UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
x
|
Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the
fiscal year ended December 31,
2005
|
.
or
o
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for
the transition period from __________________ to
_________________
|
Commission
File Number O-8092
OXIS
International, Inc.
A
Delaware corporation
I.R.S.
Employer Identification No. 94-1620407
323
Vintage Park Drive, Suite B
Foster
City, CA 94404
Telephone:
(650) 212-2568
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
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. o
Check
whether the issuer (1) 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
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) YES o
NO
x
The
issuer’s revenues for its fiscal year ended December 31, 2005 were
$2,497,000.
Aggregate
market value of the common equity held by non-affiliates of the issuer as of
March 24, 2006 was $8,575,419.
Number
of
shares outstanding of the issuer’s common stock as of March 24, 2006:
42,538,397
shares.
TABLE
OF CONTENTS
PART
I
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Page
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Item
1.
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Description
of Business
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3
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Item
2.
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Description
of Property
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15
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Item
3.
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Legal
Proceedings
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15
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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15
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PART
II
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Item
5.
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Market
for Common Equity and Related Stockholder
Matters
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16
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Item
6.
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Management’s
Discussion and Analysis or Plan of Operation
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17
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Item
6.
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Risk
Factors
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26
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Item
7.
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Financial
Statements
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35
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Item
8.
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Changes
in and Disagreements With Accountants on
Accounting and Financial Disclosure
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35
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Item
8A.
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Controls
and Procedures
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35
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Item
8B.
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Other
Information
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35
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PART
III
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Item
9.
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Directors,
Executive Officers, Promoters and Control Persons; Compliance
with Section 16 (a) of the Securities Exchange Act
|
36
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Item
10.
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Executive
Compensation
|
39
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Item
11.
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Security
Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
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43
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Item
12.
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Certain
Relationships and Related Transactions
|
46
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Item
13.
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Exhibits
|
48
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Item
14.
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Principal
Accountant Fees and Services
|
48
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SIGNATURES
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49
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EXHIBIT
INDEX
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50
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PART
I
The
statements contained in this Report on Form 10-KSB that are not purely
historical are forward-looking statements within the meaning of Section 27A
of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of
1934, including, without limitation, statements regarding our expectations,
objectives, anticipations, plans, hopes, beliefs, intentions or strategies
regarding the future. Forward-looking statements include, without limitation,
statements regarding: (i) our
intention to use the EBITDA of BioCheck, if any, to purchase the remaining
outstanding BioCheck shares at one or more additional closings;
(ii) our
plan to continue to derive revenues from the sale of the anti-oxidant compound
Ergothioneine to the cosmetics industry; (iii) our
intention to pursue development of our
myeloperoxidase
assay (“MPO”), for sale into the diagnostic clinical market; (iv) our
intention to pursue development of Ergothioneine for marketing as a
nutraceutical supplement; and our belief that our Ergothioneine compound
may be
well suited for development as a nutraceutical supplement that can be sold
over
the counter and our intent to pursue the development of Ergothioneine for
use in
such markets; and our plan to expand the outsourced manufacturing of the
raw
material for Ergothioneine; (v) our estimate that employee incentive package
severance benefits will cost approximately $119,000; (vi) our expectation
to
strengthen our position in the clinical diagnostics market by allocating
resources toward achieving the following primary goals and objectives: (a)
develop high-quality and cost-effective diagnostic reagents (antibodies,
hormones, proteins, and biochemical markers of disease), (b) capitalize on
our
commercialization expertise by securing profitable licensing and contract
services agreements with diagnostic and pharmaceutical companies for the
development, assembly and manufacturing of innovative immunoassays, (c)
capitalize on our expertise in the filing and registration of intellectual
property and regulatory approvals, (d) continue to invest in our own human
capital by expanding our team of in-house business development professionals,
and scientists and researchers dedicated to the development of new reagents;
and
(e) grow our business organically and through acquisitions of complementary
assets, including the expansion of our manufacturing capacity in emerging
markets, such as China; (vii) our
intention to focus on and intensify our efforts to consummate diagnostic,
pharmaceutical and nutraceutical relationships and/or strategic partnerships
with larger companies for the purpose of further developing and exploiting
our
antioxidant molecules; (viii) our
intention to shift manufacturing under contract to BioCheck; (ix) our
belief that we could readily find alternative suppliers, or that we could
readily market alternative products with adequate raw material supply, if
necessary; (x) our intention to continue to strengthen our international
distribution network by adding new distributors around the world; (xi) our
intention to establish and implement a plan to recruit distributors for
Ergothioneine; (xii) our expectation that revenues from sales to EMD
Biosciences, Inc. for fiscal year 2006 will be similar to those in 2005;
(xiii) our belief that blood plasma MPO levels, as measured by our MPO kit
with our own monoclonal antibody, appear to be a better predictor of patients
at
risk for cardiac events before they occur; (viiiv) our
intention that in the future all of our diagnostic and therapeutic developments
will be in compliance with FDA and other regulations; (xv) our estimate
that the costs expected to be incurred in connection with the relocation
plan
will be approximately $100,000 for relocating operations, (viiii) our
aim
of entering into a services agreement with BioCheck, with each company providing
specific expertise; (xvii) our
intention to
use
reasonable best efforts to consummate a follow-on financing transaction to
raise
additional capital with which to purchase the remaining outstanding shares
of
BioCheck; (ixxviii) our
plan to leverage BioCheck and our respective expertise to focus on the growing
clinical diagnostic biomarker market; (xix) BioCheck’s
belief that its antibody purification services and antibody conjugates meet
higher than industry average standards for stability and purity;
(xx) BioCheck
plans for ongoing development of proprietary clinical diagnostics tests for
launch in late 2006, or early 2007; (xxi) BioCheck’s
belief that interfering with the action of the Id proteins may prove to be
very
effective in preventing the growth and metastases of both early and established
tumors; (xxii) BioCheck’s
goal to clinically validate an Id-based diagnostic/prognostic product in
collaboration with AngioGenex; (xxiii)
our plans to seek debt financing that may have related warrants and that
such a
financing may result in large non-cash financing charges that could delay
profitability; (xxiv) our plan to increase revenues to generate sufficient
gross
profit in excess of selling, general and administrative, and research and
development expenses in order to achieve profitability; (xxv) our current
plans in the areas of clinical cardiac predictor testing, biomarker research
and
the nutraceutical marketplace; (xxvi) our plan to pursue the development of
a cardiovascular predictor product intended to provide a more effective
diagnostic predictor test for patients at risk of cardiac events before they
occur;
(xxvii) our
expectation that revenues and expense will increase substantially from 2005
to
2006 with the consolidation of BioCheck’s results of operations over the entire
year in 2006; (xxviii) our expectations that OXIS and BioCheck will incur
similar revenues and costs in 2006 as they incurred in 2005 as individual
companies; (xxix) our expectation that product revenues will increase by
approximately $4.0 million from 2005 to 2006 and may increase by more than
$4.0 million; (xxx) our expectation that product costs will increase
by approximately $2.0 million from 2005 to 2006; (xxxi) our
expectation that gross profit as a percentage of product revenues is expected
to
increase towards 50%; (xxxii) our expectation to spend approximately $750,000
on
research and development in 2006 primarily at BioCheck; (xxxiii) our expectation
that selling, general and administrative expenses will increase by approximately
$0.8 million from 2005 to 2006; (xxxiv) our plan to implement a
marketing campaign to increase revenues; (xxxv) our expectation not to
incur expenses for foreign legal proceedings or for restructuring charges
in
2006; (xxxvi) our belief that BioCheck’s cash will be sufficient to sustain
operating activities since BioCheck has been and is expected to continue
to be
cash flow positive; (xxxvii) that we are seeking additional loan and equity
financings to obtain sufficient funds to sustain operations, implement our
marketing campaign and purchase the remaining 49% of BioCheck;
(xxxviii) our anticipation
that beef liver will not be available again within the foreseeable future
and
that we do not anticipate any revenues from sales of bSOD in the foreseeable
future; (xxxix) our
belief that with
the BioCheck acquisition, over fifty percent of the Company’s revenues will be
derived from sales of clinical diagnostic assays in 2006;
(xxxx) our belief that the 2005 expense of $1.5 million for purchased in-process
research and development will not reoccur in 2006; (xxxxi) our plan to increase
revenues to generate sufficient gross profit in excess of selling, general
and
administrative, and research and development expenses in order to achieve
profitability; (xxxxii) our plan to increase revenues by our marketing campaign
and the introduction of new products; and (xxxxiii) our belief that the
implementation effect of SFAS 123R on our financial statements will be similar
to that disclosed in footnote 1 of our financial statements.
All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update
any
such forward-looking statements. It is important to note that our actual
results
could differ materially from those included in such forward-looking statements
due to a variety of factors including (1) failure to complete our acquisition
of
BioCheck or to adequately integrate the operations of the two companies;
(2)
failure to achieve any benefits in connection with the recent changes in
management or personnel; (3) disruption in operations due to the relocation
plan, reduction in workforce; (4) inability to hire employees or management;
(5)
failure to find alternative suppliers; (6) incorrect expectations regarding
revenues from sales to EMD Biosciences, Inc.; (7) failure to develop or market
products successfully; (8) failure to obtain necessary financing; (9) the
cost
of complying with the regulatory requirements; (10) uncertainties exist relating
to issuance, validity and ability to enforce and protect patents, other
intellectual property and certain proprietary information; (11) our products
may
not meet product performance specifications; (12) new products may be unable
to
compete successfully in either existing or new markets; (13) availability
and
future costs of materials and other operating expenses; and (14) weakness
in the
global economy and changing market conditions, together with general economic
conditions affecting our target industries, could cause the our operating
results to fluctuate. These and other factors could cause actual results
to
differ materially from the forward looking statements. For a detailed
explanation of such risks, please see the section entitled “Risk Factors”
beginning on page 26 of this Report on Form 10-KSB. Such risks, as well as
such
other risks and uncertainties as are detailed in our SEC reports and filings
for
a discussion of the factors that could cause actual results to differ materially
from the forward- looking statements. Given these uncertainties, readers
are
cautioned not to place undue reliance on the forward-looking
statements.
The
following discussion should be read in conjunction with the audited consolidated
financial statements and the notes included in this Report on Form 10-KSB
and
the section entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included in this Report on Form
10-KSB.
.
ITEM
1. DESCRIPTION
OF BUSINESS
Recent
Events
On
September 19, 2005, we entered into a stock purchase agreement with BioCheck,
Inc., a privately held California corporation, or BioCheck, and its stockholders
to purchase all of its common stock for $6.0 million in cash. BioCheck is a
leading producer of enzyme immunoassay diagnostic kits for clinical
laboratories. On December 6, 2005, we purchased 51% of the shares of BioCheck’s
common stock from each of its shareholders on a pro rata basis for $3,060,000
in
cash. Pursuant to the stock purchase agreement, we will use our reasonable
best
efforts to consummate a follow-on financing transaction to raise additional
capital with which to purchase the remaining outstanding shares of BioCheck
in
one or more additional closings. The purchase price will be increased by an
additional 8% per annum from December 6, 2005. If we have not purchased all
of the outstanding shares of BioCheck by December 6, 2006, the earnings
before interest, taxes, depreciation and amortization expenses, if any, of
BioCheck, may be used by us as partial or complete payment for the remaining
outstanding BioCheck shares at one or more additional closings.
On
December 6, 2005, we entered into a non-revolving one-year loan agreement with
KeyBank, N.A., or KeyBank, and received funds of $3,060,000 to purchase 51%
of
BioCheck’s common stock. As security for our repayment obligations, we granted a
security interest to KeyBank in our $3,060,000 certificate of deposit at
KeyBank. This loan was repaid during February 2006 and a new one-year loan
agreement for $3,060,000 was entered into at Bridge Bank. As part of the loan
arrangement with Bridge Bank, we granted a security interest in a $3,060,000
certificate of deposit moved from KeyBank to Bridge Bank. The Bridge Bank loan
bears interest at 3.0% and the certificate of deposit bears interest at
1.0%.
Also
effective December 6, 2005, prior to the closing of the initial closing of
our acquisition of BioCheck, we entered into an executive employment agreement
with BioCheck and Dr. John Chen, BioCheck’s President and Chief Executive
Officer, under which Dr. Chen will be employed as President of BioCheck. Dr.
Chen has agreed to devote not less than 90% of his business time and efforts
to
the primary business of BioCheck. In the event that BioCheck terminates the
employment of Dr. Chen at any time other than for cause, Dr. Chen will be
eligible to receive an amount equal to 12 months of his base salary.
On
December 6, 2005, we also initiated a relocation plan to cease our operations
in
Portland, Oregon and relocate to Foster City, California at premises adjacent
to
those of BioCheck, effective February 15, 2006. We decided to relocate after
reviewing and evaluating all aspects of our operations to determine the
profitability and viability of continuing in the Portland, Oregon location.
On
February 8, 2006, we signed a Lease Agreement with Westcore
Peninsula Vintage LLC for
approximately
4,136 square feet of space located at 323 Vintage Park Drive, Suite B, Foster
City, California 94404 for 36 months. These premises are immediately adjacent
to
those of BioCheck. We
plan
to occupy this new space in April 2006 and are currently operating from
temporary facilities. On
February 15, 2006, we ceased operations at the Portland, Oregon facility and
most of the Portland, Oregon employees were terminated. Severance benefits
are
being paid to terminated employees.
During
2005 and 2006, we have been building our management team and enhancing our
Board
of Directors to lead OXIS. On February 28, 2005, Steve T. Guillen was appointed
as our President and Chief Executive Officer. Mr. Guillen replaced Marvin S.
Hausman, M.D., as acting Chief Executive Officer and Dr. Hausman remained as
Chairman of the Board of Directors. During October 2005 John Repine, M.D.,
Chief
Executive Officer, President and Scientific Director of the Webb-Waring
Institute for Cancer, Aging and Antioxidant Research joined our Board of
Directors. Effective December 6, 2005, Dr. John Chen entered into an
executive employment agreement with us as President of BioCheck. Michael D.
Centron was appointed as our Vice President and Chief Financial Officer during
January 2006, replacing Dr. Hausman as acting Chief Financial Officer. During
February 2006 Randall Moeckli was appointed as our Senior Director of Sales
and
Marketing. On March 15, 2006, Gary M. Post, Managing Director of Ambient
Advisors, LLC, joined our Board of Directors.
On
March
10, 2006, we received $200,000 in exchange for a note with Steven T. Guillen,
our President and Chief Executive Officer. The note bears interest at 7%.
Interest and principal are due on September 10, 2006 or, at the option of Mr.
Guillen, the date we receive net proceeds in the amount of $500,000 or more
from
a debt or equity financing. In addition, if, at any time on or before the
maturity date, we enter into an agreement to incur debt, Mr. Guillen has the
right to rollover this note into such debt arrangement, on the same terms and
conditions offered to such future lenders. The purpose of this loan was to
provide us with short term financing as we seek longer term
financing.
OXIS
Business Summary
We
are
presenting the business summaries of the parent company OXIS International,
Inc., or OXIS, and BioCheck separately because we do not yet own 100% of
BioCheck.
OXIS
Introduction
OXIS
International, Inc. develops technologies and products to research, diagnose,
treat and prevent diseases of oxidative stress associated with damage from
free
radical and reactive oxygen species. We hold the rights to three therapeutic
classes of compounds in the area of oxidative stress, and has focused
commercialization programs in clinical cardiovascular markers, including
myeloperoxidase, or MPO, glutathionione peroxidase, or GPx, and a highly potent
antioxidant, Ergothioneine, that may be sold over-the-counter, or OTC, as a
dietary supplement.
Oxidative
stress is associated with an excess of free radicals, reactive oxygen species
and a decrease in antioxidant levels resulting in the development of tissue
or
organ damage. Oxidative stress can cause tissue injury by triggering cell death
or inciting a tissue-damaging inflammatory response. We have invested
significant resources to build a substantial patent position on both our
antioxidant therapeutic technologies and selected oxidative stress assays.
In
1965,
the corporate predecessor of OXIS, Diagnostic Data, Inc. was incorporated in
the
State of California. Diagnostic Data changed its incorporation to the State
of
Delaware in 1972; and changed its name to DDI Pharmaceuticals, Inc. in 1985.
In
1994, DDI Pharmaceuticals merged with International BioClinical, Inc. and
Bioxytech S.A. and changed its name to OXIS International, Inc. Our principal
executive offices were relocated to 323 Vintage Park Drive, Suite B, Foster
City, California 94404 on February 15, 2006.
We
derive
our revenues primarily from sales of research diagnostic assays to research
laboratories. We also derive revenues from the sale of the antioxidant compound
Ergothioneine to the cosmetics industry. Our diagnostic products include 25
research assays to measure markers of oxidative stress.
Our
lead
therapeutic antioxidant drug candidate, BXT-51072, completed a Phase IIA
clinical trial in inflammatory bowel disease in 1999, but due to the lack of
financial resources, we ceased further testing of BXT-51072. In
September 2004, we entered into an Exclusive Licensing Agreement relating to
BXT-51072 and related compounds with HaptoGuard, Inc. Under the agreement,
we
granted HaptoGuard exclusive worldwide rights, in certain defined areas of
cardiovascular indications, to develop, manufacture and market BXT-51072 and
related compounds from our library of such antioxidant compounds. Under the
license agreement, HaptoGuard is responsible for worldwide product development
programs with respect to the licensed compounds.
We
intend
to pursue development of our
MPO,
a
research assay, for sale either alone or in combination with other assays into
the clinical diagnostic market. We are also pursuing development of
Ergothioneine for marketing as a nutraceutical supplement.
As
discussed above, our therapeutic and nutraceutical product portfolio includes
three classes of small molecular weight antioxidant molecules: glutathione
peroxidase mimics including BXT-51072, Ergothioneine analogs and lipid soluble
antioxidants. We intend to focus on and intensify our efforts to consummate
diagnostic, pharmaceutical and nutraceutical relationships and strategic
partnerships with larger companies for the purpose of further developing and
exploiting our antioxidant molecules. No assurance can be given that our efforts
will generate the results anticipated by our management or will in the future
be
favorable to us.
Marketed
Products
We
have
developed, commercialized and marketed an extensive product line that provides
several types of tools for researchers to identify and measure the balance
between oxidative, nitrosative, antioxidant and inflammatory biomarkers in
biological samples. We offer more than 60 research products for sale, including
25 research diagnostic assay test kits for markers of oxidative and nitrosative
stress. We also market antibodies, enzymes and controls for use primarily in
research laboratories. The antibodies provide detection of oxidative,
nitrosative, antioxidant and inflammatory markers different from those measured
by assay test kits. The enzymes have been shown in early in
vitro
studies
and preclinical animal studies to allow manipulation and control of oxidative
biomarkers of protein and DNA, nitric oxide, antioxidant enzymes and
inflammatory neutrophils. Controls have been shown in controlled in
vitro
studies
and in
vivo
preclinical studies to allow regulation and monitoring of oxidative biomarkers
of lipids, proteins and DNA, and nitrosative and antioxidant biomarkers. In
addition, we have marketed the antioxidant Ergothioneine to selected customers
in the cosmetics industry.
Research
Diagnostic Assays
Our
primary research diagnostic assay product line is comprised of 25 assay test
kits which measure key markers in free radical biochemistry for oxidative and
nitrosative stress. Specifically, these assays measure levels of general and
specific antioxidant activity, oxidative alterations to organic lipid, protein
and DNA substrates, and pro-oxidant activation of specific white blood cells.
Fifteen of our research assays have been manufactured at our facility in
Portland, Oregon and with the closing of the Portland facility, the
manufacturing of our research assays has been transferred to BioCheck’s Foster
City facility during the first quarter of 2006. As of the date of this Report,
BioCheck is manufacturing our research assays without having entered into a
formal agreement with OXIS. We intend to negotiate and enter into a formal
agreement with BioCheck in the near future. If BioCheck ceased manufacturing
our
research assays before we engaged an alternative manufacturer, our business
would be adversely affected. Ten other research assays are manufactured by
third
party suppliers pursuant to private label arrangements.
Our
research diagnostic assay test kits utilize either chemical (colorimetric)
or
immunoenzymatic reactions that can be read using laboratory spectrophotometers
and microplate readers, respectively. We believe our assays offer advantages
over conventional laboratory methods, including ease of use, speed, specificity
and accuracy. Our
research diagnostic assays for markers of oxidative stress are generally
protected by trade secrets, and to some extent, patents. Five U.S. patents
and
eight international patents have been issued with respect to these assays.
The
oxidative stress assays are sold under the registered trademark
“BioxytechÒ.”
We
continue to offer a few proprietary antioxidants and specialty chemicals but
our
product development focus and support are directed at assays, antibodies and
enzymes in the area of oxidative and nitrosative stress.
Revenues
from sales of our research diagnostic assays and Ergothioneine comprised 95%
and
81% of total revenues in 2005 and 2004, respectively.
Ergothioneine
Ergothioneine
is a naturally occurring, water soluble, antioxidant amino acid molecule found
in most animals and plants. It is considered one of the most powerful
antioxidants available. Ergothioneine neutralizes hydroxyl free radicals and
selectively increases the activity of the special antioxidant enzymes. It
increases respiration and oxidation of fat, protects the mitochondria from
damage due to environmental ultraviolet radiation and aids in the detoxification
of the liver. We have developed a proprietary method for producing synthetically
derived L-Ergothioneine in commercial quantities. We hold the patents and patent
applications for the protective effect of Ergothioneine on mitochondria, the
commercial preparation process and the neuroprotectant methods and compositions
of Ergothioneine.
We
sell
Ergothioneine to selected customers as an anti-aging product in skin care
products sold in the cosmetics industry. Sales of Ergothioneine were $18,000
in
2005 and $87,000 in 2004. Sales during 2005 and 2004 were to one customer in
the
cosmetics industry
in
connection with such customer’s marketing campaign of a formulation of cosmetics
which included, among other things, Ergothioneine. We have not received any
indication that additional orders are expected. We can give no assurances that
sales of Ergothioneine to this customer or other cosmetics industry customers
will resume.
Raw
Material Suppliers
During
2005 we purchased raw materials from several suppliers, of whom the top three
comprised 34%, 13% and 12% of our raw materials costs. We believe we could
readily find alternative suppliers, or that we could readily market alternative
products with adequate raw material supply, if necessary. Accordingly, we
believe there is limited risk of over reliance on any supplier.
Marketing
We
market
products and technologies related to oxidative stress. Oxidative stress occurs
as a result of an imbalance between damaging free-radicals and related molecules
and their inactivation by antioxidants. Oxidative stress can cause tissue injury
by triggering cell death or inciting a tissue-damaging inflammatory
response.
During
2005, we continued to market our research diagnostic assay products to
professional scientists in academia, industry and government through our
OXISResearch
catalog. Our marketing program is centered on targeting medical, environmental
and various industry audiences interested in oxidative and nitrosative stress.
Nitrosative stress occurs when the generation of reactive nitrogen species
in a
system exceeds the system’s ability to neutralize and eliminate them. Primary
vehicles for this marketing program include printed literature, the OXISResearch
website and attendance at conferences targeting neuroscience, cancer, cardiac
and nutritional researchers.
Our
assays for markers of oxidative stress are currently being sold both directly
by
us and through a network of distributors to researchers primarily in the United
States, Europe and the Pacific Rim. We estimate that there are more than 10,000
scientists and clinicians who are working directly in research on free radical
biochemistry, and who are potential customers for these research diagnostic
assays. We
continue to seek to strengthen our international distribution network by adding
new distributors around the world. These distributors are primarily focused
on
sales of research products in the life science market. In 2005, 20 distributors
accounted for approximately 53% of our total revenues. Although we have not
recruited distributors for Ergothioneine, we intend to establish and implement
a
plan to do so in the future.
During
2005, approximately 15% of our total revenues were from EMD Biosciences, Inc.,
a
distributor customer located in the United States. We expect revenues from
sales
to EMD Biosciences, Inc. for fiscal year 2006 to be similar to those in 2005.
Foreign
Operations and Export Sales
Revenues
attributed to countries outside the United States based on the location of
customers were:
|
|
2005
|
|
2004
|
|
Japan
|
|
$
|
163,000
|
|
$
|
221,000
|
|
France
|
|
|
94,000
|
|
|
145,000
|
|
Korea
|
|
|
76,000
|
|
|
43,000
|
|
Poland
|
|
|
54,000
|
|
|
28,000
|
|
Canada
|
|
|
47,000
|
|
|
31,000
|
|
United
Kingdom
|
|
|
47,000
|
|
|
55,000
|
|
Other
foreign countries
|
|
|
275,000
|
|
|
282,000
|
|
Revenues
to other foreign countries included sales in more than 30 countries, with no
single country the site of more than $40,000 in annual sales.
Ergothioneine
as a Nutraceutical Supplement
We
believe that our Ergothioneine compound may be well suited for development
as a
nutraceutical supplement that can be sold over the counter and we intend to
pursue the development of Ergothioneine for use in such markets. Currently
we
have outsourced the manufacturing of the raw material and we are working to
expand this manufacturing capacity.
Myeloperoxidase
Assay/Cardiovascular Predictor Product
We
intend
to pursue development of our
myeloperoxidase
assay, or MPO, a research assay, which could be utilized either alone or in
combination with other assays in the clinical diagnostic market. Currently,
biomarkers used for myocardial infarction present significant limitations in
predictive quality due to variability of patient population, the range for
abnormal test results and other factors. In contrast, blood plasma MPO levels,
as measured by our MPO kit using our proprietary monoclonal antibody, appear
to
be a better predictor of patients at risk for cardiac events before they occur,
according to a report in the October 23, 2003 New England Journal of Medicine.
Our MPO assay kit was used in that study to evaluate myeloperoxidase levels
in
604 hospital emergency room patients with chest pain. A single measurement
of
plasma myeloperoxidase using our MPO assay kit was able to identify patients
at
early risk for a heart attack, even when no tissue damage to the heart was
evident. Furthermore, the test independently predicted the risk of a major
cardiac event following the initial visit to the emergency room.
We
have
been undertaking collaborative research with selected research scientists on
the
development of a cardiovascular predictor product using our
MPO
assay
combined with other assays currently in-house or under development. We
are
reassessing this development program in the context of our partial acquisition
of BioCheck.
Out-Licensed
Technology
Our
lead
therapeutic drug candidate, BXT-51072, is a low molecular weight oral drug
that
mimics the antioxidant enzyme glutathione peroxidase. It directly neutralizes
hydrogen peroxide and appears to protect cells from peroxide mediated damage.
It
also inhibits nucleic transcription and prevents the activation of cytokines,
adhesion molecules and inflammatory enzymes, which are all mediators of
inflammation. We completed a Phase IIA clinical trial in inflammatory bowel
disease with BXT-51072 in 1999. This Phase IIA trial was a multi-center,
nonrandomized, open-label, two-arm study which assessed the safety,
pharmacokinetics, and efficacy of BXT-51072. Due to the lack of financial
resources, we ceased further testing of BXT-51072.
In
September 2004, we entered into an Exclusive License and Supply Agreement
relating to BXT-51072 and related compounds with HaptoGuard, Inc., a New York
based biopharmaceutical company. Under the agreement, we granted HaptoGuard
exclusive worldwide rights, in certain defined areas of cardiovascular
indications, to develop, manufacture and market BXT-51072 and related compounds
from our library of
such
antioxidant compounds. Under the license agreement, HaptoGuard is responsible
for worldwide product development programs with respect to the licensed
compounds. We received an upfront license fee of $450,000, and HaptoGuard is
obligated to pay royalties on net sales of certain licensed products, as well
as
additional fees for the achievement of development milestones in excess of
$21
million if all milestones are met and regulatory approvals are granted. There
can be no assurances that royalty payments will result or that milestone
payments will be realized.
We
have
the right to terminate the license agreement if HaptoGuard fails to pay us
any
required payments under the license agreement or if HaptoGuard fails to comply
with certain development plan and timeline requirements relating to the
development of the licensed compounds. In December 2005, HaptoGuard elected
to
take a one-time six month extension of their obligation to begin Phase II
clinical studies of a licensed product in cardiovascular disease pursuant to
the
development plan timeline. As provided in the license agreement, HaptoGuard
paid
a fee of $100,000 for the extension.
HaptoGuard
may terminate the agreement by providing us with 180 days’ written notice.
Either party may terminate the agreement upon 30 days’ written notice upon
certain events relating to the other party’s bankruptcy, insolvency,
dissolution, winding up or assignment for the benefit of creditors, or upon
the
other party’s uncured breach of any material provision of the agreement.
Otherwise, the license agreement terminates upon the expiration of the
underlying patents relating to the licensed compounds.
Government
Regulation
In
the
United States, our current products and manufacturing practices are not subject
to regulation by the United States Food and Drug Administration, or FDA,
pursuant to the Federal Food, Drug and Cosmetic Act as it relates to research
products. Development, manufacture and marketing of clinical diagnostic products
which we are currently pursuing and therapeutic compounds are regulated by
the
FDA. We believe that we currently are in compliance with all such regulations
and intend that in the future all of our diagnostic and therapeutic developments
will be in compliance with these regulations.
Patents
and Trademarks
We
are
substantially dependent on our ability to obtain and maintain patents and
proprietary rights for our marketed products and to avoid infringing the
proprietary rights of others. We have an extensive portfolio of patents for
diagnostic assays and several series of small molecular weight molecules to
detect, treat and monitor diseases associated with damage from free radicals
and
reactive oxygen species. This portfolio provides opportunities to apply our
technologies to a wide range of diseases and conditions of oxidative
stress.
Currently,
we have 82 currently issued patents or patent applications filed
internationally. We have 51 patents issued by the United States Patent and
Trademark Office and 31 pending patent applications. Patent coverage includes
aspects of all three of our classes of small molecular weight antioxidant
molecules. We
hold
the patents and patent applications for the protective effect of Ergothioneine
on mitochondria, the commercial preparation process and the neuroprotectant
methods and compositions of Ergothioneine. We
have
sublicensed to HaptoGuard, Inc. three patents and one patent application related
to BXT-51072. Our assays for markers of oxidative stress are generally protected
by trade secrets, and to some extent, patents. Five U.S. patents and eight
international patents have been issued with respect to these assays. The
oxidative stress assays are sold under the registered trademark
BioxytechÒ.
Associated foreign patents have been issued in most cases and foreign patent
applications have been filed associated with the listed patents and patent
applications.
Below
we
have listed selected patents and patent applications relating to our core
business including marketed products and sublicenses.
Research
Assay Patents
U.S.
Patent 5,726,063 issued March 10, 1998 for “Method of Colorimetric Analysis of
Malonic Dialdehyde and 4-Hydroxy-2-Enaldehydes as Indexes of Lipid Peroxidation,
Kits for Carrying Out Said Method, Substituted Indoles for Use in Said Method
and their Preparation” will expire on May 6, 2014.
U.S.
Patent 5,543,298 issued August 6, 1996 for “Method for Assaying the SOD Activity
by Using a Self-Oxidizable Compound Necessary for its Implementation,
Self-Oxidizable Compounds and Preparation Thereof” will expire on August 6,
2013.
U.S.
Patent 6,235,495 issued May 1, 2001 for “Methods for the Quantiation of In Vivo
Levels of Oxidzed Glutathione” will expire on November 12, 2019.
U.S.
Patent 5,861,262 issued January 19, 1999 for “Method of the Specific Immunoassay
of Human Plasma Glutotathione Peroxidase, Kit for its Implementation,
Oligopeptides and Antibodies Specific for the Method” will expire on January 19,
2016.
U.S.
Patent 5,817, 520 issued October 6, 1998 for “Spectrophotometric Methods for
Assaying Total Mercaptans, Reduced Gultathione (GSH) and Mercaptans other than
GSH in an Aqueous Medium, Reagents and Kits for Implementing Same” will expire
on December 15, 2012.
Ergothioneine
Patents
U.S.
Patent 5,438,151 issued August 1, 1995 entitled “Process for the Preparation of
Ergothioneine” will expire on February 8, 2014.
U.S.
Patent 6,103,746 issued August 8, 2000 entitled “Methods and Compositions for
the Protection of Mitochondria” will expire on February 19, 2018.
Patent
Application Serial No. 60/367,845 filed March 26, 2002 entitled “Neuroprotectant
Methods, Compositions and Screening Methods Thereof”.
Selected
Licensed BXT-51072 Patents
U.S.
Patent 5,968,920 issued October 19, 1999 entitled “Novel Compounds having a
Benzoisoelen-Azoline and -Azine Structure, Method for Preparing Same and
Therapeutic Uses Thereof” will expire on April 7, 2015.
U.S.
Patent 6,093,532 issued July 25, 2000 entitled “Method for Storing a Biological
Organ Transplant Graft Using a Benzisoelen-Azoline or -Azine Compound” will
expire on April 7, 2015.
U.S.
Patent 5,973,009 issued October 26, 1999 entitled “Aromatic Diselenides and
Selenosulfides, their Preparation and their Uses, more Particularly their
Therapeutic Use” will expire on December 23, 2017.
U.S.
Patent 6,525,040 issued February 25, 2003 entitled “Cyclic Organoselenium
Compounds, their Preparation and their Uses” will expire on December 23,
2017.
These
patents can expire earlier if they are abandoned or are not adequately
maintained. We cannot assure you that corresponding patents will be issued
or
that the scope of the coverage claimed in our patent applications will not
be
significantly reduced prior to any patent being issued.
Competition
The
diagnostic, pharmaceutical and nutraceutical industries are highly competitive.
Competition in most of our primary current and potential market areas is intense
and expected to increase. There can be no assurance that we can compete
successfully.
Presently
the main commercial competition in our research assay business is represented
by, but not limited to Cayman Chemical Company, Assay Designs and Randox
Laboratories, Ltd. In addition, our competitors and potential competitors
include large pharmaceutical and nutraceutical companies, universities and
research institutions. These competitors may have substantially greater capital
resources, research and development staffs, facilities and manufacturing
expertise than us. In addition, our competitors may develop new technologies
or
use existing technologies that may be the basis for competitive products.
Employees
As
of
December 31, 2005, we had 11 full time employees. On March 24, 2006, we had
four
full time employees. On December 6, 2005, we initiated a relocation plan to
cease our operations in Portland, Oregon and relocate to Foster City, California
at premises adjacent to those of BioCheck. We decided to relocate after
reviewing and evaluating all aspects of our operations to determine the
profitability and viability of continuing in the Portland, Oregon
location. As
part
of the relocation that was effective February 15, 2006, we offered all regular
full-time employees who were not relocated to Foster City, California severance
benefits under an employee incentive package estimated to cost approximately
$119,000. Certain employees will continue for a transitional period in a
consulting capacity.
After
we
have completed our relocation to Foster City, California, we plan to provide
for
operations by entering into services agreements and employing new personnel.
No
assurance can be given that we will be able to locate and hire such personnel.
We
are in
discussions with BioCheck with the aim of entering into a services agreement
between the two companies, with each company providing specific
expertise.
None
of
our employees are subject to a collective bargaining agreement. We believe
our
relationship with our employees is good, and we have never experienced an
employee-related work stoppage.
BioCheck
Business Summary
On
September 19, 2005, we entered into a stock purchase agreement with
BioCheck and its stockholders to purchase all of its common stock for
$6.0 million in cash. BioCheck is a leading producer of enzyme immunoassay
diagnostic kits for clinical laboratories. On December 6, 2005, we
purchased 51% of the shares of BioCheck’s common stock from each of its
shareholders on a pro rata basis for $3,060,000 in cash. Pursuant to the stock
purchase agreement, we will use our reasonable best efforts to consummate a
follow-on financing transaction to raise additional capital with which to
purchase the remaining outstanding shares of BioCheck in one or more additional
closings.
We
are
presenting the business summaries of the OXIS parent company and BioCheck
separately because we do not yet own 100% of BioCheck. Upon the successful
acquisition of the remaining 49% equity interest in BioCheck by OXIS, the
combined company plans to leverage its expertise to focus on the growing
clinical diagnostic biomarker market and to develop diagnostic assays designed
to help physicians provide more timely and accurate diagnoses and treatment
plans for their patients.
BioCheck
is a
leading producer of clinical diagnostic assays, including high quality enzyme
immunoassay research services and products offering immunoassay kits designed
to
improve the accuracy, efficiency, and cost-effectiveness of in
vitro
(outside
the body) diagnostic testing in clinical laboratories. BioCheck’s mission is to
develop unique, proprietary immunoassays designed to help physicians provide
more timely and accurate diagnoses, prognoses and treatment plans for their
patients.
The
clinical diagnostics market consists of companies that develop and manufacture
a
wide array of instruments, immunoassays reagents and data analysis tools.
Diagnostic instruments are the key hardware components, such as automated
immunoassay analyzers, used in the automatic processing of the diagnostic tests.
Reagents are the bioactive test ingredients which, when combined with the
biologically derived samples, provide the diagnostic test results. The analysis
tools, such as software programs and applications, assist the researchers and
clinicians in the interpretation of data collected from high-volume analyzers
and reagents.
BioCheck
focuses primarily on the immunoassay segment of the clinical diagnostics market.
The simplified, basic components of any immunoassay system are: an antigen,
an
antibody specific to this antigen, and a system to measure the amount of the
antigen in a given sample. The commonly used immunoassays share four common
components required to produce a high quality immunoassay product: a supply
of
high-purity antigens, a supply of high quality, specific monoclonal or
polyclonal antibodies, a stable detection system, and a precise method for
separating the bound detection system at the end of the reaction. The ability
to
develop, isolate and maintain the antibodies is a critical component of
immunoassay technology.
The
senior management of BioCheck has several decades of combined research and
development, clinical and operational experience in the biotechnology and
pharmaceutical industries. BioCheck’s management has a core competency and a
proven scientific and business development track record in developing and
manufacturing high-quality immunoassay products.
Customers
of BioCheck consist of small and medium-sized laboratories, and larger volume
clinical diagnostics laboratories that outsource or license their reagent
assembly to BioCheck under research services agreements. BioCheck’s products are
also sold through its global distribution network of third-party distributors
and re-sellers.
BioCheck’s
clinical immunoassays are applicable to the diagnosis and management of
infectious diseases; detection of certain types of cancer, and cardiac,
reproductive, and thyroid disorders; and the measurement of the effects of
therapeutic drug administration. The testing process is performed in
vitro
in
samples of blood, urine, and other bodily fluids.
Products
and Services
Clinical
Diagnostics Immunoassay
Kits
BioCheck
offers its clinical laboratory and in
vitro
diagnostics customers over 40 clinical diagnostic assays manufactured in its
15,000 square-foot, U.S. Food and Drug Administration, or FDA, certified Good
Manufacturing Practices device-manufacturing facility in Foster City,
California. Of the 40 total clinical diagnostic assays offered by BioCheck,
17
clinical diagnostic assays have been cleared by the FDA for marketing and sales
and a number of its products have FDA certificates to foreign governments and
certificates of exportability. BioCheck's clinical diagnostic kits have been
registered in Brazil, China, India, Italy, Taiwan, Turkey, and the United
Kingdom, and BioCheck’s distributors deliver its products to countries in
Central and South America, Europe, the Middle East, and Asia.
BioCheck’s
primary product line consists of enzyme linked immunoassay, or ELISA, kits
that
are widely used in medical laboratory settings. An ELISA test consists of
linking an antibody or antigen to an enzyme in order to detect a match between
the antibody and antigen. An ELISA test is used to detect specific antigens
in a
biological sample and the presence of antibodies attached to specific antigenic
sites on proteins or other molecules in a biological sample.
The
primary antibody development platform of BioCheck utilizes hybridoma technology.
This process creates monoclonal antibodies to precisely measure very low
concentrations of proteins in blood and plasma. The ability to express, isolate
and maintain high-quality antibodies is a critical component of immunoassay
test
kit technology. BioCheck uses standard chromatography technology and its
proprietary antibody conjugation methods for its antibody purification services
and antibody conjugates. We believe that BioCheck’s products and services exceed
industry average standards for stability and purity.
Test
kits
manufactured by BioCheck
identify
the existence, and in some cases the amount, of a specific molecule, or marker,
that is an indicator of a condition or disease state. These test kits are
applicable to cardiac markers; tumor markers for liver, ovarian, breast,
prostate and gastrointestinal conditions; infectious diseases including
pregnancy-related panel screens for toxoplasmosis, rubella, cytomegalovirus,
and
the herpes virus; thyroid function; steroids including
Estradiol, Progesterone, Testosterone, and Estriol; and fertility
hormones.
BioCheck’s
revenues from product shipments were $3.5 million in 2005, $3.9 million in
2004,
and $3.3 million in 2003.
Research
Services
In
addition to clinical and research assay products, BioCheck provides various
research services to pharmaceutical and diagnostic companies worldwide. Research
services consist primarily of highly specialized laboratory testing that
enhances the speed, and lowers the clinical risk, of the pharmaceutical
development process. The services include custom immunoassay development,
antibody purification and conjugation, and immunoassay assembly.
Custom
Immunoassay Development
- With
over 30 years of experience and the development over 40 immunoassay products,
BioCheck’s in-house research and development team provides antibodies and
antigens, and assists biotechnology and pharmaceutical customers with the
development of their immunoassay test kits.
Antibody
Purification and Conjugation
- Using
chromatography technology and proprietary antibody conjugation methods, BioCheck
offers antibody purification services and antibody conjugates. Stability testing
has indicated that BioCheck’s conjugates remain active for five
years.
Immunoassay
Assembly Services
- Having
developed over 40 immunoassay products, BioCheck has exceptional test kit
packaging experience and can provide custom immunoassay assembly services for
our customers.
Cardiovascular
Markers
Coronary
heart disease, or CHD, is the most common form of heart disease caused by a
narrowing of the coronary arteries that feed the heart. It is the number one
cause of mortality for both men and women in the U.S. Approximately seven
million Americans suffer from CHD and more than 500,000 Americans die of heart
attacks caused by CHD every year.
The
National Heart, Lung, and Blood Institute sponsored a multi-center epidemiologic
study in 2003. Increased levels of lipoprotein-associated phospholipase, or
Lp-PLA2, in patients followed in this study have been linked to increased risk
of CHD. In collaboration with diaDexus, BioCheck has developed and manufactures
an FDA cleared clinical diagnostic test for Lp-PLA2 called the PLAC test. While
the PLAC test is not a stand-alone test for predicting CHD, it provides
supportive evidence when used with clinical evaluation and other tools for
patient risk assessment. An elevated PLAC level with an LDL-cholesterol level
of
less than 130 mg/dL suggests that patients have two to three times the risk
of
having coronary heart disease when compared with patients having lower PLAC
test
results. BioCheck manufactures the PLAC test and diaDexus promotes and sells
it
to the medical community.
BioCheck’s
revenues from PLAC test manufacturing and services were approximately $340,000
in 2005, $580,000 in 2004, and $470,000 in 2003.
Senior
Management
John
Chen, Ph.D., co-founded BioCheck in January 1997 and has since served as Chief
Executive Officer and Chairman of the Board. He is a biochemist and clinical
chemist with thirty years of research and development and assay development
expertise. Dr. Chen has developed over 50 enzyme immunoassay and rapid tests,
a
number of which have been approved for marketing by the FDA. His technical
expertise in immunology and biochemistry is complemented by his ability to
facilitate technology transfer from research and development to
manufacturing.
Dr.
Chen
co-founded Rapid Diagnostics, Inc. in 1998, specializing in the development
of
rapid diagnostic test kits for the drugs of abuse. The company was acquired
by
ICN Pharmaceuticals, Inc. in 2002.
Prior
to
co-founding BioCheck, Dr. Chen co-founded Medix Biotech, Inc. in 1983,
specializing in monoclonal/polyclonal antibodies, enzyme immunoassay test kits,
and rapid test kits. Following Medix Biotech’s acquisition by Genzyme
Corporation in 1992, Dr. Chen remained as Vice President of Research and
Development until 1995. Between 1981 and 1983, he co-founded Pacific Biotech
Inc. that was subsequently acquired by Eli Lilly and Company in 1990. At Pacific
Biotech, Dr. Chen was instrumental in the development of the first rapid
pregnancy test. He also previously served research scientist roles at Sigma
Chemical, Mallinckrodt, and Beckman Instruments. Dr. Chen holds a B.S. in
Chemistry from Tunghai University in Taiwan and a Ph.D. in Biochemistry from
the
University of Alberta, Edmonton, Canada.
Effective
December 6, 2005 and in connection with our acquisition of a 51% majority
stake in BioCheck, Dr. Chen entered into an executive employment agreement,
under which Dr. Chen became employed as President of BioCheck. Dr. Chen has
agreed to devote not less than 90% of his business time and efforts to the
primary business of BioCheck. In the event that BioCheck terminates the
employment of Dr. Chen at any time other than for cause, Dr. Chen will receive
an amount equal to 12 months of his then-current base salary.
Patents
and Trademarks
As
of
December 31, 2005, BioCheck had filed two patent applications covering research
and diagnostic assays to detect molecules and proteins related to tumor
angiogenesis and certain cardiac conditions. Angiogenesis is the formation
of
blood vessels in tumors.
In
April
2004, AngioGenex,
Inc., or AngioGenex, based in New York City,
and
BioCheck entered into an agreement to develop cancer diagnostic and prognostic
products based on the Id-gene platform technology licensed exclusively to
AngioGenex by the Albert Einstein College of Medicine and the Memorial Sloan
Kettering Cancer Center. The
agreement assigns to BioCheck exclusive rights to develop and market diagnostics
based on AngioGenex’s Id technology in return for royalties.
A
critical component of the clinical validation of an Id-protein based
diagnostic/prognostic product is the development of monoclonal antibodies,
or
mAbs, to the Id proteins. Id proteins play a significant role in the process
of
tumor related angiogenesis and other functions related to blood vessel
formation. BioCheck has developed rabbit monoclonal anti-Id1, Id2 and Id3
antibodies for Western Blot analyses and immunohistochemistry staining, and
ELISA tests for measuring Id1, Id2 and Id3 in cell culture supernatants, and
cell and tissue extracts.
AngioGenex
and BioCheck have filed joint patent applications for the mAbs to the
Id-proteins.
Under
the joint patent application, BioCheck has the exclusive rights to the
diagnostic applications of the Id proteins while AngioGenex owns the rights
for
the therapeutic drug applications. U.S. Provisional Application Serial No.
60/691,060 was filed on June 16, 2005 related to the Id1 protein, titled “Novel
Rabbit Monoclonal Antibodies to Id1”. The patent application related to the Id3
protein, titled “Rabbit Monoclonal Antibody Against Human Id3 Protein” was filed
on January 27, 2006.
BioCheck
has filed a patent application for a clinical diagnostic related to the
troponin protein
complex. Certain types of troponin including cardiac troponin I and T are highly
sensitive and specific indicators of damage to the heart muscle. Myocardial
infarction, or a heart attack, can be differentiated from unstable angina,
or
pain, by measuring troponin in the blood in patients with chest pain. Patent
application serial number 11/116,290 was filed April 28, 2005 titled
“Immunoassay for Cardiac Troponin-I in Non-Human Mammalian Species.” John Chen
is a co-inventor of the invention that is the subject of this patent
application.
Sales
and Marketing
BioCheck
develops, manufactures and markets high quality immunoassay products and
technologies designed to improve the accuracy, efficiency, and
cost-effectiveness of in
vitro
diagnostic testing in clinical laboratories. The company also provides research
services to pharmaceutical and diagnostic companies worldwide. These services
consist primarily of highly specialized laboratory testing that enhances the
speed and lowers the clinical risk of the pharmaceutical development process.
During
2005, BioCheck marketed its products and research services to professional
clinicians and researchers primarily through the company’s product catalog,
printed materials, website and attendance at key industry tradeshows and
conferences. A portion of BioCheck’s 2005 sales volume was also generated
through referrals from existing customers. BioCheck’s products are sold directly
to customers and through a network of international distributors, who deliver
its products to purchasers in North, Central and South America, Europe, the
Middle East, and Asia. BioCheck does not plan to establish an in-house sales
force to distribute its products.
In
2005,
the top twenty direct customers accounted for approximately 67% of BioCheck’s
gross sales revenue and no single customer accounted for more than 15% of total
gross sales revenue. BioCheck is seeking to identify and secure additional
opportunities for research services agreements.
Competition
According
to Boston Biomedical Consultants and Morgan Stanley Research Estimates, the
worldwide clinical diagnostics market including instruments, immunoassays,
rapid
diagnostic tests and data analysis tools was approximately $22
billion in
sales
revenue in 2004 and increased approximately 9% from the previous year.
Competition in the clinical diagnostics market is intense and highly fragmented,
with the largest competitor, Roche Diagnostics, holding a 16% market share.
BioCheck’s
direct competitors are developers and manufacturers of research and clinical
diagnostic products and include, but are not limited to, Adaltis Inc., BioSource
International, Inc., Diagnostic Products Corporation, Monobind, Inc. and
BioClone Australia Pty Ltd.
In
order
to continue to successfully market BioCheck’s products and services, the company
will be required to demonstrate that its immunoassay products meet or exceed
the
industry standards for quality as measured by high levels of purity, stability,
precision of measurement and cost effectiveness. The company’s competitors may
succeed in developing or marketing products that are more effective or
commercially attractive. The launch of these competitive products may adversely
impact the market pricing for BioCheck’s products as some of these competitors
have substantially greater financial, technical, research and development
resources and more established marketing, sales, distribution and service
organizations.
Raw
Material Suppliers
The
development and production of BioCheck’s products requires the company to
purchase bulk quantities of antibodies,
enzymes, microtiter plates and serum from outside vendors. BioCheck does not
rely on any single supplier for its raw material purchases.
Research
and Development
BioCheck
invested $726,000 and $839,000 in research and development in 2005 and 2004,
respectively. As of December 31, 2005, BioCheck employed seven employees in
research and development. During 2005, BioCheck’s research staff was primarily
used to produce compounds for diagnostic use and optimize methods for binding
these compounds to biological reagents such as antibodies. BioCheck employs
a
proprietary process for antibody conjugation resulting in highly stable
products. BioCheck is also developing proprietary clinical diagnostics tests
for
launch in late 2006 or early 2007 that include promising new angiogenesis tumor
markers and an aggressive breast cancer marker.
Angiogenesis
Tumor Markers
In
April
2004, BioCheck entered into a development and marketing agreement with
AngioGenex for the diagnostic/prognostic applications of Id proteins in
angiogenesis, which is the formation of blood vessels. The therapeutic and
diagnostic applications of this process were patented by Memorial
Sloan-Kettering Cancer Center and Albert Einstein Medical College and licensed
to AngioGenex. The diagnostic application was subsequently licensed to BioCheck.
Id
genes
are expressed at high levels to produce Id proteins in many tissues during
human
embryonic development, but are generally not expressed, or expressed at very
low
levels, in adults except in some tumor cell types and tumor blood vessels.
Id1,
Id2 and Id3 proteins have been closely implicated in tumor-associated
angiogenesis. Interfering with the action of the Id proteins may prove to be
very effective in preventing the growth and metastases of both early and
established tumors. The effectiveness of this approach has been demonstrated
in
commercially available therapeutic drugs, such as Avastin™, which targets the
vascular endothelial growth factor. Such therapeutics have been modestly
effective, suggesting the need for research and development to identify more
powerful and specific agents for cancer therapy.
BioCheck’s
goal is to clinically validate an Id-based diagnostic/prognostic product in
collaboration with AngioGenex. During
2005, BioCheck’s research staff continued to work on the clinical validation of
potential diagnostic products based on Id proteins related to tumor
angiogenesis. Monoclonal
antibodies to the Id proteins are required
in order
to develop highly
sensitive ELISA diagnostic and prognostic tests. BioCheck has developed rabbit
monoclonal anti-Id1, Id2 and Id3 antibodies that can be used in cell and tissue
extracts through commonly utilized detection methods including Western Blot
analysis, immunohistochemistry staining and ELISA tests. Western Blot
analysis
is a
method of separating proteins by mass through a gel based process.
Immunohistochemistry staining is a process
of localizing proteins in cells by tagging their respective antibodies with
color producing tags.
ELISA
tests are used for measuring the amount of Id1, Id2 and Id3 proteins in cell
culture supernatants, and cell and tissue extracts.
Aggressive
Breast Cancer Marker
In
2005,
BioCheck entered into a development and marketing agreement with HMGene, Inc.,
or HMGene, based in Piscataway, New Jersey for the development and manufacturing
of an ELISA test for the HMGA2 gene. The HMGA2 gene has been implicated in
aggressive forms of breast cancer. The detection technology for tissue staining
and peripheral blood samples related to the HMGA2 gene has been patented by
HMGene and licensed to BioCheck for the development of rabbit polyclonal and
monoclonal anti-HMGA2 antibodies. These antibodies can be used for Western
Blot
analyses, immunohistochemistry staining and ELISA assays.
While
we
believe that these are potentially promising diagnostic products, no assurances
can be given that the company will have sufficient funding and resources to
continue research, development and commercialization of these technologies.
Employees
As
of
December 31, 2005, BioCheck employed twenty-five full-time employees, including
thirteen technicians in manufacturing, seven scientists and research associates
in research and development, two specialists in quality control functions,
and
three professionals in administrative and operational support.
ITEM
2. DESCRIPTION
OF PROPERTY
OXIS
occupies office, laboratory and manufacturing space in Portland, Oregon expiring
in April of 2006. We are currently utilizing the Portland premises only for
storage purposes and we have moved our operations to Foster City,
California.
On
December 6, 2005 we purchased 51% of BioCheck and initiated a transition plan
to
consolidate all operations at BioCheck’s manufacturing facility. Consequently,
during 2006, we entered into a three-year lease agreement commencing
on April 1, 2006 for
4,136
square feet of space immediately adjacent to BioCheck at 323 Vintage Park Drive,
Suite B, Foster City, CA 94404. These
premises will serve to accommodate the relocation and consolidation of our
corporate headquarters and operations.
BioCheck
occupies approximately 15,000 square feet of administrative, laboratory and
manufacturing space located at Vintage Park, 323 Vintage Park Drive, Foster
City, CA 94404, pursuant to a lease expiring in December 2008. The facility
has
been certified according to the U.S. Food and Drug Administration, or FDA,
Good
Manufacturing Practice standards, which are subject to annual audits by the
FDA.
In addition, the facility has been certified to meet the highest international
manufacturing standard (ISO 13485) generally accepted in Europe and Asia,
according to the International Organization for Standardization, or ISO.
BioCheck believes that it is in compliance with all other regulatory
certifications applicable to its line of business, including Device
Manufacturing License for the state of California, Registration of Device
Establishment, Certificate of Foreign Government and Certificate of
Exportability.
We
do not
have a real estate investment policy as we do not make any such
investments.
ITEM
3. LEGAL
PROCEEDINGS
None.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matter
was submitted during the fourth quarter of 2005 to a vote of security holders,
through solicitation or proxies or otherwise.
PART
II
ITEM
5. MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock continues to be traded in the Over-The-Counter Bulletin Board
and
remains listed in France on the Nouveau Marché and in Germany on the Frankfurt
Stock Exchange.
The
quotations are reflective on inter-dealer prices, without retail markup,
markdown or commission and may not represent actual transactions. Previous
quarterly high and low sales prices of our common stock on the over-the-counter
board are as follows:
|
2005
|
|
2004
|
|
4th
|
3rd
|
2nd
|
1st
|
|
4th
|
3rd
|
2nd
|
1st
|
|
|
|
|
|
|
|
|
|
|
High
|
$0.39
|
$0.48
|
$0.45
|
$0.57
|
|
$0.65
|
$0.69
|
$0.84
|
$0.90
|
|
|
|
|
|
|
|
|
|
|
Low
|
$0.24
|
$0.28
|
$0.25
|
$0.34
|
|
$0.41
|
$0.32
|
$0.45
|
$0.52
|
We
have
an estimated 5,500 shareholders, including approximately 3,000 shareholders
who
hold their shares in street name. We have never paid a dividend and do not
expect to pay dividends in the foreseeable future.
Recent
Sales of Unregistered Securities
On
January 14, 2004, we completed a private placement of securities pursuant to
which (i) certain investors paid us $570,000 in the aggregate, (ii) we issued
promissory notes to the investors in principal amount of $570,000 in the
aggregate, which promissory notes are convertible in due course into up to
1,425,000 shares of our common stock or into up to 3,800,000 shares of common
stock in the event of a default by OXIS and if notified of such by the note
holders (to which no notice was received) and (iii) we issued warrants to the
investors exercisable for up to 712,500 shares of common stock at an
exercise price of $0.50 per share. We received notice on December 30, 2004,
that
all investors had signed irrevocable letters of intent to convert their
promissory notes and accrued interest into common stock. As a result, we issued
1,520,932 shares of common stock to the note holders. In connection with the
note holders converting their notes to common stock, we issued 760,469 new
warrants having a $1.00 exercise price and a five-year life. The private
placement was exempt from registration under Section 4(2) of the Securities
Act
of 1933.
On
December 30, 2004, we entered into definitive agreements with investors relating
to the private placement of $6.5 million of our securities through the sale
of
12,264,158 shares of our common stock at $0.53 per share. On January 6, 2005,
we
closed the private placement transaction with the investors. The transaction
resulted in the issuance on or about January 10, 2005 of 12,264,158 shares
of
our common stock for which we received gross proceeds of $0.53 per share. In
addition, on January 6, 2005, we issued to the purchasers in the private
placement transaction warrants to purchase an additional 12,264,158 shares
of
our common stock, 50% at an exercise price of $0.66 per share and 50% at an
exercise price of $1.00 per share. Upon the closing of the private placement
transaction, as partial consideration for services rendered as the placement
agent for the private placement transaction, we issued to Rodman & Renshaw,
LLC a warrant to purchase 306,604 shares of our common stock at an exercise
price of $0.66 per share and a warrant to purchase 306,604 shares of our common
stock at an exercise price of $1.00 per share. The offer, sale and issuance
of
securities to the purchasers in the private placement were exempt from
registration under the Securities Act, pursuant to Section 4(2) thereof, and
Rule 506 promulgated by the SEC under the Securities Act. The 12,264,158 shares
of common stock issuable on December 30, 2004 and the 12,877,366 shares of
common stock to be issued upon exercise of warrants were registered under a
Form
SB-2 registration statement that was declared effective on May 27,
2005.
During
April 2005, 459,355 shares of common stock were issued for cancellation of
a
note payable for $160,000 and accrued interest of $84,000. The private placement
was exempt from registration under Section 4(2) of the Securities Act of
1933.
During
the third quarter of 2005, 428,389 outstanding shares of Series B preferred
stock were converted into 85,678 shares of common stock. The Series B preferred
stock had certain preferential rights with respect to liquidation and dividends.
Holders of Series B preferred stock were entitled to noncumulative annual
dividends at the rate of $0.115 per share if and when declared by our board
of
directors. No dividends to Series B preferred stockholders were issued or unpaid
during 2005. The private placement was exempt from registration under Section
4(2) of the Securities Act of 1933.
ITEM
6. MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following discussion of our financial condition and results of operations should
be read in conjunction with our audited consolidated financial statements and
related notes included in Item 7 of this Report. This discussion contains
forward-looking statements based upon our current expectations and involves
risks and uncertainties. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in “Risks
Related to Our Business,” “Description of Business” and elsewhere in this
document. See the paragraphs following the heading “Part I” for additional
discussion.
Management’s
Discussion and Analysis or Plan of Operation are based on our consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States.
Introduction
We
incurred net losses of $3.1 million in 2005 and $2.7 million in 2004.
BioCheck generated a net profit of $0.2 million in 2005. This amount of
profit would not be enough to offset our current losses. Our 2005 net loss
includes an expense of $1.5 million for purchased in-process research and
development that is not anticipated to reoccur in 2006. However, we are seeking
debt financing that may require us to issue stock purchase warrants or other
similar derivative securities. Such a financing may result in large non-cash
financing charges that could delay profitability. Our plan is to increase
revenues to generate sufficient gross profit in excess of selling, general
and
administrative, and research and development expenses in order to achieve
profitability. However, we can not assure you that we will accomplish this
task
and there are many factors that may prevent us from reaching our goal of
profitability.
On
a
consolidated basis, we had cash and cash equivalents of $614,000 at December
31,
2005 of which $282,000 was held by BioCheck. Since BioCheck has been, and is
expected to continue to be, cash flow positive, we believe that its cash will
be
sufficient to sustain its operating activities during the next twelve months.
The cash held by OXIS of $332,000 at December 31, 2005 was not sufficient to
sustain its operations through the first quarter of 2006 without additional
financings. During March 2006, we received $200,000 from Steven T. Guillen,
our
President and Chief Executive Officer in exchange for a promissory
note.
We
are
seeking additional loan and equity financings to obtain sufficient funds to
sustain operations, implement our marketing campaign and purchase the remaining
49% of BioCheck. We plan to increase revenues through our marketing campaign
and
the introduction of anticipated new products. However, we cannot assure you
that
we will successfully obtain debt or equity financing, if any, sufficient to
finance our goals or that we will increase product related revenues as such
events are subject to factors beyond our control. The financial statements
do
not include any adjustments relating to the recoverability and classification
of
recorded assets, or the amounts and classification of liabilities that might
be
necessary in the event the Company cannot continue in existence.
Overview
OXIS
International, Inc. develops technologies and products to research, diagnose,
treat and prevent diseases of oxidative stress associated with damage from
free
radical and reactive oxygen species. We derive our revenues primarily from
sales
of research diagnostic assays to research laboratories. Our diagnostic products
include twenty-five research assays to measure markers of oxidative
stress.
Current
significant financial and operating events and strategies are summarized as
follows:
Product
Development
Our
current plans include a focus on the areas of clinical diagnostic products.
We
are pursuing the development of a cardiovascular predictor product intended
to
provide a more effective diagnostic predictor test for patients at risk of
cardiac events before they occur. We are developing this product through the
combination of our MPO assay with other in-house assays. We also believe that
our Ergothioneine compound may be well suited for development as a nutraceutical
supplement that can be sold over the counter. Given the availability of
sufficient capital resources, we intend to pursue the development of
Ergothioneine for use in such markets.
Bank
Loan
On
December 6, 2005, we entered into a non-revolving one-year loan agreement with
KeyBank, N.A., or KeyBank, and received funds of $3,060,000 to purchase 51%
of
BioCheck’s common stock. As security for our repayment obligations, we granted a
security interest to KeyBank in our $3,060,000 certificate of deposit at
KeyBank. This loan was repaid during February 2006 and a new one-year loan
agreement for $3,060,000 was entered into at Bridge Bank. As part of the loan
arrangement with Bridge Bank, we granted a security interest in a $3,060,000
certificate of deposit moved from KeyBank to Bridge Bank. The loan bears
interest at 3.0% and the certificate of deposit bears interest at
1.0%.
Relocation
of Operations
On
December 6, 2005, we initiated a relocation plan to cease our operations in
Portland, Oregon and relocate to Foster City, California. We decided to relocate
after reviewing and evaluating all aspects of our operations to determine the
profitability and viability of continuing in the Portland, Oregon location.
During February 2006, we signed a lease agreement for approximately
4,000 square feet of space located immediately adjacent to those of BioCheck
and
relocated our manufacturing operations to Foster City, California.
On
February 15, 2006, we ceased operations at the Portland, Oregon facility and
most of the Portland, Oregon employees were terminated. Severance benefits
are
being paid to terminated employees.
Loan
On
March
10, 2006, we received $200,000 in exchange for a note with Steven T. Guillen,
our President and Chief Executive Officer due on September 10, 2006 or, at
the
option of Mr. Guillen, the date we receive net proceeds in the amount of
$500,000 or more from a debt or equity financing. The purpose of this loan
was
to provide the corporation with short term financing as it seeks longer term
financing.
Preferred
Stock Conversion
During
the third quarter of 2005, 85,678 shares of common stock were issued for the
conversion and cancellation of all 428,389 outstanding shares of Series B
Preferred Stock that were valued at $4,000.
Note
Conversion
During
April 2005, 459,355 shares of common stock were issued for cancellation of
a
note payable for $160,000 and accrued interest of $84,000.
Management
Team and Board of Directors
During
2005 and 2006, we have been building the management team and enhancing our
Board
of Directors to lead OXIS. On February 28, 2005, Steve T. Guillen was appointed
as our President and Chief Executive Officer. Mr. Guillen replaced Marvin S.
Hausman, M.D., as acting Chief Executive Officer and Dr. Hausman remained as
Chairman of the Board of Directors. During October 2005 John Repine, M.D.,
Chief
Executive Officer, President and Scientific Director of the Webb-Waring
Institute for Cancer, Aging and Antioxidant Research joined our Board of
Directors. Effective December 6, 2005, Dr. John Chen entered into an
executive employment agreement with us as President of BioCheck. Michael D.
Centron was appointed as our Vice President and Chief Financial Officer during
January 2006, replacing Dr. Hausman as acting Chief Financial Officer. During
February 2006, Randall Moeckli was appointed as our Senior Director of Sales
and
Marketing. On March 15, 2006, Gary M. Post, Managing Director of Ambient
Advisors, LLC, joined our Board of Directors.
Loan
Repayment
On
June 1, 2004, we received $1,200,000 in exchange for a note and entered
into a loan agreement with our majority shareholder, Axonyx, Inc. We repaid
the
note on January 6, 2005.
Common
Stock Issuance
On
December 30, 2004, we sold 12,264,158 shares of common stock and issued
warrants to purchase 12,877,366 shares of common stock for $6,500,000 in a
private placement with net proceeds of $5,818,000 received in December 2004
and
January 2005 after expenses and the cost of the related registration statement.
The warrants were issued for the purchase of 6,438,685 shares of common stock
at
an exercise price of $0.66 per share and 6,438,681 shares of common stock at
an
exercise price of $1.00 per share.
Acquisition
of BioCheck
On
September 19, 2005, we entered into a stock purchase agreement with BioCheck
and
its stockholders to purchase all of its common stock for $6.0 million in
cash. BioCheck is a leading producer of enzyme immunoassay diagnostic kits
for
clinical laboratories. On December 6, 2005, we purchased 51% of the
shares of BioCheck’s common stock from each of its shareholders on a pro rata
basis for $3,060,000 in cash. This acquisition was accounted for by the purchase
method of accounting according to Statement of Financial Accounting Standards
No. 141, “Business Combinations.” The consolidated statement of operations for
the year ended December 31, 2005 includes the results of operations of BioCheck
from December 6, 2005 and the consolidated balance sheet includes the assets
and
liabilities of BioCheck at December 31, 2005. The purchase price of
$3,337,000 was based on cash paid to BioCheck’s shareholders of $3,060,000,
legal expense of $155,000 and a finder’s fee of $122,000. Pursuant to the stock
purchase agreement, OXIS will use its reasonable best efforts to consummate
a
follow-on financing transaction to raise additional capital with which to
purchase the remaining outstanding shares of BioCheck in one or more additional
closings.
The
Company has previously disclosed on Form 8-K filed with the SEC the allocation
of acquisition costs and pro forma financials statements related to the
acquisition of BioCheck that were based on the information available at that
date. The disclosures contained within this Report have been presented with
the
information and using estimates currently available. The Company may obtain
additional independent valuations of BioCheck’s assets related to the
acquisition of the remaining 49% of BioCheck and additional acquisition costs
may be incurred. Such information and costs may affect the disclosures as
presented herein. See note 2 of the audited consolidated financial statements
for the allocation of the purchase price and other information related to the
BioCheck acquisition.
Results
of Operations
We
expect
revenues and expense to increase substantially as described below from 2005
to
2006 with the consolidation of BioCheck’s results of operations over the entire
year in 2006. Our projections for 2006 are based upon our expectations that
OXIS
and BioCheck will incur similar revenues and costs in 2006 as a combined company
that they incurred in 2005 as individual companies, adjusted for our plans
to
increase marketing expenses and combine operations in Foster City, California
as
described below. We can give no assurances that we will be able to successfully
merge manufacturing operations without adversely affecting revenues and costs,
implement an effective marketing campaign that will increase revenues, develop
new products, finance our expansion plans and purchase the remaining 49% of
the
BioCheck common stock we do not own.
Revenues
The
following table presents the changes in revenues from 2004 to 2005:
|
|
|
|
|
|
Increase
(Decrease) from 2004
|
|
|
|
2005
|
|
2004
|
|
Amount
|
|
%
|
|
Product
revenues
|
|
$
|
2,397,000
|
|
$
|
1,914,000
|
|
|
483,000
|
|
|
25
|
%
|
License
revenues
|
|
|
100,000
|
|
|
450,000
|
|
|
(350,000
|
)
|
|
(78
|
%)
|
Total
revenues
|
|
$
|
2,497,000
|
|
$
|
2,364,000
|
|
$
|
133,000
|
|
|
6
|
%
|
The increase in product revenues was primarily attributed to increased sales
volume and was comprised of a $272,000 increase for OXIS to customers within
North America and $275,000 of revenues from the operations of BioCheck since
December 6, 2005, the date of our acquisition of 51% of BioCheck’s
common stock, that was partially offset by a $64,000 decrease in sales to
customers outside of North America. We expect revenues, excluding license
revenues, to increase by approximately $4.0 million from 2005 to 2006 with
the consolidation of BioCheck’s revenues in 2006 over the entire
year.
License
revenues are attributed to an exclusive license agreement with HaptoGuard Inc.
during the third quarter of 2004 and an extension of the license agreement
during the fourth quarter of 2005. See Note 12 to the audited consolidated
financial statements. We are unable to predict when we will receive additional
license revenues, if any, because such revenues are dependent upon HaptoGuard
Inc. successfully receiving regulatory approval and marketing the licensed
product.
Cost
of product revenues
The
following table presents the changes in cost of product revenues from 2004
to
2005:
|
|
|
|
|
|
Increase
from 2004
|
|
|
|
2005
|
|
2004
|
|
Amount
|
|
%
|
|
Cost
of product revenues
|
|
$
|
1,345,000
|
|
$
|
1,216,000
|
|
$
|
129,000
|
|
|
11
|
%
|
The
increase in cost of product revenues is attributed to $136,000 of costs from
the
operations of BioCheck since December 6, 2005, the date of our
acquisition of 51% of BioCheck’s common stock. Product costs, other than those
for BioCheck, essentially remained the same as our manufacturing facility and
personnel were more efficiently utilized in 2005 than in 2004 which offset
increased material costs. We expect product costs to increase by approximately
$2.0 million from 2005 to 2006 with the consolidation of BioCheck’s cost of
product revenues in 2006 over the entire year. Product costs may increase by
more than $2.0 million if we successfully increase revenues by an amount
greater than the revenues recorded by each individual company in
2005.
Gross
profit of $1,152,000 in 2005 was essentially the same as the gross profit of
$1,148,000 in 2004 because the additional profits from increased product sales
and higher gross profit margins were offset by a $350,000 decrease in license
revenues. Excluding license fee revenues, gross profit as a percentage of
product revenues increased from 36% in 2004 to 44% in 2005 primarily due to
increased sales from 2004 to 2005 with a smaller corresponding increase in
costs
and higher gross profit margins for BioCheck’s clinical products. With the
addition of BioCheck’s revenues in 2006 of $4.0 million that are expected to be
approximately 170% of 2005 revenues, gross profit as a percentage of product
revenues is expected to increase towards 50% as experienced by BioCheck in
2005.
Research
and development expenses
The
following table presents the changes in research and development expenses from
2004 to 2005:
|
|
|
|
|
|
Increase
from 2004
|
|
|
|
2005
|
|
2004
|
|
Amount%
|
|
%
|
|
Research
and development expenses
|
|
$
|
499,000
|
|
$
|
278,000
|
|
$
|
221,000
|
|
|
79
|
%
|
The
increase in research and development expenses from 2004 to 2005 is primarily
attributed to increased patent amortization expense of $49,000, write-off of
abandoned patents of $105,000 and $49,000 of costs from the operations of
BioCheck since December 6, 2005, the date of our acquisition of 51% of
BioCheck’s common stock. We expect to spend approximately $750,000 on research
and development in 2006 primarily at BioCheck. However, the actual amount of
research and development expenses will fluctuate with the availability of
funding.
Selling,
general and administrative expenses
The
following table presents the changes in selling, general and administrative
expenses from 2004 to 2005:
|
|
|
|
|
|
Increase
from 2004
|
|
|
2005
|
|
2004
|
|
Amount
|
|
%
|
|
Selling,
general and administrative expenses
|
|
$
|
2,342,000
|
|
$
|
1,843,000
|
|
$
|
499,000
|
|
|
27
|
%
|
From
2004
to 2005, selling, general and administrative expenses increased approximately
$150,000 for accounting and legal activities, $150,000 for marketing
consultants, $90,000 for administrative consultants, $70,000 for advertising
and
promotional literature and $80,000 of costs from the operations of BioCheck
since December 6, 2005, the date of our acquisition of 51% of
BioCheck’s common stock. These increased costs were partially offset by
approximately $40,000 of decreased insurance costs and other cost decreases.
We
expect selling, general and administrative expenses to increase by approximately
$0.8 million from 2005 to 2006 with the consolidation of BioCheck’s
selling, general and administrative expenses in 2006 over the entire
year. In
addition, we plan to implement a marketing campaign to increase revenues. The
amount spent on this campaign will depend on the availability of
funds.
Purchased
in-process research and development
In
connection with our acquisition of 51% of the outstanding shares of BioCheck
on
December 6, 2005, $1.5 million of purchased in-process research and development
was identified as an intangible asset. The applicable research projects were
subsequently deemed not to have future uses or markets. As such, this identified
intangible asset was expensed in 2005 at the date of acquisition.
Foreign
legal proceedings
Foreign
legal proceedings during 2004 of $183,000 were related to proceedings of the
Autorité des Marchés Financiers, or AMF, and were comprised of legal expenses of
$121,000 and fines imposed by the AMF of $62,000 as described in Note 8 to
the
audited consolidated financial statements contained in this Report. We did
not
incur such expenses in 2005 and do not expect such expenses in
2006.
Restructuring
charges
Restructuring
charges during 2004 of $605,000 related to the Axonyx change of control are
comprised of legal fees of $196,000, management consulting fees of $34,000,
travel expense of $8,000, executive search costs of $22,000 and severance
expenses of $345,000. Related to our relocation of operations from Portland,
Oregon to Foster City, California, we recorded severance benefits of $119,000
in
2005 that were included in selling, general and administrative expenses, and
we
expect to incur relocation expenses of approximately $100,000 in 2006.
Financing
Fees
In
connection with the $570,000 convertible loan financing on January 14, 2004
and
the conversion of it into common stock on December 30, 2004, we paid finders’
fees and professional fees of approximately $84,000 and we incurred non-cash
financing charges of $411,000 related to the conversion feature of the notes,
$159,000 related to initial warrants issued with the notes and $202,000 related
to the incentive warrants issued upon conversion of the notes into common stock
during 2004.
Interest
Income
Interest
income was $110,000 in 2005, primarily due to cash available for investment
activities obtained in the $6,500,000 equity financing received during December
2004 and January 2005.
Interest
Expense
Interest
expense of $26,000 in 2005 was primarily due to the one-year loan with KeyBank
incurred in connection with the BioCheck acquisition. Interest expense of
$101,000 for 2004 was primarily due to the short-term financing and the Axonyx
loan.
Liquidity
and Capital Resources
On
a
consolidated basis, we had cash and cash equivalents of $614,000 at December
31,
2005 of which $282,000 was held by BioCheck. Since BioCheck recently has been
and is expected to continue to be cash flow positive, we believe that its cash
will be sufficient to sustain its operating activities. The cash held by OXIS
of
$332,000 at December 31, 2005 was not sufficient to sustain its operations
through the first quarter of 2006 without additional financings. During March
2006, we received $200,000 from Steven T. Guillen, our President and Chief
Executive Officer in exchange for a promissory note.
We
are
seeking additional loan and equity financings to obtain sufficient funds to
sustain operations, implement our marketing campaign and purchase the remaining
49% of BioCheck we do not own. We plan to increase revenues through our
marketing campaign and the introduction of anticipated new products. However,
we
cannot assure you that we will successfully obtain debt or equity financing,
if
any, sufficient to sustain our business plan or that we will increase product
related revenues as such events are subject to factors beyond our control.
If we
are unable to raise additional capital in the second quarter of 2006 we will
have to curtail or cease operations.
Net
cash used in operating activities
The
following table presents annual cash flows from operating activities from 2004
and 2005:
|
|
Year
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
Cash
paid to employees including benefits
|
|
$
|
(1,153,000
|
)
|
$
|
(1,067,000
|
)
|
Cash
paid to suppliers
|
|
|
(3,514,000
|
)
|
|
(2,353,000
|
)
|
Total
cash paid to employees and suppliers
|
|
|
(4,667,000
|
)
|
|
(3,420,000
|
)
|
Cash
received from customers
|
|
|
2,471,000
|
|
|
2,386,000
|
|
Interest
received
|
|
|
114,000
|
|
|
20,000
|
|
Interest
paid
|
|
|
(11,000
|
)
|
|
(28,000
|
)
|
Net
cash used in operating activities
|
|
$
|
(2,093,000
|
)
|
$
|
(1,042,000
|
)
|
The
increase in cash paid to employees is primarily attributed to cash paid by
BioCheck for payroll and benefits since December 6, 2005, the date of
our acquisition of 51% of BioCheck’s common stock.
The
increase in cash paid to suppliers is primarily attributed to increases in
selling, general and administrative expenses of approximately $150,000 for
accounting and legal activities, $150,000 for marketing consultants, $90,000
for
administrative consultants and $70,000 for advertising and promotional
literature. In addition, $583,000 of 2004 expenses recorded as liabilities
at
December 31, 2004 were paid in 2005 and cash expenditures for inventory
increased by $108,000.
The
increase in cash received from customers is attributed to the $133,000 increase
in revenues reduced by the change in accounts receivable.
Interest
received increased in 2005 primarily due to cash available for investment
activities obtained in the $6,500,000 equity financing received during December
2004 and January 2005.
Cash
used in investing activities
During
2005 we spent $3.2 million on the acquisition of 51% of BioCheck’s common
stock and $3.1 million on a restricted certificate of deposit at KeyBank,
which was used as collateral under the loan agreement with KeyBank. Capital
expenditures were $33,000 and $47,000 in 2005, and 2004 respectively. We had
no
commitments for capital expenditure at December 31, 2005. We
anticipate that in 2006 the BioCheck manufacturing facility in Foster City,
California will require expenditures to support our business objective. We
spent
$172,000 and $262,000 to file patents in 2005 and 2004,
respectively.
Net
cash provided by financing activities
On
December 2, 2005, we entered into non-revolving one-year loan agreement
with KeyBank in the amount of $3,060,000, for the purpose of completing the
initial closing of the BioCheck acquisition. This loan was repaid during
February 2006 and a new one-year loan agreement for $3,060,000 was entered
into
at Bridge Bank. Steven T. Guillen, our President and Chief Executive Officer,
purchased 600,000 shares of common stock for $240,000, pursuant to the terms
of
an employment agreement on February 28, 2005.
On
June 1, 2004, we received $1,200,000 in exchange for a note and entered
into a loan agreement with our majority shareholder at the time, Axonyx, Inc.
We
repaid the note on January 6, 2005. In a $6,500,000 private placement of our
common stock on December 30, 2004, we received net proceeds of $5,818,000 in
exchange for 12,264,158 shares of common stock which were issuable at December
31, 2004.
The
cash
held by OXIS of $332,000 at December 31, 2005 was not sufficient to sustain
its
operations through the first quarter of 2006 without additional financings.
During March 2006, we received $200,000 from Steven T. Guillen, our President
and Chief Executive Officer in exchange for a promissory note.
We
are
seeking additional loan and equity financings to obtain sufficient funds to
sustain operations, implement our marketing campaign and purchase the remaining
49% of BioCheck. However, we cannot assure you that we will successfully obtain
debt or equity financing.
Commitments
and Contingencies
We
lease
facilities in Oregon under an operating lease that expires in April 2006. Our
subsidiary, BioCheck, leases facilities under operating leases in Foster City,
California that expire in December 2008. During 2004, BioCheck entered into
a
sublease of an unused Foster City, California facility to the end of the lease
term in 2008 that reduced our operating lease commitments. Net minimum lease
payments to which we are committed under these leases at December 31, 2005
are
$227,000 in 2006, $201,000 in 2007 and $208,000 in 2008. In addition, we entered
into an operating lease for 4,136 square feet of space adjacent to space
occupied by our BioCheck subsidiary in Foster City, California starting on
April
1, 2006 and ending on March 31, 2009. The annual base rent under the Lease
Agreement begins at $62,000 per year and increases incrementally to $66,000
by
the end of the lease term.
We
estimate that relocating operations from Portland, Oregon to Foster City,
California will cost approximately $100,000. As part of the relocation of
operations, we offered all affected regular full-time employees whose employment
was terminated severance benefits estimated in total to be
$119,000.
At
December 31, 2005, we had a commitment to purchase Ergothioneine manufactured
by
Cambridge Major Labs for $179,000 and we have a contract with them to purchase
additional Ergothioneine as needed.
On
September 19, 2005, we entered into a stock purchase agreement with BioCheck
and
its stockholders to purchase all of its common stock for $6.0 million in
cash. On December 6, 2005, we purchased 51% of the common stock of
BioCheck. Pursuant to the stock purchase agreement, we will use our reasonable
best efforts to consummate a follow-on financing transaction to raise additional
capital with which to purchase the remaining outstanding shares of BioCheck
in
one or more additional closings. The purchase price will be increased by an
additional 8% per annum from December 6, 2005. If we have not purchased all
of the outstanding shares of BioCheck within twelve months of December 6,
2005, the earnings before interest, taxes, depreciation and amortization
expenses, if any, of BioCheck, will be used to repurchase the remaining
outstanding BioCheck shares at one or more additional closings.
Critical
Accounting Policies
Our
accounting policies are explained in Note 1 to the audited consolidated
financial statements included in this Report. We consider the following
accounting policies to be critical given they involve estimates and judgments
made by management and are important for our investors’ understanding of our
operating results and financial condition.
Basis
of Consolidation
The
consolidated financial statements contained in this Report include the accounts
of OXIS International, Inc. and its subsidiaries. All intercompany balances
and
transactions have been eliminated. On December 6, 2005, we purchased 51% of
the common stock of BioCheck. This acquisition was accounted for by the purchase
method of accounting according to Statement of Financial Accounting Standards,
or SFAS, No. 141, “Business Combinations.” The consolidated statement of
operations for the year ended December 31, 2005 includes the results of
operations of BioCheck from December 6, 2005, the date of acquisition, and
the
consolidated balance sheet at December 31, 2005 includes the assets and
liabilities of BioCheck.
Revenue
Recognition
We
manufacture, or have manufactured on a contract basis, research and diagnostic
assays and fine chemicals, which are our primary products sold to customers.
Revenue from the sale of our products, including shipping fees, is recognized
when title to the products is transferred to the customer which usually occurs
upon shipment or delivery, depending upon the terms of the sales order and
when
collectibility is reasonably assured. Revenue from sales to distributors of
our
products is recognized, net of allowances, upon delivery of product to the
distributors. According to the terms of individual distributor contracts, a
distributor may return product up to a maximum amount and under certain
conditions contained in its contract. Allowances are calculated based upon
historical data, current economic conditions and the underlying contractual
terms. Our mix of product sales are substantially at risk to market conditions
and demand, which may change at anytime.
We
recognize license fee revenue for licenses to our intellectual property when
earned under the terms of the agreements. Generally, revenue is recognized
upon
transfer of the license unless we have continuing obligations for which fair
value cannot be established, in which case the revenue is recognized over the
period of the obligation. We consider all arrangements with payment terms
extending beyond twelve months not to be fixed or determinable. In certain
licensing arrangements there is provision for a variable fee as well as a
non-refundable minimum amount. In such arrangements, the amount of the
non-refundable minimum guarantee is recognized upon transfer of the license
and
collectibility is reasonably assured or over the period of the obligation,
as
applicable, and the amount of the variable fee is recognized as revenue when
it
is fixed and determinable. We recognize royalty revenue based on reported sales
by third party licensees of products containing our materials, software and
intellectual property. Non-refundable royalties, for which there are no further
performance obligations, are recognized when due under the terms of the
agreements.
Inventories
Inventories
are stated at the lower of cost to purchase and/or manufacture the inventory
or
the current estimated market value of the inventory. We regularly review our
inventory quantities on hand and record a provision for excess and obsolete
inventory based primarily on our estimated forecast of product demand and/or
our
ability to sell the products and production requirements. Demand for our
products can fluctuate significantly. Factors which could affect demand for
our
products include unanticipated changes in consumer preferences, general market
conditions or other factors, which may result in cancellations of advance orders
or a reduction in the rate of reorders placed by customers and/or continued
weakening of economic conditions. Additionally, our estimates of future product
demand may be inaccurate, which could result in an understated or overstated
provision required for excess and obsolete inventory. Our estimates are based
upon our understanding of historical relationships which can change at
anytime.
Long-Lived
Assets
Our
long-lived assets include property, plant and equipment, capitalized costs
of
filing patent applications and goodwill and other assets. See Notes 1, 4, 5
and
6 to the audited consolidated financial statements included in this Report
for
more detail regarding our long-lived assets. We evaluate our long-lived assets
for impairment in accordance with SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets” whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
Estimates of future cash flows and timing of events for evaluating long-lived
assets for impairment are based upon management’s judgment. If any of our
intangible or long-lived assets are considered to be impaired, the amount of
impairment to be recognized is the excess of the carrying amount of the assets
over its fair value. The net carrying values of long-lived assets at December
31, 2005, subject to possible impairment charges in the future, are presented
by
location in the following table below:
|
|
Foster
City,
California
|
|
Portland,
Oregon
|
|
Total
|
|
Furniture
and equipment
|
|
$
|
141,000
|
|
$
|
63,000
|
|
$
|
204,000
|
|
Leasehold
improvements
|
|
|
39,000
|
|
|
−
|
|
|
39,000
|
|
Patents
|
|
|
15,000
|
|
|
816,000
|
|
|
831,000
|
|
Goodwill
and other assets
|
|
|
1,291,000
|
|
|
−
|
|
|
1,291,000
|
|
|
|
$
|
1,486,000
|
|
$
|
879,000
|
|
$
|
2,365,000
|
|
Applicable
long-lived assets are amortized or depreciated over the shorter of their
estimated useful lives, the estimated period that the assets will generate
revenue, or the statutory or contractual term in the case of patents. Estimates
of useful lives and periods of expected revenue generation are reviewed
periodically for appropriateness and are based upon management’s judgment.
Goodwill and other assets are not amortized.
Certain
Expense and Liabilities
On
an
ongoing basis, management evaluates its estimates related to certain expenses
and accrued liabilities. We base our estimates on historical experience and
on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of liabilities that are not readily apparent from other
sources. Actual results may differ materially from these estimates under
different assumptions or conditions.
Stock-Based
Compensation
Statement
of Financial Accounting Standards, or SFAS, No. 123, “Accounting for Stock-Based
Compensation” encourages the use of the fair value based method of accounting
for stock-based employee compensation. Alternatively, SFAS No. 123 allows
entities to continue to apply the intrinsic value method prescribed by
Accounting Principles Board, or APB, Opinion 25, “Accounting for Stock Issued to
Employees”, and related interpretations and provide pro forma disclosures of net
income (loss) and earnings (loss) per share, as if the fair value based method
of accounting had been applied to employee awards. We follow the fair valued
based method for non-employee awards and have elected to continue to apply
the
provisions of APB Opinion 25 and provide the disclosures required by SFAS No.
123 and SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and
Disclosure.” During December 2004, Statement of Financial Accounting Standards
No. 123 (revised 2004), or SFAS 123R, “Share Based Payment,” was issued
requiring the expensing of all stock-based compensation effective January 1,
2006. We are evaluating the effects of SFAS 123R and believe its implementation
effect on our financial statements will be similar as disclosed in Note 1 to
the
audited consolidated financial statements included in this Report. Methodologies
used for calculations such as the Black-Scholes option-pricing model and
variables such as volatility and expected life are based upon management’s
judgment. Such methodologies and variables are reviewed and updated periodically
for appropriateness and affect the amount of recorded charges. See Notes 1
and 9
to the audited consolidated financial statements included in this Report for
more information on the amounts, methodologies and variables related to non-cash
stock-based compensation charges.
Inflation
We
believe that inflation has not had a material adverse impact on our business
or
operating results during the periods presented.
Off-balance
Sheet Arrangements
We
have
no off-balance sheet arrangements.
RISK
FACTORS
Risks
Related to Our Business
We
operate in a rapidly changing environment that involves a number of risks,
some
of which are beyond our control. The following discussion highlights some of
these risks and others are discussed elsewhere in this Report.
We
will need to raise additional capital to fund our general and administrative
expenses, and if we are unable to raise them, we will have to curtail or cease
operations.
The
cash
held by the OXIS parent company of $332,000 at December 31, 2005, and, the
$200,000 debt financing arrangement that we entered into with our Chief
Executive Officer, Steve Guillen during March 2006, is not sufficient to
continue operations through the second quarter of 2006 without additional
financings. We are seeking loan and equity financings to obtain sufficient
funds
to sustain operations, including our development and commercialization programs,
to implement our marketing campaign and purchase the remaining 49% of BioCheck
common stock we do not own. We have incurred significant obligations in relation
to our relocation to Foster City, California and our integration of operations
with BioCheck, including severance benefits for terminated employees, the hiring
of new personnel, our contractual obligations to consultants and moving
expenses. We have also incurred debt in the amount of $200,000 to our Chief
Executive Officer which we will need to repay on or before September 10, 2006.
If we are unable to raise additional capital in the second quarter of 2006
we
will have to curtail or cease operations. If we raise short term capital by
incurring additional debt, we will have to obtain equity financing sufficient
to
repay such debt and accrued interest. Further, incurring additional debt may
make it more difficult for us to successfully consummate future equity
financings.
We
will need to raise additional capital in order to complete our acquisition
of
the outstanding shares of BioCheck, Inc.
On
September 19, 2005 we entered into a Stock Purchase Agreement with BioCheck
and
the stockholders of BioCheck pursuant to which OXIS undertook to purchase up
to
all of the outstanding shares of common stock of BioCheck for an aggregate
purchase price of $6.0 million in cash. On December 6, 2005, pursuant to
the terms of the Stock Purchase Agreement with BioCheck, at the initial closing,
we purchased an aggregate of fifty-one percent (51%) of the outstanding shares
of common stock of BioCheck from each of the shareholders of BioCheck on a
pro
rata basis, for an aggregate of $3,060,000 in cash. Pursuant to the Stock
Purchase Agreement, OXIS will use its reasonable best efforts to consummate
a
follow-on financing transaction to raise additional capital with which to
purchase the remaining outstanding shares of BioCheck in one or more additional
closings. The purchase price for any BioCheck shares purchased after the initial
closing will be increased by an additional 8% per annum from the date of the
initial closing through the date of such purchase. If OXIS has not purchased
all
of the outstanding shares of BioCheck within twelve months of the initial
closing, the earnings before interest, taxes, depreciation and amortization
expenses, or EBITDA, if any, of BioCheck will be used to repurchase the
remaining outstanding BioCheck shares at one or more additional closings. There
can be no assurance that there will be any EBITDA of BioCheck in the next
several years which could be utilized to purchase additional shares of BioCheck
pursuant to the Stock Purchase Agreement. Even if there is some amount of
BioCheck EBITDA available to purchase additional shares of BioCheck, there
can
be no assurance that such EBITDA would be sufficient to complete our acquisition
of the remaining 49% of BioCheck outstanding shares.
To
avoid
an increase in the purchase price of the remaining shares of BioCheck at the
rate of 8% per annum, we will need to consummate a financing transaction to
complete the acquisition of the remaining 49% of the outstanding shares of
BioCheck. The successful completion of our acquisition of BioCheck is dependent
upon obtaining financing on acceptable terms. No assurances can be given that
we
will be able to complete such a financing sufficient to undertake our
acquisition of the outstanding shares of BioCheck on terms favorable to us,
or
at all. Any financing that we do undertake to finance the acquisition of
BioCheck will likely involve dilution of our common stock if it is an equity
financing or will involve the assumption of significant debt by
OXIS.
We
will need additional financing in order to complete our development and
commercialization programs.
As
of
December 31, 2005, we had an accumulated deficit of approximately $65,379,000.
We currently do not have sufficient capital resources to complete the
development and commercialization of our antioxidant therapeutic technologies
and oxidative stress assays, and no assurances can be given that we will be
able
to raise such capital in the future on terms favorable to us, or at all. The
unavailability of additional capital could cause us to cease or curtail our
operations and/or delay or prevent the development and marketing of our
potential products. In addition, we may choose to abandon certain issued United
States and international patents that we deem to be of lesser importance to
our
strategic direction, in an effort to preserve our financial resources.
Our
future capital requirements will depend on many factors including the following:
•
|
|
continued
scientific progress in our research and development programs and
the
commercialization of additional products;
|
•
|
|
the
cost of our research and development and commercialization activities
and
arrangements, including sales and marketing;
|
•
|
|
the
costs associated with the scale-up of manufacturing;
|
•
|
|
the
success of pre-clinical and clinical trials;
|
•
|
|
the
establishment of and changes in collaborative relationships;
|
•
|
|
the
time and costs involved in filing, prosecuting, enforcing and defending
patent claims;
|
•
|
|
the
time and costs required for regulatory approvals;
|
•
|
|
the
acquisition of additional technologies or businesses;
|
•
|
|
technological
competition and market developments; and
|
•
|
|
the
cost of complying with the requirements of the AMF in
France
|
We
will
need to raise additional capital to fund our development and commercialization
programs. Our current capital resources are not sufficient to sustain operations
and our development programs with respect to our cardiovascular predictor
product and Ergothioneine as a nutraceutical supplement. We have granted a
licensee exclusive worldwide rights, in certain defined areas of cardiovascular
indications, to develop, manufacture and market BXT-51072 and related compounds
from our library of such antioxidant compounds. The licensee is responsible
for
worldwide product development programs with respect to the licensed compounds.
Due to the lack of financial resources, we ceased further testing of BXT-51072
but continue to review the possibility of further developing applications for
BXT-51072 and related compounds outside of the areas defined in the license.
However, further development and commercialization of antioxidant therapeutic
technologies, oxidative stress assays or currently unidentified opportunities,
or the acquisition of additional technologies or businesses, may require
additional capital. The fact that further development and commercialization
of a
product or technology would require us to raise additional capital, would be
an
important factor in our decision to engage in such further development or
commercialization. No assurances can be given that we will be able to raise
such
funds in the future on terms favorable to us, or at all.
If
we
complete our acquisition of BioCheck, our business could be materially and
adversely affected if we fail to adequately integrate the operations of the
two
companies.
If
we
complete the acquisition, or the Acquisition, of BioCheck as planned and we
do
not successfully integrate the operations of the two companies, or if the
benefits of the transaction do not meet the expectations of financial or
industry analysts, the market price of our common stock may decline. The
Acquisition could result in the use of significant amounts of cash, dilutive
issuances of equity securities, or the incurrence of debt or expenses related
to
goodwill and other intangible assets, any of which could materially adversely
affect our business, operating results and financial condition.
We
may
not be able to successfully integrate the BioCheck business into our existing
business in a timely and non-disruptive manner, or at all. In addition, the
Acquisition may could
result in, among other things, substantial
charges
associated with acquired in-process research and development, future write-offs
of goodwill that is deemed to be impaired, restructuring charges related to
consolidation of operations, charges associated with unknown or unforeseen
liabilities of acquired businesses and increased general and administrative
expenses. Furthermore, the Acquisition may not produce revenues, earnings or
business synergies that we anticipate. In
addition, we depend on
BioCheck for the
manufacturing of research assay test kits without the
benefit of a formal agreement with BioCheck. There can be no assurance that
BioCheck will continue to manufacture our research assay test kits.
In
addition, acquisitions in general involve numerous risks, including:
•
|
|
difficulties
in assimilating the operations, technologies, products and personnel
of an
acquired company;
|
•
|
|
risks
of entering markets in which we have either no or limited prior
experiences;
|
•
|
|
the
diversion of management’s attention from other business concerns; and
|
•
|
|
the
potential loss of key employees of an acquired company.
|
The
time,
capital management and other resources spent on the Acquisition, if it fails
to
meet our expectations, could cause our business and financial condition to
be
materially and adversely affected.
Our
relocation plan could adversely affect our operations.
As
part
of our decision to acquire BioCheck we are implementing a relocation and
integration plan, including implementing a strategy to reduce our cost
structure. In doing so, we have significantly reduced our employee workforce
from fifteen full time employees to four, outsourced certain company functions
and have taken other steps intended to reduce costs and improve
efficiencies. Our
business may be disrupted and adversely affected by this reduction in work
force
and our need to replace certain positions. Our business may also be disrupted
due to our move to new facilities.
Employee
terminations, including the payment of severance benefits and other cost
reduction steps will cause us to incur upfront costs and expenses that may
be
significant. There can be no assurances that we will be able to improve
efficiencies and function properly following such reductions.
We
may experience disruption or may fail to achieve any benefits in connection
with
the recent changes in executive management and in Board membership.
During
the second quarter of 2004, our former chief executive officer retired, and
during the third quarter of 2004 our chief operating and financial officer
left
the employment of our company. As a result, others who had limited experience
with OXIS were appointed to serve as acting chief executive officer, acting
chief operating officer and acting chief financial officer.
On February 28, 2005, the Board appointed Mr. Steven T. Guillen to the
positions of president and chief executive officer of OXIS, and as a member
of
our board. On January 6, 2006, we hired Michael D. Centron as our vice president
and chief financial officer. In addition, during 2004 and early 2005, following
the acquisition of a then-majority interest in OXIS by Axonyx, eight directors
resigned from the board resulting in a four person board. During 2005 we added
independent director John E. Repine, M.D., and on March 15, 2006 Gary M. Post
joined our Board of Directors, resulting in a six person board. Five out of
the
six directors currently serving on the board commenced their service on the
board during the period of 2004 through the date hereof.
One
impact of such changes has been to delay our sales promotions in the research
assay market and in the development of Ergothioneine market opportunities.
Further, we narrowed our strategic focus to concentrate resources, including
discontinuing our Animal Health Profiling program. There can be no assurances
that these changes will not cause further disruptions in, or otherwise adversely
affect, our business and results of operations.
If
we
fail to attract and retain key personnel, our business could suffer.
Our
future depends, in part, on our ability to attract and retain key personnel.
We
may not be able to hire and retain such personnel at compensation levels
consistent with our existing compensation and salary structure. We deferred
the
hiring of senior management personnel in order to allow our newly-engaged full
time chief executive officer to select such key personnel. While we have
succeeded in engaging Mr. Steven T. Guillen as our president and chief executive
officer, and Michael D. Centron as our chief financial officer, we cannot
predict whether we will be successful in finding suitable new candidates for
key
management positions within OXIS. While we have entered into letter agreements
of employment with Mr. Guillen, and Mr. Centron, they are free to terminate
their employment “at will.” Further, we cannot predict whether Mr.
Guillen or Mr. Centron will
be
successful in their new roles as our president and chief executive officer,
and
chief financial officer, or whether senior management personnel hires will
be
effective. The loss of services of executive officers or key personnel, any
transitional difficulties with our new chief executive officer or the inability
to attract qualified personnel could have a material adverse effect on our
financial condition and business. We
do not
have any key employee life insurance policies with respect to any of our
officers.
The
success of our business depends upon our ability to successfully develop and
commercialize products.
We
cannot
assure you that our efforts to develop and commercialize a cardiac predictor
product, an Ergothioneine
nutraceutical product or any other products will be successful. The cost of
such
development and commercialization efforts can be significant and the likelihood
of success of any such programs is difficult to predict. The failure to develop
or commercialize such new products could be materially harmful to us and our
financial condition.
Our
future profitability is uncertain.
We
cannot
predict our ability to reduce our costs or achieve profitability. Our research
and development expenses are expected to increase as we attempt to develop
potential products. As evidenced by the substantial net losses during 2004
and
2005, losses and expenses may increase and fluctuate from quarter to quarter.
There can be no assurance that we will ever achieve profitable operations.
We
have no biopharmaceutical or clinical diagnostic products available for sale
and
we may never be successful in developing products suitable for
commercialization.
All
of
our biopharmaceutical and clinical diagnostic candidates are at an early stage
of development and all of such therapeutic and clinical diagnostic candidates
will require expensive and lengthy testing and regulatory clearances. None
of
our therapeutic or clinical diagnostic candidates have been approved by
regulatory authorities. We have no therapeutic or clinical diagnostic products
available for sale and we may not have any products commercially available
for
several years, if at all. There are many reasons we may fail in our efforts
to
develop our therapeutic and clinical diagnostic candidates,
including:
•
|
|
our
therapeutic and clinical diagnostic candidates may be ineffective,
toxic
or may not receive regulatory clearances,
|
•
|
|
our
therapeutic and clinical diagnostic candidates may be too expensive
to
manufacture or market or may not achieve broad market
acceptance,
|
•
|
|
third
parties may hold proprietary rights that may preclude us from developing
or marketing our therapeutic and clinical diagnostic candidates,
or
|
•
|
|
third
parties may market equivalent or superior
products.
|
.
Clinical
development is inherently uncertain and expense levels may fluctuate
unexpectedly because we cannot accurately predict the timing and level of such
expenses.
Our
future success may depend in part upon the results of clinical trials undertaken
by us or our licensees designed to assess the safety and efficacy of our
potential products. We do not have substantial experience in developing and
running clinical trials. The completion of clinical trials often depends
significantly upon the rate of patient enrollment, and our expense levels will
vary depending upon the rate of enrollment. In addition, the length of time
necessary to complete clinical trials and submit an application for marketing
and manufacturing approvals varies significantly and is difficult to predict.
The expenses associated with each phase of development depend upon the design
of
the trial. The design of each phase of trials depends in part upon results
of
prior phases, and additional trials may be needed at each phase. As a result,
the expense associated with future phases cannot be predicted in advance.
Further, if we undertake clinical trials, we may decide to terminate or suspend
ongoing trials. Failure to comply with extensive FDA regulations may result
in
unanticipated delay, suspension or cancellation of a trial or the FDA's refusal
to accept test results. The FDA may also suspend our clinical trials at any
time
if it concludes that the participants are being exposed to unacceptable risks.
As a result of these factors, we cannot predict the actual expenses that we
will
incur with respect to clinical trials for any of our potential products, and
we
expect that our expense levels will fluctuate unexpectedly in the future.
Competition
in most of our primary current and potential market areas is intense and
expected to increase.
The
diagnostic, pharmaceutical and nutraceutical industries are highly competitive.
The main commercial competition at present in our research assay business is
represented by, but not limited to, the following companies: Cayman Chemical
Company, Assay Designs and Randox Laboratories Ltd. In addition, our competitors
and potential competitors include large pharmaceutical/nutraceutical companies,
universities and research institutions. Relative to OXIS, these competitors
may
have substantially greater capital resources, research and development staffs,
facilities, as well as greater expertise manufacturing and making products.
In
addition, these companies, as well as others, may have or may develop new
technologies or use existing technologies that are, or may in the future be,
the
basis for competitive products. There can be no assurance that we can compete
successfully.
In
addition, current and potential competitors may make strategic acquisitions
or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of our
current and prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect our ability to commercialize existing technologies or new
technologies on terms favorable to us. Further, competitive pressures could
require us to reduce the price of our products and technologies, which could
materially adversely affect our business, operating results and financial
condition. We may not be able to compete successfully against current and future
competitors and any failure to do so would have a material adverse effect upon
our business, operating results and financial condition.
Axonyx
holds the voting power to influence matters affecting us.
Axonyx
currently owns approximately 33% of our issued and outstanding stock. In
addition, Dr. Marvin Hausman is a member of the board of directors of Axonyx
and
is the chairman of our board of directors, and Mr. S. Colin Neill, the chief
financial officer of Axonyx, is a member of our board of directors and secretary
of OXIS. Given these circumstances, Axonyx may influence our business direction
and policies, and, thus, may have the ability to control certain material
decisions affecting us. In addition, such concentration of voting power could
have the effect of delaying, deterring or preventing a change of control or
other business combination that might otherwise be beneficial to our
shareholders. Section 203 of the Delaware General Corporation Law prohibits
a
Delaware corporation from engaging in any business combination with any
interested shareholder for a period of three years unless the transaction meets
certain conditions. Section 203 also limits the extent to which an
interested shareholder can receive benefits from our assets. These provisions
could complicate or prohibit certain transactions (including a financing
transaction between OXIS and Axonyx), or limit the price that other investors
might be willing to pay in the future for shares of our common
stock.
If
we
are unable to develop and maintain alliances with collaborative partners, we
may
have difficulty developing and selling our products and services.
Our
ability to realize significant revenues from new products and technologies
is
dependent upon, among other things, our success in developing business alliances
and licensing arrangements with nutraceutical/biopharmaceutical and/or health
related companies to develop and market these products. To date, we have had
limited success in establishing foundations for such business alliances and
licensing arrangements and there can be no assurance that our efforts to develop
such business relationships will progress to mature relationships or that any
such relationships will be successful. Further, relying on these or other
alliances is risky to our future success because:
•
|
|
our
partners may develop products or technologies competitive with
our
products and technologies;
|
•
|
|
our
partners may not devote sufficient resources to the development
and sale
of our products and technologies;
|
•
|
|
our
collaborations may be unsuccessful; or
|
•
|
|
we
may not be able to negotiate future alliances on acceptable terms.
|
Our
revenues and quarterly results have fluctuated historically and may continue
to
fluctuate, which could cause our stock price to decrease.
Our
revenues and operating results may fluctuate due in part to factors that are
beyond our control and which we cannot predict. Material shortfalls in revenues
will materially adversely affect our results and may cause us to experience
losses. In particular, our revenue growth and profitability depend on sales
of
our research assays and fine chemicals. Factors that could cause sales for
these
products and other products to fluctuate include:
•
|
|
an
inability to produce products in sufficient quantities and with
appropriate quality;
|
•
|
|
an
inability to obtain sufficient raw materials;
|
•
|
|
the
loss of or reduction in orders from key customers;
|
•
|
|
variable
or decreased demand from our customers;
|
•
|
|
the
receipt of relatively large orders with short lead times;
|
•
|
|
our
customers' expectations as to how long it takes us to fill future
orders;
|
•
|
|
customers'
budgetary constraints and internal acceptance review procedures;
|
•
|
|
there
may be only a limited number of customers that are willing to purchase
our
research assays and fine chemicals;
|
•
|
|
a
long sales cycle that involves substantial human and capital resources;
and
|
•
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|
potential
downturns in general or in industry specific economic
conditions.
|
Each
of
these factors has impacted, and may in the future impact, the demand for and
availability of our products and our quarterly operating results. For example,
due to the unavailability of beef liver as a source for bSOD we were unable
to
sell any bSOD during 2005 and 2004, as compared to sales of $562,000 in 2003.
We
do not
anticipate this source becoming available again within the foreseeable future
and do not anticipate any revenues from sales of this product in the foreseeable
future. In addition, a decrease in the demand for our Ergothioneine product
resulted in a reduction of sales of Ergothioneine to $18,000 in 2005 and $87,000
in 2004, compared to $333,000 in 2003. We cannot predict with any certainty
our
future sales of Ergothioneine.
If
the
sales or development cycles for research assays and fine chemicals lengthen
unexpectedly, our revenues may decline or not grow as anticipated and our
results from operations may be harmed.
Changes
in accounting standards regarding stock option plans could increase our reported
losses, cause our stock price to decline and limit the desirability of granting
stock options.
The
Financial Accounting Standards Board has issued regulations that eliminate
the
ability to account for share-based compensation transactions using the intrinsic
method that we currently use and would require that such transactions be
accounted for using a fair-value-based method and recognized as an expense
in
our consolidated statement of operations. As currently contemplated, we are
now
required to expense stock options after January 1, 2006. Currently, we
generally only disclose such expenses on a pro forma basis in the notes to
our
consolidated financial statements in accordance with accounting principles
generally accepted in the United States. Expensing such stock options will
add
to our losses or reduce our profits, if any. In addition, stock options are
an
important employee recruitment and retention tool, and we may not be able to
attract and retain key personnel if we reduce the scope of our employee stock
option program.
Our
income may suffer if we receive relatively large orders with short lead times,
or our manufacturing capacity does not otherwise match our demand.
Because
we cannot immediately adapt our production capacity and related cost structures
to rapidly changing market conditions, when demand does not meet our
expectations, our manufacturing capacity will likely exceed our production
requirements. Fixed costs associated with excess manufacturing capacity could
adversely affect our income. Similarly, if we receive relatively large orders
with short lead times, we may not be able to increase our manufacturing capacity
to meet product demand, and, accordingly, we will not be able to fulfill orders
in a timely manner. During a market upturn, we may not be able to purchase
sufficient supplies to meet increasing product demand. In addition, suppliers
may extend lead times, limit supplies or increase prices due to capacity
constraints or other factors. These factors could materially and adversely
affect our results.
Our
success will require that we establish a strong intellectual property position
and that we can defend ourselves against intellectual property claims from
others.
Maintaining
a strong patent position is important to our competitive advantage. We currently
have 82 patents either granted or applied for in 15 countries with expiration
dates ranging from 2006 to 2024. Litigation on patent-related matters has been
prevalent in our industry and we expect that this will continue. Patent law
relating to the scope of claims in the technology fields in which we operate
is
still evolving and the extent of future protection is highly uncertain, so
there
can be no assurance that the patent rights we have or may obtain will be
valuable. Others may have filed, or may in the future file, patent applications
that are similar or identical to ours. To determine the priority of inventions,
we may have to participate in interference proceedings declared by the United
States Patent and Trademark Office that could result in substantial costs in
legal fees and could substantially affect the scope of our patent protection.
We
cannot assure investors that any such patent applications will not have priority
over our patent applications. Further, we may choose to abandon certain issued
United States and international patents that we deem to be of lesser importance
to our strategic direction, in an effort to preserve our financial resources.
Abandonment of patents could substantially affect the scope of our patent
protection. In addition, we may in future periods incur substantial costs in
litigation to defend against patent suits brought by third parties or if we
initiate such suits.
In
addition to patent protection, we also rely upon trade secret protection for
our
confidential and proprietary information. There can be no assurance, however,
that such measures will provide adequate protection for our trade secrets or
other proprietary information. In addition, there can be no assurance that
trade
secrets and other proprietary information will not be disclosed, that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to or disclose our trade secrets and
other proprietary information. If we cannot obtain, maintain or enforce
intellectual property rights, competitors can design and commercialize competing
technologies.
We
may
face challenges from third parties regarding the validity of our patents and
proprietary rights, or from third parties asserting that we are infringing
their
patents or proprietary rights, which could result in litigation that would
be
costly to defend and could deprive us of valuable rights.
Extensive
litigation regarding patents and other intellectual property rights has been
common in the biotechnology and pharmaceutical industries. The defense and
prosecution of intellectual property suits, United States Patent and Trademark
Office interference proceedings, and related legal and administrative
proceedings in the United States and internationally involve complex legal
and
factual questions. As a result, such proceedings are costly and time-consuming
to pursue and their outcome is uncertain. Litigation may be necessary to:
•
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|
enforce
patents that we own or license;
|
•
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|
protect
trade secrets or know-how that we own or license; or
|
•
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|
determine
the enforceability, scope and validity of the proprietary rights
of
others.
|
Our
involvement in any litigation, interference or other administrative proceedings
could cause us to incur substantial expense and could significantly divert
the
efforts of our technical and management personnel. An adverse determination
may
subject us to loss of our proprietary position or to significant liabilities,
or
require us to seek licenses that may not be available from third parties. An
adverse determination in a judicial or administrative proceeding, or a failure
to obtain necessary licenses, may restrict or prevent us from manufacturing
and
selling our products. Costs associated with these arrangements may be
substantial and may include ongoing royalties. Furthermore, we may not be able
to obtain the necessary licenses on satisfactory terms, if at all. These
outcomes could materially harm our business, financial condition and results
of
operations.
We
may be exposed to liability due to product defects.
The
risk
of product liability claims is inherent in the testing, manufacturing, marketing
and sale of our products. We may seek to acquire additional insurance for
liability risks. We may not be able to obtain such insurance or general product
liability insurance on acceptable terms or in sufficient amounts. A product
liability claim or recall could have a serious adverse effect on our business,
financial condition and results of operations.
Disclosure
controls are no assurance that the objectives of the control system are
met.
Although
we have an extensive operating history, resources are limited for the
development and maintenance of our control environment. We have a very limited
number of personnel and therefore segregation of duties can be somewhat limited
as to their scope and effectiveness. We believe, however, that we are in
reasonable compliance with the best practices given the environment in which
we
operate. Although existing controls in place are deemed appropriate for the
prevention, detection and minimization of fraud, theft, and errors, they may
result in only limited assurances, at best, that the total objectives of the
control system are met. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, can be detected and/or prevented
and as such this is a risk area for investors to consider.
Risks
Related to Our Common Stock
Our
common stock is traded on the OTCBB, our stock price is highly volatile, and
you
may not be able to sell your shares of our common stock at a price greater
than
or equal to the price you paid for such shares.
Our
shares of common stock are currently traded on the Over the Counter Bulletin
Board, or OTCBB. Stocks traded on the OTCBB generally have limited trading
volume and exhibit a wide spread between the bid/ask quotation. The market
price
of our common stock is extremely volatile. To demonstrate the volatility of
our
stock price, during the twelve-month period ending on December 31, 2005, the
volume of our common stock traded on any given day ranged from 0 to 1,855,000
shares. Moreover, during that period, our common stock traded as low as
$0.24 per
share
and as high as $0.57 per share, a 237.50% difference. This may impact an
investor’s decision to buy or sell our common stock. As of December 31, 2005
there were approximately 5,500 holders of our common stock. Factors affecting
our stock price include:
•
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|
our
financial results;
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•
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|
fluctuations
in our operating results;
|
•
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|
announcements
of technological innovations or new commercial health care products
or
therapeutic products by us or our competitors;
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•
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|
government
regulation;
|
•
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|
developments
in patents or other intellectual property rights;
|
•
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|
developments
in our relationships with customers and potential customers; and
|
•
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general
market conditions.
|
Furthermore,
volatility in the stock price of other companies has often led to securities
class action litigation against those companies. Any such securities litigation
against us could result in substantial costs and divert management's attention
and resources, which could seriously harm our business and financial
condition.
In
addition, the 12,264,158 shares of our common stock, and the 12,877,366 shares
of our common stock that are issuable upon exercise of warrants that we issued
in the private placement of equity that closed on January 6, 2005 have been
registered with the United States Securities & Exchange Commission, or SEC,
and may be sold into the market. We cannot control when and in what quantities
the selling shareholders will choose to sell shares of our common stock and
such
sales may cause the price of our common stock to decline.
Our
common stock may be subject to “penny stock” rules which may be detrimental to
investors.
Our
common stock may be, or may become, subject to the regulations promulgated
by
the SEC for “penny stock”. SEC regulation relating to penny stock is presently
evolving, and the OTCBB may react to such evolving regulation in a way that
adversely affects the market liquidity of our common stock. Penny stock
currently includes any non-NASDAQ equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. The regulations
require that prior to any non-exempt buy/sell transaction in a penny stock,
a
disclosure schedule set forth by the SEC relating to the penny stock market
must
be delivered to the purchaser of such penny stock. This disclosure must include
the amount of commissions payable to both the broker-dealer and the registered
representative and current price quotations for the common stock. The
regulations also require that monthly statements be sent to holders of penny
stock that disclose recent price information for the penny stock and information
of the limited market for penny stocks. These requirements may adversely affect
the market liquidity of our common stock.
Sales
of our common stock may require broker-dealers to make special suitability
determinations regarding prospective purchasers.
Our
common stock may be, or may become, subject to Rule 15g-1 through 15g-9 under
the Securities Exchange Act of 1934, as amended, or the Exchange Act, which
imposes certain sales practice requirements on broker-dealers which sell our
common stock to persons other than established customers and “accredited
investors” (generally, individuals with a net worth in excess of $1,000,000 or
an annual income exceeding $200,000 (or $300,000 together with their spouses)).
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s
written consent to the transaction prior to the sale. Applicability of this
rule
would adversely affect the ability of broker-dealers to sell our common stock
and purchasers of our common stock to sell their shares of such common stock.
Accordingly, the market for our common stock may be limited and the value
negatively impacted.
We
will incur expenses in connection with registration of our shares which may
be
significant.
We
are
required to pay fees and expenses incident to the registration with the SEC
of
the shares issued in the private placement of equity which closed on January
6,
2005 and maintain adequate disclosure in connection with such registration,
including updating prospectuses and under certain circumstances, filing amended
registration statements. These expenses were $302,000 in 2005, and we may incur
significant additional expenses in the future related to maintaining effective
registration statements for prior financings and any additional registrations
related to future financings. We have also agreed to indemnify such selling
shareholders against losses, claims, damages and liabilities arising out of
relating to any misstatements or omissions in our registration statement and
related prospectuses, including liabilities under the Securities Act. In the
event such a claim is made in the future, such losses, claims, damages and
liabilities arising therefrom could be significant in relation to our
revenues.
ITEM
7. FINANCIAL
STATEMENTS
The
Audited Financial Statements for this Form 10-KSB appear on pages F-1 through
F-28 following the signature page below.
ITEM
8. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM
8A. CONTROLS
AND PROCEDURES
As
of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
our
disclosure controls and procedures. Based on this evaluation, our Chief
Executive officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information required to be included in this report. It should be noted that
the
design of any system of controls is based in part upon certain assumptions
about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
There
has
been no change in our internal control over financial reporting that occurred
during our most recent fiscal quarter that has materially affected or is
reasonably likely to materially affect our internal control over financial
reporting.
ITEM
8B. OTHER INFORMATION
None.
PART
III
ITEM
9. DIRECTORS,
EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE
EXCHANGE ACT
The
following table sets forth certain information with respect to each of our
directors and executive officers as of March 24, 2006.
Name
|
|
Age
|
|
Position
|
Marvin Hausman, M.D.
|
|
64
|
|
Chairman
of the Board (1)
|
Steven T. Guillen
|
|
54
|
|
President,
Chief Executive Officer and Director
|
S.
Colin Neill
|
|
59
|
|
Secretary
and Director (2)
|
Gary
M. Post
|
|
57
|
|
Director
(3)
|
John
E. Repine, M.D.
|
|
61
|
|
Director
(3)
|
Timothy C. Rodell, M.D.
|
|
55
|
|
Director
(4)
|
Michael
D. Centron
|
|
50
|
|
Vice
President, Chief Financial Officer
|
________________
(1)
|
Chairman
of the Compensation Committee
|
(2)
|
Member
of the Nominating Committee, and Chairman of the Audit Committee,
serves
as our designated audit committee financial expert.
|
(3)
|
Member
of the Audit Committee
|
(4)
|
Chairman
of the Nominating Committee and member of the Compensation
Committee.
|
Marvin
S. Hausman, M.D.
Chairman
of the Board.
Dr.
Hausman was appointed to the Board of Directors on August 20, 2004. Previously,
Dr. Hausman served on the Board of Directors from March 2002 to November 2003.
On December 10, 2004, the Board of Directors appointed Marvin S. Hausman, M.D.
to serve as Chairman of the Board, acting Chief Executive Officer and acting
Chief Financial Officer of OXIS. On February 28, 2005, Dr. Hausman ceased to
be
the Company’s Chief Executive Officer. Dr. Hausman has served as a director and
as Chairman of the Board of Axonyx since 1997, and had served as President
and
Chief Executive Officer of Axonyx from 1997 until September 2003 and March
2005,
respectively. Dr. Hausman served as our Acting Chief Financial Officer until
January 6, 2006 when Michael D. Centron was appointed as our full time Chief
Financial Officer. Dr. Hausman currently owns approximately 2.8% of the
outstanding common stock of OXIS, and Axonyx currently owns approximately 33%
of
the outstanding common stock of OXIS. Dr. Hausman was a co-founder of Medco
Research Inc., a pharmaceutical biotechnology company specializing in adenosine
products. He has thirty years’ experience in drug development and clinical care.
Dr. Hausman received his medical degree from New York University School of
Medicine in 1967 and has done residencies in General Surgery at Mt. Sinai
Hospital in New York, and in Urological Surgery at U.C.L.A. Medical Center
in
Los Angeles. He also worked as a Research Associate at the National Institutes
of Health, Bethesda, Maryland. He has been a Lecturer, Clinical Instructor
and
Attending Surgeon at the U.C.L.A. Medical Center Division of Urology and
Cedars-Sinai Medical Center, Los Angeles. He has been a Consultant on
Clinical/Pharmaceutical Research to various pharmaceutical companies, including
Bristol-Meyers International, Mead-Johnson Pharmaceutical Company, Medco
Research, Inc., and E.R. Squibb. Since October 1995, Dr. Hausman has been the
President of Northwest Medical Research Partners, Inc., a medical technology
and
transfer company. He was a member of the Board of Directors of Medco Research,
Inc. from inception (1978) through 1992 and from May 1996 to July 1998. Dr.
Hausman was a member of the Board of Directors of Regent Assisted Living, Inc.,
a company specializing in building assisted living centers including care of
senile dementia residents, from March 1996 to April 2001.
Steven
T. Guillen
President,
Chief Executive Officer and Director.
On
February 28, 2005, Steven T. Guillen was appointed the Company’s President,
Chief Executive Officer and a member of the Company’s Board of Directors. Prior
to joining the Company, from 2001 to 2004, Mr. Guillen served as Vice President,
Sales and Marketing for Amarin Pharmaceuticals, Inc., a neuroscience company
focused on the development and commercialization of drugs for the treatment
of
neurological disorders affecting the central nervous system. From 1996 to 2001,
Mr. Guillen served as the Vice President, Sales and Marketing for Athena
Diagnostics, a company involved with the development and commercialization
of
diagnostic testing for neurological diseases. From 1991 until joining Amarin
Pharmaceuticals, Inc., Mr. Guillen held several senior level sales and marketing
positions with Elan Pharmaceuticals, an affiliate of Elan Corporation, PLC,
including from 1996 to 2001 as Vice President of Sales and Marketing for Athena
Diagnostics (Division of Elan), a reference laboratory dedicated to the
development and commercialization of diagnostic testing for neurological
disorders. Prior to joining Elan Pharmaceuticals, Mr. Guillen spent 17 years
at
Merck & Co., Inc., where he held a number of positions of increasing
responsibility, including responsibility for the training and development of
a
350 member sales management team. Mr. Guillen holds a B.S. in Zoology, with
a
minor in Chemistry, from the University of California, Davis, and MBA from
the
University of California, Riverside.
S.
Colin Neill
Secretary
and Director. Mr.
Neill
was appointed to the Board of Directors in April 2004. Mr. Neill joined Axonyx
in September 2003 as Chief Financial Officer and Treasurer and was named
Secretary in January 2004. From April 2001 to September 2003, Mr. Neill had
been
an independent consultant assisting small development stage companies raise
capital. Previously, Mr. Neill served as Senior Vice President, Chief Financial
Officer, Secretary and Treasurer of ClinTrials Research Inc., a publicly traded
global contract research organization in the drug development business, from
1998 until its sale in April 2001. Prior to that, Mr. Neill served as Vice
President and Chief Financial Officer of Continental Health Affiliates Inc.
and
its majority owned subsidiary Infu-Tech Inc. Mr. Neill’s experience has included
that of Acting Vice President Finance and Chief Financial Officer of Pharmos
Corporation, a biopharmaceutical company in the business of developing novel
drug technologies. Earlier experience was gained as Vice President Finance
and
Chief Financial Officer of BTR Inc., a U.S. subsidiary of BTR plc, a British
diversified manufacturing company, and Vice President Financial Services of
The
BOC Group Inc., a British owned industrial gas company with substantial
operations in the health care field. Mr. Neill served for four years with
American Express Travel Related Services, first as chief internal auditor for
worldwide operations and then as head of business planning and financial
analysis. Mr. Neill began his career in public accounting with Arthur Andersen
LLP in Ireland and later with Price Waterhouse LLP as a senior manager in New
York City. He also served with Price Waterhouse for two years in Paris, France.
Gary
M. Post
Director.
Mr.
Post
has served as a director of OXIS since March 15, 2006. Since 1999 Mr. Post
has
been the Managing Director and Investment Principal of Ambient Advisors, LLC.
Ambient Advisors primarily invests its own and its partners’ capital in private
and public companies with a particular interest in the health care and life
sciences sector and certain other special situations. Ambient Advisors also
actively advises these companies, sometimes taking interim management roles.
In
his capacity as Managing Director at Ambient Advisors, Mr. Post has acted as
an
interim Chief Executive Officer in two private early to mid stage companies
that
Ambient had invested in, Opticon Medical, Inc., a medical device company and
OccMeds Billing Services, Inc., a worker’s compensation pharmacy payment
processing company. Mr. Post holds a MBA from the U.C.L.A. Graduate School
of
Management and an A.B. in Economics from Stanford University.
John
E. Repine, M.D.
Director.
Dr.
Repine has served as a director of OXIS since October 2005. Since 1996, Dr.
Repine has been the James J. Waring Professor of Medicine and Pediatrics at
the
University of Colorado Health Sciences Center. Since 1993, Dr. Repine has been
the Chief Executive Officer and President of the Webb-Waring Institute for
Cancer, Aging and Antioxidant Research. Dr.
Repine graduated from the School of Medicine and completed training in internal
medicine and pulmonary medicine at the University of Minnesota. Dr. Repine
has received many national awards for his research including an Established
Investigator Award from the American Heart Association, the Alton Ochsner Award
Relating Smoking and Health and the Senior Scholar in Aging Award from the
Ellison Medical Foundation. Dr. Repine was the Principal Investigator for 10
years for one of six National Specialized Centers of Research (SCOR) of the
National Institutes of Health for the Study of Acute Lung Injury. Dr.
Repine is a recognized expert in the study of vascular disorders, inflammation,
oxidants and antioxidants. Dr. Repine has served in various capacities
with a number of biotechnology companies.
Timothy
C. Rodell, M.D.
Director.
Since
2002, Dr. Rodell has served as Chief Executive Officer of GlobeImmune, Inc.,
a
development stage immunotherapy company focused on chronic viral diseases and
cancer. Dr. Rodell has also served as Managing Partner of MTR, Inc., a
consulting company specializing in clinical drug development and regulatory
strategy, corporate development and financing and healthcare information
technology since its inception in late 1995. Board-certified in Internal
Medicine and Pulmonary Medicine, Dr. Rodell earned his M.D. from the University
of North Carolina School of Medicine in 1980. He has completed post-doctoral
fellowships in molecular and cell biology and is a Fellow of the American
College of Chest Physicians. From 1999 until 2002, Dr. Rodell was President
and
Chief Executive Officer of RxKinetix, Inc., a private drug delivery company.
From 1996 until 2000, Dr. Rodell held various positions at OXIS, including
Chief
Technology Officer and President of OXIS International, SA, our French
subsidiary. Prior to that, Dr. Rodell was Executive Vice President of Operations
and Product Development for Cortech, Inc. Before joining Cortech, Dr. Rodell
practiced and taught emergency medicine, internal medicine and pulmonary and
critical care medicine at the University of Colorado Health Sciences Center
and
Denver General Hospital, now Denver Health.
Michael
D. Centron
Vice
President and Chief Financial Officer.
Michael
Centron has served as Vice President and Chief Financial Officer since January
2006. Prior to joining OXIS, Mr. Centron served in various positions at Large
Scale Biology Corporation from 1988 to 2005 including Vice President of Finance
and Administration, Treasurer and Controller. On
January 9, 2006, Large Scale Biology Corporation filed a voluntary petition
for
protection under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Eastern District of California. Mr.
Centron is a certified public accountant and received his B.S. in economics
from
the Wharton School of the University of Pennsylvania and his M.B.A. from the
Haas School of the University of California, Berkeley.
There
are
no family relationships between the officer and directors.
None
of
our directors, officers or affiliates, and no owner of record or beneficial
owner of more than five percent (5%) of our securities, or any associate of
any
such director, officer or security holder is a party adverse to OXIS or any
of
its subsidiaries or has a material interest adverse to OXIS or any of its
subsidiaries in reference to pending litigation.
Section
16(a) Beneficial Ownership Reporting Compliance
No
director, officer or beneficial owner of more than 10% of any class of our
equity securities failed to file a Form 3 or Form 4 on a timely basis in
2005.
Code
of Ethics
The
Board
of Directors has adopted a Code of Ethics and Business Conduct to provide
guidance to its directors, officers and employees regarding standards for
conduct of the Company’s business, which code has been delivered to all
directors, officers and employees of the Company. The full text of our Code
of
Ethics and Business Conduct is available on our website at
www.oxis.com. To
the
extent required by law, any amendments to, or waivers from, any provision of
the
code of ethics will promptly be disclosed to the public. To the extent permitted
by such legal requirements, we intend to make such public disclosure by posting
the relevant material on our website in accordance with SEC rules.
ITEM
10. EXECUTIVE
COMPENSATION
Our
compensation and benefits program is designed to attract, retain and motivate
employees to operate and manage our company for the best interests of its
constituents. Executive compensation is designed to provide incentives for
those
senior members of management who bear responsibility for our goals and
achievements. The compensation philosophy is based on a base salary and a stock
option program.
Summary
Compensation Table
The
following table summarizes the compensation earned by our Chief Executive
Officer and our Chief Financial Officer, all acting in such capacities as of
December 31, 2005, (collectively referred to as the “Named Executive Officers”).
No other individuals served in any capacity as executive officers
for us
with salary and bonus in excess of $100,000 during 2005. The aggregate amount
of
perquisites and other personal benefits, securities or properties received
by
each Named Executive Officer was less than either $50,000 or 10% of the total
annual salary and bonus reported for each respective Named Executive Officer
in
each year reported below.
|
|
|
|
|
|
Long-Term
|
|
|
|
|
|
|
|
Annual
Compensation
|
|
Compensation
- Awards
|
|
All
Other
|
|
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
Other
|
|
Securities
Underlying Options
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
T. Guillen (1)
|
|
|
2005
|
|
$
|
209,000
|
|
$
|
5,000
(2)
|
|
|
1,100,000
|
|
|
$
|
2,000
(3)
|
President,
Chief Executive
|
|
|
2004
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
|
¾
|
|
Officer
and Director
|
|
|
2003
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Marvin S. Hausman
(4)
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
(7) |
|
|
¾
|
|
Chairman
of the Board,
|
|
|
2004
|
|
|
|
|
|
¾
|
|
|
|
(7) |
|
|
¾
|
|
Acting
Chief Financial Officer,
|
|
|
2003
|
|
|
¾
|
|
|
¾
|
|
|
|
(7) |
|
|
¾
|
|
former
Acting Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Mr. Guillen was appointed President, Chief Executive Officer and Director
on February 28, 2005.
(2)
Includes $5,000 for car allowance.
(3)
Includes $2,000 for matching contribution under our 401(k)
plan.
(4)
Dr. Hausman served as Acting Chief Executive Officer from December 8, 2004
to
February 28, 2005 and as Acting Chief Financial Officer from December 8, 2004
until January 6, 2006. Dr. Hausman remains Chairman of the Board of
Directors.
(5)
Dr. Hausman did not receive a cash salary for his services as Chairman and
Acting President, Chief Executive Officer and Chief Financial Officer in either
2004 or 2005. See Director Compensation below for Dr. Hausman’s compensation as
a director.
(6)
Dr. Hausman earned $15,000 pursuant to a consulting agreement with NW Medical
Research Partners, Inc. Dr. Hausman is the sole member and manager of NW Medical
Research Partners.
(7) Includes
stock option grants as a director and consultant.
Stock
Option Grants in 2005
The
following table summarizes information regarding stock options granted to Named
Executive Officers during 2005.
Name
|
|
Number
of
Common Shares
Underlying
Options
Granted
|
|
Percent
of Total
Options
Granted
to
Employees
in
2005 (1)
|
|
Exercise
Price
(2)
|
|
Expiration
Date
|
Steven
T. Guillen
|
|
600,000
(3)
500,000
(4)
|
|
|
23.0%
19.2%
|
|
|
$0.45
$0.29
|
|
|
February
28, 2015
December
27, 2015
|
Marvin
S. Hausman, M.D.
|
|
5,000
(5)
108,000
(6)
500,000
(7)
|
|
|
0.2%
4.1%
19.2%
|
|
|
$0.34
$0.37
$0.29
|
|
|
June
21, 2015
October
4, 2015
December
27, 2015
|
(1)
Based
upon a total of 2,608,000 stock options granted to all employees in
2005.
(2)
Exercise
prices of granted stock options are equal to the closing price of our common
stock on the date prior to the date of grant.
(3)
Common
shares numbering 150,000 are exercisable on February 28, 2005 and 150,000 common
shares are exercisable annually thereafter.
(4)
Common
shares numbering 200,000 are exercisable on December 28, 2005 and 75,000 common
shares are exercisable annually thereafter.
(5)
Common
shares are exercisable on June 22, 2006.
(6)
Common
shares numbering 9,000 are exercisable on October 5, 2005 and 9,000 common
shares are exercisable monthly thereafter.
(7)
Common
shares numbering 300,000 are exercisable on February 27, 2007, and 100,000
common shares are exercisable on each of December 28, 2007 and December 28,
2008.
Aggregated
Options Exercised during 2005 and Year-End Option Values
The
following table summarizes information regarding stock options exercised by
the
Named Executive Officers in 2005 and the value of unexercised “in-the-money”
options they held at December 31, 2005.
|
|
Common
Shares Acquired
|
|
Value
|
|
Number
of Securities Underlying Unexercised Options at
December
31, 2005 (1)
|
|
Value
of Unexercised
In-the-Money
Options at
December
31, 2004 (2)
|
Name
|
|
on
Exercise
|
|
Realized
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
Steven
T. Guillen
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Marvin
S. Hausman, M.D.
|
|
—
|
|
—
|
|
30,000
|
|
—
|
|
$1,200
|
|
—
|
(1)
Options are currently all exercisable.
(2)
In-the-money options represents unexercised options having a per share exercise
price below $0.26, the closing price of our common stock at December 31, 2005.
The value of unexercised in-the-money options equals the number of in-the-money
options multiplied by the excess of $0.26 over the per-share exercise prices
of
the options. The value of unexercised in-the-money options at December 31,
2005,
may never be realized by the option holders.
Director
Compensation
We
pay an
annual fee of $4,000 to each non-employee director and an additional $1,000
to
non-employee directors for serving as committee chair. During 2005, while we
did
not make payments under this policy, such expenses were accrued. We do not
pay
meeting fees but directors are reimbursed for their expenses incurred in
attending meetings. Employee directors receive no other compensation as
directors.
Under
our
2003 Stock Incentive Plan, non-employee directors are automatically awarded
options to purchase 30,000 shares of Common Stock upon becoming directors and
automatically awarded options to purchase 5,000 shares of Common Stock annually
thereafter.
The
following table represents stock options that were granted during 2005 to
non-employee directors.
Name
|
|
Automatic
Options
Issued for
Service on Board
|
|
Discretionary
Options
|
|
Total
Options
Granted
|
|
Marvin
S. Hausman, M.D.
|
|
5,000
|
(1) |
|
608,000
|
(3) |
|
613,000
|
|
S.
Colin Neill
|
|
5,000
|
(1) |
|
100,000
|
(4) |
|
105,000
|
|
Timothy
C. Rodell, M.D.
|
|
5,000
|
(1) |
|
100,000
|
(4) |
|
105,000
|
|
John
E. Repine, M.D.
|
|
30,000
|
(2) |
|
30,000
|
(4) |
|
60,000
|
|
(1)
|
Dr.
Hausman, Mr. Neill and Dr. Rodell were granted 5,000 options on June
22,
2005 as director compensation for 2005. The exercise price is based
on the
closing price of $0.34 on June 22,
2005.
|
(2)
|
Dr.
Repine was granted 30,000 options on October 5, 2005 upon becoming
a
director. The exercise price is based on the closing price of $0.37
on
October 5, 2005.
|
(3)
|
Dr.
Hausman was granted 500,000 options on December 28, 2005 for his
services
as Chairman of the Board, and Acting Chief Executive Officer and
Acting
Chief Financial Officer during 2005. These options were issued outside
of
the OXIS 2003 Stock Incentive Plan. Dr. Hausman was also granted
108,000
options pursuant to a Consulting Agreement with NW Medical Research
Partners, Inc. Dr. Hausman is the sole member and manager of NW Medical
Research Partners. The exercise price for an option to purchase 500,000
shares of common stock is based on the closing price of $0.29 on
December
28, 2005 and an option to purchase 108,000 shares of common stock
is based
on the closing price of $0.37 on October 5,
2005.
|
(4)
|
Mr.
Neill and Dr. Rodell were granted 100,000 options and Dr. Repine
was
granted 30,000 options on December 28, 2005 for their services on
the
Board of Directors in 2005. The exercise price is based on the closing
price of $0.29 on December 28,
2005.
|
Employment
Agreements
Marvin
S.
Hausman, M.D. did not enter into an Employment Agreement with OXIS concerning
his services as Acting Chief Executive Officer and Acting Chief Financial
Officer.
On
February 28, 2005, we entered into a Letter Agreement, effective as of February
28, 2005, with Steven T. Guillen. The terms of the Letter Agreement include,
but
are not limited to, the following: (1) Mr. Guillen will serve as our President
and Chief Executive Officer; (2) Mr. Guillen’s initial annual base salary will
be $250,000, subject to annual salary and performance reviews and potential
salary increases at the sole discretion of the Board; (3) Mr. Guillen will
be
eligible for a performance-based bonus determined at the discretion of the
Board, the range of which is expected to be between 25% and 50% of Mr. Guillen’s
annual base salary, depending upon the attainment of certain goals to be
mutually agreed upon between Mr. Guillen and the Board; (4) Mr. Guillen has
received irrevocable stock option grants in the aggregate amount of 600,000
shares of our common stock under the OXIS 2003 Stock Incentive Plan, or the
Plan, and pursuant to a standalone grant outside of the Plan; (5) The options
have an exercise price per share equal to $0.40; (6) Mr. Guillen will be
entitled to full vesting of the then-unvested shares subject to the irrevocable
stock option grants upon a Change of Control (as defined in the Letter
Agreement) to include, (i) a merger, consolidation, or reorganization approved
by our stockholders, unless securities representing more than (50%) of the
total
combined voting power of the voting securities of the successor company are
immediately thereafter beneficially owned, directly or indirectly, and in
substantially the same proportion, by the persons who beneficially owned our
outstanding voting securities immediately prior to such transaction, or (ii)
any
stockholder-approved transfer or any other disposition of all of our assets,
or
(iii) the acquisition, directly or indirectly, by any person or related group
of
persons (other than OXIS or a person that directly or indirectly controls,
is
controlled by, or is under common control of, OXIS), of beneficial ownership
(within the meaning of Rule 13d of the 1934 Act) of securities possessing more
than (50%) of the total combined voting power of our outstanding securities
pursuant to a tender or exchange offer made directly to our stockholders, or
(iv) a change in the composition of the Board such that (a) five or more Board
members resign or are otherwise removed as Board members within any period
of
six consecutive months or less; (b) five or more Board members opt not to stand
for re-election to the Board within any period of six consecutive months or
less; or (c) any combination of the foregoing subsections occur such that five
or more Board member positions are affected by a combination of resignations
or
removals, or the decision not to stand for re-election, within any period of
six
consecutive months or less, or upon Mr. Guillen’s termination of his employment
with our company for “good reason” (as defined in the Letter Agreement)
(collectively, the “Acceleration Events”); (7) Mr. Guillen purchased 600,000
fully-vested shares of our common stock, at the then-current market price of
$0.40 per share from the pool of shares reserved in the Plan; (8) Mr. Guillen
has become a member of the Board; and (9) As further described and qualified
in
the Letter Agreement, Mr. Guillen will be entitled to receive certain severance
benefits, including payments equal to one month of his base salary for a period
of 12 months, in the event that: (i) OXIS terminates his employment without
“cause” (as defined in the Letter Agreement), (ii) within twelve months after a
Change of Control, Mr. Guillen terminates his employment with “good reason” (as
defined in the Letter Agreement) or (iii) Mr. Guillen’s employment terminates as
a result of his death or disability (each a “Severance Termination”).
The
percentage of shares beneficially owned is based on 42,538,397 shares of common
stock outstanding as of March 24, 2006. Shares of common stock subject to stock
options and warrants that are currently exercisable or exercisable within 60
days of March 24, 2006 are deemed to be outstanding for the purpose of computing
the percentage ownership of that person but are not treated as outstanding
for
the purpose of computing the percentage ownership of any other person. Unless
indicated below, the persons and entities named in the table have sole voting
and sole investment power with respect to all shares beneficially owned, subject
to community property laws where applicable.
Name
and, as
Appropriate,
Address of Beneficial Owner
|
|
Amount and Nature
of
Beneficial
Ownership
|
|
Percent of
Common
Stock
|
|
Axonyx
Inc.
|
|
|
|
|
|
500
7th
Avenue, 10th
Floor
|
|
|
|
|
|
New
York NY 10018 (1)
|
|
15,139,212
|
|
35.6
|
%
|
Bristol
Investment Fund, Ltd.
|
|
|
|
|
|
Bristol
Capital Advisors, LLC
10990
Wilshire Blvd., Suite 1410
|
|
|
|
|
|
Los
Angeles, CA 90024 (2)
|
|
7,735,850
|
|
16.7
|
%
|
Silverback
Asset Management, LLC
|
|
|
|
|
|
1414
Raleigh Road, Suite 250
Chapel
Hill, NC 27517 (3)
|
|
3,301,888
|
|
7.4
|
%
|
Silverback
Master Ltd.
|
|
|
|
|
|
c/o
Silverback Asset Management, LLC
1414
Raleigh Road, Suite 250
Chapel
Hill, NC 27517 (4)
|
|
2,830,190
|
|
6.4
|
%
|
Marvin
S. Hausman, M.D. (5)
|
|
15,295,407
|
|
35.8
|
%
|
S.
Colin Neill (6)
|
|
14,087,567
|
|
33.0
|
%
|
Steven
T. Guillen (7)
|
|
1,100,000
|
|
2.6
|
%
|
Timothy
C. Rodell, M.D. (8)
|
|
378,737
|
|
*
|
|
John
E. Repine, M.D. (9)
|
|
29,400
|
|
*
|
|
Gary
M. Post (10)
|
|
15,000
|
|
*
|
|
Executive
officers and directors as a group — 7 persons (11)
|
|
16,961,044
|
|
38.8
|
%
|
__________________
(1)
|
Based
on a Schedule 13D/A filed with the SEC on March 5, 2004,
filed on behalf of Axonyx and Dr. Hausman. Pursuant to the Schedule
13D/A
Axonyx has sole voting power as to 13,982,567 and (with a correction
to
the number of shares reported in such Schedule 13D/A as being held
by Dr.
Hausman) shared voting power as to 15,139,212 shares. In addition,
Axonyx
has sole dispositive power as to 13,982,567 shares and (with a correction
to the number of shares reported in such Schedule 13D/A as being
held by
Dr. Hausman) shared dispositive power as to 15,139,212 shares. Axonyx
in
the Schedule 13D/A disclaims beneficial ownership of Dr. Hausman’s shares.
|
(2)
|
Bristol
Investment Fund, Ltd.’s holdings include 3,867,925 shares of common stock,
warrants to purchase 1,933,963 shares of common stock at a price
of $0.66
per share and warrants to purchase 1,933,962 shares of common stock
at a
purchase price of $1.00 per share. Paul Kessler, manager of Bristol
Capital Advisors, LLC, the investment advisor to Bristol Investment
Fund,
Ltd., has voting and investment control over the securities held
by
Bristol Investment Fund, Ltd. Mr. Kessler disclaims beneficial ownership
of these securities.
|
(3)
|
Silverback
Asset Management, LLC Based on a Schedule 13G filed with the SEC
on
February 14, 2006 on behalf of Silverback Asset Management, LLC,
Silverback Master Ltd. and Elliott Bossen. OXIS believes that the
holdings
of Silverback Asset Management, LLC include 1,415,095 shares of common
stock, warrants to purchase 707,548 shares of common stock at a price
of
$0.66 per share and warrants to purchase 707,547 shares of common
stock at
a purchase price of $1.00 per share held by Silverback Master Ltd.
and
include warrants to purchase 235,849 shares of common stock at a
price of
$0.66 per share and warrants to purchase 235,849 shares of common
stock at
a purchase price of $1.00 per share held by Silverback Life Sciences
Master Fund Ltd. OXIS believes that Silverback Asset Management,
LLC has
shared voting power as to 1,415,095 shares of common stock and 1,415,095
shares subject to warrants held by Silverback Master Ltd. and warrants
to
purchase 235,849 shares of common stock at a price of $0.66 per share
and
warrants to purchase 235,849 shares of common stock at a purchase
price of
$1.00 per share held by Silverback Life Sciences Master Fund Ltd.
Silverback Asset Management, LLC (“SAM”) serves as investment manager to
Silverback Master Ltd. and Silverback Life Sciences Master Fund Ltd.
In
that capacity, SAM may be deemed to be the beneficial owner of securities
held by Silverback Master Ltd. and Silverback Life Sciences Master
Fund
Ltd. SAM disclaims beneficial ownership of the securities held by
Silverback Master Ltd. and Silverback Life Sciences Master Fund Ltd.
Elliot Bossen is the sole Managing Member of SAM and is primarily
responsible for the investment decisions of SAM. Elliot Bossen disclaims
beneficial ownership of the securities held by Silverback Master
Ltd. and
Silverback Life Sciences Master Fund Ltd.
|
(4)
|
Silverback
Master Ltd. Based on a Schedule 13G filed with the SEC on February
14,
2006 on behalf of Silverback Asset Management, LLC, Silverback Master
Ltd.
and Elliott Bossen. Pursuant to the Schedule 13G, Silverback Master
Ltd.’s
holdings include 1,415,095 shares of common stock, warrants to purchase
707,548 shares of common stock at a price of $0.66 per share and
warrants
to purchase 707,547 shares of common stock at a purchase price of
$1.00
per share. Silverback Asset Management, LLC (“SAM”) serves as investment
manager to Silverback Master Ltd. and Silverback Life Sciences Master
Fund
Ltd. In that capacity, SAM may be deemed to be the beneficial owner
of
securities held by Silverback Master Ltd. and Silverback Life Sciences
Master Fund Ltd. SAM disclaims beneficial ownership of the securities
held
by Silverback Master Ltd. and Silverback Life Sciences Master Fund
Ltd.
Elliot Bossen is the sole Managing Member of SAM and is primarily
responsible for the investment decisions of SAM. Elliot Bossen disclaims
beneficial ownership of the securities held by Silverback Master
Ltd. and
Silverback Life Sciences Master Fund Ltd.
|
(5)
|
The
holdings of Marvin S. Hausman, M.D. include 1,156,645 shares of common
stock and 156,195 shares issuable upon exercise of options that are
exercisable currently or within 60 days of March 24, 2006 and 13,982,567
shares held by Axonyx Inc. Dr. Hausman has sole dispositive power
as to
1,156,645 shares and shared dispositive power as to 15,139,212 shares,
including 13,982,567 shares held by Axonyx Inc. Dr. Hausman is a
director
of Axonyx Inc. Dr. Hausman in the Schedule 13D/A disclaims beneficial
ownership of Axonyx’s shares.
|
(6)
|
The
holdings of S. Colin Neill include 105,000 shares issuable upon exercise
of options that are exercisable currently or within 60 days of March
24,
2006, and 13,982,567 shares held by Axonyx because of Mr. Neill’s
continuing relationship with Axonyx. Mr. Neill is an executive officer
of
Axonyx. Mr. Neill disclaims beneficial ownership of the shares owned
by
Axonyx, except for his proportional interest therein, if any.
|
(7)
|
The
holdings of Steven T. Guillen include 600,000 shares of common stock
and
500,000 shares issuable upon exercise of options that are exercisable
currently or within 60 days of March 24, 2006.
|
(8)
|
The
holdings of director Timothy C. Rodell include 1,000 shares of common
stock and 377,737 shares issuable upon exercise of options that are
exercisable currently or within 60 days of March 24,
2006.
|
(9)
|
The
holdings of director John E. Repine include 29,400 shares issuable
upon
exercise of options that are exercisable currently or within 60 days
of
March 24, 2006.
|
(10)
|
The
holdings of director Gary M. Post include 15,000 shares issuable
upon
exercise of options that are exercisable currently or within 60 days
of
March 24, 2006.
|
(11)
|
The
holdings of the executive officers and directors as a group include
an
aggregate 15,740,212 shares of common stock and 1,183,332 shares
issuable
upon exercise of options that are exercisable currently or within
60 days
of March 24, 2006.
|
|
|
Series
C Preferred Stock
The
following table sets forth certain information, as of March 24, 2006, with
respect to persons known by us to be the beneficial owner of more than five
percent (5%) of the OXIS Series C Preferred Stock.
|
|
|
|
|
|
Name
and Address
|
|
Amount and Nature
of Beneficial Ownership
|
|
Percent of
Class
(1)
|
|
American
Health Care Fund, L.P.
|
|
|
|
|
|
2748
Adeline, Suite A
|
|
|
|
|
|
Berkeley,
CA 94703 (1)
|
|
77,000
|
|
80
|
%
|
Megapolis
BV
|
|
|
|
|
|
Javastraaat
10
|
|
|
|
|
|
2585
The Hague, Netherlands (1)
|
|
19,230
|
|
20
|
%
|
________________
(1)
|
As
required by regulations of the SEC, the number of shares in the table
includes shares which can be purchased within 60 days, or, shares
with
respect to which a person may obtain voting power or investment power
within 60 days. Also required by such regulations, each percentage
reported in the table for these individuals is calculated as though
shares
which can be purchased within 60 days have been purchased by the
respective person or group and are outstanding.
|
Equity
Compensation Plan Information
The
following is a summary of OXIS’ equity compensation plans at December 31,
2005:
Plan
Category
|
|
Number
of Securities to
be
Issued Upon Exercise of Outstanding Options,
Warrants
and Rights
(a)
|
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
(b)
|
|
Number
of Securities
Remaining
Available for Future Issuance Under
Equity
Compensation Plans (Excluding Securities Reflected in Column
(a))
(c)
|
Equity
compensation plans
approved
by security holders (1)
|
|
4,874,352
|
|
$0.70
|
|
493,270
|
Equity
compensation plans not
approved
by security holders (2)
|
|
1,503,438
|
|
$0.26
|
|
—
|
Total
|
|
6,377,790
|
|
|
|
493,270
|
(1)
|
As
of December 31, 2005, we have granted options to purchase 2,136,730
shares
of common stock under our 2003 Stock Incentive Plan and 2,737,622
shares
of common stock under the 1994 Stock Incentive Plan. Our 1994 Stock
Incentive Plan terminated on April 30, 2004 and no additional grants
may
be made under that plan. As approved by stockholders, we may grant
additional options to purchase up to 493,270 shares of common stock
under
our 2003 Stock Incentive Plan. The number of shares reserved for
issuance
pursuant to options under the 2003 Stock Incentive Plan was increased
by
300,000 shares on January 1, 2006 pursuant to an evergreen provision
in
the stock option plan. Those additional share reserves are not included
in
the above numbers.
|
(2)
|
We
have granted an aggregate of 1,503,438 options to officers, directors,
consultants and advisors outside of our 1994 Stock Incentive Plan
and our
2003 Stock Incentive Plan on a case by case basis at the discretion
of the
board of directors.
|
Letter
Agreement with Vice President and Chief Financial Officer
On
January 6, 2006 OXIS and Michael D. Centron signed a Letter Agreement outlining
the basic terms of his employment with OXIS as Vice President and Chief
Financial Officer. On the same day the board of directors of OXIS ratified
the
Letter Agreement and granted stock options to Mr. Centron pursuant to the terms
of the Letter Agreement.
Under
the
terms of the Letter Agreement, Mr. Centron will receive a base salary of
$150,000 per year with eligibility for a twenty percent performance based annual
bonus. In addition, Mr. Centron was granted a ten year incentive stock option
to
purchase 150,000 shares of common stock of OXIS at an exercise price of $0.30
per share. The stock option grant will vest as follows: 25% vest immediately,
25% vest on January 6, 2007, 25% vest on January 6, 2008 and 25% vest on January
6, 2009. Mr. Centron will be entitled to receive certain severance payments
and
benefits in the event that OXIS terminates his employment without “cause”, as
defined in the Letter Agreement, if Mr. Centron terminates his employment with
“good reason”, as defined in the Letter Agreement, within twelve months after a
change of control (as defined in OXIS’ 2003 Incentive Stock Plan), or in the
event that Mr. Centron’s employment terminates as a result of his death or
disability (any of the foregoing being a “Severance Termination”). In the event
of a Severance Termination, Mr. Centron will receive a payment equal to three
months of his then effective base salary. In addition, the exercise period
for
any options vested as the termination date will be extended until the later
of
January 6, 2011 or the third anniversary of the termination date, provided
however that no exercise of options will be allowed after the expiration of
their term.
Consulting
Agreement with Chairman of the Board of Directors
On
November 17, 2005, we entered into a Consulting Agreement with NW Medical
Research Partners, Inc. Marvin Hausman, M.D., Chairman of the Board of Directors
of OXIS, is the sole member and manager of NW Medical Research Partners. Dr.
Hausman has previously been the interim Chief Executive Officer and interim
Chief Financial Officer of OXIS. Dr. Hausman is a member of the board of
directors and a former President and Chief Executive Officer of Axonyx Inc.
Axonyx currently holds approximately 33% of the issued and outstanding shares
of
OXIS. Pursuant to the Consulting Agreement Marvin Hausman will provide certain
consulting services pertaining to licensing of intellectual property,
development of potential products and financing activities or other projects
at
the request of the Chief Executive Officer of OXIS for a one year period,
renewable for a second year. Dr. Hausman will receive monthly compensation
in
the amount of $5,000. For any hours Dr. Hausman works in addition to 20 hours
per month up to a limit of 50 hours per month, he will be paid hourly
compensation in the amount of $500 per hour. Dr. Hausman is also compensated
with the grant of a stock option to purchase 108,000 shares of OXIS common
stock
at an exercise price of $0.37 per share, with 9,000 options vesting each month
over the term of the agreement. Dr. Hausman will be reimbursed for his
healthcare insurance.
Consulting
Agreement with Acting Chief Operating Officer
Manus
O’Donnell, our former Acting Chief Operating Officer received monthly cash
compensation from OXIS under a consulting agreement dated May 28, 2004 with
the
following principal terms: (i) an engagement of Mr. O’Donnell extending 2-3
months subject to change as developments occur, (ii) payments to Mr. O’Donnell
of $25,000 per month, and (iii) termination of the Agreement by either party
on
one week’s notice. Subsequently, on October 14, 2004, a follow on consulting
agreement was entered into with Mr. O’Donnell under which his consulting
services were extended until February 28, 2005 when Steve Guillen as Chief
Executive Officer was hired, and, in addition to the continued payments of
$25,000 per month, Mr. O’Donnell was granted a stock option to purchase 100,000
shares of common stock at $0.59 per share. Currently, following the hiring
of a
full-time Chief Executive Officer, Mr. O’Donnell remains available to provide
services to OXIS when needed.
Letter
Agreement with President and Chief Executive Officer
On
February 28, 2005, we entered into the Letter Agreement with Steven T. Guillen
as described under “Employment Agreements.”
On
March
10, 2006, OXIS entered into a Promissory Note, or Note, with
Steven T. Guillen, the President and Chief Executive Officer of OXIS. Pursuant
to the terms of the Note, Mr. Guillen is lending OXIS $200,000 with interest
to
accrue at annual rate of 7.0%. No payments of interest or principal are required
prior to the maturity date. The maturity date of the Note is the earlier of
September 10, 2006 or, at the option of Mr. Guillen, the date
OXIS
receives net proceeds in the amount of $500,000 or more from a debt or equity
financing. In addition, if, at any time on or before the maturity date, OXIS
enters into an agreement to incur debt, Mr. Guillen has the right to rollover
this Note into such debt arrangement, on the same terms and conditions offered
to such future lenders. The obligation to pay all unpaid principal and accrued
interest will be accelerated upon an event of default, including the bankruptcy
of OXIS or related events. The purpose of this loan is to provide the
corporation with short term financing as it seeks longer term
financing.
Understanding
Regarding Board of Director Changes
As
reported in our Information Statement to Shareholders, filed with the SEC and
mailed to Shareholders on April 15, 2004, an understanding, or Understanding,
between OXIS and Axonyx, its controlling shareholder, resulted in three of
our
six directors (William G. Pryor, Ted Ford Webb and Thomas M. Wolf) agreeing
to
resign from the Board of Directors on March 10, 2004. On the same date, the
Board of Directors designated four new individuals (Gosse B. Bruinsma, S. Colin
Neill, Gerard J. Vlak and Steven H. Ferris), pursuant to Section 223(d) of
the
Delaware General Corporation Law, to fill the resulting resignations once they
became effective. The change in membership of the Board of Directors became
effective on April 25, 2004, ten (10) days after we mailed to record
shareholders the Information Statement concerning such change.
Axonyx
Loan
On
June
1, 2004, we secured a $1,200,000 loan from Axonyx, or Axonyx Loan. To evidence
the Axonyx Loan, we issued to Axonyx a one-year secured promissory note bearing
interest at an annual rate of 7%. Under the terms of the Axonyx Loan, OXIS
promised to pay Axonyx $1.2 million plus accrued interest upon the receipt
by
OXIS of at least $2,000,000 in net proceeds from a debt or equity offering.
The
closing of a transaction where OXIS sold securities in a private placement,
or
the Private Placement Transaction, triggered repayment of its indebtedness
under
the Axonyx Loan. On January 6, 2005 after the closing of the Private Placement
Transaction, OXIS repaid its indebtedness under the Axonyx Loan in full by
paying to Axonyx $1,222,380.82.
ITEM
13. EXHIBITS
See
Exhibit Index that appears on page 50.
ITEM
14. PRINCIPAL
ACCOUNTANT
FEES AND SERVICES
Audit
Fees
We
incurred aggregate fees and expenses of $51,000 and $59,000, respectively,
from
Williams & Webster, P.S. for the fiscal years 2005 and 2004 annual audit and
for review of OXIS consolidated financial statements included in its Forms
10-QSB for the 2005 and 2004 fiscal years. In addition, we incurred fees of
$62,000 from Williams & Webster, P.S. for the audit and review of our
subsidiary, BioCheck, for the years ended December 31, 2003, 2004 and
2005.
Audit
Related Fees
We
incurred aggregate fees and expenses of approximately $16,000 from Williams
& Webster, P.S. during 2005 related to the filing of SEC Form SB-2 and other
SEC matters.
Tax
Fees
We
incurred aggregate fees and expenses of $6,500 from Williams & Webster, P.S.
during each of the fiscal years 2005 and 2004 for professional services rendered
for tax compliance, tax advice and tax planning.
All
Other Fees
None.
Our
Audit
Committee is to pre-approve all audit and non-audit services provided by the
independent auditors. These services may include audit services, audit-related
services, tax services and other services. Pre-approval is generally provided
for up to one year and any pre-approval is detailed as to particular service
or
category of services and is generally subject to a specific budget. The Audit
Committee has delegated pre-approval authority to its Chairman when expedition
of services is necessary. The independent auditors and management are required
to periodically report to the full Audit Committee regarding the extent of
services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed to date.
SIGNATURES
In
accordance with 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 31, 2006
|
|
|
|
OXIS
International, Inc.
Registrant
|
|
|
|
|
By: |
/s/ Steven
T.
Guillen |
|
|
Steven
T. Guillen
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
By: |
/s/ Michael D. Centron |
|
Michael
D. Centron
Principal
Financial and Accounting Officer
|
|
|
POWER
OF ATTORNEY
KNOW
ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Steven T. Guillen and Michael D. Centron as
his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Report on Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
In
accordance with the Exchange Act, this report has been signed below by the
following directors on behalf of the registrant.
/s/Steven
T. Guillen
|
March
31, 2006
|
|
/s/Marvin
S. Hausman, M.D.
|
March
31, 2006
|
Steven
T. Guillen
|
Date
|
|
Marvin
S. Hausman, M.D.
|
Date
|
|
|
|
|
|
/s/S.
Colin Neill
|
March
31, 2006
|
|
/s/John
E. Repine
|
March
31, 2006
|
S.
Colin Neill
|
Date
|
|
John
E. Repine
|
Date
|
|
|
|
|
|
/s/Timothy
C. Rodell, M.D.
|
March
31, 2006
|
|
/s/Gary
M. Post
|
March
31, 2006
|
Timothy
C. Rodell, M.D.
|
Date
|
|
Gary
M. Post
|
Date
|
EXHIBIT
INDEX
|
|
|
|
Incorporated
by Reference
|
|
|
Exhibit
Number
|
|
Exhibit
Description
|
|
Form
|
|
Date
|
|
Number
|
|
Filed
Herewith
|
3.1
|
|
Restated
Certificate of Incorporation as filed in Delaware September 10, 1996
and
as thereafter amended through March 1, 2002
|
|
10-KSB
|
|
12/31/01
|
|
3(a)
|
|
|
3.2
|
|
Bylaws
of the Company as restated effective September 7, 1994 and as amended
through April 29, 2003
|
|
10-QSB
|
|
6/30/03
|
|
3
|
|
|
10.1
|
|
Series
C Preferred Stock Subscription and Purchase Agreement (form); dated
April
1996 (1,774,080 shares in total)
|
|
10-KSB
|
|
12/31/01
|
|
10(b)
|
|
|
10.2
|
|
Subscription
Agreement, Warrant to Purchase Common Stock and Form of Subscription
dated
July 2003 - August 2003
|
|
10-KSB
|
|
12/31/03
|
|
10(d)
|
|
|
10.3
|
|
Note
and Warrant Purchase Agreement dated January 14, 2004
|
|
10-KSB
|
|
12/31/03
|
|
10.I
|
|
|
10.4
|
|
Form
of Convertible Promissory Note dated January 14, 2004
|
|
10-KSB
|
|
12/31/03
|
|
10.J
|
|
|
10.5
|
|
Form
of Warrant to Purchase Common Stock dated January 14, 2004
|
|
10-KSB
|
|
12/31/03
|
|
10.K
|
|
|
10.6
|
|
Form
of Loan Agreement between OXIS International, Inc. and Axonyx, Inc.
dated
June 1, 2004
|
|
8-K
|
|
06/01/04
|
|
99.2
|
|
|
10.7
|
|
Form
of Promissory Note between OXIS International, Inc. and Axonyx, Inc.
dated
June 1, 2004
|
|
8-K
|
|
06/01/04
|
|
99.3
|
|
|
10.8
|
|
Form
of Security Agreement between OXIS International, Inc. and Axonyx,
Inc.
dated June 1, 2004
|
|
8-K
|
|
06/01/04
|
|
99.4
|
|
|
10.9
|
|
Form
of License Agreement between OXIS International, Inc. and Haptoguard,
dated September 29, 2004
|
|
10-QSB
|
|
09/30/04
|
|
10.N
|
|
|
10.10
|
|
Securities
Purchase Agreement, dated December 30, 2004
|
|
8-K/A
|
|
02/10/05
|
|
99.1
|
|
|
10.11
|
|
Registration
Rights Agreement ,dated December 30, 2004
|
|
8-K/A
|
|
02/10/05
|
|
99.2
|
|
|
10.12
|
|
Form
of Common Stock Warrant, dated December 30, 2004
|
|
8-K/A
|
|
02/10/05
|
|
99.3
|
|
|
10.13
|
|
Consulting
Agreement between OXIS International, Inc. and Marvin D, Hausman,
M.D.,
dated October 14, 2004
|
|
SB-2
|
|
02/25/05
|
|
10.O
|
|
|
10.14
|
|
Form
of Indemnification Agreement between OXIS International, Inc. and
its
Officers and Directors
|
|
SB-2
|
|
02/25/05
|
|
10.P
|
|
|
10.15
|
|
Letter
Agreement between OXIS International, Inc. and Steven T. Guillen,
dated
February 28, 2005
|
|
8-K
|
|
02/28/05
|
|
10.1
|
|
|
10.16
|
|
Restricted
Stock Purchase Agreement between OXIS International, Inc. and Steven
T.
Guillen, dated February 28, 2005
|
|
8-K
|
|
02/28/05
|
|
10.2
|
|
|
|
|
|
|
Incorporated
by Reference
|
|
|
Exhibit
Number
|
|
Exhibit
Description
|
|
Form
|
|
Date
|
|
Number
|
|
Filed
Herewith
|
10.17
|
|
Notice
of Stock Option Award and related Stock Option Agreement between
OXIS
International Inc. and Steven T. Guillen, dated February 28,
2005
|
|
SB-2/A
|
|
04/29/05
|
|
10.(T)
|
|
|
10.18
|
|
Nonqualified
Stock Option Agreement between OXIS International, Inc. and Steven
T.
Guillen, dated February 28, 2005
|
|
SB-2/A
|
|
04/29/05
|
|
10.(U)
|
|
|
10.19
|
|
Conversion
Agreement between OXIS International, Inc. and Equitis Entreprise,
dated
May 23, 2005
|
|
8-K
|
|
05/25/05
|
|
99.1
|
|
|
10.20
|
|
Agreement
between OXIS International, Inc. and Timothy C. Rodell date July
31,
2005
|
|
8-K
|
|
08/04/05
|
|
99.1
|
|
|
10.21
|
|
Stock
Purchase Agreement between OXIS International, Inc. and BioCheck
Inc.
dated September 19, 2005
|
|
8-K
|
|
09/23/05
|
|
99.1
|
|
|
10.22
|
|
Tenth
Amendment to Lease between OXIS International, Inc. and Rosan, Inc.
dated
October 28, 2005
|
|
8-K
|
|
11/02/05
|
|
10.1
|
|
|
10.23
|
|
Consulting
Agreement between OXIS International, Inc. and NW Medical Research
Partners dated November 17, 2005
|
|
8-K
|
|
11/23/05
|
|
10.1
|
|
|
10.24
|
|
Executive
Employment Agreement between OXIS International, Inc., BioCheck,
Inc. and
John Chen dated December 6, 2005
|
|
|
|
|
|
|
|
X
|
10.25
|
|
Option
and Reimbursement Agreement between Evernew Biotech, Inc., OXIS
International, Inc. and the
shareholders of Evernew, dated December 6, 2005
|
|
|
|
|
|
|
|
X
|
10.26
|
|
Letter
Agreement between OXIS International, Inc. and Michael D. Centron
dated
January 6, 2006.
|
|
8-K
|
|
01/06/06
|
|
10.1
|
|
|
10.27
|
|
Lease
Agreement between OXIS International, Inc. and Westcore Peninsula
Vintage
LLC dated February 8, 2006
|
|
8-K
|
|
02/13/06
|
|
10.1
|
|
|
10.28
|
|
Promissory
Note issued by OXIS International, Inc. to Steven T. Guillen dated
March
10, 2006.
|
|
8-K
|
|
03/14/06
|
|
10.1
|
|
|
21.1
|
|
Subsidiaries
of OXIS International, Inc.
|
|
|
|
|
|
|
|
X
|
31.1
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
31.2
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
32.1
|
|
Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
32.2
|
|
Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
X
|
Board
of
Directors
OXIS
International, Inc.
Foster
City, California
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have
audited the accompanying consolidated balance sheets of OXIS International,
Inc.
and subsidiaries as of December 31, 2005 and 2004 and the related consolidated
statements of operations, shareholders’ equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of OXIS International, Inc., and
subsidiaries as of December 31, 2005 and 2004 and the results of its operations,
shareholders’ equity and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company’s significant and ongoing operating losses raise
substantial doubt about its ability to continue as a going concern. Management’s
plans regarding the resolution of this issue are also discussed in Note 1.
The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
/s/
Williams
&
Webster,
P.S.
Williams
& Webster, P.S.
Certified
Public Accountants
Spokane,
Washington
March
27,
2006
OXIS
INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEETS
(In
thousands of dollars)
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
614
|
|
$
|
4,687
|
|
Accounts
receivable, net of allowance of $2 and $7, respectively
|
|
|
865
|
|
|
229
|
|
Private
placement proceeds receivable
|
|
|
—
|
|
|
2,250
|
|
Inventories
|
|
|
650
|
|
|
246
|
|
Prepaid
expenses and other current assets
|
|
|
238
|
|
|
128
|
|
Deferred
tax assets
|
|
|
14
|
|
|
—
|
|
Restricted
cash
|
|
|
3,060
|
|
|
—
|
|
Total
current assets
|
|
|
5,441
|
|
|
7,540
|
|
Property,
plant and equipment, net
|
|
|
243
|
|
|
61
|
|
Patents,
net
|
|
|
831
|
|
|
875
|
|
Goodwill
and other assets, net
|
|
|
1,291
|
|
|
—
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
$
|
7,806
|
|
$
|
8,476
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
505
|
|
$
|
491
|
|
Accrued
expenses
|
|
|
468
|
|
|
829
|
|
Accounts
payable to related party
|
|
|
194
|
|
|
—
|
|
Note
payable
|
|
|
3,060
|
|
|
—
|
|
Notes
payable to shareholders
|
|
|
—
|
|
|
1,360
|
|
Total
current liabilities
|
|
|
4,227
|
|
|
2,680
|
|
Long-term
deferred taxes
|
|
|
41
|
|
|
—
|
|
Total
liabilities
|
|
|
4,268
|
|
|
2,680
|
|
Minority
interest
|
|
|
604
|
|
|
—
|
|
Commitments
and contingencies
|
|
|
—
|
|
|
—
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Convertible
preferred stock - $0.01 par value; 15,000,000 shares
authorized:
|
|
|
|
|
|
|
|
Series
B - None and 428,389 shares issued and outstanding at December 31,
2005
and 2004, respectively (aggregate liquidation preference of
$1,000)
|
|
|
—
|
|
|
4
|
|
Series
C - 96,230 shares issued and outstanding
|
|
|
1
|
|
|
1
|
|
Common
stock - $0.001 par value; 95,000,000 shares authorized; 42,538,397
shares
issued and outstanding at December 31, 2005 and 28,807,040 shares
issued
and outstanding and 12,264,158 issuable at December 31,
2004
|
|
|
43
|
|
|
41
|
|
Additional
paid-in capital
|
|
|
68,686
|
|
|
68,437
|
|
Accumulated
deficit
|
|
|
(65,379
|
)
|
|
(62,270
|
)
|
Accumulated
other comprehensive loss
|
|
|
(417
|
)
|
|
(417
|
)
|
Total
shareholders’ equity
|
|
|
2,934
|
|
|
5,796
|
|
|
|
$
|
7,806
|
|
$
|
8,476
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
OXIS
INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands of dollars, except earnings per share data)
|
|
Years
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
Product
revenues
|
|
$
|
2,397
|
|
$
|
1,914
|
|
License
revenues
|
|
|
100
|
|
|
450
|
|
Total
revenue
|
|
|
2,497
|
|
|
2,364
|
|
Cost
of product revenues
|
|
|
1,345
|
|
|
1,216
|
|
Gross
profit
|
|
|
1,152
|
|
|
1,148
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Research
and development
|
|
|
499
|
|
|
278
|
|
Selling,
general and administrative
|
|
|
2,342
|
|
|
1,843
|
|
Purchased
in-process research and development
|
|
|
1,500
|
|
|
—
|
|
Foreign
legal proceedings
|
|
|
—
|
|
|
183
|
|
Restructuring
charges
|
|
|
—
|
|
|
605
|
|
Total
operating expenses
|
|
|
4,341
|
|
|
2,909
|
|
Loss
from operations
|
|
|
(3,189
|
)
|
|
(1,761
|
)
|
Other
income (expenses):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
110
|
|
|
1
|
|
Other
income
|
|
|
4
|
|
|
19
|
|
Financing
fees
|
|
|
—
|
|
|
(856
|
)
|
Interest
expense
|
|
|
(26
|
)
|
|
(101
|
)
|
Total
other income and expenses
|
|
|
88
|
|
|
(937
|
)
|
Minority
interest in subsidiary
|
|
|
(6
|
)
|
|
—
|
|
Loss
before provision for income taxes
|
|
|
(3,107
|
)
|
|
(2,698
|
)
|
Provision
for income taxes
|
|
|
(2
|
)
|
|
—
|
|
Net
loss
|
|
|
(3,109
|
)
|
|
(2,698
|
)
|
Other
comprehensive loss - foreign
currency translation adjustment
|
|
|
—
|
|
|
(26
|
)
|
Comprehensive
loss
|
|
$
|
(3,109
|
)
|
$
|
(2,724
|
)
|
Net
loss per share - basic and diluted
|
|
$
|
(0.07
|
)
|
$
|
(0.10
|
)
|
Weighted
average shares outstanding -
basic and diluted
|
|
|
42,213,275
|
|
|
26,828,289
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
OXIS
INTERNATIONAL, INC.
CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY
(in
thousands of dollars, except Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
Total
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Comprehensive
|
|
Shareholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Loss
|
|
Equity
|
|
Balance,
December 31, 2003
|
|
|
524,619
|
|
$
|
5
|
|
|
26,427,910
|
|
$
|
26
|
|
$
|
60,724
|
|
$
|
(59,572
|
)
|
$
|
(391
|
)
|
$
|
792
|
|
Exercise
of stock options
|
|
|
|
|
|
|
|
|
791,532
|
|
|
1
|
|
|
136
|
|
|
|
|
|
|
|
|
137
|
|
Issuance
of common stock for services
|
|
|
|
|
|
|
|
|
66,666
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
46
|
|
Stock
compensation expense for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
issued to non-employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
44
|
|
Conversion
of note payable into
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock and issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
related warrants
|
|
|
|
|
|
|
|
|
1,520,932
|
|
|
2
|
|
|
1,379
|
|
|
|
|
|
|
|
|
1,381
|
|
Issuable
common stock and warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
private placement
|
|
|
|
|
|
|
|
|
12,264,158
|
|
|
12
|
|
|
6,108
|
|
|
|
|
|
|
|
|
6,120
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,698
|
)
|
|
|
|
|
(2,698
|
)
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
(26
|
)
|
Balance,
December 31, 2004
|
|
|
524,619
|
|
|
5
|
|
|
41,071,198
|
|
|
41
|
|
|
68,437
|
|
|
(62,270
|
)
|
|
(417
|
)
|
|
5,796
|
|
Cost
of registration statement related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
private placement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
(302
|
)
|
Exercise
of stock options
|
|
|
|
|
|
|
|
|
322,166
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
45
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
600,000
|
|
|
1
|
|
|
239
|
|
|
|
|
|
|
|
|
240
|
|
Stock
compensation expense for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
issued to non-employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
20
|
|
Conversion
of shareholder note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into
common stock
|
|
|
|
|
|
|
|
|
459,355
|
|
|
1
|
|
|
243
|
|
|
|
|
|
|
|
|
244
|
|
Conversion
of Series B preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into
common stock
|
|
|
(428,389
|
)
|
|
(4
|
)
|
|