|
11/05/16
|
|||||||||||||||||||||||
Director
Compensation
We pay an
annual fee of $4,000 to each non-employee director and an additional $1,000 to
non-employee directors for serving as committee chair. During 2007, while we did
not make payments under this policy, such expenses were accrued. We do not pay
meeting fees but directors are reimbursed for their expenses incurred in
attending meetings. Employee directors receive no other compensation as
directors.
Under our
2003 Stock Incentive Plan, non-employee directors are automatically awarded
options to purchase 30,000 shares of common stock upon becoming directors and
automatically awarded options to purchase 5,000 shares of common stock annually
after this date.
The
following table represents stock options that were granted during 2007 to
non-employee directors.
|
Director
Compensation
|
|||||||||||||||||||
|
Name
|
Fees
Earned
or
Paid in
Cash
(1)
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive
Plan Compensation
|
All
Other Compensation
|
Total
|
|||||||||||||
|
S.
Colin Neill
|
$
|
6,000
|
(4)
|
$
|
—
|
$
|
500
|
(2)
|
$
|
—
|
$
|
—
|
$
|
6,500
|
|||||
|
John
E. Repine, M.D
|
4,000
|
—
|
500
|
(2)
|
—
|
—
|
4,500
|
||||||||||||
|
Gary
M. Post
|
4,000
|
—
|
500
|
(2)
|
—
|
—
|
4,500
|
||||||||||||
|
Matthew
Spolar
|
4,000
|
—
|
500
|
(2)
(3)
|
—
|
—
|
4,500
|
||||||||||||
(1) Accrued but not
paid.
(2) Represents
automatic annual option grants made to all non-employee directors for their
service on the board.
(3) Mr.
Spolar resigned from the board of directors on December 20, 2007.
|
(4)
|
Colin
Neill accrued $4,000 for annual director fees and $1,000 each for his
services as chairman of the audit and nominating
committees.
|
|
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
The
following table sets forth certain information known by us with respect to the
beneficial ownership of our common stock as of April 4, 2008 by (i) each person
who is known by us to own beneficially more than 5% of common stock, (ii) each
of the Named Executive Officers (see the section above entitled “Executive
Compensation”), (iii) each of our directors and (iv) all of our current officers
and directors as a group. Except as otherwise listed below, the address of each
person is c/o OXIS International, Inc., 323 Vintage Park Drive, Suite B, Foster
City, California 94404.
The
percentage of shares beneficially owned is based on 46,850,809 shares of common
stock outstanding as of April 4, 2008. Shares of common stock subject to stock
options and warrants that are currently exercisable or exercisable within 60
days of April 4, 2008 are deemed to be outstanding for the purpose 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.
|
Name and Address of Beneficial
Owner
|
Number
of Shares of Common Stock Beneficially Owned
|
Percent of
Shares
of Outstanding Common Stock
|
||||||
|
TorreyPines
Therapeutics, Inc. (1)
11085
N. Torrey Pines Road
La
Jolla, CA 92037
|
13,982,567 | 29.84 | % | |||||
|
Bristol
Investment Fund, Ltd. (2)
Bristol
Capital Advisors, LLC
10990
Wilshire Boulevard, Suite 1410
Los
Angeles, CA 90024
|
12,755,851 | 21.40 | % | |||||
|
Alpha
Capital Anstalt (3)
c/o
LH Financial
150
Central Park South, 2nd
Floor
New
York, NY 10019
|
5,020,001 | 9.68 | % | |||||
|
Whalehaven
Capital Fund Limited (4)
3rd
Floor, 14 Par-La-Ville Rd.
P.
O. Box HM1027
Hamilton
HMDX Bermuda
|
3,764,999 | 7.44 | % | |||||
|
Cranshire
Capital, LP (5)
3100
Dundee Rd., Suite 703
Northbrook,
IL 60062
|
3,703,538 | 7.33 | % | |||||
|
Marvin
S. Hausman, M.D. (6)
|
4,835,025 | 9.80 | % | |||||
|
S.
Colin Neill (7)
|
407,500 | * | ||||||
|
John
E. Repine, M.D. (8)
|
469,387 | * | % | |||||
|
Gary
M. Post (9)
|
1,218,691 | 2.54 | % | |||||
|
Executive
officers and directors as a group — 4 persons (10)
|
6,930,603 | 13.49 | % | |||||
|
*
|
Less
than one percent.
|
|
(1)
|
Based
on a Schedule 13G filed with the SEC on February 14, 2006, filed on behalf
of TorreyPines Therapeutics Pursuant to the Schedule 13G, TorreyPines
has sole voting power as to 13,982,567 shares.
|
|
|
(2)
|
The
holdings of Bristol Investment Fund, Ltd. include 3,867,925 shares of
common stock, 1,434,286 shares issuable upon the voluntary conversion by
Bristol Investment Fund of a secured convertible debenture at the current
conversion price of $0.35 per share, warrants to purchase 1,933,963 shares
of common stock at a price of $0.66 per share, warrants to purchase
1,933,962 shares of common stock at a purchase price of $1.00 per share,
warrants to purchase 2,868,572 shares of common stock at a purchase price
of $0.35 per share, and warrants to purchase 717,143 shares of common
stock at a purchase price of $0.385 per share. 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.
|
|
|
(3)
|
The
holdings of Alpha Capital Anstalt include 1,434,286 shares issuable upon
the voluntary conversion by Alpha Capital Anstalt of a secured convertible
debenture at the current conversion price of $0.35 per share, warrants to
purchase 2,868,572 shares of common stock at a purchase price of $0.35 per
share, and warrants to purchase 717,143 shares of common stock at a
purchase price of $0.385 per share.
|
|
|
(4)
|
The
holdings of Whalehaven Capital Fund Limited include 1,075,714 shares
issuable upon the voluntary conversion by Whalehaven Capital Fund of a
secured convertible debenture at the current conversion price of $0.35 per
share, warrants to purchase 2,151,428 shares of common stock at a purchase
price of $0.35 per share, and warrants to purchase 537,857 shares of
common stock at a purchase price of $0.385 per share.
|
|
|
(5)
|
The
holdings of Cranshire Capital, LP. include 896,429 shares issuable upon
the voluntary conversion by Cranshire Capital of a secured convertible
debenture at the current conversion price of $0.35 per share, warrants to
purchase 283,019 shares of common stock at a price of $0.66 per share,
warrants to purchase 283,019 shares of common stock at a purchase price of
$1.00 per share, warrants to purchase 1,792,857 shares of common stock at
a purchase price of $0.35 per share, and warrants to purchase 448,214
shares of common stock at a purchase price of $0.385 per share. Mitchell
P. Kopin, the President of Downsview Capital, Inc., the General Partner of
Cranshire Capital, L.P., has sole investment power and voting control over
the securities held by Cranshire Capital, L.P.
|
|
|
(6)
|
The
holdings of Marvin S. Hausman, M.D. include 2,344,080 shares of common
stock, 985,945 shares issuable upon exercise of options that are
exercisable currently or within 60 days of April 4, 2008, and 1,505,000
warrant shares exercisable currently or within 60 days of April 4,
2008.
|
|
|
(7)
|
The
holdings of S. Colin Neill include 220,000 shares issuable upon exercise
of options that are exercisable currently or within 60 days of April 4,
2008, and 187,500 warrant shares exercisable currently or within 60 days
of April 4, 2008.
|
|
|
(8)
|
The
holdings of director John E. Repine include 50,000 shares of common stock
and 419,387 shares issuable upon exercise of options that are exercisable
currently or within 60 days of April 4, 2008.
|
|
|
(9)
|
The
holdings of director Gary M. Post include 524,583 shares issuable upon
exercise of options that are exercisable currently or within 60 days of
April 4, 2008 and 694,108 warrant shares exercisable currently or within
60 days of April 4, 2008.
|
|
|
(10)
|
The
holdings of the executive officers and directors as a group include an
aggregate 2,394,080 shares of common stock, 2,149,915 shares issuable upon
exercise of options that are exercisable currently or within 60 days of
April 4, 2008 and 2,386,608` warrant shares exercisable currently or
within 60 days of April 4, 2008.
|
|
Series
C Preferred Stock
The
following table sets forth certain information, as of December 31, 2007, with
respect to persons known by us to be the beneficial owner of more than five
percent (5%) of the OXIS Series C Preferred Stock.
|
Name
and address
|
Number
of Shares of Series C Preferred Stock Beneficially Owned
|
Percent of
class
(1)
|
|||||
|
American
Health Care Fund, L.P.
|
77,000
|
80
|
%
|
||||
|
2748
Adeline, Suite A
|
|||||||
|
Berkeley,
CA 94703 (1)
|
|||||||
|
Megapolis
BV
|
19,230
|
20
|
%
|
||||
|
Javastraaat
10
|
|||||||
|
2585
The Hague, Netherlands (1)
|
|||||||
|
(1)
|
As
required by SEC rules, the number of shares in the table includes shares
which can be purchased within 60 days, or, shares with respect to which a
person may obtain voting power or investment power within 60 days. Also
required by such regulations, each percentage reported in the table for
these individuals is calculated as though shares which can be purchased
within 60 days have been purchased by the respective person or group and
are outstanding.
|
Equity
Compensation Plan Information
The
following is a summary of our equity compensation plans at December 31,
2007:
|
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)
|
3,724,022
|
$
|
0.35
|
1,314,062
|
||||||
|
Equity
compensation plans not approved by security holders
(2)
|
3,761,333
|
$
|
0.22
|
—
|
||||||
|
Total
|
7,485,355
|
1,314,062
|
||||||||
|
(1)
|
As
of December 31, 2007, we had options issued and outstanding to purchase
3,387,350 shares of common stock under our 2003 Stock Incentive Plan and
336,672 shares of common stock under the 1994 Stock Incentive Plan. Our
1994 Stock Incentive Plan terminated on April 30, 2004 and no additional
grants may be made under that plan. As approved by stockholders, we may
grant additional options to purchase up to 1,314,062 shares of common
stock under our 2003 Stock Incentive Plan as of December 31, 2007. The
number of shares reserved for issuance pursuant to options under the 2003
Stock Incentive Plan was increased by 300,000 shares on January 1, 2007
pursuant to an evergreen provision in the stock option
plan.
|
|
(2)
|
As
of December 31, 2007, we had options and warrants issued and outstanding
for the purchase of an aggregate of 3,761,333 shares of our common stock
to officers, directors, consultants and advisors outside of our 1994 Stock
Incentive Plan and our 2003 Stock Incentive Plan, which were issued on a
case by case basis at the discretion of the board of
directors.
|
ITEM 12. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
On
October 11, 2007, we entered into an Amendment to Advisory Agreement with
Ambient Advisors LLC. Pursuant to the Amendment, we agreed to increase the
Advisory Fee from $85,000 to $125,000 per annum, retroactive to the October 15,
2007 (the Commencement Date of the Advisory Agreement) in recognition of the
fact that Mr. Post has spent approximately 50% of his time providing the
advisory services to us rather than the 33% originally contemplated in the
Advisory Agreement. A copy of the amended advisory agreement is included as
Exhibit 10.46 filed with this annual report on Form 10-KSB.
On March
8, 2007, we and Mr. Guillen entered into a Confidential Separation Agreement
(dated February 12, 2007), under which we agreed to pay Mr. Guillen the sum of
$250,000 in twelve equal monthly installments, subject to standard payroll
deductions and withholdings. We also agreed that Mr. Guillen’s stock options
would immediately vest, and that to the extent the shares underlying such
options are not registered, Mr. Guillen would be granted piggyback registration
rights to cover these shares. Mr. Guillen would have the right to exercise his
options until February of 2010. We also agreed to pay Mr. Guillen’s health
insurance premiums for the twelve-month separation period in accordance with the
Consolidated Omnibus Budget Reconciliation Act of 1985. In exchange for these
payments and benefits, Mr. Guillen and OXIS agreed to mutually release all
claims, dismiss all complaints as applicable, and neither party shall pursue any
future claims regarding Mr. Guillen’s prior employment and compensation
arrangements with us. A copy of the separation agreement is included as Exhibit
10.43 to this annual report on Form 10-KSB.
ITEM
13. EXHIBITS
See
Exhibit Index that appears on page 67 of this report.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
Audit
Fees
We
incurred aggregate fees and expenses of $110,000 and $50,000, respectively, from
Williams & Webster, P.S. for the fiscal years 2007 and 2006 annual audit and
for review of OXIS consolidated financial statements included in its Forms
10-QSB for the 2007 and 2006 fiscal years.
Audit
Related Fees
We
incurred aggregate fees and expenses of approximately $3,700 from Williams &
Webster, P.S. during 2007 related to the filing of SEC Form SB-2 and other SEC
matters.
Tax
Fees
We
incurred aggregate fees and expenses of $6,800 from Williams & Webster, P.S.
during 2007 for professional services rendered for tax compliance, tax advice
and tax planning.
All
Other Fees
None.
Our Audit
Committee is to pre-approve all audit and non-audit services provided by the
independent auditors. These services may include audit services, audit-related
services, tax services and other services. Pre-approval is generally provided
for up to one year and any pre-approval is detailed as to particular service or
category of services and is generally subject to a specific budget. The Audit
Committee has delegated pre-approval authority to its Chairman when expedition
of services is necessary. The independent auditors and management are required
to periodically report to the full Audit Committee regarding the extent of
services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed to date.
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated:
April 11, 2008
OXIS
International, Inc.
|
|
By:
|
/s/
Marvin S. Hausman, M.D.
|
Marvin S.
Hausman, M.D.
President
and Chief Executive Officer
/s/ Marvin
S. Hausman, M.D.
Marvin S.
Hausman, M.D.
Acting
Principal Financial and Accounting Officer
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Marvin S. Hausman, M.D. and Gary M. Post as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this report on Form 10-KSB, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
In
accordance with the Exchange Act, this report has been signed below by the
following directors on behalf of the registrant.
|
/s/
Marvin S. Hausman, M.D.
|
April
11, 2008
|
/s/
John E. Repine, M.D.*
|
April
11, 2008
|
|
|
Marvin
S. Hausman, M.D.
|
Date
|
John
E. Repine, M.D.
|
Date
|
|
|
/s/
S. Colin Neill*
|
April
11, 2008
|
/s/
Gary M. Post*
|
April
11, 2008
|
|
|
S.
Colin Neill
|
Date
|
Gary
M. Post
|
Date
|
|
|
*By:
|
/s/ MARVIN
S. H AUSMAN , M.D.
|
April
11, 2008
|
|
|
Marvin
S. Hausman, M.D.
As
Attorney-in-Fact
|
|
Incorporated by
Reference
|
||||||||||
|
Exhibit
Number
|
Exhibit
Description
|
Form
|
Date
|
Number
|
Filed
Herewith
|
|||||
|
3.1
|
Restated
Certificate of Incorporation as filed in Delaware September 10, 1996 and
as thereafter amended through March 1, 2002
|
10-KSB
|
04/01/02
|
3.A
|
||||||
|
3.2
|
Bylaws
of the Company as restated effective September 7, 1994 and as amended
through April 29, 2003
|
10-QSB
|
08/13/03
|
3
|
||||||
|
10.1
|
Series
C Preferred Stock Subscription and Purchase Agreement (form); dated April
1996 (1,774,080 shares in total)
|
10-KSB
|
04/01/02
|
10.B
|
||||||
|
10.2
|
Subscription
Agreement, Warrant to Purchase Common Stock and Form of Subscription dated
July 2003 - August 2003
|
10-KSB
|
03/26/04
|
10.D
|
||||||
|
10.3
|
Note
and Warrant Purchase Agreement dated January 9, 2004
|
10-KSB
|
03/26/04
|
10.I
|
||||||
|
10.4
|
Form
of Convertible Promissory Note dated January 9, 2004
|
10-KSB
|
03/26/04
|
10.J
|
||||||
|
10.5
|
Form
of Warrant to Purchase Common Stock dated January 9, 2004
|
10-KSB
|
03/26/04
|
10.K
|
||||||
|
10.6
|
Form
of Loan Agreement between OXIS International, Inc. and Axonyx, Inc. dated
June 2004
|
8-K
|
06/10/04
|
99.2
|
||||||
|
10.7
|
Form
of Promissory Note between OXIS International, Inc. and Axonyx, Inc. dated
June 2004
|
8-K
|
06/10/04
|
99.3
|
||||||
|
Incorporated by
Reference
|
|||||||||||
|
Exhibit
Number
|
Exhibit
Description
|
Form
|
Date
|
Number
|
Filed
Herewith
|
||||||
|
10.8
|
Form
of Security Agreement between OXIS International, Inc. and Axonyx, Inc.
dated June 2004
|
8-K
|
06/10/04
|
99.4
|
|||||||
|
10.9
|
Form
of License Agreement between OXIS International, Inc. and Haptoguard,
dated September 28, 2004
|
10-QSB
|
11/12/04
|
10.N
|
|||||||
|
10.10
|
Securities
Purchase Agreement, dated December 30, 2004
|
8-K/A
|
02/10/05
|
99.1
|
|||||||
|
10.11
|
Registration
Rights Agreement, dated December 30, 2004
|
8-K/A
|
02/10/05
|
99.2
|
|||||||
|
10.12
|
Form
of Common Stock Purchase Warrant, dated December 30, 2004
|
8-K/A
|
02/10/05
|
99.3
|
|||||||
|
10.13
|
Consulting
Agreement between OXIS International, Inc. and Marvin D, Hausman, M.D.,
dated October 14, 2004
|
SB-2
|
02/25/05
|
10.O
|
|||||||
|
10.14
|
Form
of Indemnification Agreement between OXIS International, Inc. and its
Officers and Directors
|
SB-2
|
02/25/05
|
10.P
|
|||||||
|
10.15
|
Letter
Agreement between OXIS International, Inc. and Steven T. Guillen, dated
February 28, 2005
|
8-K
|
03/04/05
|
10.1
|
|||||||
|
10.16
|
Restricted
Stock Purchase Agreement between OXIS International, Inc. and Steven T.
Guillen, dated February 28, 2005
|
8-K
|
03/04/05
|
10.2
|
|||||||
|
10.17
|
Notice
of Stock Option Award and related Stock Option Agreement between OXIS
International Inc. and Steven T. Guillen, dated February 28,
2005
|
SB-2/A
|
04/29/05
|
10.T
|
|||||||
|
Incorporated by
Reference
|
|||||||||||
|
Exhibit
Number
|
Exhibit
Description
|
Form
|
Date
|
Number
|
Filed
Herewith
|
||||||
|
10.18
|
Nonqualified
Stock Option Agreement between OXIS International, Inc. and Steven T.
Guillen, dated February 28, 2005
|
SB-2/A
|
04/29/05
|
10.U
|
|||||||
|
10.19
|
Conversion
Agreement between OXIS International, Inc. and Equitis Entreprise, dated
May 23, 2005
|
8-K
|
05/25/05
|
99.1
|
|||||||
|
10.20
|
Agreement
between OXIS International, Inc. and Timothy C. Rodell date July 31,
2005
|
8-K
|
08/04/05
|
99.1
|
|||||||
|
10.21
|
Stock
Purchase Agreement between OXIS International, Inc. and BioCheck Inc.
dated September 19, 2005
|
8-K
|
09/23/05
|
99.1
|
|||||||
|
10.22
|
Tenth
Amendment to Lease between OXIS International, Inc. and Rosan, Inc. dated
October 28, 2005
|
8-K
|
11/02/05
|
10.1
|
|||||||
|
10.23
|
Consulting
Agreement between OXIS International, Inc. and NW Medical Research
Partners dated November 17, 2005
|
8-K
|
11/23/05
|
10.1
|
|||||||
|
10.24
|
Executive
Employment Agreement between OXIS International, Inc., BioCheck, Inc. and
John Chen dated December 6, 2005
|
10-KSB
|
03/31/06
|
10.24
|
|||||||
|
10.25
|
Option
and Reimbursement Agreement between EverNew Biotech, Inc., OXIS
International, Inc. and the shareholders of EverNew, dated December 6,
2005
|
10-KSB
|
03/31/06
|
10.25
|
|||||||
|
10.26
|
Letter
Agreement between OXIS International, Inc. and Michael D. Centron dated
January 6, 2006
|
8-K
|
01/10/06
|
10.1
|
|||||||
|
10.27
|
Lease
Agreement between OXIS International, Inc. and Westcore Peninsula Vintage
LLC dated February 8, 2006
|
8-K
|
02/13/06
|
10.1
|
|||||||
|
Incorporated by
Reference
|
|||||||||||
|
Exhibit
Number
|
Exhibit
Description
|
Form
|
Date
|
Number
|
Filed
Herewith
|
||||||
|
10.28
|
Promissory
Note issued by OXIS International, Inc. to Steven T. Guillen dated March
10, 2006
|
8-K
|
03/14/06
|
10.1
|
|||||||
|
10.29
|
Promissory
Note issued by OXIS International, Inc. to Fagan Capital, Inc. dated March
31, 2006
|
8-K
|
04/04/06
|
10.1
|
|||||||
|
10.30
|
Engagement
Letter with Ambient Advisors
|
8-K
|
5/31/06
|
10.1
|
|||||||
|
10.31
|
Mutual
Services Agreement between OXIS International, Inc. and BioCheck, Inc.
dated June 23, 2006
|
8-K
|
6/29/06
|
10.1
|
|||||||
|
10.32
|
Renewal
and Modification Promissory Note dated June 2, 2006.
|
8-K
|
7/26/06
|
10.1
|
|||||||
|
10.33
|
Common
Stock Purchase Warrant dated June 2, 2006.
|
8-K
|
7/26/06
|
10.2
|
|||||||
|
10.34
|
Amendment
#2 to Exclusive License and Supply Agreement dated July 19,
2006.
|
8-K
|
7/26/06
|
10.3
|
|||||||
|
10.35
|
Form
of Securities Purchase Agreement dated October 25, 2006.
|
8-K
|
10/26/06
|
10.1
|
|||||||
|
10.36
|
Form
of Secured Convertible Debenture dated October 25, 2006.
|
8-K
|
10/26/06
|
10.2
|
|||||||
|
10.37
|
Form
of Series A, B, C, D, E Common Stock Purchase Warrant dated October 25,
2006.
|
8-K
|
10/26/06
|
10.3
|
|||||||
|
10.38
|
Form
of Registration Rights Agreement dated October 25, 2006.
|
8-K
|
10/26/06
|
10.4
|
|||||||
|
Incorporated by
Reference
|
|||||||||||
|
Exhibit
Number
|
Exhibit
Description
|
Form
|
Date
|
Number
|
Filed
Herewith
|
||||||
|
10.39
|
Form
of Security Agreement dated October 25, 2006.
|
8-K
|
10/26/06
|
10.5
|
|||||||
|
10.40
|
Employment
Agreement between OXIS International, Inc. and Marvin S. Hausman, M.D.
dated November 6, 2006.
|
8-K
|
11/13/06
|
10.1
|
|||||||
|
10.41
|
Advisory
Agreement between OXIS International, Inc. and Ambient Advisors, LLC dated
November 6, 2006.
|
8-K
|
11/13/06
|
10.2
|
|||||||
|
10.42
|
Consulting
Agreement between OXIS International, Inc. and John E. Repine, M.D. dated
November 6, 2006.
|
8-K
|
11/13/06
|
10.3
|
|||||||
|
10.43
|
Separation
Agreement between OXIS and Steve Guillen dated March 8,
2007
|
10-KSB
|
4/17/07
|
10.43
|
|||||||
|
10.44
|
Registration
Rights Agreement between OXIS and Steve Guillen dated March 30,
2007
|
8-K/A
|
5/3/07
|
99.1
|
|||||||
|
10.45
|
Amended
and Restated Exclusive License Agreement between OXIS and Alteon, Inc.
dated April 2, 2007
|
10-QSB
|
8/14/07
|
10.1
|
|||||||
|
10.46
|
Amendment
to Advisory Agreement between OXIS and Ambient Advisors, Inc. dated
October 11, 2007
|
8-K
|
10/16/07
|
10.1
|
|||||||
|
21.1
|
Subsidiaries
of OXIS International, Inc.
|
X
|
|||||||||
|
31.1
|
Certification
of the Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
X
|
|||||||||
|
31.2
|
Certification
of the Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
X
|
|||||||||
|
32.1
|
Certification
of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
X
|
|||||||||
|
32.2
|
Certification
of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
X
|
|||||||||
OXIS INTERNATIONAL, INC. AND SUBSIDIARIES