UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
X Annual report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the fiscal year ended December 31, 1995.
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the transition period from ______ to _______.
Commission File Number O-8092
OXIS International, Inc.
A Delaware corporation
I.R.S. Employer Identification No. 94-1620407
6040 N. Cutter Circle, Suite 317
Portland, OR 97217
Telephone: (503) 283-3911
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.50 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 X NO
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 18, 1996 (assuming conversion of all outstanding
preferred stock into common stock ) was $17,282,555.
Number of shares outstanding of Registrant's common stock as of March 18, 1996:
12,124,423 shares.
Certain of the information required by Part III of this Form 10-K is
incorporated by reference from a portion of the Company's Proxy Statement for
1996 Annual Meeting of Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 727,000 $ 936,000
Certificates of deposit -- 496,000
Accounts receivable 823,000 740,000
Inventories 953,000 673,000
Prepaid and other 262,000 228,000
---------- -----------
Total current assets 2,765,000 3,073,000
Property and equipment, net 1,092,000 1,298,000
Assets under capital leases, net 1,198,000 1,340,000
Technology for developed products and
custom assays, net 4,498,000 5,215,000
Other assets 317,000 268,000
---------- -----------
Total assets $9,870,000 $11,194,000
========== ===========
See accompanying notes.
19
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- $ 340,000
Other notes payable 1,616,000 --
Accounts payable 1,182,000 1,562,000
Customer deposits 250,000 1,116,000
Accrued liabilities 903,000 628,000
Current portion of capital lease obligations 283,000 473,000
------------ ------------
Total current liabilities 4,234,000 4,119,000
Capital lease obligations 47,000 297,000
8% convertible subordinated debentures 1,255,000 --
Other liabilities 30,000 79,000
Commitments and contingencies (Notes 1, 3 and 11)
Shareholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares
authorized; 642,583 issued and outstanding
(liquidation preference of $1,500,000) 6,000 --
Common stock - $.50 par value; 25,000,000 shares
authorized; 12,124,423 shares issued and outstanding 6,062,000 4,661,000
Additional paid in capital 25,210,000 20,230,000
Accumulated deficit (27,031,000) (18,139,000)
Accumulated translation adjustments 57,000 (53,000)
------------ ------------
Total shareholders' equity 4,304,000 6,699,000
------------ ------------
Total liabilities and shareholders' equity $ 9,870,000 $ 11,194,000
============ ============
See accompanying notes.
20
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
Revenues:
Sales $ 4,982,000 $ 3,325,000 $ 2,315,000
Royalties and license fees 154,000 145,000 729,000
----------- ----------- -----------
Total revenues 5,136,000 3,470,000 3,044,000
Costs and expenses:
Cost of sales 2,939,000 2,074,000 1,330,000
Research and development 4,299,000 1,670,000 813,000
Sales, general and administrative 3,332,000 1,652,000 1,008,000
Purchased in-process technology (Note 3) 3,329,000 3,675,000 --
Control contest -- -- 1,531,000
----------- ----------- -----------
Total costs and expenses 13,899,000 9,071,000 4,682,000
----------- ----------- -----------
Operating loss (8,763,000) (5,601,000) (1,638,000)
Interest income 42,000 82,000 153,000
Interest expense (171,000) (48,000) --
----------- ----------- -----------
Net loss $(8,892,000) $(5,567,000) $(1,485,000)
=========== =========== ===========
Net loss per share $(0.82) $(0.88) $(0.30)
=========== =========== ===========
Weighted average number of shares
used in computation 10,854,149 6,350,097 4,982,670
=========== =========== ===========
See accompanying notes.
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
Cash flows from operating activities:
Net loss $(8,892,000) $(5,567,000) $(1,485,000)
Adjustments to reconcile net loss to cash provided
by (used for) operating activities:
Depreciation and amortization 1,369,000 551,000 53,000
Purchased in-process technology 3,329,000 3,675,000 --
Changes in assets and liabilities:
Accounts receivable (70,000) 258,000 201,000
Inventories (17,000) (186,000) (105,000)
Other current assets 209,000 (19,000) 12,000
Accounts payable (565,000) 562,000 (248,000)
Customer deposits (866,000) 1,116,000 --
Accrued liabilities 251,000 (8,000) (7,000)
----------- ----------- -----------
Net cash provided by (used for)
operating activities (5,252,000) 382,000 (1,579,000)
Cash flows from investing activities:
Redemption of certificates of deposit 496,000 884,000 2,098,000
Purchase of equipment (99,000) (40,000) (69,000)
Acquisition and stock issuance costs (Note 3) -- (1,361,000) --
Cash of businesses acquired (Note 3) 143,000 273,000 --
Other (136,000) 19,000 --
----------- ----------- -----------
Net cash provided by (used for)
investing activities 404,000 (225,000) 2,029,000
Cash flows from financing activities:
Short-term borrowing 1,366,000 296,000 --
Proceeds from issuance of long-term debt 1,255,000 -- --
Costs in connection with isssuance of long-term debt (152,000) -- --
Proceeds from issuance of stock, net of related cost 3,077,000 -- --
Repayment of short-term notes (340,000) -- --
Repayment of capital lease obligations and
other liabilities (573,000) (275,000) --
----------- ----------- -----------
Net cash provided by financing activities 4,633,000 21,000 --
Effect of exchange rate changes on cash 6,000 -- --
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (209,000) 178,000 450,000
Cash and cash equivalents - beginning of year 936,000 758,000 308,000
----------- ----------- -----------
Cash and cash equivalents - end of year $ 727,000 $ 936,000 $ 758,000
----------- ----------- -----------
Supplemental schedule of noncash operating and
financing activities:
Inventory purchase with deferred payment terms $ 250,000 -- --
Common stock issued as incentive to purchase notes $ 156,000 -- --
See accompanying notes.
22
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Preferred Stock Common Stock Additional Accumulated Total
---------------- ---------------------- paid-in Accumulated translation shareholders'
Shares Amount Shares Amount capital deficit adjustments equity
Balances,
January 1, 1993 4,982,670 $2,491,000 $12,863,000 $(11,087,000) $ 4,267,000
Net loss (1,485,000) (1,485,000)
--------- ---------- ----------- ------------ -----------
Balances,
December 31, 1993 4,982,670 2,491,000 12,863,000 (12,572,000) 2,782,000
Series A preferred and
common shares issued in
connection with 1994
business combinations
(Note 3) 40,000 $ -- 4,340,092 2,170,000 7,367,000 9,537,000
Accumulated
translation adjustments $(53,000) (53,000)
Net loss (5,567,000) (5,567,000)
------ ------ --------- ---------- ----------- ------------ -------- ----------
Balances,
December 31, 1994 40,000 -- 9,322,762 4,661,000 20,230,000 (18,139,000) (53,000) 6,699,000
Shares issued in
connection with short-
term notes 93,300 47,000 109,000 156,000
Sale of common shares 1,227,625 614,000 1,089,000 1,703,000
Conversion of Series A
preferred shares to
common (40,000) -- 40,000 20,000 (20,000) --
Shares issued in
connection with 1995
business combination
(Note 3) 1,440,736 720,000 2,633,000 3,353,000
Series B preferred shares
issued (Note 3) 642,583 6,000 1,169,000 1,175,000
Accumulated translation
adjustments 110,000 110,000
Net loss (8,892,000) (8,892,000)
------- ------ ---------- ---------- ----------- ------------ -------- -----------
Balances,
December 31, 1995 642,583 $6,000 12,124,423 $6,062,000 $25,210,000 $(27,031,000) $ 57,000 $ 4,304,000
======= ====== ========== ========== =========== ============ =========== ===========
See accompanying notes.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
OXIS International, Inc. (the "Company") develops, manufactures and markets
selected therapeutic and diagnostic products. The Company's research and
development efforts are concentrated principally in the development of
products to diagnose, treat and prevent diseases associated with free
radicals and reactive oxygen species. Headquartered in Portland, Oregon,
the Company operates research and development facilities in Malvern,
Pennsylvania, and near Paris, France.
The Company has historically licensed and sold pharmaceutical forms of
superoxide dismutase (SOD) for human and veterinary use. In 1994, with the
acquisitions of businesses as described in Note 3, the Company began
selling therapeutic drug monitoring assays and research assays to measure
markers of oxidative stress, and began performing custom assay development.
Therapeutic drug monitoring assays are manufactured by the Company in the
United States and are sold to hospital clinical laboratories and reference
laboratories by an in-house sales force and a network of distributors both
within and outside the United States. Assays to measure markers of
oxidative stress are manufactured by the Company in France and are sold to
distributors for resale to researchers, primarily in Europe, the United
States and Japan.
These financial statement have been prepared on a going concern basis which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred losses in each
of the last three years, and at December 31, 1995, the Company's current
liabilities exceeded its current assets by $1,469,000. These factors,
among others, may indicate that the Company may be unable to continue as a
going concern for a reasonable period of time. These financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification
of liabilities that may be necessary should the Company be unable to
continue as a going concern. The Company's continuation as a going concern
is contingent upon its ability to obtain additional financing, and to
generate revenue and cash flow to meet its obligations on a timely basis.
During the first quarter of 1996 the Company is seeking additional capital
through a private placement of up to $4,000,000 of its Series C Preferred
Stock. On March 4, 1996, the Company had closed the sale of 587,053 shares
of Series C Preferred Stock for $763,000. If the Company is able to sell
the entire $4,000,000 of Series C Preferred Stock, it still expects that
additional capital will be required during 1996 to continue operating in
accordance with its current plans. If the Company is unable to raise
additional capital it intends to curtail its operations through the
reduction of personnel and facility costs and by reducing its research
24
and development efforts. If the Company were to be unable to sufficiently
curtail its costs in such a situation, it might be forced to seek
protection of the courts through reorganization, bankruptcy or insolvency
proceedings.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying balance sheets include the
accounts of the Company as well as its subsidiaries. The results of
operations of the Company's French subsidiary since its purchase by the
Company on September 7, 1994, are included in the accompanying statements
of operations and cash flows. The functional currency of the Company's
French subsidiary is the French franc. The French subsidiary's assets and
liabilities are translated at the exchange rate at the end of the year, and
its statement of operations is translated at the average exchange rates
during the period for which its revenues and expenses are included in the
consolidated statement of operations. Gains or losses resulting from
foreign currency translation are accumulated as a separate component of
shareholders' equity. All significant intercompany balances and
transactions are eliminated in consolidation.
CASH EQUIVALENTS consist of money market accounts with commercial banks.
INVENTORIES are stated at the lower of cost or market. Cost has been
determined by using the first-in, first-out and specific identification
methods. Inventories at December 31, 1995 and 1994, consisted of the
following:
1995 1994
Raw materials $173,000 $179,000
Work in process 354,000 357,000
Finished goods 426,000 137,000
-------- --------
Total $953,000 $673,000
======== ========
PROPERTY AND EQUIPMENT is stated at cost, or, in the case of property and
equipment acquired in transactions accounted for by the purchase method, at
the estimated fair market value at the date of the acquisition (which is
then considered to be the Company's cost). Depreciation of equipment is
computed using the straight-line method over estimated useful lives of
three to ten years. Leasehold improvements are amortized over the shorter
of five years or the remaining lease term. Assets acquired under capital
leases are being amortized over estimated useful lives of four to ten
years.
25
Property and equipment at December 31, 1995 and 1994, consisted of the
following:
1995 1994
Furniture and office equipment $ 346,000 $ 319,000
Laboratory and manufacturing
equipment 707,000 649,000
Automobile 15,000 15,000
Leasehold improvements 806,000 710,000
---------- ----------
Property and equipment, at cost 1,874,000 1,693,000
Accumulated depreciation and
amortization (782,000) (395,000)
---------- ----------
Property and equipment, net $1,092,000 $1,298,000
========== ==========
TECHNOLOGY - Technology for developed products and custom assays, which was
acquired in the 1994 business combinations described in Note 3, is being
amortized over estimated useful lives of seven to ten years. Accumulated
amortization of technology for developed products and custom assays was
$973,000 as of December 31, 1995 and $239,000 as of December 31, 1994.
The Company periodically reviews net cash flows from sales of products and
projections of net cash flows from sales of products on an undiscounted
basis to assess recovery of intangible assets.
REVENUE RECOGNITION - The Company recognizes product sales upon shipment of
the product to the customer. Sales from custom assay development contracts
is recognized as the work is performed. Revenue derived from royalties
pursuant to license agreements is recognized after sales information is
reported by licensees.
INCOME TAXES - The Company accounts for income taxes under statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires deferred income taxes be provided to reflect temporary differences
between financial and tax bases of assets and liabilities using presently
enacted tax rates and laws.
NET LOSS PER SHARE - Net loss per share is computed based upon the average
number of common shares outstanding and, if dilutive, the incremental
shares issuable upon the assumed exercise of stock options or warrants and
the assumed conversion of convertible debentures and preferred stock.
26
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of sales and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount reported in the
balance sheet for cash and cash equivalents, certificates of deposit,
accounts receivable, notes payable, customer deposits and accrued
liabilities approximates fair value due to the short-term nature of the
accounts. The carrying amount reported in the balance sheet for 8%
convertible subordinated debentures approximates fair value because the
terms of the debentures were determined and the debentures were sold
shortly before the end of 1995.
3. BUSINESS COMBINATIONS
On September 7, 1994, the Company acquired Bioxytech S.A., a French
company, and International BioClinical, Inc. ("IBC"), an Oregon
corporation. The name of Bioxytech S.A. was subsequently changed to OXIS
International S.A. ("OXIS S.A.") OXIS S.A. was acquired through an
exchange of shares that resulted in the Company owning in excess of 99% of
the outstanding stock of OXIS S.A., which thus became a subsidiary of the
Company. IBC was acquired through a merger with and into the Company,
which (1) terminated the separate existence of IBC by merging it into the
Company, and (2) resulted in the conversion of the outstanding stock of IBC
into stock of the Company. Two of the Company's directors were also
directors and major shareholders of IBC.
In exchange for the Bioxytech S.A. shares, the Company issued a total of
2,341,599 shares of the Company's common stock and 40,000 shares of the
Company's non-voting preferred stock (which have subsequently been
converted into 40,000 shares of common stock). In addition, the Bioxytech
S.A. shareholders may receive up to 107,670 shares of the Company's capital
stock if they meet certain participation levels in a contemplated private
placement of equity securities of the Company.
The merger of IBC with and into the Company resulted in the conversion of
IBC's common stock into 1,998,493 shares of the Company's common stock.
The acquisitions of OXIS S.A. and IBC have been accounted for as purchases
and, accordingly, the acquired assets and liabilities were recorded at
their estimated fair market values as of the date of acquisition. The
aggregate purchase price of $9,811,000 (4,380,092 shares issued times the
average per share closing price of the Company's common stock for the five
days ended September 8, 1994, discounted 30% for certain trading
restrictions and less costs of $274,000 directly attributable to issuance
of stock in connection with the acquisitions) plus direct costs for the
acquisitions of $881,000 have been allocated to the
27
assets and liabilities acquired. The Company also issued options to purchase
214,700 shares of the Company's common stock in connection with the
acquisitions. No value was assigned to these options because the exercise
price of the options was in excess of the market value of the common stock.
The total cost of the acquisitions of Bioxytech and IBC has been allocated
to the assets acquired and liabilities assumed as follows:
OXIS S.A. IBC Total
------------ ------------ ------------
Cash $ 150,000 $ 123,000 $ 273,000
Other assets 369,000 611,000 980,000
Property, equipment and capitalized
leases 2,434,000 294,000 2,728,000
Technology for developed products and
custom assay development
capabilities 1,503,000 3,995,000 5,498,000
Technology for in-process products 3,368,000 307,000 3,675,000
Less liabilities assumed (2,011,000) (451,000) (2,462,000)
----------- ---------- -----------
Total acquisition cost $ 5,813,000 $4,879,000 $10,692,000
=========== ========== ===========
The Company's consolidated results of operations include the operating
results of the acquired companies since the acquisitions.
Approximately $3,675,000 ($.58 per share) of the total purchase price
represented technology relating to research and development projects that
were in process by the acquired companies that had no alternative future
use other than the completion of these projects. In accordance with
generally accepted accounting principles, these costs have been charged to
operations immediately upon completion of the acquisitions.
The following table summarizes the unaudited pro forma combined results of
operations for the years ended December 31, 1994 and 1993 as if the
acquisitions had occurred at the beginning of the years presented:
1994 1993
Total revenues $ 5,809,000 $ 6,736,000
Net loss $(4,742,000) $(5,207,000)
Net loss per share (based on 9,322,762
shares outstanding) $ (.51) $ (.56)
28
The above table includes, on an unaudited pro forma basis, the Company's
financial information for the years ended December 31, 1994 and 1993,
combined with the financial information of OXIS S.A. and IBC for the same
twelve-month periods. The above table excludes the one-time $3,675,000
charge for purchased in-process technology arising from the acquisitions.
Pro forma results for the year ended December 31, 1993 include non-
recurring costs of $1,531,000 in connection with a control contest.
The unaudited pro forma combined results of operations are presented for
illustrative purposes only and are not necessarily indicative of the
operating results that would have occurred had the acquisitions been
consummated at the beginning of the periods presented, nor are they
necessarily indicative of future operating results.
On July 19, 1995, the Company consummated the acquisition of Therox
Pharmaceuticals, Inc. ("Therox") pursuant to a transaction wherein Therox
was merged with and into a wholly-owned subsidiary of the Company. Therox
was a Philadelphia-based start-up company focused on the development of
therapeutics to treat diseases associated with damage from free radicals.
The Company issued 1,440,736 shares of its common stock to Therox
stockholders in exchange for all of the Therox capital stock. In addition,
the acquisition agreement provides for payment of up to $2,000,000 by the
Company to the Therox stockholders based on the successful
commercialization of the Therox technologies.
The acquisition of Therox has been recorded as a purchase and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair
values as of the date of acquisition. The aggregate purchase price of
$3,353,000 (1,440,736 shares issued times the average per share closing
price of the Company's common stock for the five days ended July 20, 1995,
discounted 30% for certain trading restrictions) has been allocated to the
assets and liabilities acquired.
The cost of the acquisition of Therox has been allocated to the assets
acquired and liabilities assumed as follows:
Cash $ 143,000
Equipment 16,000
Technology for in-process products 3,329,000
Other assets 23,000
Less liabilities assumed (158,000)
----------
Acquisition cost $3,353,000
==========
The Company's consolidated results of operations include the operating
results of the acquired company since the acquisition.
29
Approximately $3,329,000 of the purchase price represented technology related
to research and development projects that are in process and that has no
alternative future use other than the completion of these projects.
Accordingly, these costs have been charged to operations immediately upon
completion of the acquisition.
The following table presents the unaudited pro forma combined results of
operations for the years ended December 31, 1995 and 1994 as if the
acquisition had occurred at the beginning of the periods presented:
1995 1994
------------ ------------
Total revenues $ 5,136,000 $ 3,470,000
Net loss $(5,990,000) $(6,088,000)
Net loss per share (based
on 12,124,423 shares outstanding) $ (.49) $ (.50)
The above table includes, on an unaudited pro forma basis, the Company's
financial information for the years ended December 31, 1995 and 1994, combined
with the financial information of Therox for the same periods. The above
table excludes the one-time $3,329,000 charge for purchased in-process
technology arising from the 1995 acquisition, but includes non-recurring costs
of $3,675,000 for purchased in-process technology from the Company's September
1994 business acquisitions.
The unaudited pro forma combined results of operations are presented for
illustrative purposes only and are not necessarily indicative of the operating
results that would have occurred had the acquisition been consummated at the
beginning of the periods presented, nor are they necessarily indicative of
future operating results.
Simultaneously with the Therox acquisition, a Series B Preferred Stock
Purchase Agreement was entered into between the Company and two venture
capital firms (S.R. One, Limited and Brantley Venture Partners II, L.P.) which
were major stockholders of Therox. Pursuant to this agreement, the Company
sold 642,583 shares of its Series B Preferred Stock for an aggregate price of
$1,500,000.
Costs of approximately $325,000 directly attributable to the issuance of the
Series B Preferred Stock and the common stock issued in the Therox acquisition
have been recorded as a reduction in the proceeds from the issuance of the
shares.
30
4. NOTES PAYABLE
Notes payable at December 31, 1995 consisted of the following:
8% notes payable to certain shareholders who are former
Bioxytech S.A. shareholders, due February 5, 1996,
secured by assets relating to certain of the Company's
diagnostic products $766,000
Note payable to Sanofi S.A., due May 4, 1996, interest
at prime plus 2% (10-1/2% as of December 31, 1995), secured
by all of the Company's assets 600,000
Liability, without interest, under inventory purchase
agreement, due May 1997 or earlier if 75% of the related
inventory is sold 250,000
----------
$1,616,000
==========
The shareholders who hold the 8% notes have commitments to invest an amount
at least equal to the note balances in stock of the Company. During March
1996 the Company is negotiating with these shareholders terms for converting
these notes to stock of the Company.
5. CAPITALIZED LEASES
The Company's French subsidiary leases certain equipment, furniture and
fixtures under capital leases. The future minimum lease payments on these
capital leases as of December 31, 1995, were as follows:
Year ending December 31:
1996 $309,000
1997 47,000
--------
Total minimum capital lease obligations 356,000
Less amounts representing interest 26,000
--------
Present value of net minimum obligation 330,000
Less amount due within one year 283,000
--------
Long term obligation under capital leases $ 47,000
========
Leased assets, which consist principally of laboratory and office equipment,
are reported in the December 31, 1995, balance sheet at $1,418,000 less
accumulated amortization of $220,000.
31
6. 8% CONVERTIBLE SUBORDINATED DEBENTURES
In November and December 1995, the Company completed a private placement
pursuant to which $1,255,000 of its 8% Convertible Subordinated Debentures
were issued. The debentures are unsecured and are subordinated to other
obligations of the Company up to an aggregate of $3,000,000. The Debentures
are due December 31, 1997; interest is payable semiannually on June 30 and
December 31.
The debentures are convertible into shares of the Company's common stock at
the option of the holders. Any time after six months following closing of the
private placement, the Company may require conversion of the debentures. The
debentures are convertible at a conversion price of $1.25 per common share.
However, the conversion price shall be reduced to $.65 per share if the
closing price of the Company's common stock is less than $.65 for fifteen
consecutive trading days. In such case, the debentures could be converted
into a maximum of 1,930,769 shares of common stock.
7. SHAREHOLDERS' EQUITY
PREFERRED STOCK - Terms of the preferred stock are to be fixed by the Board
of Directors at such time as the preferred stock is issued. The 40,000 shares
of Series A Preferred Stock issued during 1994 were nonvoting and were
converted to common stock on a one share for one share basis during 1995. The
642,583 shares of Series B Preferred Stock are convertible into common stock
on a one-for-one basis and have the same voting rights as the common stock.
The Series B Preferred Stock has certain preferential rights with respect to
liquidation and dividends.
In February and March 1996, the Company has issued 587,053 shares of Series C
Preferred Stock. Each share of Series C Preferred Stock is initially
convertible into one share of the Company's common stock at the option of the
holder at any time. After six months following the closing of the sales of
Series C preferred Stock, the conversion ratio may be adjusted under certain
circumstances, and after eight months following the closing, the Company may
have the right to automatically convert the Series C Preferred Stock into
common stock under certain circumstances. The Series C Preferred Stock has
the same voting rights as the Company's common stock based on the number of
shares into which the Series C Preferred Stock is convertible, subject to
adjustment in certain circumstances.
STOCK WARRANTS - In prior years, the Company issued warrants to purchase
shares of common stock to certain officers and key employees (none of whom
any longer hold a position with the Company) and to former directors. These
warrants are exercisable at $2.875 per share and expire through 1999. At
December 31, 1995 and 1994, warrants to purchase 1,012,500 shares were
exercisable. No warrants were exercised during the years ended 1993, 1994 or
1995.
32
In connection with the issuance of common stock in May 1995, the Company
issued to its placement agent a warrant to purchase 122,763 shares of common
stock at $2.89 per share. This warrant was immediately exercisable upon
issuance and remained outstanding at December 31, 1995.
Warrants to purchase 200,800 common shares at $2.00 per share were issued to
purchasers of the Company's 8% Convertible Subordinated Debentures and
remained outstanding at December 31, 1995. The number of common shares which
may be purchased pursuant to these warrants may be increased in the event
that the number of common shares into which the related debentures may be
converted is increased. The maximum number of common shares to which these
warrants might entitle the holders is 386,154.
Also in connection with the issuance of its 8% Convertible Subordinated
Debentures, the Company issued to its placement agent warrants to purchase
100,400 shares of common stock at $1.375 per share. These warrants were
immediately exercisable upon issuance and remained outstanding at December
31, 1995.
STOCK OPTIONS - In September 1994, the Company's shareholders approved the
1994 Stock Incentive Plan and the reservation of 400,000 shares of the
Company's common stock for issuance thereunder. In August 1995, the
shareholders approved an amendment to the plan increasing the shares reserved
for issuance thereunder to 1,200,000. The plan permits granting stock options
to acquire shares of the Company's common stock, awarding stock bonuses of
the Company's common stock, and granting stock appreciation rights. Options
granted and outstanding under the plan are summarized as follows:
1995 1994
-------------------------- -------------------------
Shares Price Shares Price
------ ----- ------ -----
Outstanding at
beginning of year 90,000 $3.13 - $3.50 --
Granted 317,900 $2.25 - $3.50 90,000 $3.13 - $3.50
Forfeitures (25,000) $2.25 --
------- ------
Outstanding at end
of year 382,900 $2.25 - $3.50 90,000 $3.13 - $3.50
======= ======
Exercisable at end
of year 219,294 $2.25 - $3.50 75,000 $3.50
======= ======
8. INCOME TAXES
INCOME TAX PROVISION - Income tax provisions were not necessary in 1995, 1994
and 1993 due to net losses.
33
DEFERRED TAXES - Deferred taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company's deferred taxes
as of December 31 were as follows:
United States taxes: 1995 1994
Deferred tax assets:
Federal net operating loss carryforward
and capitalized research and development
expenses $ 4,829,000 $ 2,110,000
Federal R&D tax credit carryforward 495,000 465,000
State net operating loss carryforward and capitalized
research and development expenses 125,000 372,000
Deferred tax liabilities - book basis in excess
of noncurrent assets acquired in the
acquisition of IBC (1,338,000) (1,575,000)
----------- -----------
Net deferred tax assets 4,111,000 1,372,000
Valuation allowance (4,111,000) (1,372,000)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
French taxes: 1995 1994
Deferred tax assets:
Net operating loss carryforward $ 5,721,000 $ 5,286,000
Impact of temporary differences (225,000) 453,000
----------- -----------
Total 5,496,000 5,739,000
Valuation allowance (5,496,000) (5,739,000)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
Temporary differences for French taxes result primarily from leases treated
as operating leases for French tax reporting and as capital leases in the
consolidated financial statements.
The tax benefits ($5,136,000) of the net operating losses of $15,410,000
which existed at the date of acquisition (September 7, 1994) of the French
subsidiary will be recorded as a reduction of the net unamortized balance of
property, equipment, capitalized lease assets and intangible assets of
$3,147,000 when and if realized, and the remaining benefit will be recorded
as a reduction of income tax expense.
Statement of Financial Accounting Standards No. 109 requires that the tax
benefit of net operating losses, temporary differences and credit
carryforwards be recorded as an asset to the extent that management assesses
that realization is "more likely than not." Realization of
34
the future tax benefits is dependent on the Company's ability to generate
sufficient taxable income within the carryforward period. Because of the
Company's recent history of operating losses, management has provided a
valuation allowance for its net deferred tax assets.
TAX CARRYFORWARDS - At December 31, 1995, the Company had net operating loss
carryforwards of approximately $5,120,000 to reduce United States federal
taxable income in future years, and research and development tax credit
carryforwards of $495,000 to reduce United States federal taxes in future
years. In addition, the Company's French subsidiary had operating loss
carryforwards of $17,165,000 (84,183,000 French francs) to reduce French
taxable income in future years. These carryforwards expire as follows:
United States R&D tax French
net operating credit operating loss
Year of expiration loss carryforward carryforward carryforward
1996 $1,219,000 $ 1,655,000
1997 2,670,000 1,270,000
1998 208,000 1,312,000
1999 111,000 233,000
2000 -- -- --
2001-2010 912,000 $495,000 --
No expiration -- -- 12,695,000
---------- -------- -----------
$5,120,000 $495,000 $17,165,000
========== ======== ===========
Utilization of the United States tax carryforwards is subject to certain
restrictions in the event of a significant change (as defined in Internal
Revenue Service guidelines) in ownership of the Company.
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
One domestic customer and three foreign licensees have each accounted for
significant portions of the Company's revenues during the past three years.
The percentages of total revenues derived from sales to, and royalties from,
these major customers are as follows:
1995 1994 1993
Domestic customer 18% 35% 50%
Spanish licensee 16% 18% 8%
German licensee 2% 9% 23%
Italian licensee -- 2% 7%
35
The Company's domestic customer to whom sales of bovine superoxide dismutase
("bSOD") accounted for 18%, 35% and 50% of the Company's revenues in 1995,
1994 and 1993, respectively, announced in the fourth quarter of 1995 that the
clinical trial in which it was using bSOD purchased from the Company failed
to show the desired results. Therefore, sales of bSOD to this customer are
not expected to continue.
The Company limits its foreign exchange risk by buying and selling bulk bSOD
in a single currency, the Dutch guilder. The Company maintains a bank account
in The Netherlands for receipt and disbursement of Dutch guilders and had the
equivalent of $81,000 and $659,000 in that account at December 31, 1995 and
1994, respectively. Foreign currency transaction gains and losses were not
material.
10. GEOGRAPHIC AREA INFORMATION
The Company operates in a single industry segment: the development,
manufacture and marketing of therapeutic and diagnostic products. The
Company's foreign operations consist of research and development and
manufacturing facilities and certain marketing activities conducted by the
Company's subsidiary in France. Sales and costs associated with bSOD
manufactured in the Netherlands are considered to be United States
operations, since the contract to manufacture bSOD and all related sales
activities are administered in the United States. Similarly, royalties from
foreign customers that relate to bSOD-based products are considered to be
export sales from the United States, since the product was developed in the
United States.
Sales, operating income and identifiable assets, classified by the major
geographic areas in which the Company operates, are as follows:
1995 1994 1993
Revenues from unaffiliated customers:
United States $ 2,686,000 $ 2,053,000 $ 1,887,000
Export sales from the U.S. 1,878,000 1,257,000 1,157,000
France 572,000 160,000 --
----------- ----------- -----------
Total $ 5,136,000 $ 3,470,000 $ 3,044,000
=========== =========== ===========
Operating income (loss):
United States $(5,653,000) $(1,410,000) $(1,638,000)
France (3,110,000) (4,191,000) --
----------- ----------- -----------
Total $(8,763,000) $(5,601,000) $(1,638,000)
=========== =========== ===========
Identifiable assets:
United States $ 7,824,000 $ 9,587,000 $ 3,124,000
France 3,866,000 2,570,000 --
Eliminations (1,820,000) (963,000) --
----------- ----------- -----------
Total $ 9,870,000 $11,194,000 $ 3,124,000
=========== =========== ===========
36
11. LEASE COMMITMENTS
The Company leases its facilities in Oregon under an operating lease that
expires in 1997, and leases its facilities in Pennsylvania and France under
operating leases that expire in 1998. Future lease payments are scheduled as
follows:
1996 $480,000
1997 436,000
1998 245,000
Rental expense included in the accompanying statements of operations was
$492,000 in 1995, $193,000 in 1994 and $75,000 in 1993.
12. EUROPEAN REGULATORY DEVELOPMENTS
The European market for the Company's bovine bSOD was adversely impacted by a
series of regulatory developments in 1994.
The Italian Health Ministry withdrew the marketing authorization of all
pharmaceutical products composed of orgotein, including Oxinorm (produced
from the Company's product). As indicated in Note 9, the Company's revenues
from its Italian licensee have ceased, and the Company does not anticipate
additional sales or royalties from Oxinorm in Italy. During 1995, SmithKline
Beecham Farmaceutici S.p.A., the Company's licensee in Italy, sold its
remaining bulk Oxinorm inventory to the Company.
During 1994 the Company was also notified that the governments of Austria and
Germany had asked Grunenthal, the Company's licensee for those countries, to
withdraw its Peroxinorm brand of orgotein from the Austrian and German
markets. Grunenthal has also discontinued distributing Peroxinorm in several
other countries where sales were dependent upon the German registration. As a
result, the Company anticipates that royalties from Grunenthal for the
foreseeable future will be substantially less than in previous years.
Because of the action of regulatory authorities in other European countries,
the Company's licensee for Spain has had informal discussions with Spanish
regulatory authorities regarding the Company's bSOD product. Although no
action has been taken by those authorities with regard to the Company's
product, future sales in Spain may be affected by either regulatory action in
Spain, or safety concerns stemming from such actions in other countries.
37
13. CONTROL CONTEST EXPENSES
In 1993, the Company incurred expenses of $1,531,000 ($.31 per share) in
connection with a contest for management control of the Company. Costs
incurred by current officers and directors were advanced by IBC. The
President and the Chairman of the Company were major shareholders of IBC.
Reimbursement of IBC for such expenses was approved at the Company's 1993
annual shareholders' meeting.
14. 401(K) SAVINGS PLAN
The Company has a 401(k) saving plan (the "Plan") which covers all United
States employees who meet certain minimum age and service requirements. The
Company's matching contribution to the Plan for each year is 100% of the
first $1,000 of each employee's salary deferral and 33-1/3% of the next
$3,000 of salary deferral. The Company's contributions have not been
material.
38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
OXIS International, Inc.:
We have audited the accompanying consolidated balance sheets of OXIS
International, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the management of OXIS
International, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of OXIS International, Inc. and
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements for the year ended December 31, 1995,
have been prepared assuming that the Company will continue as a going concern.
The Company is engaged in developing, manufacturing and marketing selected
therapeutic and diagnostic products. As discussed in Note 1 to the financial
statements, the Company has incurred losses in each of the last three years,
and at December 31, 1995, the Company's current liabilities exceeded its
current assets by $1,469,000, raising substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
March 7, 1996
Portland, Oregon
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: August 21, 1996
OXIS INTERNATIONAL, INC.
Registrant
By: /s/ Anna D. Barker
-------------------------------------
Anna D. Barker
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jon S. Pitcher
-------------------------------------
Jon S. Pitcher
Chief Financial Officer
(Principal Financial and
Accounting Officer)
43
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ------
23(a) Consent of Deloitte & Touche LLP