SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the quarterly period ended March 31, 2001.
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
OXIS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1620407
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6040 N. Cutter Circle, Suite 317, Portland, Oregon 97217
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(Address of principal executive offices) (Zip Code)
(503) 283-3911
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(Registrant's telephone number, including area code)
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 ______
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At March 31, 2001, the issuer had outstanding the indicated number of shares of
common stock: 9,660,458
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31
-----------------------------
2001 2000
Revenues $ 973,000 $ 943,000
Costs and expenses:
Cost of sales 889,000 852,000
Research and development 318,000 338,000
Selling, general and administrative 925,000 722,000
----------- ----------
Total costs and expenses 2,132,000 1,912,000
----------- ----------
Operating loss (1,159,000) (969,000)
Interest income 17,000 22,000
Interest expense (6,000) (21,000)
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Net loss (1,148,000) (968,000)
Other comprehensive income (loss) -
Foreign currency translation adjustments 10,000 (26,000)
----------- ----------
Comprehensive loss $(1,138,000) $ (994,000)
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Net loss per share - basic and diluted $ (.12) $ (.12)
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Weighted average number of
shares used in computation - basic and diluted 9,565,152 8,259,330
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2
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $1,041,000 $2,059,000
Accounts receivable 379,000 502,000
Inventories 1,097,000 1,271,000
Prepaid and other 160,000 81,000
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Total current assets 2,677,000 3,913,000
Property and equipment, net 588,000 651,000
Technology for developed products 648,000 681,000
Other assets 382,000 380,000
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Total assets $4,295,000 $5,625,000
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3
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 160,000 $ 160,000
Accounts payable 517,000 628,000
Customer deposits -- 174,000
Accrued liabilities 441,000 341,000
Current portion of long-term debt 99,000 99,000
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Total current liabilities 1,217,000 1,402,000
Long-term debt due after one year 143,000 150,000
Shareholders' equity:
Preferred stock - $.01 par value; 15,000,000 shares
authorized:
Series B - 428,389 shares issued and outstanding
at March 31, 2001 (liquidation preference of
$1,000,000) 4,000 4,000
Series C - 296,230 shares issued and outstanding
at March 31, 2001 3,000 3,000
Common stock - $.001 par value; 95,000,000 shares
authorized; 9,660,458 shares issued and outstanding
at March 31, 2001 (9,560,458 at December 31, 2000) 9,000 9,000
Warrants 1,991,000 2,870,000
Additional paid in capital 56,835,000 55,956,000
Accumulated deficit (55,534,000) (54,386,000)
Accumulated other comprehensive loss -
foreign currency translation adjustment (373,000) (383,000)
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Total shareholders' equity 2,935,000 4,073,000
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Total liabilities and shareholders' equity $ 4,295,000 $ 5,625,000
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-------------------------
2001 2000
Cash flows from operating activities:
Net loss $(1,148,000) $ (968,000)
Adjustments to reconcile net loss to cash
used for operating activities:
Depreciation and amortization 110,000 156,000
Changes in assets and liabilities:
Accounts receivable 123,000 309,000
Inventories 174,000 46,000
Prepaid and other current assets (79,000) (12,000)
Accounts payable (111,000) (668,000)
Customer deposits (174,000) --
Accrued liabilities 100,000 255,000
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Net cash used for operating activities (1,005,000) (882,000)
Cash flows from investing activities:
Purchases of equipment (4,000) (37,000)
Additions to other assets (12,000) (36,000)
Other, net 10,000 (1,000)
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Net cash used for investing activities (6,000) (74,000)
Cash flows from financing activities:
Proceeds from issuance of common stock -- 4,466,000
Repayment of short-term borrowings -- (75,000)
Repayment of long-term debt (7,000) (5,000)
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Net cash provided by (used for) financing activities (7,000) 4,386,000
Effect of exchange rate changes on cash -- (14,000)
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Net increase (decrease) in cash and cash equivalents (1,018,000) 3,416,000
Cash and cash equivalents - beginning of period 2,059,000 789,000
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Cash and cash equivalents - end of period $ 1,041,000 $4,205,000
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS AND CONDENSED NOTES
The unaudited consolidated financial statements, which have been prepared
in accordance with the instructions to Form 10-Q, do not include all of the
information and notes required by accounting principles generally accepted
in the United States of America for complete financial statements. All
adjustments considered necessary by management for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the full year.
An annual report (Form 10-K) has been filed with the Securities and
Exchange Commission ("Commission") for the year ended December 31, 2000.
That report contains, among other information, a description of the
Company's business, audited financial statements, notes to the financial
statements, the report of the independent auditors and management's
discussion and analysis of results of operations and financial condition.
Readers of this report are presumed to be familiar with that annual report.
2. NASDAQ LISTING
The Company has been notified by Nasdaq that it is not in compliance with
certain Nasdaq requirements for continued listing on the Nasdaq National
Market. Specifically, the Company is not meeting the requirements for
maintaining (1) a minimum bid price of $1.00 and (2) a market value of
public float greater than $5,000,000. Nasdaq staff notified the Company
that it had determined to delist the Company's common stock from the Nasdaq
National Market. The Company appealed the staff's determination and
appeared on April 26, 2001 at an oral hearing before a Nasdaq Listing
Qualifications Panel (the "Panel"). As of the date of this Report, the
Company had not received a decision by the Panel. Based on its inability to
date to raise additional capital in 2001, OXIS believes that its appeal
will be unsuccessful and that its common stock will be delisted from the
Nasdaq National Market. Failure of the Company's common stock to continue
to be listed on the Nasdaq National Market could have a material adverse
effect on the transferability and value of the common stock.
6
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost has been
determined by using the first-in, first-out method. Inventories at March
31, 2001 and December 31, 2000, consisted of the following:
March 31, December 31,
2001 2000
----------- ------------
Raw materials $ 695,000 $ 682,000
Work in process 193,000 398,000
Finished goods 209,000 191,000
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Total $1,097,000 $1,271,000
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4. STOCK OPTIONS AND WARRANTS
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"). The Plan
permits the Company to grant stock options to acquire shares of the
Company's common stock, award stock bonuses of the Company's common stock,
and grant stock appreciation rights. During the three months ended March
31, 2001, options to purchase 50,600 shares at an exercise price of $.6875
per share were issued under the Plan and options to purchase 3,400 shares
were forfeited.
An option that was issued outside the plan to acquire 400,000 shares of
common stock at an exercise of $1.56 per share was forfeited in the first
quarter of 2001. Warrants to purchase 1,021,394 shares of common stock at
an exercise price of $5.94 per share expired in the first quarter of 2001.
At March 31, 2001, options issued pursuant to the Plan to acquire 1,850,686
shares of common stock at exercise prices ranging from $.4375 to $17.50
remained outstanding. Options issued outside the Plan to acquire 32,000
shares of common stock at exercise prices of $1.38 to $8.44 and warrants to
acquire 4,173,485 shares of common stock at exercise prices of $3.05 to
$16.25 also remained outstanding at March 31, 2001.
5. OPERATING SEGMENTS
The following table presents information about the Company's two operating
segments:
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Health Therapeutic
Products Development Total
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Quarter ended March 31, 2001:
Revenues from external
customers $ 973,000 $ -- $ 973,000
Intersegment revenues -- -- --
Segment loss (756,000) (392,000) (1,148,000)
As of March 31, 2001 -
Segment assets 2,602,000 1,693,000 4,295,000
Quarter ended March 31, 2000:
Revenues from external
customers $ 943,000 $ -- $ 943,000
Intersegment revenues -- -- --
Segment loss (629,000) (339,000) (968,000)
As of March 31, 2000 -
Segment assets 3,658,000 4,500,000 8,158,000
6. SUBSEQUENT EVENT
The Company believes that its capital is insufficient for ongoing
operations, with current cash reserves almost completely exhausted.
Although the Company is attempting to secure additional funds through asset
sales and additional investments in or loans to the Company, there can be
no assurance that the Company will be able to raise any additional funds,
or that such funds will be available on acceptable terms. Any funds raised
through equity financing will likely be significantly dilutive to current
shareholders. The failure by the Company to secure additional funds within
the next several months will materially affect the Company and its
business, and may cause the Company to cease operations or to seek
protection of the courts through reorganization, bankruptcy or insolvency
proceedings. Consequently, shareholders could incur a loss of their entire
investment in the Company.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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 INABILITY TO OBTAIN FINANCING; DELISTING OF THE COMPANY'S
COMMON STOCK FROM THE NASDAQ NATIONAL MARKET; 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 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2000 WHICH IS INCORPORATED HEREIN BY REFERENCE. GIVEN
THESE UNCERTAINTIES STOCKHOLDERS 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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased during the first quarter of 2001 by
$1,051,000, from $2,511,000 at December 31, 2000 to $1,460,000 at March 31,
2001. The decrease in working capital resulted primarily from the effect of
the net loss for the quarter ($1,148,000 less non-cash charges of $110,000).
Cash and cash equivalents decreased from $2,059,000 at December 31, 2000 to
$1,041,000 at March 31, 2001.
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While the Company believes that its new therapeutic products and technologies
show considerable promise, its ability to realize 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.
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.
The Company believes that its capital is insufficient for ongoing operations,
with current cash reserves almost completely exhausted. Although the Company
is attempting to secure additional funds through asset sales and additional
investments in or loans to the Company, there can be no assurance that the
Company will be able to raise any additional funds, or that such funds will be
available on acceptable terms. Any funds raised through equity financing will
likely be significantly dilutive to current shareholders. The failure by the
Company to secure additional funds within the next several months will
materially affect the Company and its business, and may cause the Company to
cease operations or to seek protection of the courts through reorganization,
bankruptcy or insolvency proceedings. Consequently, shareholders could incur
a loss of their entire investment in the Company.
10
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THREE
MONTHS ENDED MARCH 31, 2000
Revenues
The Company's revenues for the quarters ended March 31, 2001 and 2000 were as
follows:
2001 2000
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Therapeutic drug monitoring assays $378,000 $290,000
Research assays and fine chemicals 325,000 294,000
Medical instruments 254,000 333,000
Other 16,000 26,000
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$973,000 $943,000
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Revenues from sales of therapeutic drug monitoring assays increased in the
first quarter of 2001 as compared to the first quarter of 2000. Therapeutic
drug monitoring sales in the first quarter of 2001 include $232,000 for the
sale of the Company's work-in-process and raw materials inventories to the
company that purchased the rights to the therapeutic drug monitoring assays in
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.
Sales of research assays and fine chemicals increased by $31,000 from $294,000
in the first quarter of 2000 to $325,000 in the first quarter of 2001 due to
an increase in sales volumes.
Revenue from instrument sales of product and development declined by $79,000,
from $333,000 in the first quarter of 2000 to $254,000 in the first quarter of
2001. This decrease resulted from reduced orders from customers.
Costs and Expenses
Cost of sales was 90% of revenues for the first quarter of 2000 and increased
to 91% of revenues for the first quarter of 2001. This increase in the cost of
sales as a percentage of sales is due primarily to the effect of the fixed
manufacturing costs for the Company's instrument manufacturing business being
spread over a lower manufacturing and sales volume. Instrument sales declined
by $79,000 in the first quarter of 2001 as compared to the first quarter of
2000. The related cost of sales declined by only $27,000. The reduction in
gross margin was partially offset by an increase in gross margins on sales of
research assays and fine chemicals.
Research and development expenses decreased from $338,000 in the first quarter
of 2000 to $318,000 in the first quarter of 2001. The decrease in research and
development expenses resulted primarily from a reduction in the Company's
therapeutic development efforts.
11
Selling, general and administrative expenses increased from $722,000 in the
first quarter of 2000 to $925,000 in the first quarter of 2001. The increase
is primarily the result of the accrual in the first quarter of 2001 of
$160,000 for severance payments to two executives whose employment agreements
expired March 31, 2001. See "Item 5. Other Information - Employment
Contracts."
Net Loss
The Company continued to experience net losses in the first quarter of 2001.
The first quarter 2001 net loss of $1,148,000 ($.12 per share-basic and
diluted) was $180,000 more than the $968,000 ($.12 per share-basic and
diluted) net loss for the first quarter of 2000. The increase in the net loss
is primarily due to the increase in selling, general and administrative costs.
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PART II. OTHER INFORMATION
Item 5. Other Information - Employment Contracts.
The Company's employment agreements with Humberto V. Reyes, President of OXIS
Health Products, and Jon S. Pitcher, Chief Financial Officer, expired March
31, 2001 and neither agreement was renewed. Upon expiration of their
employment agreements, Messrs. Reyes and Pitcher became entitled to severance
payments. The Company and Mr. Reyes have entered into a new agreement
pursuant to which Mr. Reyes is continuing to serve as President of OXIS Health
Products on a month-to-month basis and payment of his severance has been
deferred. Although Mr. Pitcher is providing certain services to the Company
on a contract basis, the Company has not hired a Chief Financial Officer to
replace him.
SIGNATURES
Pursuant to the requirements 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.
OXIS International, Inc.
May 14, 2001 By /s/ Joseph F. Bozman, Jr.
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Joseph F. Bozman, Jr.
Chairman, President and
Chief Executive Officer
(Principal Financial Officer)
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