EXHIBIT 99(1)
Audited Financial Statements
Therox Pharmaceuticals, Inc.
December 31, 1994 and 1993
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[LETTERHEAD OF BARNA, KOWALL & COMPANY APPEARS HERE]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Therox Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Therox Pharmaceuticals, Inc.
(a development stage enterprise) as of December 31, 1994 and 1993, and the
related statement of operations, and shareholders' equity and cash flows for the
year ended December 31, 1994 and the period from July 1, 1993 (date of
inception) to December 31, 1993. These financial statements are the
responsibility of the Company's management. 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 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, the financial statements referred to above present fairly, in
all material aspects, the financial position of Therox Pharmaceuticals, Inc. at
December 31, 1994 and 1993 and the results of its operation and its cash flows
for the year ended December 31, 1994 and for the period from July 1, 1993 (date
of inception) to December 31, 1993, in conformity with generally accepted
accounting principles.
/s/ Barna, Kowall & Company
June 22, 1995
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THEROX PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
December 31,
1994 1993
----------- -----------
ASSETS
Current Assets
Cash $ 470,740 $ 894,358
Prepaid expenses 5,000
----------- -----------
Total Current Assets 475,740 894,358
Property and Equipment
Equipment used in research 21,473 4,208
Less allowance for depreciation ( 2,989) ( 421)
----------- -----------
18,484 3,787
Other assets, net of accumulated amortization
of $2,250 and $750 in 1994 and 1993
respectively. 12,750 14,250
----------- -----------
TOTAL ASSETS $ 506,974 $ 912,395
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 122,918 $ 9,176
Payroll taxes payable 1,784
----------- -----------
Total Current Liabilities 124,702 9,176
SHAREHOLDERS' EQUITY
Series A,Preferred stock, $.001 par value:
Authorized shares- 1,000,000 shares
Issued and outstanding- 1,000,000 shares 1,000 1,000
Additional paid-in-capital 979,000 979,000
Common stock, $.001 par value:
Authorized shares- 2,000,000 shares
(1,000,000 shares at December 31, 1993)
Issued and outstanding- 283,000 shares 283 283
Deficit accumulated during development stage ( 598,011) ( 77,064)
----------- -----------
382,272 903,219
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 506,974 $ 912,395
=========== ===========
See accompanying notes to financial statements.
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THEROX PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
Year Ended December 31, 1994 and for the
Period from July 1, 1993 (Date of Inception)
to December 31, 1993
Cumulative
December 31, from
1994 1993 July 1,1993
----------- ----------- -----------
Research and development expenses $ 526,039 $ 66,046 $ 592,085
General and administrative expenses 10,530 14,353 24,883
----------- ----------- -----------
Total expenses 536,569 80,399 616,968
Other income (expense):
Interest income 15,622 3,335 18,957
----------- ----------- -----------
Net loss $ 520,947 $ 77,064 $ 598,011
=========== =========== ===========
See accompanying notes to financial statements.
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THEROX PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
STATEMENT OF SHAREHOLDERS' EQUITY
Series A
Preferred Stock Common Stock Deficit
---------------------- ---------------------- Accumulated
Number Number during Additional
of of Development Paid-In
Shares Amount Shares Amount Stage Capital Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance July 1, 1993 --- $ --- --- $ --- $ --- $ --- $ ---
Issuance of Series A preferred stock,
net of expense 1,000,000 1,000 979,000 980,000
Issuance of common stock 283,000 283 283
Net loss ( 77,064) ( 77,064)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Balance December 31, 1993 1,000,000 1,000 283,000 283 ( 77,064) 979,000 903,219
Net loss ( 520,947) (520,947)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Balance December 31, 1994 1,000,000 $ 1,000 283,000 $ 283 $ (598,011) $ 979,000 $ 382,272
========== ========== ========== ========== =========== =========== ===========
See accompanying notes to financial statements.
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THEROX PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
Year Ended December 31, 1994 and for the
Period from July 1, 1993 (Date of Inception)
to December 31, 1993
Cumulative
December 31, from
1994 1993 July 1,1993
----------- ----------- -----------
OPERATING ACTIVITIES
Net loss $ ( 520,947)$ ( 77,064)$ ( 598,011)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation 2,568 421 2,989
Amortization 1,500 750 2,250
(Increase) decrease in:
Prepaid expenses ( 5,000) ( 5,000)
Increase (decrease) in:
Accounts payable 113,742 9,176 122,918
Payroll taxes payable 1,784 1,784
----------- ----------- -----------
NET CASH USED BY
OPERATING ACTIVITIES ( 406,353) ( 66,717) ( 473,070)
INVESTING ACTIVITIES
Purchase of equipment
used in research ( 17,265) ( 4,208) ( 21,473)
Purchase of intangibles ( 15,000) ( 15,000)
----------- ----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES ( 17,265) ( 19,208) ( 36,473)
FINANCING ACTIVITIES
Proceeds from issuance of
stock, net of expense 0 980,283 980,283
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 0 980,283 980,283
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH ( 423,618) 894,358 470,740
Cash at beginning of year 894,358 0 0
----------- ----------- -----------
CASH AT END OF YEAR $ 470,740 $ 894,358 $ 470,740
=========== =========== ===========
Cash paid for interest $ 0 $ 0 $ 0
=========== =========== ===========
See accompanying notes to financial statements.
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THEROX PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Background
Therox Pharmaceutical, Inc. (formerly Anti-Ox, Inc.), (the Company), is a
development stage enterprise formed in July 1993 for the purpose of conducting
research and development of new pharmaceutical technology. Upon the discovery of
any new technology, the Company will develop and market the related products.
The Company conducts its research primarily through consultants in conjunction
with several universities under research agreements that permit the Company to
either retain ownership or licensing rights for any discoveries. Accounts
payable include $118,540 of amounts owed under these agreements for research
performed prior to December 31, 1994. The Company is obligated to fund up to an
additional $147,500 under terms of certain research agreements that expire
August 31, 1995. Amounts are subject to completion of the agreed upon research
by the respective university.
The Company has operated as a development stage enterprise since its inception
and has not recognized any operating revenues.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
straight line methods over the estimated useful lives of the assets (five
years).
Other Assets
Other assets consist of amounts paid for a licensing agreement for patented
items. Amortization is computed using the straight line method over the
remaining lives of the patents, (approximately ten to seventeen years).
Employee Benefit Plan
The Company does not sponsor any qualified employee benefit plans or post
employment benefit plans.
NOTE B--CAPITALIZATION
In December 1993 the Company issued 1,000,000 shares of Series A preferred stock
for net consideration of $980,000. Series A preferred stock are convertible to
common, have voting rights and liquidation preferences over common stock, and
has a dividend rate of $.08. Dividends are cumulative, begin to accrue in
December of 1995 and are payable in preferred stock.
In December 1993 the Company issued 283,000 shares of common stock for a
consideration of $283. The Company has reserved 525,000 shares of common stock
for issuance under stock options and 1,000,000 shares for conversion of
preferred stock.
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THEROX PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE C--STOCK OPTION PLAN AND STOCK OPTION AGREEMENT
In 1994, the Company reserved 500,000 shares of common stock for issuance
pursuant to its stock option plan. The Company has granted options to purchase
common stock to certain employees, directors and consultants. As of December 31,
1994 options were granted to purchase 100,000 shares of common stock at $.10 per
share (no options were granted in 1993). No options were exercised in 1994 or
1993.
In February 1994, the Company granted options to purchase 25,000 shares of
common stock to a preferred shareholder, Brantley Venture Partners II, L.P., at
$.01 per share. No options were exercised as of December 31, 1994 under this
agreement.
NOTE D--INCOME TAXES
At December 31, 1994, the Company had net operating loss carryforwards available
to offset future taxable income of approximately $598,011, which expire in the
years 2008 and 2009.
Net operating loss carryforwards for financial reporting purposes and
alternative minimum tax reporting purposes are approximately the same as those
under the regular tax method. Net operating losses may be subject to certain tax
law restrictions in the event of a change in ownership, as defined. The amount
of this restriction, if any, has not been determined.
Deferred income taxes reflect the temporary differences between the carrying
values of assets and liabilities for financial reporting purposes and the
amounts for income tax purposes. The significant components of the Company's
deferred tax assets and liabilities as of December 31, 1994 and 1993 are as
follows:
1994 1993
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 203,000 $ 22,000
Valuation allowance ( 203,000) ( 22,000)
----------- -----------
$ --- $ ---
=========== ===========
No income taxes were paid in 1994 and 1993.
NOTE E--RELATED PARTY TRANSACTIONS
The president of the Company is also a general partner in Brantley Venture
Partners II, L.P., a principal investor in Series A convertible preferred stock.
The president received no compensation in 1994 and 1993.
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THEROX PHARMACEUTICALS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE F--LEASES
The Company incurred lease expense of $1,565 in 1994 and had no lease expense in
1993. The Company has future minimum lease commitments of $2,292 in 1996 and
1997, and $1,337 in 1998.
NOTE G--SUBSEQUENT EVENTS
The Company has signed a letter of intent with OXIS International, Inc. (OXIS),
whereby OXIS would acquire all of the issued and outstanding stock of the
Company in exchange for 1,440,736 shares of OXIS common stock and other
considerations.
The Company's option holders are permitted to either convert their options to
Company common stock and then exchange the stock for OXIS stock, or exchange the
options for OXIS options.
Subsequent to December 31, 1994, the Company agreed to grant options to purchase
an additional 33,000 shares of common stock at $.10 per share. The Company also
agreed to issue 53,000 shares of common stock as compensation under consulting
and license agreements.
On May 15, 1995 the Company entered into a three year lease agreement (with an
option for an additional year) for laboratory and office space. Rent under the
agreement is $90,000 in the first year, $114,000 in the second year, and
$138,000 in the third year. Concurrent with the lease agreement, the Company
entered into an agreement for services with the landlord for various telephone,
computer, laboratory and waste disposal services. Costs for these services is
calculated on a usage and number of employee basis.
The Company has made arrangements for a $50,000 loan from a principal investor
in Series A convertible preferred stock, S.R. One, Limited, that will be
convertible into approximately 16,250 shares of newly issued Series B
convertible preferred stock at $2.95 per share.
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