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UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
or
[_]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
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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
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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
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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 February 28, 2001 (assuming conversion of all outstanding voting
preferred stock into common stock) was $5,169,975.
Number of shares outstanding of Registrant's common stock as of February 28,
2001: 9,560,458 shares.
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CONTENTS
Page
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PART I
ITEM 1. BUSINESS..................................................... 1
ITEM 2. PROPERTIES................................................... 8
ITEM 3. LEGAL PROCEEDINGS............................................ 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS..................................................... 10
ITEM 6. SELECTED FINANCIAL DATA...................................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 11
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK--
NOT APPLICABLE
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 33
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 33
ITEM 11. EXECUTIVE COMPENSATION....................................... 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.................................................... 43
SIGNATURES.............................................................. 45
EXHIBIT INDEX........................................................... 46
PART I
Certain statements set forth below may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements to differ from those expressed or implied by the forward-
looking statements. With respect to the Company, the following factors, among
others, could cause actual results or outcomes to differ materially from
current expectations: the possible inability to obtain financing;
uncertainties relating to patents and proprietary information; the potential
for patent-related litigation expenses and other costs resulting from claims
asserted against the Company or its customers by third parties; achievement of
product performance specifications; the ability of new products to compete
successfully in either existing or new markets; the potential for adverse
fluctuations in foreign currency exchange rates; the effect of product or
market development activities; availability and future costs of materials and
other operating expenses; competitive factors; the risks involved in
international operations and sales; the performance and needs of industries
served by the Company and the financial capacity of customers in these
industries to purchase the Company's products; as well as other factors
discussed under the heading "RISK FACTORS" in Item 1. Given these
uncertainties, readers are cautioned not to place undue reliance on the
forward-looking statements. The Company disclaims any obligation subsequently
to revise or update forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
ITEM 1. BUSINESS.
Introduction
OXIS International, Inc., ("OXIS" or the "Company"), a Delaware corporation,
is engaged in the discovery, development and commercialization of therapeutic
and diagnostic products to diagnose, treat and prevent diseases of oxidative
stress. Oxidative stress occurs when the concentration of free radicals and
reactive oxygen species ("ROS"), highly reactive molecules produced during
oxidative processes, exceed the body's antioxidant defense mechanisms.
In February 1998, the Company's Board of Directors approved the
restructuring of the Company into two wholly owned subsidiaries, OXIS Health
Products, Inc. and OXIS Therapeutics, Inc. The restructuring was completed in
April 1998. Since that time the Company's commercial health products business,
which manufactures and sells medical instruments and markets research and
commercial diagnostic assays and fine chemicals to research and clinical
laboratories and other customers, has been carried out by OXIS Health
Products, Inc. The Company's drug discovery business, which is focused on new
drugs to treat diseases associated with tissue damage from free radicals and
ROS, is being carried out by OXIS Therapeutics, Inc. For financial information
about these two operating segments, see Note 7 to the consolidated financial
statements.
The Company's lead therapeutic drug candidate, BXT-51072, completed a Phase
IIA clinical trial in inflammatory bowel disease ("IBD") in 1999. A larger
Phase IIB trial is in the planning stages. Two other therapeutic programs are
in the preclinical stage of development.
The Company derives revenues primarily from sales of medical instruments,
diagnostic assays and fine chemicals, primarily ergothioneine and bovine
superoxide dismutase ("bSOD"). The Company's diagnostic products include
twenty assays to measure markers of oxidative stress and fourteen commercial
therapeutic drug monitoring ("TDM") assays based on fluorescence polarization
immunoassay technology ("FPIA") that have been manufactured on a contract
basis for the company that purchased that technology in 1999.
The Company has invested significant resources to build an early and
substantial patent position on both its antioxidant therapeutic technologies
and selected oxidative stress assays.
The Company's corporate offices and assay manufacturing facilities are
located in a 15,000 sq. ft. facility at 6040 N. Cutter Circle, Suite 317,
Portland, OR 97217. Facilities for developing and manufacturing medical
instruments are located at 55 Steam Whistle Drive, Ivyland, PA 18974.
1
Research and Development
The Company's research and development programs with respect to its
therapeutics business are carried out by OXIS Therapeutics, Inc. OXIS'
strategy is to develop potent, synthetic, small molecular weight (and
therefore orally bioavailable) antioxidants which can penetrate cells in high
concentrations to protect against direct ROS damage as well as reduce the
activation of transcription factors such as NFkB and therefore reduce
inflammation, apoptosis and other major and fundamental disease processes. If
vitamins can be viewed as the first generation of antioxidants and large
enzymes, such as superoxide dismutase ("SOD") can be viewed as the second
generation antioxidants, OXIS believes it is now developing the third
generation of antioxidants.
OXIS Technology
Because of the wide range of diseases and organ systems affected by
oxidative stress and its consequences, no single compound or family of
compounds is likely to be appropriate for all indications. For this reason,
OXIS is developing three families of molecules which are targeted to different
disease indications.
The Company is targeting acute and subacute inflammatory diseases with a
family of small molecular weight mimics of the enzyme glutathione peroxidase
("GPx"). These molecules have been demonstrated to block direct oxidative
damage in vitro, to block NFkB activation at low nanomolar concentrations and
to block the production of numerous cytokines and other molecules which are
under the control of NFkB. These molecules have also been shown in animal
models to block endotoxic shock, restenosis and inflammatory bowel disease.
The second series of molecules is designed to mimic the salutary activity of
vitamin E while addressing its limitations as a pharmaceutical. Vitamin E is
the predominant natural lipid soluble antioxidant in animals and, as such, has
a primary role in the protection of cell membranes from damage from ROS. This
role is critical in cardiovascular and central nervous system disease. The
limitations of vitamin E as an antioxidant are its potency, which is very low,
and its kinetics of membrane incorporation. In-vitro models have shown the
OXIS Lipid Soluble Antioxidants (LSAs) are twenty to forty fold more potent
than vitamin E as antioxidants and are incorporated into membranes a great
deal more quickly. These molecules are currently targeted for development in
the area of cardiovascular and neurodegenerative disease.
The third series of molecules is designed around a natural antioxidant known
as l-ergothioneine. L-ergothioneine itself is a sulfur-containing antioxidant,
related to glutathione, which is a natural product and which is contained in
tissues in the body subjected to significant oxidative stress such as the lens
of the eye, the liver and red blood cells. Unlike glutathione, l-ergothioneine
is stable in aqueous solutions and is well absorbed orally. Humans do not
synthesize l-ergothioneine and therefore require it in their diet. It has been
demonstrated to be depleted in the lens of the eye in patients with cataracts.
OXIS holds a patent for what it believes to be the only commercially feasible
synthetic process for pure l-ergothioneine. In addition, Company scientists
have synthesized a series of proprietary analogs of l-ergothioneine which are
more potent and which can be developed in areas where a proprietary position
on natural l-ergothioneine is not available.
Selection of Clinical Targets
OXIS believes that the control or elimination of oxidative stress represents
an important but largely untapped area for drug development that holds
potential for significant clinical benefit. A large number of complex diseases
are thought to be directly caused by damage from free radicals and other ROS,
and many others have a component attributable to oxidative stress. Many of
these are diseases for which there is currently no acceptable therapy, or the
therapy is inadequate.
OXIS has selected inflammatory bowel disease, including ulcerative colitis
and Crohn's disease, cardiovascular disease and the neurodegenerative diseases
as its primary targets.
2
Several factors were considered in selecting these major disease areas and
indications including: scientific rationale; unmet medical need; market size;
potential partners; competing therapeutic strategies; and cost to develop a
marketable outlicensing package. The markets initially chosen in terms of
target indications also represent an extension of OXIS' strategy to reduce the
time and costs required for the development of antioxidant therapeutics. In
each of the pharmaceutical project focus areas, potential alliance partners
will be identified. As of the date of this report, the Company has not entered
into any agreements with such alliance partners.
Markets
The prevalence of ulcerative colitis is estimated to be 0.1% in developed
countries. This yields an approximate population of 250,000 patients in the
U.S. and 300,000 in western Europe. Crohn's disease, which the Company
believes will also be amenable to therapy with BXT-51072, has approximately
the same prevalence, so the combined market for the U.S. and Europe is between
1-1.2 million patients. Using a conservative pricing estimate of $1,000 per
patient per year, this yields a market size of approximately one billion
dollars per year.
Other indications for BXT-51072 or a follow-on compound, such as restenosis,
inflammatory arthritis, stroke and reperfusion injury would add significantly
to the market potential.
The LSAs will be initially targeted for neurodegenerative and cardiovascular
diseases. These markets represent multi-billion dollar opportunities, but
given the early stage of development of these molecules, specific market
estimates are not yet meaningful.
Clinical results to date with BXT-51072
To date, BXT-51072 has been administered to over 50 patients and volunteers
in one Phase I study and a Phase IIA study in patients with ulcerative
colitis. No drug related serious adverse events have been seen to date and the
drug has been shown to be rapidly absorbed by the oral route.
In the Phase IIA trial, 20 patients with mild to moderate ulcerative colitis
who had failed first line therapy (5-ASA drugs) received one of two dosage
regimens of BXT-51072 for 28 days. The primary end point was the Mayo Colitis
Activity Index ("CAI"), a well accepted composite clinical disease activity
score. Findings from this Phase IIA trial include:
. There is a statistically significant improvement in CAI from Day 1 to Day
28 in both dose groups;
. Several patients had rapid, dramatic improvements in their clinical
picture;
. There is a suggestion (not statistically significant) of a dose response.
In addition, biochemical tests performed on colon biopsy specimens showed a
reduction in markers of oxidative stress with treatment.
The Company is currently planning a larger Phase IIB trial to confirm these
initial encouraging findings.
Other Programs
In addition to its research and development programs in synthetic
antioxidants, OXIS also has conducted research programs in the development of
oxidative stress assays, bovine superoxide dismutase and poly-ethylene glycol
technology. The status of these programs are as follows:
Oxidative Stress Assays. The Company has developed thirteen research
assay kits for markers of oxidative stress that are designed to ultimately
facilitate diagnosis and optimize therapy of free radical-associated
diseases. These assays are being sold by OXIS Health Products, Inc.
primarily to basic researchers and clinicians working in oxidative stress
research. These assays also provide developmental
3
synergy for the pharmaceutical research and development programs by
facilitating the assessment of oxidative stress in laboratory studies and
in patients.
Bovine Superoxide Dismutase (bSOD). The Company also has extensive
experience in developing, manufacturing and marketing bovine superoxide
dismutase ("bSOD"). Bovine superoxide dismutase has been previously studied
in numerous clinical trials by OXIS and other companies. OXIS is not
currently pursuing an active research program in bSOD, but through its
subsidiary, OXIS Health Products, Inc., supplies bulk bSOD for human use.
Poly-Ethylene Glycol Technology (PEG). The Company is not currently
pursuing an active research program in PEG technology. During 1999 the
Company entered into a licensing arrangement giving Enzon, Inc. the right
to its PEG technologies.
Overall, the Company has an extensive portfolio of patents that cover its
synthetic antioxidant therapeutic molecules, assays for markers of oxidative
stress and fine chemicals. The Company currently holds twenty-four U.S.
patents and two French patents on other compounds expiring between 2006 and
2019.
The Company's overall research and development strategy has been to discover
and advance its therapeutic molecules through early stage clinical trials to
demonstrate efficacy in the target disease populations. The Company expects to
seek strategic pharmaceutical partners for later stage clinical development
and commercialization of its therapeutics, but, to date, has not entered into
any such partnership and no assurances can be given that it will enter into
any such partnership. Without such partnerships, it is unlikely that the
Company will be able to complete the development of its therapeutics.
Much of the Company's success depends on its potential products which are in
research and development and from which no material revenues have yet been
generated. The Company must successfully partner, develop, obtain regulatory
approval for and market or sell its potential therapeutic products to achieve
profitable operations. No assurances can be given that the Company's product
development efforts will be successfully completed, that required regulatory
approvals will be obtained, or that any such products, if developed and
introduced will be successfully marketed. Furthermore, no assurances can be
given that the Company will be able to raise the working capital necessary to
continue to advance its research and development programs. Competition in the
pharmaceutical industry is intense, and no assurances can be given that OXIS'
competitors will not develop technologies and products that are more effective
than those being developed by OXIS.
Research and development expenses were $1,910,000, $2,401,000 and $4,374,000
for the years ended December 31, 2000, 1999 and 1998, respectively.
Commercial Health Products
Diagnostic Products
Revenues from sales of the Company's diagnostic assays and fine chemicals
comprised 61% of its revenues in 2000, 37% of its revenues in 1999 and 43% of
its revenues in 1998.
Oxidative Stress Research Products. The Company offers more than 140
research products for sale that include:
Assays for markers of oxidative stress
Spin traps
Antibodies
Proteins
Specialty chemicals
Controls
4
The primary technology foundation for the research product line are twenty
assay test kits which measure key markers in free radical biochemistry
(markers of oxidative stress). Specifically, these assays measure levels of
antioxidant protection, oxidative alterations, and pro-oxidant activation of
specific white blood cells.
These assay kits utilize either chemical (colorimetric) or immunoenzymatic
(EIA) reactions that can be read using laboratory spectrophotometers and
microplate readers, respectively. The Company believes its assays offer
advantages over conventional laboratory methods, including ease of use, speed,
specificity and accuracy.
The assays for markers of oxidative stress are currently being sold to
researchers in Europe, Japan and the United States, primarily through
distributors. The Company estimates that there are more than 7,500 scientists
and clinicians who are working directly in research on free radical
biochemistry, and who are potential customers for these research assays.
Thirteen of the Company's research assays are manufactured at the facility in
Portland, Oregon. The others are manufactured pursuant to private label
agreements.
The Company's assays for markers of oxidative stress are generally protected
by trade secrets, and to a more limited extent, patents. Four U.S. patents
have been issued with respect to these assays. The oxidative stress assays are
sold under the registered trademark "Bioxytech(R)".
Several companies other than OXIS have developed assays for markers of
oxidative stress and offer assays that compete directly with the Company's
assays for superoxide dismutase, cellular glutathione peroxidase, reduced
glutathione, lipid peroxidation and glutathione reductase. No assurances can
be given that the Company will compete successfully with such competitive
assays.
All of the research products are manufactured in batches in anticipation of
customer orders. Orders are generally filled within a few days; therefore, the
Company does not have any significant backlog of orders for its research
products. The Company believes that adequate supplies of raw materials are
either currently on hand, available from commercial suppliers or available
through development on a custom basis by commercial contractors, as needed.
Therapeutic Drug Monitoring Assays. In its Portland, Oregon facility the
Company has been manufacturing fourteen TDM assays which are based on FPIA
technology.
The TDM products were sold through a combination of direct customer sales
and distributors in the United States, and through a network of distributors
outside the United States, principally in Europe. Effective June 28, 1999, the
Company sold the intellectual property, contract rights and finished goods
inventory relating to its therapeutic drug monitoring assays. Proceeds from
the sale consisted of $500,000 cash, a non-interest bearing note (collected in
1999) and a warrant granting the Company the right to acquire an equity
interest in the purchaser of the assets.
The Company recognized $911,000 as compensation for the intellectual
property and contract rights. This amount has been included in revenues for
1999. The Company entered into an agreement with the purchaser of the
therapeutic drug monitoring assays pursuant to which the Company has continued
to manufacture the products and perform certain other services for the
purchaser through 2000. The sale of intellectual property and contract rights
together with product sales to the purchaser amounted to 21% of the Company's
revenues in 1999, and product sales to the purchaser amounted to 20% of the
Company's revenues in 2000. The agreement to manufacture TDM products has
terminated, and the Company does not expect to manufacture any TDM products
after the first quarter of 2001.
Wellness Services. The Company's Wellness Services program is intended to
provide products and services to help consumers make informed decisions
regarding their current and future health goals.
The Company currently participates in this market by offering its At Home
Health Check(TM) kits to test free radical activity and female hormone levels.
Revenues from these products through 2000 have not been significant.
5
OxyScan Instrument System. The Company has developed the OxyScan System
which includes both reagents and instrumentation to measure oxidative and
nutritional status. The Company believes the OxyScan System to be the first
dedicated system on the market for measurement of oxidative and nutritional
status. Several OxyScan instruments have been placed in research centers, but
through 2000, revenues from the sale of OxyScan instrument have not been
significant.
The Company believes that its combination of reagent technology and
instrumentation offers this market for the first time a dedicated system to
facilitate testing without the extra steps involved with other manual
methodologies. The OxyScan System will provide faster assay throughput and
better turnaround time for oxidative damage and nutritional supplement assays
than has previously been available. The Company believes that it will have a
competitive advantage by offering a dedicated system for oxidative and
nutritional status testing which offers the following advantages (i) reduced
labor costs, (ii) reduced reagent costs, (iii) improved turnaround time and
(iv) testing flexibility. The Company commenced marketing the OxyScan in 1999.
No assurances can be given that the OxyScan will become a commercially
successful product.
Medical Instruments
The Company's subsidiary, OXIS Instruments, Inc., develops, manufactures,
markets and sells instruments (primarily medical instruments) in its
Pennsylvania facility. Revenues from the development and sale of instruments
comprised approximately 35% of the Company's total revenues in 2000, 18% in
1999 and 48% in 1998. Instruments currently being manufactured include tissue
processors, automated stainers and the OxyScan instrument. OXIS Instruments,
Inc., generally manufactures product to fill specific orders, and had a
backlog of orders of approximately $440,000 at December 31, 2000 and $500,000
at December 31, 1999. While the Company believes such orders to be firm,
orders from customers are generally cancelable. The Company believes that
adequate supplies of raw materials are either currently on hand or available
from commercial suppliers, as needed.
Therapeutic Products
Revenues from sales of bulk bSOD and sales of Palosein(R), the Company's
veterinary bSOD product, comprised approximately 19% of the Company's total
revenues in 1999 and 4% in 1998. No bulk bSOD or Palosein(R) was sold during
2000.
Bovine SOD (bSOD) Products. Commercial-scale manufacture and quality control
of bulk bSOD, as well as subsequent quality control and processing of United
States Department of Agriculture-inspected edible beef liver into highly
purified bulk bSOD requires a complex, multi-step process. OXIS has
significant knowledge regarding the manufacture of bSOD that is protected
through trade secrets and proprietary know-how.
The Company has an agreement with Diosynth B.V., a Dutch contract
manufacturer of pharmaceutical ingredients, to manufacture bulk bSOD and
supply it to OXIS under the terms of a license based on the Company's
processes. Diosynth B.V. is an affiliate of AKZO-Nobel N.V., a large, Dutch
multinational chemical and health care company. The Company believes that its
present source of bSOD is adequate for its near-term foreseeable needs.
The Company's patents protecting the manufacture of bSOD have expired.
Expiration of the Company's patents may enable other companies to benefit from
research and development efforts of the Company, but such other companies
would not receive the benefits of the Company's unpatented trade secrets and
know-how or unpublished preclinical or clinical data.
The Company sells bulk bSOD for human use outside the United States, but
does not market dosage forms of bSOD for human use. The Company does not
currently intend to seek approval for human use of bSOD in the United States
for any indication, and only intends to sell bulk bSOD to the extent that
there is a demand for it. Palosein(R) is OXIS' registered trademark for its
veterinary brand of bSOD. The Company is currently negotiating
6
the sale of the Palosein(R) product line. Although there are other sources of
bSOD and other laboratory and pilot-scale processes to produce bSOD, the
Company believes that it is the only company manufacturing bSOD on a
commercial scale for pharmaceutical uses.
The Company's Spanish licensee, Tedec-Meiji Farma, S.A., which distributes
bSOD for human use in Spain, has been responsible for a significant portion of
the Company's revenues in recent years. Sales of bSOD to Tedec-Meiji were 16%
of the Company's revenues in 1999. No sales were made to Tedec-Meiji during
1998 or 2000. The Company is currently negotiating orders for delivery of bulk
bSOD to Tedec-Meiji in 2001.
Risk Factors
Need for Additional Financing
The Company has incurred losses in each of the last five years. As of
December 31, 2000, the Company had an accumulated deficit of approximately
$54,386,000. The Company expects to incur operating losses for the foreseeable
future. The Company currently does not have sufficient capital resources to
complete the Company's contemplated development programs and no assurances can
be given that the Company will be able to raise such capital on terms
favorable to the Company or at all. The unavailability of additional capital
could cause the Company to cease or curtail its operations and/or delay or
prevent the development and marketing of the Company's potential
pharmaceutical products.
Research and Development Stage Products
Much of the Company's success depends on potential products which are in
research and development and no material revenues have been generated to date
from sales of these potential products. The preclinical work for one potential
new therapeutic product is completed, and the clinical development stage has
commenced. No assurance can be given that the Company's product development
efforts will be successfully completed, that required regulatory approvals
will be obtained, or that any such products, if developed and introduced, will
be successfully marketed. If the Company does not successfully introduce new
products, its revenues and results of operations will be materially adversely
affected.
Future Profitability Uncertain
The Company expects to incur operating losses for the foreseeable future.
The Company's research and development expenses are expected to increase as
the Company continues human clinical testing. These losses and expenses may
increase and fluctuate from quarter to quarter as the Company expands its
development activities. There can be no assurance that the Company will ever
achieve profitable operations. The report of the Company's independent
auditors on the Company's financial statements for the period ended December
31, 2000 includes an explanatory paragraph referring to the Company's ability
to continue as a going concern. The Company anticipates that it will expend
significant capital resources in product research and development and in human
clinical trials. Capital resources may also be used for the acquisition of
complementary businesses, products or technologies. The Company's future
capital requirements will depend on many factors including: continued
scientific progress in its research and development programs; the magnitude of
these programs; the success of preclinical and clinical trials; the costs
associated with the scale-up of manufacturing; the time and costs required for
regulatory approvals; the time and costs involved in filing, prosecuting,
enforcing and defending patent claims; technological competition and market
developments; the establishment of and changes in collaborative relationships;
and the cost of commercialization activities and arrangements.
While the Company believes that its new products and technologies show
considerable promise, its ability to realize significant revenues therefrom is
dependent upon the Company's success in developing business alliances with
pharmaceutical and/or biotechnology companies to develop and market these
products. To date, the Company has not established such business alliances and
there can be no assurance that the Company's effort to develop such business
alliances will be successful.
7
Company is in Highly Competitive Business
The biopharmaceutical industry is highly competitive. Competition in most of
the Company's primary current and potential product areas from large
pharmaceutical companies, and other companies, universities and research
institutions is intense and expected to increase. Relative to the Company,
many of these entities have substantially greater capital resources, research
and development staffs, facilities and experience in conducting clinical
trials and obtaining regulatory approvals, as well as in manufacturing and
marketing pharmaceutical products. In addition, these and other entities may
have or may develop new technologies or use existing technologies that are, or
may in the future be, the basis for competitive products.
Any potential products that the Company succeeds in developing and for which
it gains regulatory approval will have to compete for market acceptance and
market share. For certain of the Company's potential products, an important
factor in such competition may be the timing of market introduction of
competitive products. Accordingly, the relative speed with which the Company
can develop products, complete the clinical testing and regulatory approval
processes and supply commercial quantities of the product to the market are
expected to be important competitive factors. The Company expects that a
competitive edge will be based, among other things, on product efficacy,
safety, reliability, availability, timing and scope of regulatory approval and
product price. There can be no assurance that the Company's competitors will
not develop technologies and products that are more effective than those being
developed by the Company. In addition, certain of the Company's competitors
may achieve product commercialization or patent protection prior to OXIS.
NASDAQ Listing
As further discussed in Item 5 the Company has failed to meet certain
requirements for continued listing on the Nasdaq National Market.
If the Company's common stock ceases to be listed on the Nasdaq National
Market, such failure to be listed could have a material adverse effect on the
transferability of the common stock, and may have a material adverse effect on
the value of the common stock as well.
Employees
As of December 31, 2000, the Company had 50 employees in the United States
and 2 employees in the United Kingdom. None of the Company's employees are
subject to a collective bargaining agreement. The Company has never
experienced a work interruption.
Foreign Operations and Export Sales
For information regarding the Company's foreign operations and export sales,
see Note 7 to the consolidated financial statements.
ITEM 2. PROPERTIES.
The Company occupies, pursuant to leases expiring in 2001, office,
laboratory and manufacturing space near Philadelphia, Pennsylvania and in
Portland, Oregon. The space in Portland, Oregon is shared by the Company's
health products and therapeutic development segments. The Pennsylvania space
is occupied by the Company's instrument manufacturing subsidiary, a part of
its health products segment.
Although the premises currently occupied are suitable for the Company's
present requirements, the Company believes that other equally suitable
premises are readily available.
8
ITEM 3. LEGAL PROCEEDINGS.
In March 2000 the Company filed a complaint in the United States District
Court for the Eastern District of Pennsylvania against Joseph B. Catarious,
Jr., a former employee and former majority owner of Innovative Medical Systems
Corp. ("IMS"). In the complaint the Company seeks to recover damages from Mr.
Catarious for breaches of representations and warranties made by him in the
agreement pursuant to which the Company acquired IMS in December 1997 (the
"IMS Agreement"). Because it believes that Mr. Catarious has committed
breaches of his representations and warranties and the damages claimed exceed
the value of the payments in stock that would otherwise have been payable to
Mr. Catarious the Company has withheld the stock payment that would have been
payable in 1999. The Company seeks compensatory damages in excess of $150,000
and seeks a judgment that it has properly exercised its right of offset, and
that it is under no obligation to transfer any additional stock or other
consideration to Mr. Catarious pursuant to the IMS Agreement.
Mr. Catarious filed a counterclaim in May 2000 and an amended counterclaim
against the Company and its subsidiary, OXIS Health Products, Inc., in August
2000. Mr. Catarious denies having made any misrepresentations, and he is
claiming damages in excess of $3.5 million for alleged breaches of the IMS
Agreement and Mr. Catarious' employment agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders held on December 12, 2000
("2000 Stockholders Meeting"), the Company's stockholders elected the
following persons to Company's Board of Directors:
Common Common Series B Series B Series C Series C
shares shares Preferred Preferred Preferred Preferred
Name FOR WITHHELD FOR* WITHHELD* FOR* WITHHELD*
- ---- --------- -------- --------- --------- --------- ---------
Timothy G. Biro......... 5,084,343 71,840 85,677 0 0 0
Joseph F. Bozman, Jr. .. 5,082,320 73,863 85,677 0 0 0
Richard A. Davis........ 5,084,495 71,688 85,677 0 0 0
Stuart S. Lang.......... 5,084,453 71,730 85,677 0 0 0
Timothy C. Rodell,
M.D.................... 5,079,672 76,511 85,677 0 0 0
Ray R. Rogers........... 5,071,754 84,429 85,677 0 0 0
- --------
* In equivalent common votes.
At the 2000 Stockholders' Meeting, the stockholders also approved an
amendment to the Company's 1994 Stock Incentive Plan to increase the number of
shares of common stock available for issuance thereunder by 885,000 shares, to
an aggregate of 2,250,000 shares (1,314,716 common shares, Series B Preferred
shares with 85,677 equivalent common votes and no Series C Preferred shares
voting for; 264,936 common shares voting against; 113,632 common shares
abstaining; and 3,462,899 broker non-votes).
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the Nasdaq Stock Market's National
Market and the French stock market, Le Nouveau Marche, under the symbol
"OXIS".
Recent quarterly high and low sales prices of the Company's common stock on
the Nasdaq Stock Market are as follows:
2000 1999
------------------------ -----------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
----- ----- ----- ------ ----- ----- ----- -----
High........................ 1.125 2.250 5.000 10.000 8.000 1.250 2.250 3.000
Low......................... .281 1.000 1.563 1.250 .313 .688 .750 1.250
The Company has an estimated 8,300 shareholders, including approximately
4,800 shareholders who hold their shares in street name. The Company utilizes
its assets to develop its business and, consequently, has never paid a
dividend and does not expect to pay dividends in the foreseeable future.
The Company received a Nasdaq staff determination on March 15, 2001
indicating that, because the bid price of its common stock has continued to be
less than $1.00, the Company fails to comply with Nasdaq's minimum bid price
requirement for continued listing set forth in Nasdaq's Marketplace Rule
4450(a)(5), and that its common stock is, therefore, subject to delisting from
the Nasdaq National Market. The Company has requested a hearing before a
Nasdaq Listing Qualifications Panel to review the staff determination. There
can be no assurance the Panel will grant the Company's request for continued
listing.
Nasdaq also notified the Company on March 12, 2001 that it has failed to
meet Nasdaq's requirement to maintain a minimum market value of public float
of $5,000,000 under Marketplace Rule 4450(a)(2). This deficiency, if not
corrected by June 11, 2001, could also result in delisting of the Company's
common stock from the Nasdaq National Market. There can be no assurance that
such deficiency can be corrected.
If the Company's common stock ceases to be listed on the Nasdaq National
Market, such failure to be listed could have a material adverse effect on the
transferability of the common stock, and may have a material adverse effect on
the value of the common stock as well.
ITEM 6. SELECTED FINANCIAL DATA.
The following tables set forth selected historical consolidated financial
data of the Company. This information should be read in conjunction with the
consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
For years ended December 31: 2000 1999 1998 1997 1996
- ---------------------------- ----------- ----------- ----------- ----------- -----------
Total Revenues(1)....... $ 3,540,000 $ 7,165,000 $ 5,147,000 $ 5,059,000 $ 4,867,000
Net loss................ $(4,636,000) $(4,447,000) $(7,129,000) $(5,151,000) $(5,992,000)
Net loss per share--
basic and diluted...... $ (.50) $ (.56) $ (1.02) $ (1.17) $ (2.34)
As of December 31: 2000 1999 1998 1997 1996
- ------------------ ----------- ----------- ----------- ----------- -----------
Total assets............ $ 5,625,000 $ 5,184,000 $11,168,000 $12,575,000 $ 7,997,000
Long-term obligations... $ 150,000 $ 194,000 $ 1,613,000 $ 1,570,000 $ 2,000
Common shares
outstanding............ 9,560,458 7,928,784 7,845,352 5,719,265 2,758,149
- --------
(1) Earned interest not included in revenue.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Financial Condition, Liquidity and Capital Resources
The Company's working capital increased during 2000 from $924,000 as of
December 31, 1999 to $2,511,000 as of December 31, 2000. This increase in
working capital resulted primarily from proceeds of $6,068,000 from the sale
of common stock, offset by the net loss for 2000 ($4,636,000 less non-cash
charges of $516,000).
Cash and cash equivalents increased from $789,000 at December 31, 1999 to
$2,059,000 at December 31, 2000.
The Company expects to continue to report losses in 2001 as the level of
expenses is expected to continue to exceed revenues. The Company can give no
assurances as to when and if its revenues will exceed its expenses.
Additional capital will be required during 2001 to continue operating in
accordance with its current plans. If the Company is unable to generate
additional funding through an increase in revenues, additional borrowings or
raising additional capital during 2001, it intends to curtail its operations
through the reduction of personnel and facility costs and by reducing its
research and development efforts; however, no assurances can be given that it
will be able to do so. 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.
See the information under the heading "RISK FACTORS" in Item 1 for a further
discussion of these matters. For more information concerning the Company's
ability to continue as a going concern, see Note 1 to the consolidated
financial statements.
While the Company believes that its new products and technologies show
considerable promise, its ability to realize significant revenues therefrom is
dependent upon the Company's success in developing business alliances with
biotechnology and/or pharmaceutical companies that have the required resources
to develop and market certain of these products. There is no assurance that
the Company's effort to develop such business alliances will be successful.
Results of Operations
Possible Divestiture of Assets
During 2000 the Company's Board of Directors considered divesting
substantially all of the assets of OXIS Health Products, Inc. and focusing the
Company's efforts in the area of ethical pharmaceutical development. A special
committee of the Board of Directors was charged with the responsibility of
completing an investigation of an offer to purchase the Health Products assets
as well as any other avenues of sale. The offer was subsequently withdrawn.
The Company's Board of Directors is no longer planning to divest the assets of
OXIS Health Products, Inc.
11
Revenues
The Company's revenues for the past three years consisted of the following:
2000 1999 1998
---------- ---------- ----------
Research assays and fine chemicals......... $1,429,000 $1,098,000 $ 793,000
Therapeutic drug monitoring assays......... 722,000 1,547,000 1,438,000
Medical instruments........................ 1,226,000 1,319,000 2,477,000
bSOD for research and human use............ -- 1,123,000 8,000
Palosein(R) (bSOD for veterinary use)...... -- 237,000 220,000
License and sale of technology............. -- 1,511,000 --
Other...................................... 163,000 330,000 211,000
---------- ---------- ----------
Total sales.............................. $3,540,000 $7,165,000 $5,147,000
========== ========== ==========
In 1999 sales of research assays and fine chemicals increased by $305,000
due to an increase in sales volume of assays to measure markers of oxidative
stress and bulk components of those assays. In 2000 sales of research assays
and fine chemicals increased by an additional $331,000. The increase in 2000
was due to the release of two new research assays in 2000 and further
increases in the volume of other research assays as well as an increase in
sales of l-ergothioneine of $216,000.
In 1999 sales of therapeutic drug monitoring assays increased by $109,000,
from $1,438,000 to $1,547,000. In 2000 sales of therapeutic drug monitoring
assays declined by $825,000, to $722,000.
Effective June 28, 1999, the Company sold the intellectual property,
contract rights and finished goods inventory relating to its therapeutic drug
monitoring assays. Sales of therapeutic drug monitoring assays for the year
ended December 31, 1999 include $158,000 for the sale of the therapeutic drug
monitoring finished goods inventory to the purchaser of the rights to this
technology. Increased sales volumes to the Company's distributors in the first
six months of 1999 also contributed to the increase. Therapeutic drug
monitoring assay revenues subsequent to June 29, 1999 represent sales of
assays and services to the purchaser of the rights to this technology. Such
revenues in the second half of 1999 were less than the therapeutic drug
monitoring assay sales in the second half of 1998. In 2000 the Company
continued to produce therapeutic drug monitoring assays on a contract basis
for the purchaser of the rights to the technology, but the total volume was
less than in 1999, and the average prices at which the products were sold has
been substantially lower subsequent to June 1999. The Company's agreement to
manufacture these products has terminated, and the Company does not expect to
manufacture or sell any therapeutic drug monitoring products after the first
quarter of 2001.
Revenue from instrument sales and development declined by $1,158,000 from
$2,477,000 in 1998 to $1,319,000 in 1999. This decrease resulted from reduced
orders from certain customers for whom the Company acts as an original
equipment manufacturer. Revenue from instrument sales and development declined
further in 2000, to $1,226,000 due to further volume reductions.
Sales of bSOD have been made primarily to the Company's Spanish licensee.
The Company sold bulk bSOD to this customer in 1999, but not in 1998 or 2000.
The Company is currently negotiating orders for delivery of bulk bSOD to the
Spanish licensee in 2001. Future sales of bulk bSOD beyond 2000 are largely
dependent on the needs of the Company's Spanish licensee which are uncertain
and difficult to predict and no assurances can be given that the Company will
continue to sell bulk bSOD to its Spanish licensee.
Palosein(R) sales increased modestly, from $220,000 in 1998 to $237,000 in
1999. The Company did not sell Palosein(R) in 2000, and is negotiating a sale
of the Palosein(R) product line.
Revenues from the license and sale of technology in 1999 consist of $911,000
recognized as compensation for the intellectual property and contract rights
relating to the therapeutic drug monitoring assays and $600,000 paid to the
Company for the assignment of the Company's patents relating to poly-ethylene
glycol technology.
12
Costs and Expenses
Cost of sales decreased slightly from 83% of product sales in 1998 to 82% of
product sales in 1999. Improved margins in 1999 on sales of research assays
and therapeutic drug monitoring assays were mostly offset by the excess
($368,000) of the cost of technology sold over the proceeds from the sale of
technology and an increase in instrument manufacturing costs as a percentage
of instrument sales, which resulted from the decline in instrument sales
volumes. In 2000 cost of sales increased to 86% of sales. This increase as
compared to 1999 was due primarily to a $382,000 reduction in margins on sales
of therapeutic drug monitoring products and an increase in the negative gross
margin from the Company's wellness services program ($110,000 in 1999 and
$351,000 for 2000). These cost increases were partially offset by a $293,000
increase in gross margins from sales of research assays and fine chemicals.
The Company's cost of sales includes amortization of purchase price
adjustments (primarily technology) acquired in 1994 and 1997 (amortization of
$857,000 in 1998, $557,000 in 1999 and $147,000 in 2000). Excluding
amortization of purchase adjustments and excluding technology sales and the
cost of technology sales in 1999, the Company's cost of sales as a percentage
of sales was 66% in 1998, 72% in 1999 and 83% in 2000.
The Company reduced the fixed costs of its medical instruments manufacturing
operation in early 1999 by selling the facility and leasing back a portion of
the space. However, the Company believes that for current production volumes
it would be difficult to further reduce manufacturing costs. Therefore,
significant improvements in product margins for both medical instruments and
research assays are dependent on increases in sales volumes.
Cost of technology sold in 1999 represents the carrying value of the
technology relating to the therapeutic drug monitoring assays that was sold.
Research and development costs decreased by $1,973,000 in 1999, from
$4,374,000 to $2,401,000. The decrease in 1999 resulted primarily from the
closure of the French research facility in the first half of 1999 and further
reductions in expenditures on therapeutic development projects while the
Company sought additional funds for its therapeutic development programs. As a
result of the closure, expenses of the French research facility were reduced
from $2,378,000 in 1998 (including a $585,000 write-down of equipment) to
$1,058,000 in 1999, a reduction of $1,320,000. Research and development costs
decreased an additional $491,000 in 2000, to $1,910,000. Reductions in
expenses of the Company's French research facility of $897,000 were offset by
a $266,000 increase in other research and development expenses relating to the
Company's therapeutic development programs and a $140,000 increase in expenses
relating to the development of research assays.
In 1999 sales, general and administrative expenses decreased by $270,000,
from $3,555,000 to $3,285,000. The decrease in 1999 was mostly due to
reductions in compensation expense. In 2000 sales, general and administrative
expenses increased by $12,000.
Interest Income and Expense
Interest income decreased by $108,000, from $165,000 to $57,000 in 1999 as
funds from the 1998 private placement of securities were spent. Interest
income increased to $180,000 in 2000 due to investment of proceeds from the
2000 private placement of securities.
Interest expense decreased from $298,000 in 1998 to $94,000 in 1999 due
primarily to the payment of long-term debt in connection with the sale of land
and buildings in February 1999.
Net Loss
The Company incurred net losses in 1998, 1999 and 2000 and does not expect
to be profitable in the foreseeable future.
13
The Company's net loss in 1999 was reduced by $2,682,000 as compared to 1998
due primarily to the reduction of research and development costs. The
Company's net loss increased by $189,000, to $4,636,000 in 2000 as declines in
gross margins from product and technology sales were offset in part by a
decrease in research and development expense and an increase in net interest
income.
The Company expects to incur a substantial net loss for 2001. If the Company
develops substantial new revenue sources or if substantial additional capital
is raised through further sales of securities (See Financial Condition,
Liquidity and Capital Resources), the Company plans to continue to invest in
research and development activities and incur sales, general and
administrative expenses in amounts greater than its anticipated near-term
product margins. If the Company is unable to raise sufficient additional
capital or to develop new revenue sources, it will have to cease, or severely
curtail, its operations. In this event, while expenses will be reduced,
expense levels, and the potential write down of various assets, would still be
in amounts greater than anticipated revenues.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
OXIS International, Inc.:
We have audited the accompanying consolidated balance sheets of OXIS
International, Inc. and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of operations and comprehensive loss,
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2000. Our audits also included the financial
statement schedule listed in Item 14(d) on Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
management of OXIS International, Inc. Our responsibility is to express an
opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has incurred
losses in each of the last three years, and at December 31, 2000, the
Company had an accumulated deficit of $54,386,000, 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
Portland, Oregon
March 1, 2001
15
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,059,000 $ 789,000
Accounts receivable, net of allowance of $199,000
($136,000 at December 31, 1999)................... 502,000 1,072,000
Inventories........................................ 1,271,000 1,327,000
Prepaid and other.................................. 81,000 37,000
----------- -----------
Total current assets........................... 3,913,000 3,225,000
Property, plant and equipment, net................... 651,000 808,000
Technology for developed products.................... 681,000 864,000
Other assets......................................... 380,000 287,000
----------- -----------
Total assets................................... $ 5,625,000 $ 5,184,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable...................................... $ 160,000 $ 681,000
Accounts payable................................... 628,000 1,131,000
Customer deposits.................................. 174,000 --
Accrued payroll and payroll taxes.................. 246,000 271,000
Other accrued liabilities.......................... 95,000 124,000
Current portion of long-term debt.................. 99,000 94,000
----------- -----------
Total current liabilities...................... 1,402,000 2,301,000
Long-term debt due after one year.................... 150,000 194,000
Commitments and contingencies (Notes 1 and 9)
Shareholders' equity:
Preferred stock--$.01 par value; 15,000,000 shares
authorized:
Series B--428,389 shares issued and outstanding
at December 31, 2000 and 1999 (aggregate
liquidation preference of $1,000,000)........... 4,000 4,000
Series C--296,230 shares issued and outstanding
at December 31, 2000 (608,536 at December 31,
1999)........................................... 3,000 6,000
Common stock--$.001 par value; 95,000,000 shares
authorized; 9,560,458 shares issued and
outstanding at December 31, 2000 (7,928,784 at
December 31, 1999)................................ 9,000 8,000
Warrants........................................... 2,870,000 --
Additional paid in capital......................... 55,956,000 52,756,000
Accumulated deficit................................ (54,386,000) (49,750,000)
Accumulated other comprehensive loss - foreign
currency translation adjustments.................. (383,000) (335,000)
----------- -----------
Total shareholders' equity..................... 4,073,000 2,689,000
----------- -----------
Total liabilities and shareholders' equity..... $ 5,625,000 $ 5,184,000
=========== ===========
See accompanying notes.
16
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Revenues:
Product sales........................ $ 3,540,000 $ 5,654,000 $ 5,147,000
License and sale of technology....... -- 1,511,000 --
----------- ----------- -----------
Total revenues..................... 3,540,000 7,165,000 5,147,000
Costs and expenses:
Cost of product sales................ 3,059,000 4,610,000 4,214,000
Cost of technology sold.............. -- 1,279,000 --
Research and development............. 1,910,000 2,401,000 4,374,000
Sales, general and administrative.... 3,297,000 3,285,000 3,555,000
----------- ----------- -----------
Total costs and expenses........... 8,266,000 11,575,000 12,143,000
----------- ----------- -----------
Operating loss......................... (4,726,000) (4,410,000) (6,996,000)
Interest income........................ 180,000 57,000 165,000
Interest expense....................... (90,000) (94,000) (298,000)
----------- ----------- -----------
Net loss............................... (4,636,000) (4,447,000) (7,129,000)
Other comprehensive loss - foreign
currency translation adjustments...... (48,000) (48,000) (33,000)
----------- ----------- -----------
Comprehensive loss..................... $(4,684,000) $(4,495,000) $(7,162,000)
=========== =========== ===========
Net loss per share--basic and diluted.. $ (.50) $ (.56) $ (1.02)
=========== =========== ===========
Weighted average number of shares used
in computation--basic and diluted..... 9,185,392 7,888,316 6,985,698
=========== =========== ===========
See accompanying notes.
17
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net loss.............................. $(4,636,000) $(4,447,000) $(7,129,000)
Adjustments to reconcile net loss to
cash used for operating activities:
Depreciation and amortization........ 443,000 838,000 1,558,000
Loss on disposals of land, building,
improvements and equipment.......... 73,000 62,000 --
Loss on sale of technology........... -- 368,000 --
Cash proceeds from sale of
technology.......................... -- 342,000 --
Write-down of equipment to be
disposed............................ -- -- 585,000
Changes in assets and liabilities:
Accounts receivable................ 567,000 (86,000) 845,000
Inventories........................ 56,000 237,000 49,000
Prepaid and other current assets... (45,000) 220,000 (179,000)
Accounts payable................... (501,000) 384,000 (845,000)
Customer deposits.................. 174,000 (120,000) 120,000
Accrued payroll and payroll
taxes............................. (31,000) (129,000) (182,000)
Other accrued liabilities.......... 13,000 (146,000) (67,000)
----------- ----------- -----------
Net cash used for operating
activities...................... (3,887,000) (2,477,000) (5,245,000)
Cash flows from investing activities:
Proceeds from sale of land, building,
improvements and equipment, net of
related costs........................ -- 1,967,000 --
Collection of note receivable......... -- 569,000 --
Purchase of equipment and leasehold
improvements......................... (160,000) (257,000) (104,000)
Additions to patents and other
assets............................... (154,000) (124,000) (160,000)
Other................................. 11,000 (5,000) 20,000
----------- ----------- -----------
Net cash provided by (used for)
investing activities............ (303,000) 2,150,000 (244,000)
Cash flows from financing activities:
Proceeds from issuance of stock, net
of related cost...................... 5,868,000 -- 7,513,000
Short-term borrowing.................. -- -- 404,000
Proceeds from issuance of long-term
debt................................. -- 93,000 150,000
Redemption of Series D preferred
stock................................ -- -- (700,000)
Repayment of short-term notes......... (361,000) (44,000) (443,000)
Repayment of long-term debt........... (40,000) (1,528,000) (89,000)
----------- ----------- -----------
Net cash provided by (used for)
financing activities............ 5,467,000 (1,479,000) 6,835,000
Effect of exchange rate changes on
cash................................... (7,000) 20,000 (61,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 1,270,000 (1,786,000) 1,285,000
Cash and cash equivalents--beginning of
year................................... 789,000 2,575,000 1,290,000
----------- ----------- -----------
Cash and cash equivalents--end of year.. $ 2,059,000 $ 789,000 $ 2,575,000
=========== =========== ===========
Cash paid for interest.................. $ 68,000 $ 125,000 $ 217,000
Supplemental schedule of noncash
operating and financing activities:
Issuance of Common Stock in exchange
for cancellation of notes and accrued
interest............................. 200,000 -- 778,000
Conversion of Preferred Stock into
Common Stock......................... 366,000 233,000 642,000
Note received as part of proceeds from
sale of technology................... -- 569,000 --
See accompanying notes.
18
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2000, 1999, and 1998
Accumulated
Preferred Stock Common Stock Additional other Total
------------------ ----------------- paid-in Accumulated comprehensive shareholders'
Shares Amount Shares Amount Warrants capital deficit loss equity
--------- ------- --------- ------ ---------- ----------- ------------ ------------- -------------
Balances, January
1, 1998........... 1,665,030 $17,000 5,719,265 $6,000 $45,160,000 $(38,174,000) $(254,000) $ 6,755,000
Conversion of
Series B preferred
shares to common.. (214,194) (2,000) 42,839 2,000 --
Conversion of
Series C preferred
shares to common.. (213,819) (3,000) 61,770 3,000 --
Conversion of
Series D preferred
shares to common.. (50) 35,800 --
Sales of common
shares............ 1,985,678 2,000 8,289,000 8,291,000
Retirement of
Series D preferred
shares............ (700) (700,000) (700,000)
Net loss........... (7,129,000) (7,129,000)
Foreign currency
translation
adjustments....... (33,000) (33,000)
--------- ------- --------- ------ ----------- ------------ --------- -----------
Balances, December
31, 1998.......... 1,236,267 12,000 7,845,352 8,000 52,754,000 (45,303,000) (287,000) 7,184,000
Shares issued in
connection with
1997 business
combination....... 25,844 --
Conversion of
Series C preferred
shares to common.. (199,342) (2,000) 57,588 2,000 --
Net loss........... (4,447,000) (4,447,000)
Foreign currency
translation
adjustment........ (48,000) (48,000)
--------- ------- --------- ------ ----------- ------------ --------- -----------
Balances, December
31, 1999.......... 1,036,925 10,000 7,928,784 8,000 52,756,000 (49,750,000) (335,000) 2,689,000
Conversion of
Series C preferred
shares to common.. (312,306) (3,000) 90,221 3,000 --
Sales of common
shares and
warrants.......... 1,376,949 1,000 $2,870,000 3,134,000 6,005,000
Shares issued in
connection with
1997 business
combination....... 100,000 --
Options exercised.. 64,944 63,000 63,000
Other.............. (440) --
Net loss........... (4,636,000) (4,636,000)
Foreign currency
translation
adjustment........ (48,000) (48,000)
--------- ------- --------- ------ ---------- ----------- ------------ --------- -----------
Balances, December
31, 2000.......... 724,619 $ 7,000 9,560,458 $9,000 $2,870,000 $55,956,000 $(54,386,000) $(383,000) $ 4,073,000
========= ======= ========= ====== ========== =========== ============ ========= ===========
See accompanying notes.
19
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999 and 1998
1. Description of Business and Basis of Presentation
OXIS International, Inc. (the "Company") develops, manufactures and markets
selected therapeutic and diagnostic products and medical instruments. 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. The Company is headquartered
in Portland, Oregon, has an instrument manufacturing facility near
Philadelphia, Pennsylvania and has an office near Cambridge, England housing
therapeutic development employees.
Assays to measure markers of oxidative stress are manufactured by the
Company in the United States and are sold directly to researchers and to
distributors for resale to researchers, primarily in Europe, the United States
and Japan. Medical instruments are manufactured in the United States and are
sold to distributors and other customers both within and outside the United
States. The Company also sells pharmaceutical forms of superoxide dismutase
(SOD) for human and veterinary use. Therapeutic drug monitoring assays have
been manufactured by the Company in the United States and were 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.
Subsequent to June 1999, the Company has manufactured therapeutic drug
monitoring assays pursuant to a contract with the purchaser of the therapeutic
drug monitoring technology (see Note 7).
These financial statements 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 net losses in each of
the last three years and at December 31, 2000 had an accumulated deficit of
$54,386,000. 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.
The Company expects that additional capital will be required during 2001 to
continue operating in accordance with its current plans. If the Company is
unable to generate additional funding through an increase in revenues,
additional borrowings or raising additional capital during 2001 it intends to
curtail its operations through the reduction of personnel and facility costs
and by reducing its research and development efforts; however, no assurances
can be given that it will be able to do so. 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.
Nasdaq notified the Company on December 14, 2000 that because the minimum
bid price of the Company's common stock had remained under $1.00 for 30
consecutive trading days, the common stock did not currently meet Nasdaq's
requirements for continued listing on the Nasdaq National Market System.
Consequently, if the bid price of the common stock is not at least $1.00 for a
minimum of ten consecutive trading days before March 14, 2001 the Company'
common stock will become the subject of a delisting notification from the
Nasdaq National Market System. If the Company's stock does not then satisfy
the Nasdaq listing requirements, the Company may seek review of the Nasdaq
decision to de-list its stock. There can be no assurance that the Company's
common stock will satisfy the requirements for continued listing on the Nasdaq
National Market System, or that other alternatives will be available, in which
case, the Company's common stock would be traded on the over-the-counter
market.
20
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
2. Significant Accounting Policies
Principles of consolidation--The accompanying financial statements include
the accounts of the Company as well as its subsidiaries. The functional
currency of the Company's United Kingdom subsidiary is the British pound and
the functional currency of the Company's French subsidiary is the French
franc. The foreign subsidiaries' assets and liabilities are translated at the
exchange rates at the end of the year, and their statements of operations are
translated at the average exchange rates during each year. Gains and losses
resulting from foreign currency translation are recorded as other
comprehensive income or loss and 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 method. Inventories at December
31, 2000 and 1999, consisted of the following:
2000 1999
---------- ----------
Raw materials.......................................... $ 682,000 $ 666,000
Work in process........................................ 398,000 438,000
Finished goods......................................... 191,000 223,000
---------- ----------
Total................................................ $1,271,000 $1,327,000
========== ==========
Property, plant and equipment is stated at cost. Depreciation of equipment
is computed using the straight-line method over estimated useful lives of
three to ten years. Building and building improvements have been depreciated
using the straight-line method over estimated useful lives of thirty years.
Leasehold improvements are amortized over the shorter of five years or the
remaining lease term.
Property, plant and equipment at December 31, 2000 and 1999, consisted of
the following:
2000 1999
---------- ---------
Furniture and office equipment........................ $ 348,000 $ 336,000
Laboratory and manufacturing equipment................ 1,439,000 1,374,000
Leasehold improvements................................ 57,000 57,000
---------- ---------
Property, plant and equipment, at cost................ 1,844,000 1,767,000
Accumulated depreciation and amortization............. (1,193,000) (959,000)
---------- ---------
Property, plant and equipment, net.................... $ 651,000 $ 808,000
========== =========
In February 1999, all of the Company's land, building and improvements with
a net book value of $1,894,000 was sold for a gross sales price of $2,062,000.
In the first half of 1999 the Company closed its research and development
facility in France. Substantially all research and development activities
being carried on by the Company's French subsidiary were ceased in early 1999.
As of December 31, 1998, the carrying value of the French subsidiary's
equipment was written down to its estimated net realizable value, resulting in
a $585,000 charge to research and development expense in 1998. This charge is
included in the segment loss for the therapeutic development segment in the
segment information in Note 7.
21
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
Technology--Technology for developed products acquired in business
combinations is amortized over estimated useful lives of seven to ten years.
Accumulated amortization of technology for developed products was $820,000 as
of December 31, 2000, and $712,000 as of December 31, 1999. 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.
Stock options--The Company applies the intrinsic value based method
described in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", in accounting for its stock options.
Revenue recognition--The Company manufactures, or has manufactured on a
contract basis, products that are sold to customers. The Company recognizes
product sales upon shipment of the product to the customer. The Company also
develops and acquires technology that is either used in the Company's
operations or sold, licensed or assigned to third parties. The Company
recognizes revenue upon the sale or assignment of technology to third parties.
Income taxes--Deferred income taxes, reflecting the net tax effects of
temporary differences between the carrying amount of assets and liabilities
recognized for financial reporting purposes and the amounts recognized for
income tax purposes, are based on tax laws currently enacted. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Net loss per share--Net loss per share is computed based upon the weighted
average number of common shares outstanding ("basic") and, if dilutive, the
incremental shares issuable upon the assumed exercise of stock options or
warrants and the assumed conversion of preferred stock ("dilutive"). Due to
the net losses in each of the last three years, the computation of dilutive
net loss per share is antidilutive and therefore is the same as basic. If the
Company had been profitable in 2000 no additional shares would have been
included in the calculation of dilutive earning per share because the market
price of the Company's common stock near the end of the year was not
consistently in excess of the exercise price of any of the Company's
outstanding options or warrants.
Restatement to reflect reverse stock split--As described in Note 5, a one-
for-five reverse split of the Company's common stock became effective October
21, 1998. All common share and per common share amounts have been restated to
reflect the reverse split.
Use of estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires 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 revenues 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, accounts receivable, notes
payable, customer deposits and accounts payable approximates fair value due to
the short-term nature of the accounts. The carrying amount reported in the
balance sheet for long-term debt reflects fair value based on approximate
rates that would currently be available to the Company.
Future accounting changes--In June 1998 the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those
22
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
instruments at fair value. The implementation of this statement has been
postponed by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
137 has postponed implementation of SFAS No. 133 until the Company's fiscal
year ending December 31, 2001. This statement is not applicable to the
Company's current operations.
3. NOTES PAYABLE
Notes payable at December 31, 2000 and 1999 consisted of the following:
2000 1999
-------- --------
Note payable to Commerce Bank............................. $ -- $361,000
8% unsecured notes........................................ 160,000 320,000
-------- --------
$160,000 $681,000
======== ========
The note payable to Commerce Bank was the outstanding balance pursuant to a
$450,000 line of credit and bore interest at the bank's prime rate plus 1.75%.
The line of credit expired during 2000, and the note was paid in full.
The 8% unsecured notes are due to shareholders of the Company. The notes
were due in May 1997. The remaining noteholder is indebted to the Company
under the terms of a separate indemnification agreement related to a
contingency associated with a previous purchase. Payment of the remaining note
has been deferred pending the outcome of ongoing discussions with the
noteholder.
4. LONG-TERM DEBT
Long-term debt at December 31, 2000 and 1999 consisted of the following:
2000 1999
-------- --------
Notes payable to shareholders, interest at 8-8.25% due in
monthly installments through 2013....................... $196,000 $203,000
Other.................................................... 53,000 85,000
-------- --------
249,000 288,000
Less amounts due within one year......................... 99,000 94,000
-------- --------
$150,000 $194,000
======== ========
The aggregate annual maturities of the long-term debt during the years
ending December 31, 2002 to 2005 are as follows: 2002--$23,000; 2003--$8,000;
2004--$8,000; 2005--$9,000.
5. SHAREHOLDERS' EQUITY
Common Stock--In the second and third quarters of 1998 the Company completed
a private placement of its common stock together with warrants to a series of
institutional investors ("units"). The units, consisting of one share of
common stock plus a warrant to purchase one share of common stock, were priced
at the Nasdaq closing price the day prior to the signing of the subscription
agreements. A total of 1,985,678 common shares and warrants to purchase an
equal number of common shares were issued in exchange for gross proceeds of
$8,181,000 in cash and conversion of $778,000 of short-term notes and accrued
interest payable. The exercise price of each warrant is equal to 120% of the
price paid per unit.
23
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
At the Company's Annual Meeting of Stockholders held on July 13, 1998, the
stockholders approved proposals to increase the authorized number of common
shares to 95,000,000 and reduce the par value of the Company's common stock to
$.001. Following the meeting, the number of authorized shares of common stock
was increased and the par value was reduced, accordingly. The stockholders
also approved a proposal authorizing the Company's Board of Directors at its
discretion to effect a one-for-five reverse stock split at any time prior to
the Company's 1999 Annual Meeting of Stockholders. In September 1998 the
Company's Board of Directors approved the reverse split, which became
effective October 21, 1998. All common share and per common share amounts have
been restated to reflect the one-for-five reverse stock split.
In April 2000 the Company completed a private placement of units, consisting
of one share of the Company's common stock plus warrants to purchase two
shares of the Company's common stock (the "2000 units"), primarily to a series
of institutional investors. The 2000 units were priced at the Nasdaq closing
price for the Company's common stock the day prior to the signing of the
subscription agreements relating to the purchase of such 2000 units. The price
per 2000 unit ranged from $3.94 to $4.75. A total of 1,376,949 common shares
and warrants to purchase 2,753,000 common shares were issued in exchange for
gross proceeds of $6,050,000 in cash and conversion of $200,000 of short-term
notes and accrued interest payable. The exercise price of one-half of the
warrants issued in the private placement is equal to 135% of the price paid
per 2000 unit. The exercise price of the other half of the warrants is equal
to 150% of the price paid per 2000 unit.
The Company issued additional warrants to its placement agents giving the
agents the right to acquire 155,000 common shares at an exercise price of
$5.94 per share.
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. During 1998,
214,194 shares of Series B Preferred Stock were converted into 42,839 shares
of common stock. The remaining 428,389 outstanding shares of Series B
Preferred Stock are convertible into and have voting rights equivalent to
85,678 shares of common stock. The Series B Preferred Stock has certain
preferential rights with respect to liquidation and dividends.
The shares of Series C Preferred Stock are convertible into shares of the
Company's common stock at the option of the holders at any time. The
conversion ratio is based on the average closing bid price of the common stock
for the fifteen consecutive trading days ending on the date immediately
preceding the date notice of conversion is given, but cannot be less than .20
nor more than .2889 common shares for each Series C Preferred share. The
conversion ratio may be adjusted under certain circumstances such as stock
splits or stock dividends. The Company has the right to automatically convert
the Series C Preferred Stock into common stock if the average closing bid
price of the Company's common stock on the Nasdaq National Market for 15
consecutive trading days exceeds $13.00. Each share of Series C Preferred
Stock is entitled to the number of votes equal to .26 divided by the average
closing bid price of the Company's common stock during the fifteen consecutive
trading days immediately prior to the date such shares of Series C Preferred
Stock were purchased. Through December 31, 2000, 1,477,850 shares of Series C
Preferred Stock have been converted into common stock. As of December 31,
2000, 296,230 shares of Series C Preferred Stock remained outstanding.
During 1998 the Company entered into a settlement agreement with the holder
of the remaining 700 outstanding shares of Series D Preferred Stock whereby
such holder and the Company released any and all claims either may have
against the other with respect to such Series D Preferred Stock, and the
Company paid the holder $700,000 cash. The holder has subsequently returned
the Series D certificate which has been cancelled.
24
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
Stock Warrants--In connection with the issuance of common stock and Series C
and E Preferred Stock prior to 1998, the Company has issued to its placement
agents warrants to purchase 78,278 shares of common stock at prices ranging
from $7.15 to $16.25 per share that remained outstanding and were exercisable
at December 31, 2000. They expire between May 2001 and December 2001.
A warrant to purchase 162,025 common shares at $12.50 per share was issued
to the purchaser of the Company's Series D Preferred Stock. This warrant was
immediately exercisable and remained outstanding as of December 31, 2000. It
expires in May 2001.
Warrants to purchase 60,000 common shares were issued to the purchasers of
the secured convertible term notes in October 1996. The warrants have an
exercise price of $3.05 per share and expire in October 2001. They were
immediately exercisable and remained outstanding as of December 31, 2000.
Warrants to purchase 1,985,678 common shares at exercise prices of $5.25 to
$6.75 that were issued in connection with the sale of common shares during
1998 remained outstanding at December 31, 2000. These warrants became
exercisable during 1999 and expire in April and May 2003.
Warrants to purchase 2,908,898 common shares at exercise prices of $4.92 to
$7.13 that were issued in connection with the sale of common shares during
2000 remained outstanding at December 31, 2000. These warrants became
exercisable immediately upon issuance and expire between February 2001 and
April 2005.
Stock Options--The Company has a stock incentive plan under which 2,250,000
shares of the Company's common stock are reserved for issuance. 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 pursuant to the Plan have a maximum
term of ten years; vesting is determined by the Compensation Committee of the
Company's Board of Directors. Options granted through 2000 have had vesting
requirements of up to five years. The plan permits grants of options at less
than the fair market value of the underlying shares on the date of the grant,
but through 2000 no such options have been issued. Options granted and
outstanding under the plan are summarized as follows:
2000 1999 1998
------------------- ------------------- -----------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
--------- -------- --------- -------- ------- --------
Outstanding at beginning
of year................ 1,034,582 $2.92 483,560 $6.36 468,740 $7.10
Granted................. 895,250 2.21 597,822 .47 112,500 3.37
Exercised............... (64,944) .97 -- -- -- --
Forfeitures............. (62,402) 6.07 (46,800) 6.99 (97,680) 6.49
--------- --------- -------
Outstanding at end of
year................... 1,802,486 $2.53 1,034,582 $2.92 483,560 $6.36
========= ===== ========= ===== ======= =====
Exercisable at end of
year................... 825,137 $3.08 631,780 $4.35 361,356 $7.16
========= ===== ========= ===== ======= =====
25
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
The number of shares under option, weighted average exercise price and
weighted average remaining contractual life of all options outstanding as of
December 31, 2000, by range of exercise price was as follows:
Range of Weighted average Weighted average
exercise price Shares exercise price remaining life
-------------- ------- ---------------- ----------------
$ .44-$ .88 854,163 $ .60 9.30 years
$ 1.31-$ 1.91 546,750 $ 1.78 9.21 years
$ 2.12-$ 4.53 225,273 $ 2.98 7.40 years
$ 5.75-$ 8.45 130,300 $ 7.95 5.39 years
$11.25-$17.50 46,000 $15.20 4.14 years
The number of shares under option and weighted average exercise price of
options exercisable as of December 31, 2000, by range of exercise price was as
follows:
Range of Weighted average
exercise price Shares exercise price
-------------- ------- ----------------
$ .44-$ .88 440,432 $ .54
$ 1.31-$ 1.91 36,163 $ 1.33
$ 2.12-$ 4.53 172,242 $ 3.03
$ 5.75-$ 8.45 130,300 $ 7.95
$11.25-$17.50 46,000 $15.20
The Company applies the intrinsic value based method described in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
in accounting for its stock options. Accordingly, since the exercise price of
all options issued under the plan has been greater than or equal to the fair
market value of the stock at the date of issue of the options, no compensation
cost has been recognized for options granted under the plan. Had compensation
cost for options granted under the plan been determined based on the fair
value at the grant dates in a manner consistent with the method determined
under Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", the net loss and net loss per share for 2000, 1999
and 1998 would have been changed to the pro forma amounts indicated below:
2000 1999 1998
----------- ----------- -----------
Net loss:
As reported....................... $(4,636,000) $(4,447,000) $(7,129,000)
Pro forma......................... $(4,911,000) $(4,282,000) $(7,183,000)
Net loss per share--basic and
diluted:
As reported....................... $ (.50) $ (0.56) $ (1.02)
Pro forma......................... $ (.53) $ (0.54) $ (1.03)
For the purpose of computing the pro forma expense, the fair value of each
option is estimated on the grant date using the Black-Scholes option pricing
model with the following assumptions:
Grants issued in
-------------------------
2000 1999 1998
------- ------- -------
Dividend yield.................................... 0% 0% 0%
Expected volatility............................... 109% 75% 74%
Risk-free interest rate........................... 4.7% 6.6% 4.7%
Expected lives.................................... 3 years 3 years 3 years
26
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
The weighted average fair value as of the option date was computed to be
$.60 per share for options issued during 2000, $.24 per share for options
issued during 1999 and $1.72 per share for options issued during 1998.
At December 30, 2000 the Company had the following additional stock options
outstanding that were not issued pursuant to its stock incentive plan. An
option to acquire 7,000 common shares at an exercise price of $8.44 per share
was granted in 1996 and expires in 2006. An option to acquire 25,000 common
shares at an exercise price of $1.38 was granted in 2000 and expires in 2005.
An additional option to acquire 400,000 common shares at an exercise price of
$1.56 was granted in 2000 and, if not exercised, will be forfeited before the
end of the first quarter of 2001.
6. Income Taxes
Income Tax Provision--Income tax provisions were not necessary in 2000, 1999
and 1998 due to net losses.
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:
2000 1999
----------- -----------
United States taxes:
Deferred tax assets:
Federal net operating loss carryforward and
capitalized research and development
expenses.................................... $ 8,128,000 $ 6,592,000
Federal R&D tax credit carryforward.......... 676,000 676,000
State net operating loss carryforward and
capitalized research and development
expenses.................................... 816,000 553,000
Deferred tax liabilities--book basis in excess
of noncurrent assets acquired in purchase
transactions.................................. (181,000) (242,000)
----------- -----------
Net deferred tax assets........................ 9,439,000 7,579,000
Valuation allowance............................ (9,439,000) (7,579,000)
----------- -----------
Net deferred taxes............................. $ -- $ --
=========== ===========
French taxes:
Deferred tax assets--
Net operating loss carryforward.............. $ 3,563,000 $ 3,745,000
Valuation allowance............................ (3,563,000) (3,745,000)
----------- -----------
Net deferred taxes............................. $ -- $ --
=========== ===========
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 income tax expense when and if
realized. Due to the closure of the French subsidiary's operations in early
1999, it is unlikely that the Company will ever realize any benefit from the
French subsidiary's operating loss carryforwards.
27
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
The tax benefits ($351,000) of the net operating losses of $1,032,000 which
existed at the date of acquisition (December 31, 1997) of Innovative Medical
Systems Corp. will be recorded as a reduction of the net unamortized balance
of property, plant and equipment and intangible assets of $465,000 when and if
realized.
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 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 equal to
its net deferred tax assets.
Tax Carryforwards--At December 31, 2000, the Company had net operating loss
carryforwards of approximately $6,217,000 to reduce United States federal
taxable income in future years, and research and development tax credit
carryforwards of $676,000 to reduce United States federal taxes in future
years. In addition, the Company's French subsidiary had operating loss
carryforwards of $9,715,000 (67,607,000 French francs) to reduce French
taxable income in future years. These carryforwards expire as follows:
United States net R&D tax French
operating loss credit operating loss
Year of expiration carryforward carryforward carryforward
------------------ ----------------- ------------ --------------
2001.......................... $ 22,000 $123,000 $ 3,000
2002.......................... 7,000 6,000 --
2003.......................... 44,000 55,000 --
2004.......................... 5,000 34,000 443,000
2005.......................... 25,000 46,000 151,000
2006-2013..................... 6,114,000 412,000 --
No expiration................. -- -- 9,118,000
---------- -------- ----------
$6,217,000 $676,000 $9,715,000
========== ======== ==========
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.
7. Operating Segments
The Company is organized into two reportable segments--health products and
therapeutic development. The two segments have different strategic goals and
have been managed separately since 1997. The health products segment
manufactures and sells diagnostic products, medical instruments,
pharmaceutical forms of SOD and other fine chemicals. The therapeutic
development segment operates a drug discovery business focused on development
of new drugs to treat diseases associated with tissue damage from free
radicals and reactive oxygen species.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company accounts for
inter-segment sales at cost. General corporate expenses were allocated equally
to the health products and therapeutics development segments in 1998 and 1999.
In 2000, 23% of the Company's general corporate expenses were allocated to the
health products segment and 77% to the therapeutic development segment.
28
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
The following tables present information about the two segments for 2000,
1999 and 1998:
Health Therapeutic
products development Total
----------- ----------- -----------
Year ended December 31, 2000:
Revenues from external customers....... $ 3,540,000 $ -- $ 3,540,000
Interest income........................ 12,000 168,000 180,000
Interest expense....................... 75,000 15,000 90,000
Depreciation and amortization.......... 391,000 52,000 443,000
Net loss............................... (2,368,000) (2,268,000) (4,636,000)
Expenditures for long-lived assets..... 97,000 163,000 260,000
As of December 31, 2000--
Segment assets......................... 3,476,000 2,149,000 5,625,000
Health Therapeutic
products development Total
----------- ----------- -----------
Year ended December 31, 1999
Revenues from external customers....... $ 7,091,000 $ 74,000 $ 7,165,000
Inter-segment revenues................. -- 297,000 297,000
Interest income........................ 39,000 18,000 57,000
Interest expense....................... 68,000 26,000 94,000
Depreciation and amortization.......... 736,000 102,000 838,000
Net loss............................... (2,028,000) (2,419,000) (4,447,000)
Expenditures for long-lived assets..... 294,000 87,000 381,000
As of December 31, 1999--
Segment assets......................... 4,885,000 299,000 5,184,000
Health Therapeutic
products development Total
----------- ----------- -----------
Year ended December 31, 1998:
Revenues from external customers....... $ 5,147,000 $ -- $ 5,147,000
Inter-segment revenues................. -- 166,000 166,000
Interest income........................ 54,000 111,000 165,000
Interest expense....................... 255,000 43,000 298,000
Depreciation and amortization.......... 1,142,000 416,000 1,558,000
Net loss............................... (2,866,000) (4,263,000) (7,129,000)
Expenditures for long-lived assets..... 144,000 120,000 264,000
As of December 31, 1998--
Segment assets......................... 8,698,000 2,470,000 11,168,000
29
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
Revenues from external customers for the years ended December 31, 2000, 1999
and 1998 were as follows:
2000 1999 1998
---------- ---------- ----------
Assays and fine chemicals.................. $2,151,000 $2,716,000 $2,324,000
Medical instruments........................ 1,226,000 1,319,000 2,477,000
SOD for human and research use............. -- 1,123,000 8,000
Palosein (SOD for veterinary use).......... -- 237,000 220,000
License and sale of technology............. -- 1,511,000 --
Other...................................... 163,000 259,000 118,000
---------- ---------- ----------
Total.................................... $3,540,000 $7,165,000 $5,147,000
========== ========== ==========
Effective June 28, 1999, the Company sold the intellectual property,
contract rights and finished goods inventory relating to its therapeutic drug
monitoring assays. Proceeds from the sale consisted of $500,000 cash, a non-
interest bearing note (collected during 1999) and a warrant granting the
Company the right to acquire an equity interest in the purchaser of the assets
(exercised during 2000). The Company recognized $911,000 as compensation for
the intellectual property and contract rights. This amount has been included
in sales for 1999. The Company has entered into an agreement with the
purchaser of the therapeutic drug monitoring assays pursuant to which the
Company continued to manufacture the products and perform certain other
services for the purchaser through 2000.
Sales of SOD to one customer of the Company's health products segment
represents approximately $1,123,000 in 1999. The Company had no sales to this
customer in 1998 or 2000. Revenues of the health products segment include
$911,000 for the sale of intellectual property and contract rights and
$606,000 for product sales in 1999, and $718,000 for product sales in 2000 to
the purchaser of the therapeutic drug monitoring assays.
Revenues attributed to countries based on the location of customers:
2000 1999 1998
---------- ---------- ----------
United States.............................. $2,852,000 $4,951,000 $3,347,000
United Kingdom............................. 33,000 187,000 336,000
France..................................... 257,000 180,000 289,000
Germany.................................... 38,000 233,000 489,000
Japan...................................... 123,000 167,000 226,000
Spain...................................... 14,000 1,148,000 44,000
Other foreign countries.................... 223,000 299,000 416,000
---------- ---------- ----------
$3,540,000 $7,165,000 $5,147,000
========== ========== ==========
Long-lived assets (principally property, plant and equipment and technology)
at December 31, 2000, 1999 and 1998 were located as follows:
2000 1999 1998
---------- ---------- ----------
United States............................... $1,694,000 $1,959,000 $4,713,000
United Kingdom.............................. 18,000 -- --
France...................................... -- -- 1,054,000
---------- ---------- ----------
$1,712,000 $1,959,000 $5,767,000
========== ========== ==========
30
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
8. Foreign Exchange Risk
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 $2,000 and $167,000 in that account at December 31, 2000 and
1999, respectively.
The Company's French and United Kingdom subsidiaries maintain bank accounts
in France and the United Kingdom, respectively. The balance of the French
subsidiary's account was insignificant at December 31, 2000 and 1999. The
balance of the United Kingdom subsidiary's account, opened during 2000, was
equivalent to $88,000 at December 31, 2000. Foreign currency transaction gains
and losses were not significant.
9. Commitments and Contingencies
The Company leases its facilities in Oregon and Pennsylvania under operating
leases that both expire in 2001. Lease payments to which the Company is
committed aggregate $133,000 in 2001.
During 2000 the Company's United Kingdom subsidiary entered into a three-
year lease for office space. During the fourth quarter of 2000 the Company
decided it did not want to continue the lease. In January 2001 the Company
entered into an agreement to terminate the lease in exchange for forfeiture of
a deposit and a cash payment aggregating $59,000 and surrender of the
Company's leasehold improvements with a carrying value of $66,000. The cash
payment, deposit forfeited and leasehold improvements were charged to expense
in 2000.
Rental expense included in the accompanying statements of operations was
$231,000 in 2000, $260,000 in 1999 and $341,000 in 1998.
In 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. In addition to the issuance of
its common stock to Therox shareholders, the Company agreed to make payments
of up to $2,000,000 by the Company to the Therox stockholders based on the
successful commercialization of the Therox technologies. As of December 31,
2000, no additional payments have been made.
In 1997 the Company consummated the acquisition of Innovative Medical
Systems Corp. ("IMS") pursuant to a transaction whereby the Company acquired
all of the outstanding stock of IMS in exchange for 200,000 shares of the
Company's common stock issued immediately and additional common shares to be
issued. The name of IMS was changed to OXIS Instruments, Inc. during 1998.
Additional common shares are to be issued to former IMS shareholders annually
through 2003. The number of additional common shares which may be issued to
former IMS shareholders depends, among other things, on future annual revenues
of OXIS Instruments, Inc., through 2002 and on the market price of the
Company's common stock. The total number of additional shares of common stock
which may be issued subsequent to December 31, 2000, to former IMS
shareholders in exchange for their IMS stock is limited to a maximum of
778,009 shares.
The Company and its subsidiaries are parties to a claim by the former
majority owner of IMS who is also a former employee of the Company. The former
majority owner of IMS is claiming damages in excess of $3.5 million for
alleged breaches of the agreement pursuant to which the Company acquired IMS
and alleged breaches of his employment agreement. Management intends to
vigorously contest this claim. The Company is unable to predict whether it
will ultimately be successful in its defense of such claim or, if not, the
likelihood of any material impact on the Company's financial position, results
of operations or cash flows.
31
OXIS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, 2000, 1999 and 1998
The Company and its subsidiaries are also parties to various other claims in
the ordinary course of business. The Company does not believe that there will
be any material impact on the Company's financial position, results of
operations or cash flows as a result of these claims.
10. 401(k) Savings Plan
The Company has a 401(k) savings 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 significant.
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors of the Company are:
Timothy G. Biro Joseph F. Bozman, Jr.
Richard A. Davis Stuart S. Lang
Timothy C. Rodell, M.D. Ray R. Rogers
Peter E. Taussig
Executive Officers of the Company are:
Joseph F. Bozman, Jr. Jon S. Pitcher
Chairman, President Secretary,
and Chief Executive Officer Vice President, Finance and Administration,
Chief Financial Officer
Humberto V. Reyes
President,
OXIS Health Products, Inc.
Joseph F. Bozman, Jr. Chairman of the Board. Mr. Bozman has been a
Age: 55 director of the Company since August 1, 2000,
Chairman of the Board since August 30, 2000, and
President and Chief Executive Officer since
October 19, 2000. From November 1998 until March
2000, Mr. Bozman was Chairman and Chief Executive
Officer of Amarin Corp. (formerly Ethical
Holdings plc), a publicly traded pharmaceutical
company. Prior to joining Amarin, Mr. Bozman was
a founder and Executive Director of SkyePharma
plc, a company that develops methods for
delivering drugs in the human body. SkyePharma
plc is traded on both the London Stock Exchange
and the Nasdaq National Market. Mr. Bozman has
also been President and Chief Executive Officer
of MD Pharmaceutical, Inc. and International
Medication Systems, Limited, both subsidiaries of
Medeva plc. Mr. Bozman holds a B.S. degree in
Business Administration with a concentration in
Marketing from California State University
Sacramento.
Timothy G. Biro Director. Mr. Biro has been a director of the
Age: 47 Company since August 15, 1995. Mr. Biro is
currently the Managing Partner of Ohio Innovation
Fund I, L.P., a venture capital partnership which
invests in early-stage technology based
businesses. In addition to being a director of
OXIS, Mr. Biro is a member of the board of
directors of Datatrak, Inc.
Mr. Biro was previously a general partner of
Brantley Ventures Partners II, L.P. and Brantley
Venture Partners III, L.P. Prior to joining
Brantley Venture Partners in 1991, Mr. Biro was
Superintendent of Pharmaceutical Manufacturing at
Merck & Co., Inc. Mr. Biro holds B.S. degrees in
Microbiology from Pennsylvania State University
and in Pharmacy from Temple University, and an
MBA from the Wharton School of Business.
33
Richard A. Davis Director. Mr. Davis has been a member of the
Age: 65 Board since January 28, 1998. Mr. Davis has
retired as President and Chief Executive Officer
of Pentzer Corporation, a private investment
company and subsidiary of AVISTA Corp. He is
currently involved as a private investor. He has
20 years of service with Pacific Northwest Bell
(now US West Communications). He has served as
Chief of Staff to former Washington Governor
Booth Gardner, chief executive of the State of
Washington's Department of Labor and Industries
and director of the state's Office of Financial
Management. Mr. Davis received a B.S. degree from
the University of Oregon and attended advanced
programs at both the University of Illinois and
Stanford University. He has served as an advisor
to the Washington State Investment Board and has
served on the boards of several medical
diagnostic companies. He currently is on the
Board of Regents for Washington State University,
serves on the Washington Technology Alliance
Board, and is Past Chair of the Association of
Washington Business.
Stuart S. Lang Director. Mr. Lang has been a director of the
Age: 64 Company since January 19, 1996. Mr. Lang has
worked in the accounting field for over 25 years.
He has been a tax partner and subsequently
partner in charge of the Portland office of a
national CPA firm. He founded a local accounting
firm, The Lang Group, in Portland, Oregon in
1985, and was managing member of that firm until
1997 when it combined with Moss Adams, LLP. Mr.
Lang currently divides his time between public
accounting and as an officer of a merger and
acquisition advisory company. Mr. Lang is past
Chairman of IA International, an international
affiliation of independent accounting firms. He
has served as a member of AICPA tax
subcommittees, including Responsibilities in Tax
Practice, and as chairman of the OSCPA Taxation
and Estate Planning Committees.
Timothy C. Rodell Director. Dr. Rodell was appointed to the Board
Age: 50 effective February 15, 2000. Board-certified in
Internal Medicine and Pulmonary Medicine, Dr.
Rodell received his M.D. from University of North
Carolina School of Medicine in 1980. Dr. Rodell
also served as a post-doctoral research fellow at
the Webb-Waring Lung Institute in Denver,
Colorado. Dr. Rodell became Chief Technology
Officer of OXIS in 2000. Dr. Rodell has also been
President of OXIS Therapeutics, Inc. since March
18, 1998 and was the Chief Operating Officer of
OXIS from March 1, 1996 until March 18, 1998. Dr.
Rodell resigned as an employee of OXIS effective
October 31, 2000. Dr. Rodell is President and
Chief Executive Officer of RxKinetix, Inc., a
company specializing in drug delivery technology.
Prior to joining OXIS, Dr. Rodell was the
Executive Vice President of Operations and
Product Development for Cortech, Inc.
Ray R. Rogers Special Advisor and Director. Mr. Rogers was the
Age: 61 founder and Chairman of the Board of
International BioClinical, Inc. ("IBC") until
1994, when he became Chairman of OXIS
International, Inc. Mr. Rogers became Chief
Executive Officer of OXIS effective March 18,
1998. He also served as Chairman and President of
DDI Pharmaceuticals, Inc. from 1993 until the
completion of the acquisition
34
of IBC and Bioxytech, which resulted in the
creation of OXIS. Mr. Rogers served on the
Supervisory Board of OXIS International, S.A.,
the Company's French subsidiary, from 1994 until
1996. Over the years he has served on both for-
profit and non-profit boards and has also been
active in biotechnology in Oregon serving as
Chairman of the Oregon Biotechnology Association
during 1993 and 1994. Mr. Rogers resigned as CEO
on February 15, 2000 upon Dr. Sharpe assuming the
position, and he resigned as Chairman of the
Board effective June 30, 2000. Mr. Rogers is
believed to be a significant employee within the
meaning of that term as used in applicable
Securities and Exchange Commission disclosure
rules.
Director. Mr. Taussig has been a director of the
Peter E. Taussig Company since January 29, 2001. He was previously
Age: 66 a director of the Company from 1993 through 1995.
Since the 1980s, Mr. Taussig has worked primarily
on turn-arounds of troubled companies and on
start-up and emerging growth companies.
During his more than 30 years of law practice, he
has worked in corporate law, primarily in the
corporate governance, securities, finance, and
mergers and acquisitions areas, and on commercial
business transactions. During this period, he
also has served as an advisor to boards of
directors of both public and private companies.
In addition, during this same period, he has
served as a director and an officer of a number
of companies, including New Indria Mining and
Chemical Company, a public company that he helped
diversify through a series of acquisitions in the
1970s.
Mr. Taussig is self-employed as (i) an attorney
at law, licensed to practice in California, (ii)
a business and management consultant, (iii) a
private investor, and (iv) a free lance writer.
Mr. Taussig received his B.S. in journalism from
the University of Oregon in 1956 and his law
degree from the University of California at
Berkeley (Boalt Hall) in 1966.
Jon S. Pitcher Secretary, Vice President of Finance and
Age: 51 Administration and Chief Financial Officer. A
Certified Public Accountant, Mr. Pitcher received
an M.S. degree in Accounting and Information
systems from University of California at Los
Angeles. Prior to joining IBC as the Chief
Financial Officer, Mr. Pitcher was a partner with
Ernst & Young where he was responsible for
coordination of the firm's services to private
and publicly held clients primarily in the
healthcare industry. Mr. Pitcher has been Vice
President and Chief Financial Officer of OXIS
since September 7, 1994 and Secretary since
August 15, 1995.
Humberto V. Reyes President, OXIS Health Products Inc. Mr. Reyes
Age: 55 holds a B.S. in Chemistry from the University of
Puerto Rico. He has more than 20 years of
progressive management experience in the
diagnostic and related industries including VP of
Manufacturing, Dade Division at Baxter, VP/GM
Chromatography Division, Varian and Associates
and Senior VP at Microgenics Corporation, a
biotechnology corporation. Mr. Reyes joined the
Company in August 1997 and has been the President
of OXIS Health Products, Inc. since March 18,
1998.
35
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, the following persons (directors and/or
executive officers of the Company) failed to file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act of 1934, as amended,
for transactions or events occurring in the preceding fiscal year ended
December 31, 2000:
Number Transactions not Form not
Name of reports timely reported timely filed
- ---- ---------- ---------------- ------------
Joseph F. Bozman, Jr. ................ 1 0 Form 3
Ray R. Rogers......................... 1 2 Form 4
The above form for Mr. Bozman was filed on September 27, 2000. Mr. Bozman
became a reporting person on August 1, 2000. Mr. Bozman did not fail to report
any transactions in Company securities on a timely basis. Mr. Rogers' Form 4
reporting gifts of the Company's common stock in September 2000 was filed in
March 2001.
ITEM 11. EXECUTIVE COMPENSATION
Directors
The Company pays an annual fee of $4,000 to each non-employee director and
an additional $1,000 to non-employee directors for serving as committee
chairmen, but does not pay meeting fees. Directors are also reimbursed for
their expenses incurred in attending meetings. Employee directors receive no
compensation as directors. Compensation is also paid to directors for special
assignments.
Under the Company's 1994 Stock Incentive Plan non-employee directors are
awarded options to purchase 15,000 shares of the Company's common stock upon
becoming directors of the Company and options to purchase 5,000 shares of the
Company's common stock annually thereafter.
36
Executive Officers
Summary Compensation Table
The following table shows the compensation paid during the last three years
to Company officers who received more than $100,000 annually, or who served as
Chief Executive Officer:
Long Term
Annual Compensation
Compensation Awards
---------------- ------------
Name and Position Year Salary Bonus Options
----------------- ---- -------- ------- ------------
Joseph F. Bozman, Jr., Chairman of the
Board,................................. 2000 $ 68,000 -- 415,000(1)
President and Chief Executive
Officer(9)(10)
Paul C. Sharpe President and............ 2000 $180,064 -- 400,000(2)
Chief Executive Officer(8)(10)
Ray R. Rogers, Chairman of the Board.... 2000 $240,000 -- 200,000(3)
and Chief Executive Officer(7)(8) 1999 $240,000 -- 200,000(4)
1998 $210,200 $50,000(6) 28,000(5)
Dr. Anna D. Barker, President and....... 1998 $ 61,100 -- --
Chief Executive Officer(7)
Dr. Timothy C. Rodell, Chief Technology
Officer................................ 1999 $192,319 -- 97,222(4)
and President, OXIS Therapeutics, Inc. 1998 $224,600 $50,000(6) 20,000(5)
(Until October 31, 2000)
Humberto V. Reyes, President, OXIS
Health Products, Inc. ................ 2000 $182,000 -- 100,000(3)
1999 $173,500 -- 125,000(4)
1998 $150,100 $35,000(6) 15,000(5)
Jon S. Pitcher, Vice President, Chief
Financial Officer...................... 2000 $135,000 -- 100,000(3)
and Secretary 1999 $135,000 -- 75,000(4)
1998 $124,200 $25,000(6) 15,000(5)
- --------
(1) Options to purchase 15,000 shares of Common Stock awarded to Mr. Bozman
upon becoming a director and options to purchase 400,000 shares of Common
Stock approved by the Board of Directors as a part of his terms of
employment.
(2) Options to purchase 400,000 shares of Common Stock approved by the Board
of Directors as a part of Dr. Sharpe's terms of employment.
(3) Options to purchase 200,000 shares of Common Stock awarded to Mr. Rogers
and options to purchase 100,000 shares of Common Stock awarded to Messrs.
Reyes and Pitcher as part of their 2000 compensation.
(4) Options to purchase 200,000 shares of Common Stock awarded to Mr. Rogers,
options to purchase 97,222 shares of Common Stock awarded to Dr. Rodell,
options to purchase 125,000 shares of Common Stock awarded to Mr. Reyes
and options to purchase 75,000 shares of Common Stock awarded to
Mr. Pitcher as part of their 1999 compensation.
(5) Options to purchase 28,000 shares of Common Stock awarded to Mr. Rogers,
options to purchase 20,000 shares of Common Stock awarded to Dr. Rodell
and options to purchase 15,000 shares of Common Stock awarded to Messrs.
Reyes and Pitcher as part of their 1998 compensation.
(6) Bonuses for 1998 approved by the Compensation Committee.
(7) Effective March 18, 1998, Dr. Barker resigned as the Company's President
and Chief Executive Officer and Mr. Rogers was appointed Chief Executive
Officer.
37
(8) Mr. Rogers was replaced as Chief Executive Officer by Dr. Sharpe, who was
appointed President and Chief Executive Officer effective February 15,
2000. Mr. Rogers resigned as Chairman of the Board effective June 30,
2000.
(9) Mr. Bozman was appointed Chairman of the Board effective August 30, 2000.
(10) Dr. Sharpe was replaced as President and Chief Executive Officer by Mr.
Bozman effective October 19, 2000.
In connection with Dr. Barker's resignation as the Company's President and
Chief Executive Officer, the Company and Dr. Barker entered into a consulting
agreement pursuant to which the Company agreed to pay to Dr. Barker $15,417
per month for a nine-month period. Pursuant to the agreement, Dr. Barker has
become fully vested with respect to all stock options issued to her by the
Company, and her right to exercise such options was extended until a date two
years and nine months following her resignation.
OPTION GRANTS IN LAST FISCAL YEAR
Options granted to executive officers of the Company who are included in the
Summary Compensation Table above for 2000 were as shown below:
Individual Grants
-----------------------------------------------------------------------
Number of % of total Exercise Market Price
Common Shares Options Granted Price of Underlying
Underlying to Employees Per Common Shares, Expiration
Name Grant in 2000 Share if Lower Date
---- ------------- --------------- -------- -------------- -----------------
Joseph F. Bozman, Jr. .. 15,000(1) 1% $1.3750 August 1, 2010
100,000(2) 8% $1.3125 August 29, 2010
300,000(2) 23% $ .8750 November 2, 2010
Paul C. Sharpe.......... 400,000(4) 30% $1.5625 February 15, 2010
Ray R. Rogers........... 200,000(3) 15% $1.9125 $2.25 January 30, 2010
Humberto V. Reyes....... 100,000(3) 8% $1.9125 $2.25 January 30, 2010
Jon S. Pitcher.......... 100,000(3) 8% $1.9125 $2.25 January 30, 2010
- --------
(1) The option to purchase 15,000 Common Shares granted to Mr. Bozman becomes
exercisable as to all of the shares in 2001.
(2) The options to purchase 100,000 Common Shares and 300,000 Common Shares
granted to Mr. Bozman become exercisable as to 1/3 of the shares in each
of 2000, 2001 and 2002.
(3) The terms of the options granted to Messrs. Rogers, Reyes and Pitcher
during 2000 provide that the options would become exercisable as to 1/5
of the shares in each of the years 2001-2005. The exercise price of these
options was 85% of the $2.25 market price of the Company's Common Stock
when the grants were approved by the Company's board of directors.
However these options required shareholder approval of an amendment to
the Company's 1994 Stock Incentive Plan. The market price of the
underlying Common Shares was less than the exercise price when
shareholder approval was granted. These option grants include
performance-based conditions that could accelerate their exercisability.
As a result of meeting the performance-based conditions, Mr. Rogers'
option grant became exercisable as to 100,000 shares in 2000 and becomes
exercisable as to the remaining 100,000 shares in 2001. In addition
Messrs. Rogers, Reyes and Pitcher all have employment agreements with the
Company that may accelerate the exercisability of all of their
outstanding options upon termination of employment. The Company has given
notice to Messrs. Reyes and Pitcher that their contracts will not be
renewed as of March 31, 2001. As a result of their terminations, Messrs.
Reyes' and Pitcher's options will all become exercisable on October 1,
2001.
(4) If not exercised, Dr. Sharpe's options to purchase 400,000 Common Shares
will be forfeited before the end of the first quarter of 2001.
No stock appreciation rights were granted by the Company in 2000 to the
above-named executive officers.
38
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
All options issued to executive officers who are included in the Summary
Compensation Table above are shown below.
Number of common
Number of shares underlying Value of unexercised
common shares unexercised options at in-the-money options at
acquired on December 31, 2000 December 31, 2000
exercise Value ------------------------- -------------------------
Name during 2000 realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------- -------- ----------- ------------- ----------- -------------
Joseph F. Bozman, Jr. .. -- -- 133,333 281,667 -- --
Paul C. Sharpe.......... -- -- 133,334 266,666 -- --
Ray R. Rogers........... -- -- 310,733 166,667 -- --
Humberto V. Reyes....... -- -- 138,333 141,667 -- --
Jon S. Pitcher.......... 25,000 56,588 69,000 125,000 -- --
Employment Contracts
Effective April 3, 2000, the Company entered into an Executive Separation
and Employment Agreement with Ray R. Rogers. The agreement provides that Mr.
Rogers would resign as Chairman of the Company's Board of Directors no later
than June 30, 2000, and that the Company would employ Mr. Rogers as a special
advisor reporting to the Board of Directors for a period of twelve months
following his resignation as Chairman. The agreement provides an annual base
salary of $240,000. Unless terminated by either party, the agreement will
automatically renew for one year. The agreement prohibits Mr. Rogers from
accepting other full-time employment or engaging in certain activities
competitive to the Company without prior consent. If the Company terminates
Mr. Rogers' employment prior to the expiration of the agreement, it must
continue Mr. Rogers' salary for twelve months after termination. If the
agreement is not renewed after one year, Mr. Rogers' salary is to be continued
for six months. Upon termination Mr. Rogers' unvested stock options will fully
vest, and the period during which he can exercise the options will be
extended.
The Company also entered into employment agreements with Mr. Reyes and Mr.
Pitcher, effective April 3, 2000. These agreements provided that the Company
would employ Mr. Reyes and Mr. Pitcher in their current positions for a period
of one year at their current annual salaries ($182,000 for Mr. Reyes and
$135,000 for Mr. Pitcher). Unless terminated by either party, the agreements
were to automatically renew for one year. The agreements prohibit either
executive from accepting other full-time employment or engaging in certain
activities competitive to the Company without prior consent. If the Company
terminates either executive's employment prior to the expiration of the
agreement it must continue his salary for twelve months. If either agreement
is not renewed after one year, the executive's salary is to be continued for
six months. Upon termination, Mr. Reyes' and Mr. Pitcher's stock options will
fully vest, and the period during which they can be exercised will be
extended. The Company has notified Mr. Reyes and Mr. Pitcher that their
contracts will not be renewed as of March 31, 2001.
39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Beneficial Ownership of Securities
Common Stock
The following table sets forth certain information, as of December 31, 2000,
with respect to persons known to the Company to be the beneficial owner of
more than five percent of the Company's Common Stock and beneficial ownership
by directors and executive officers of the Company's Common Stock.
Percent
Amount and nature of of
Name and, as appropriate, address beneficial ownership class(1)
- --------------------------------- -------------------- --------
Pictet & Cie.................................. 2,888,640(8) 25.17%
29 Bd Georges Favon
P.O. Box 5130
1204 Geneva, Switzerland
Teachers Pension Fund of Berne................ 1,547,826(9) 14.65%
Unterdorfstrasse 5
3072 Ostermundigen 2, Switzerland
Credit Suisse Asset Management Funds.......... 920,000(7) 9.18%
Uraniastrasse 9
P.O. Box 800
8070 Zurich, Switzerland
S.R. One Limited.............................. 581,200(2) 5.90%
200 Barr Harbor Drive, Suite 250
W. Conshohocken, PA 19428
Forsikrings-Aktieselskabet Alka Liv........... 544,389(10) 5.51%
Engelholm Alle 1
2630 Taastrup, Denmark
Timothy G. Biro............................... 8,100(3)(4) *
Joseph F. Bozman, Jr. ........................ 151,333(3) 1.56%
Richard A. Davis.............................. 7,340(3)(6) *
Stuart S. Lang................................ 7,800(3) *
Jon S. Pitcher................................ 93,525(3) *
Humberto V. Reyes............................. 158,333(3) 1.63%
Dr. Timothy C. Rodell......................... 219,472(3) 2.24%
Ray R. Rogers................................. 399,092(3)(5) 4.04%
Dr. Paul C. Sharpe............................ 276,667(3) 2.82%
Peter E. Taussig.............................. 12,000(3)(11) *
Executive officers and directors as a group --
10 persons................................... 1,333,662 12.37%
- --------
* Less than one percent.
(1) As required by regulations of the Securities and Exchange Commission, 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.
40
(2) The holdings of S.R. One Limited include 428,389 shares of the Company's
Series B Preferred Stock which are convertible into 85,677 shares of
Common Stock and warrants exercisable for 207,812 shares of Common Stock.
(3) The holdings of director Taussig include 11,000 shares of Common Stock
subject to options. The holdings of director Davis include 5,000 shares
of Common Stock subject to options. The holdings of director Lang include
7,000 shares of Common Stock subject to options. The holdings of director
Biro include 8,000 shares of Common Stock subject to options. The
holdings of director Rodell include 218,472 shares of Common Stock
subject to options. The holdings of Joseph F. Bozman, Jr. include 148,333
shares of Common Stock subject to options. The holdings of Jon S. Pitcher
include 89,000 shares of Common Stock subject to options. The holding of
Humberto V. Reyes include 158,333 shares of Common Stock subject to
options. The holdings of Dr. Paul C. Sharpe include 266,667 shares of
Common Stock subject to options. The holdings of Ray R. Rogers include
310,733 shares of Common Stock subject to options.
(4) Mr. Biro disclaims beneficial ownership of 5,000 shares of Common Stock
subject to options.
(5) Included are 2,000 shares of Common Stock owned by his individual
retirement account, as to which Mr. Rogers exercises voting and
investment power.
(6) Mr. Davis' holdings include 1,280 shares of Common Stock owned by Mr.
Davis jointly with his spouse.
(7) The holdings of Credit Suisse include warrants exercisable for 460,000
shares of Common Stock.
(8) The holdings of Pictet & Cie include warrants exercisable for 1,918,332
shares of Common Stock.
(9) The holdings of Teachers Pension Fund of Berne include warrants
exercisable for 1,001,884 shares of Common Stock.
(10) The holdings of Forsikrings-Aktieselskabet Alka Liv include warrants
exercisable for 324,826 shares of Common Stock.
(11) Mr. Taussig's holdings include 1,000 shares of Common Stock owned by his
spouse.
41
Series B Preferred Stock
The following table sets forth certain information, as of December 31, 2000,
with respect to persons known by the Company to be the beneficial owner of
more than five percent of the Company's Series B Preferred Stock.
Amount and nature Percent of
Name and address of beneficial ownership class
- ---------------- ----------------------- ----------
S.R. One Limited............................. 428,389 100.00%
200 Barr Harbor Drive, Suite 250
W. Conshohocken, PA 19428
Series C Preferred Stock
The following table sets forth certain information, as of December 31, 2000,
with respect to persons known by the Company to be the beneficial owner of
more than five percent of the Company's Series C Preferred Stock.
Amount and nature Percent of
Name and address of beneficial ownership class
- ---------------- ----------------------- ----------
Rauch & Co................................... 200,000 67.52%
c/o State Street Bank & Trust
225 Franklin Street
Boston, MA 02110
American Health Care Fund, L.P............... 77,000 25.99%
2748 Adeline, Suite A
Berkeley, CA 94703
Megapolis BV................................. 19,230 6.49%
Javastraaat 10
2585 The Hague, Netherlands
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has paid, or accrued to pay, $98,895 (including reimbursement of
expenses) for legal and consulting services during 2000 to Mr. Taussig, who
became a director of the Company in January 2001.
42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS
See pages 15 to 32.
2. FINANCIAL STATEMENT SCHEDULES
See Item 14. (d).
3. EXHIBITS
See Exhibit Index--page 46.
(b) Reports on Form 8-K.
One report on Form 8-K was filed by the Company during the fourth
quarter of 2000, reporting notification to the Company of a potential
delisting notification from the Nasdaq National Stock Market.
(c) Exhibits specified by item 601 of Regulation S-K.
See Exhibit Index--page 46.
43
(d) Financial Statement Schedules:
OXIS INTERNATIONAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2000, 1999 and 1998
Additions-
Balance at charged to Balance
beginning costs and Deductions- at end
Description of year expenses write offs of year
- ----------- ---------- ---------- ----------- --------
Allowance for doubtful accounts:
2000............................ $136,000 $63,000 -- $199,000
1999............................ 77,000 77,000 18,000 136,000
1998............................ 33,000 56,000 12,000 77,000
Reserve for inventory obsolescence:
2000............................ $112,000 $51,000 -- $163,000
1999............................ 48,000 64,000 -- 112,000
1998............................ 52,000 (4,000) -- 48,000
44
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: March 23, 2001
OXIS International, Inc.
Registrant
/s/ Joseph F. Bozman, Jr.
By: _________________________________
Joseph F. Bozman, Jr.
Chief Executive Officer
(Principal Executive Officer)
/s/ Jon S. Pitcher
__________________________________
Jon S. Pitcher
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following directors on behalf of the
Registrant.
/s/ Timothy G. Biro March 23, 2001
____________________________________
Timothy G. Biro
/s/ Joseph F. Bozman, Jr. March 23, 2001
____________________________________
Joseph F. Bozman, Jr.
/s/ Richard A. Davis March 23, 2001
____________________________________
Richard A. Davis
/s/ Stuart S. Lang March 23, 2001
____________________________________
Stuart S. Lang
/s/ Timothy C. Rodell March 23, 2001
____________________________________
Timothy C. Rodell
/s/ Ray R. Rogers March 23, 2001
____________________________________
Ray R. Rogers
March 23, 2001
____________________________________
Peter E. Taussig
45
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
2(a) Agreement and Plan of Reorganization and Merger between OXIS
International, Inc., OXIS Acquisition Corporation and Therox
Pharmaceuticals, Inc. dated July 18, 1995 (1)
2(b) Amendment No. 1 to Agreement and Plan for Reorganization and
Merger between OXIS International, Inc., OXIS Acquisition
Corporation and Therox Pharmaceuticals, Inc. (2)
2(c) Share Exchange Agreement by and among Innovative Medical
Systems Corp., OXIS International, Inc and each of the
shareholders who are signatories thereto. (3)
3(a) Second Restated Certificate of Incorporation as filed October
21, 1998 (4)
3(b) Bylaws of the Company as amended on June 15, 1994 (5)
4(a) Certificate of Designations, Preferences, and Rights of Series
E Preferred Stock of the Company (6)
4(b) Securities Purchase Agreement, Registration Rights Agreement
and Security Agreement (7)
4(c) Forms of Common Stock and Warrant Purchase Agreement, Warrant
to Purchase Common Stock, and Registration Rights Agreement (8)
10(a) OXIS International, Inc. Series B Preferred Stock Purchase
Agreement dated July 18, 1995 (9)
10(b) Form of Promissory Notes dated March 27, 1997--April 24, 1997 (10)
10(c) Agreement of Sale dated December 2, 1998 (11)
10(d) Sublease Agreement dated February 19, 1999 (11)
10(e) Rider to Sublease Agreement dated February 19, 1999 (11)
10(f) Executive Separation and Employment Agreement dated April 3,
2000, between the Company and Ray R. Rogers (12)
10(g) Executive Separation and Employment Agreement dated April 3,
2000, between the Company and Jon S. Pitcher (13)
10(h) Executive Separation and Employment Agreement dated April 3,
2000, between the Company and Humberto V. Reyes (13)
21(a) Subsidiaries of OXIS International, Inc.
23(a) Independent Auditors' Consent
- -------
(1) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 19, 1995.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
1995--Exhibit 2 (b).
(3) Incorporated by reference to the Company's Form 8-K Current Report, dated
January 15, 1998.
(4) Incorporated by reference to the Company's Form 8-K Current Report, dated
October 19, 1998.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994.
(6) Incorporated by reference to the Company's Form 8-K Current Report dated
December 30, 1996.
(7) Incorporated by reference to the Company's Form 8-K Current Report dated
November 4, 1996.
(8) Incorporated by reference to the Company's Form 8-K Current Report dated
March 3, 2000.
(9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March, 31, 1999.
(12) Incorporated by reference to the Company's Form S-3 Registration
Statement No. 333-40970 filed July 7, 2000.
(13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 20, 2000.
46