UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the fiscal year ended December 31, 1995.
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the transition period from ______ to _______.
Commission File Number O-8092
OXIS International, Inc.
A Delaware corporation
I.R.S. Employer Identification No. 94-1620407
6040 N. Cutter Circle, Suite 317
Portland, OR 97217
Telephone: (503) 283-3911
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.50 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 18, 1996 (assuming conversion of all outstanding
preferred stock into common stock ) was $17,282,555.
Number of shares outstanding of Registrant's common stock as of March 18, 1996:
12,124,423 shares.
Certain of the information required by Part III of this Form 10-K is
incorporated by reference from a portion of the Company's Proxy Statement for
1996 Annual Meeting of Stockholders.
CONTENTS
PART I PAGE
Item 1. Business........................................... 1
Item 2. Properties......................................... 12
Item 3. Legal Proceedings.................................. 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters................................ 13
Item 6. Selected Financial Data............................ 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 14
Item 8. Financial Statements and Supplementary Data........ 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............. 40
PART III
Item 10. Directors and Executive Officers of the Registrant. 41
Item 11. Executive Compensation............................. 41
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... 41
Item 13. Certain Relationships and Related Transactions..... 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 42
SIGNATURES....................................................... 43
EXHIBIT INDEX.................................................... 44
PART I
ITEM 1. BUSINESS.
INTRODUCTION
OXIS International, Inc. ("OXIS" or the "Company"), a Delaware Corporation, is
a leader in the discovery, development and commercialization of therapeutic
and diagnostic products to diagnose, treat and prevent diseases of oxidative
stress. Oxidative stress occurs when the concentration of free radicals and
reactive oxygen species (ROS) - highly reactive molecules produced during
oxidative processes - exceed the body's antioxidant defense mechanisms.
Recent advances in molecular biology and an increased understanding of the
mechanism(s) of action of free radicals, ROS, and antioxidants has led to
increased acceptance of oxidative stress as a basic disease mechanism. The
Company's extensive portfolio of novel antioxidant compounds and assays for
markers of oxidative stress provides multiple opportunities to address several
major disease markets. In July 1995, the Company expanded its portfolio of
synthetic antioxidants through the acquisition of Therox Pharmaceuticals,
Inc., ("Therox"). OXIS has invested significant resources to build an early
and comprehensive patent position on both its antioxidant therapeutic
technologies and selected oxidative stress assays.
OXIS also has technologies and products which currently produce revenue for
the Company. The Company's 32 research and commercial diagnostic assays are
sold through a combination of international distribution and a small in-house
sales staff. OXIS also derives revenues from licensing agreements, and from
sales of both its bulk antioxidants and its veterinary drug, Palosein/(R)/.
The Company's corporate offices are located in a 15,000 sq. ft. facility at
6040 N. Cutter Circle, Suite 317, Portland, OR 97217. Research operations of
OXIS are located at 395 Phoenixville Pike, Malvern, PA 19355; and Z.A. des
Petits Carreaux, 2, av. des Coquelicots, 94385 Bonneuil-Sur-Marne, Cedex,
France (outside of Paris).
ACQUISITIONS/MERGERS
In September 1994, the Company acquired Bioxytech S.A. (now "OXIS S.A."),
based in France, and merged with International BioClinical, Inc. ("IBC"), an
Oregon corporation, and changed its name from DDI Pharmaceuticals, Inc. to
OXIS International, Inc. At the time of the acquisition, OXIS S.A.'s research
and development efforts were focused on the synthesis of novel biomimetic
antioxidant compounds designed to target specific tissues. It also had
1
developed and was selling six research assays for measuring various aspects
of oxidative stress. IBC was selling thirteen therapeutic drug monitoring
("TDM") assays at the time of its acquisition by the Company. It was
developing one additional TDM assay and a beta-lactamase rapid detection
test, both of which projects were completed during 1995.
In July 1995, OXIS acquired Therox Pharmaceuticals, Inc. ("Therox"), a
Delaware corporation, through an exchange of stock. Therox was merged into
a subsidiary of the Company. Therox was founded in 1994 by S.R. One,
Limited (the venture investment arm of SmithKline Beecham) and Brantley
Venture Partners II, L.P. Therox was focused on the development of
membrane active antioxidants and molecules that combine antioxidant
activity with other key therapeutic effects. The acquisition provided the
Company with complimentary therapeutic technologies, seven patents and
several relationships with university scientists.
Prior to the acquisitions of Bioxytech S.A. and International BioClinical,
Inc. in 1994, substantially all of the Company's research and development
efforts involved SOD and poly(ethylene glycol) (PEG). The 1994 and 1995
acquisitions substantially expanded the Company's research and development
capabilities in the area of synthetic chemistry, as well as in the
development of diagnostic assays in general.
RESEARCH AND DEVELOPMENT
OXIS' research and development programs are focused primarily on the
discovery and development of new therapeutic molecules to combat diseases
related to damage from oxidative stress. The Company has designed and
synthesized several series of novel compounds, including: low-molecular-
weight biomimetic antioxidants and pro-oxidants that are based on unique
selenium and sulfur chemistries, respectively; enzyme inhibitors; and
combination enzyme inhibitors/antioxidants. Lead molecules from the
Company's focus therapeutics programs, the glutathione peroxidase (GPx)
mimics and lipid soluble antioxidant (LSA) programs are moving forward on
regulatory pathways toward initiating first-time-in-man clinical testing
during the next twelve months.
OXIS has also developed six research assay kits for markers of oxidative
stress that are designed to ultimately facilitate diagnosis and optimize
therapy of free radical-associated diseases. These assays also provide
developmental synergy for the pharmaceutical R&D programs. Additional
assays for key markers of oxidative stress will be developed as part of the
Company's ongoing R&D efforts in oxidative stress diagnostics.
OXIS also has extensive experience in developing, manufacturing and
marketing bovine superoxide dismutase (bSOD). Additionally, the Company
has developed a patented, high-molecular weight PEG technology that extends
the half-life of SOD and other therapeutic proteins.
2
Research and development expenses were $4,299,000, $1,670,000, and $813,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
THERAPEUTICS PROGRAMS - SYNTHETIC ANTIOXIDANTS
OXIS' long term goal is to develop new drugs based on unique, proprietary
know-how in free radical biochemistry. The Company's strengths in the
discovery and development of synthetic antioxidants and free-radical
scavenging enzymes is reflected in its substantial portfolio of potential
therapeutic molecules for treating diseases and conditions of oxidative
stress.
The Company's technical strategy to target specific phases of the free
radical and ROS cycle will provide opportunities to treat several major
acute and chronic diseases. OXIS is developing new synthetic antioxidants
which are intended to protect selected cells and organs from free radical
and peroxide-induced damage. OXIS' synthetic antioxidants exhibit overlap
in synthetic chemistry, disease targets, and preclinical development design
that has allowed the Company to build core and platform technologies. The
Company's antioxidant molecules are designed to be cytoprotective agents,
specifically for endothelial cells, cardiac myocytes and lymphocytes.
The Company's synthetic antioxidant therapeutics portfolio is summarized as
follows:
GLUTATHIONE PEROXIDASE MIMICS based on unique selenium chemistry --
patent applications are pending.
LIPID SOLUBLE ANTIOXIDANTS possessing rapid and high membrane
partitioning for cytoprotection from oxidative stress-induced diseases
including ophthalmic, cardiovascular and cosmetic applications -- two
patents issued and one patent application is pending.
LOW-MOLECULAR-WEIGHT BIFUNCTIONAL ANTIOXIDANTS that include inducers of
glutathione biosynthesis and free radical scavenging activity targeted
as a therapeutic for AIDS -- patent application is in preparation.
SULFUR-CONTAINING MOLECULES that exhibit both lipid and protein
antioxidant properties targeted for cardiac protection -- one patent is
issued and another patent application is pending.
PRO-OXIDANT FREE RADICAL GENERATORS linked to appropriate delivery
molecules for breast and prostate cancer.
DUAL FUNCTIONING INHIBITORS OF CYCLOOXYGENASE (COX) AND REACTIVE OXYGEN
SPECIES which have been shown to participate in various inflammatory
disorders -- one patent is issued.
3
INJECTABLE FORM OF A XANTHINE OXIDASE INHIBITOR with or without
antioxidant activity for the treatment of remote tissue injury, multiple
organ failure and adult respiratory distress syndrome (ARDS).
MEMBRANE ANCHORS consisting of rigid, structural anchors with dual
affinities for both the hydrophobic and hydrophilic regions of
membranes.
FOCUS - SYNTHETIC THERAPEUTICS PROGRAMS
OXIS does not have sufficient resources to simultaneously develop all of
the major series of novel antioxidant molecules in its pipeline.
Therefore, the Company has focused its investments on two lead therapeutics
programs, the GPx mimics and the lipid soluble antioxidants. The remaining
series of synthetic antioxidants may be developed through partners, sold
or licensed to provide additional revenue to the Company, although no
assurance can be given when, or if, this will occur. The following
represents a brief summary of the status of the Company's two lead
therapeutics research and development programs:
GLUTATHIONE PEROXIDASE (GPx) MIMICS PROGRAM:
GOAL: A well-tolerated, low-molecular-weight, orally active mimic of the
naturally occurring antioxidant enzyme, glutathione peroxidase.
POSSIBLE CLINICAL TARGETS: Inflammatory Bowel Disease; Restenosis;
Arterial Allograft Rejection; Acute Respiratory Distress Syndrome.
RATIONALE: The endothelium has historically been viewed as a passive
vascular lining. However, it has become clear that the endothelium is very
much an active tissue that controls vascular tone, maintains hemostatic
integrity and modulates immune and inflammatory responses. As these
physiological functions have been further defined, functional abnormalities
of the endothelium have been identified in association with diseases such
as hypercholesterolemia, atherosclerosis, hypertension and intravascular
thrombosis. A syndrome of endothelial dysfunction has been described in
the literature in which vasoconstricting, proinflammatory and prothrombotic
events occur in response to physical, chemical and biological injury to
endothelial cells. Glutathione peroxidase is proposed to protect the
endothelium from damage by hydroperoxides generated by the damaged
endothelium, and from activated leukocytes within the microvasculature.
GPx mimics, like the native enzyme, are designed to catalyze the reduction
(inactivation) of toxic hydroperoxides (H\2\O\2\ and lipid peroxides) by
glutathione.
CURRENT STATUS: Of its several series of proprietary organoselenium
molecules (molecular weight less than 300) that possess glutathione
peroxidase activity, the Company has selected a lead compound. The lead
compound was selected for further evaluation based on a favorable
glutathione peroxidase/oxidase activity ratio, its demonstrated profile of
concentration-dependent protection of human umbilical vein endothelial
cells (HUVEC) from damage by
4
H\2\O\2\, lipid peroxides, activated human neutrophils, TNFalpha and
IL-1alpha, and its toxicity profile observed with sub-chronic oral
administration in rats. Pharmacology studies are in progress in animal
models of restenosis following balloon angioplasty, inflammatory bowel
disease, and acute hepatitis. Other pharmacology studies in animal models
of arterial allograft, post-radiation fibrosis and acute respiratory
distress syndrome may be initiated in 1996. As part of the preclinical
testing program for the GPx mimics, genotoxicity, GLP toxicity and
metabolism studies are in progress. The GPx program is on track to enter
into first-time-in-man clinical testing in mid-1996, with IND and CTX
filings scheduled for submission at the end of third quarter 1996 to obtain
approval to initiate Phase II human clinical trials in first quarter 1997,
provided, however, no assurances can be given that the foregoing timetable
will be met.
PATENTS: A patent application on these compounds was filed in France in
April 1994 and became public in October 1995. A PCT filing was made in
April 1995.
LIPID SOLUBLE ANTIOXIDANT (LSA) PROGRAM:
GOAL: An orally, parenterally and/or topically active ascorbic acid analog
with improved cell membrane-protective properties arising from increased
free radical scavenging activity and extended plasma membrane residency
compared to vitamin C.
POSSIBLE CLINICAL TARGETS: Reperfusion injury; Solar radiation-induced
skin damage; Restenosis.
RATIONALE: Extensive experimental and epidemiological data exists
suggesting that various antioxidants alone or in combination have a
significant beneficial effect in a wide variety of disease including
atherosclerosis, asthma, inflammatory bowel disease and various central
nervous system disorders. Low-molecular-weight antioxidant defense
systems have evolved in order to control the inadvertent release of
reactive oxygen species or mitigate their impact. These systems generally
fall into two distinct classes: water-soluble antioxidants whose radical-
scavenging activity resides primarily in the hydrophilic intra- and extra-
cellular spaces, and lipophilic antioxidants, such as vitamin E, which act
within cell membranes. Ascorbic acid (vitamin C) is believed to be the
most active of the naturally occurring, water-soluble antioxidants.
Although significantly less effective than ascorbic acid, vitamin E is
believed to play a critical role as a cytoprotective agent by minimizing
lipid peroxidation and inactivation of membrane-bound proteins. The
affinity of ascorbic acid for aqueous environments limits its usefulness
for prevention of membrane lipid peroxidation. Development of a membrane-
targeted antioxidant that combines the potency of ascorbic acid with the
membrane protective effects of vitamin E should provide a novel antioxidant
with unique clinical activity.
CURRENT STATUS: Selected lead compounds from this program have
demonstrated 20 to 40 times the antioxidant activity of vitamin E in
various membrane models including sarcolemma membranes isolated from
ventricular myocytes, hepatic microsomal preparations and models of LDL
oxidation. The compounds have been tested in isolated perfused hearts and
endotoxin-induced shock. In vitro studies have shown the LSA molecules to
be effective scavengers of secondary lipid radicals, as well as having the
ability to partially ablate nitric oxide release
5
secondary to endotoxin administration. Based on results of compound
validation, a lead molecule is moving forward on a regulatory path toward
initiation of human testing within the next twelve months provided,
however, that no assurances can be given that this schedule will be met.
Immediate program activities for the LSA program include initiation of
scale-up synthesis of compound, initiation of pharmacology testing in
animal models for selected diseases and initiation of preclinical testing
(i.e., toxicity, metabolism, genotoxicity).
SOD THERAPEUTICS PROGRAMS
OXIS also has a limited portfolio of free radical scavenging enzymes:
RECOMBINANT HUMAN SUPEROXIDE DISMUTASE (rhSOD) has been coupled to high
molecular weight, activated PEG to produce one of the long-acting forms
of SOD -- PEG-rhSOD. OXIS has patented its long-lasting PEG-rhSOD in the
United States and 24 other countries. A preclinical safety program has
been initiated with PEG-rhSOD to measure the upper limit of doses that
can be safely administered to laboratory animals, to assess the safety
of repeated administration and to identify the manifestations of
toxicity that will require assessment in subsequent human clinical
studies.
Rats and dogs have been injected with a series of increasing doses of
PEG-rhSOD in order to determine the maximum clinically-tolerated dose.
In another study, groups of rats received repeated daily injections of a
constant dose for 28 days. The last study in this series is scheduled
for initiation during 1996. Based on the results of these studies, OXIS
will determine how it will proceed with the PEG-rhSOD technology.
BOVINE SUPEROXIDE DISMUTASE (bSOD) has been previously studied in
numerous clinical trials by OXIS and other companies. OXIS currently
supplies bulk bSOD for human use and sells an injectable dosage form of
the drug for veterinary applications (i.e., Palosein/(R)/).
During 1994, OXIS applied for and received Orphan Drug designation from
the FDA for bSOD as a possible treatment for familial ALS. This
application was based on a limited study of the tolerability and
subjective responses of one familial ALS patient. Due to the expense of
the treatment, difficulties with conducting clinical trials, regulatory
issues, limited market potential and the recent emergence of competing
products, OXIS has decided to not pursue the development of bSOD for
this indication.
HIGH MOLECULAR WEIGHT POLY(ETHYLENE GLYCOL)
These derivatives reduce the immunogenicity of and extend the life of
therapeutic proteins in the body (OXIS' PEG has been shown to extend the life
of its bSOD in vivo by 250 times).
6
During 1994, the Company received a U.S. patent for its invention of a form
of PEG for making therapeutic proteins immunologically safer and longer
acting. In addition, in 1994, the Company filed an application for a U.S.
patent that would broaden the scope of its intellectual property protection
with respect to both the claimed polymers and the claimed conjugates
including those polymers.
OXIDATIVE STRESS ASSAYS
The Company currently has two new research assays for markers of oxidative
stress in development: a second generation assay for glutathione (GSH-2)
and a second generation lipid peroxidation (LPO-2) kit.
The GSH-2 assay being developed by OXIS is intended to be suitable for
specific measurements of GSH in the low micromolar range. This assay should
be applicable for determining GSH in plasma or circulating lymphocytes.
The improved LPO-2 assay is intended to be more sensitive than its current
LPO assay, and capable of being automated for the clinical laboratory.
The Company believes that the number and range of its assay kits for
markers of oxidative stress is a distinct competitive advantage for OXIS in
terms of developing potentially clinically relevant diagnostics for
diseases of oxidative stress and monitoring therapy of these diseases. OXIS
plans to use its oxidative stress assays to support the development of its
new pharmaceutical products by employing them as clinical markers whenever
possible.
BETA-LACTAMASE ASSAY
Under a technology development agreement with the University of Iowa, OXIS
also has rights to any intellectual property and inventions created,
together with any patents relevant to the development of beta-lactam-based
technology for the rapid, sensitive detection of beta-lactamases. Beta-
lactamases are a major mechanism of microbial resistance to certain
antibiotics.
The first assay from this agreement was licensed to Becton, Dickinson and
Company in 1995 for product development. A second cephalosporin-based
chromogenic substance is in the final stages of synthesis and purification.
7
PRODUCTS
NEW DIAGNOSTIC ASSAYS
In 1995, OXIS completed development of its fourteenth therapeutic drug
monitoring (TDM) assay. The INNOFLUOR Topiramate Assay will be used to
monitor levels of the new anti-convulsant drug, topiramate. The assay was
introduced in November 1995 and is currently being sold in the UK, the first
country to approve the drug for use.
A patent application was filed for the assay in December 1995; and in February
1996, the Company submitted a 510(k) application requesting clearance for
marketing this assay in the United States.
OXIS received FDA clearance for marketing its product, Beta-Lactamase Rapid
Enzyme Detection Discs, in May of 1995. This product detects the production of
the beta lactamase enzyme, indicating potential antibiotic resistance. In
October 1995, the Company concluded an agreement with Becton, Dickinson and
Company granting them exclusive marketing and manufacturing rights to the
technology.
In early 1996, OXIS introduced the PROCLAIM/TM/ line of twelve assays to test
for drugs of abuse. The kits will be sold initially in Italy, Germany, Benelux
and the UK.
Revenues from sales of the Company's assays comprised 44% of 1995 revenues,
and 19% of 1994 revenues.
OXIDATIVE STRESS ASSAYS
The Company has six research assays available for sale which measure key
markers in free radical biochemistry. Specifically, these assays measure
levels of antioxidant protection, oxidative alterations, and pro-oxidant
activation of specific white blood cells. OXIS' research assays include:
SOD-525 (superoxide dismutase)
GSH-400 (reduced glutathione)
pl-GPx-EIA (human plasma-specific glutathione peroxidase)
LPO-586 (lipid peroxidation)
MPO-EIA (human myeloperoxidase)
Lactoferrin-EIA (human lactoferrin).
These assay kits utilize either chemical (colorimetric) or immunoenzymatic
(EIA) reactions that can be read using laboratory spectrophotometers and
microplate readers, respectively. The Company's assays offer advantages over
conventional laboratory methods, including ease of use, speed, specificity and
accuracy.
8
The assays for markers of oxidative stress are currently being sold to
researchers in Europe, Japan and the United States, primarily through
distributors. The Company estimates that there are more than 3,500 scientists
and clinicians who are working directly in research on free radical
biochemistry, and who are potential customers for these research assays.
The assays for markers of oxidative stress are manufactured at the Company's
facility in France. All of the oxidative stress assays are manufactured in
batches in anticipation of customer orders. Orders are generally filled
within a few days; therefore, the Company does not have any significant
backlog of orders. The Company believes that adequate supplies of raw
materials are either currently on hand, available from commercial suppliers or
available through development on a custom basis by commercial contractors, as
needed.
The Company's assays for markers of oxidative stress are protected by trade
secrets and patents. Seven French patent applications have been filed with
respect to these assays, two of which have resulted in the issuance of
patents. The oxidative stress assays are sold under the registered trademark
"Bioxytech".
Several companies other than OXIS have developed assays for markers of
oxidative stress. One company offers assays for superoxide dismutase and
glutathione peroxidase which compete directly with OXIS' products; and a few
competitive assays for lipid peroxidation are available from selected
companies. The Company believes that the number and range of its assay kits
for markers of oxidative stress is a distinct competitive advantage
THERAPEUTIC DRUG MONITORING (TDM) ASSAYS
The Company sells fourteen TDM assays which are based on FPIA technology.
These products are sold under the trade name INNOFLUOR/TM/. The Company's test
menu encompasses approximately 90% of the TDM tests performed by clinical and
reference laboratories worldwide. These assays are designed for use on the
Abbott Laboratories TDx/(R)/ and TDxFLx/(R)/ analyzers.
The TDM products are sold through a combination of direct customer sales and
distributors in the United States, and through a network of distributors
outside the United States, principally in Europe.
The TDM assays are manufactured at the Company's facility in Portland, Oregon.
All of the TDM assays are manufactured in batches in anticipation of customer
orders. Orders are generally filled within a few days; therefore, the Company
does not have any significant backlog of orders. The Company believes that
adequate supplies of raw materials are either currently on hand, available
from commercial suppliers or available through development on a custom basis
by commercial contractors as needed.
9
The Company relies primarily on trade secrets, know-how and trademark laws to
protect its TDM assays. The Company's TDM assays have been sold under the
trade name INNOFLUOR/TM/ since the mid-1980s.
Six major diagnostic companies dominate the therapeutic drug monitoring
market. Each of these six companies provides a range of both instrumentation
and assays to clinical laboratories. Of these, Abbott Laboratories holds the
largest market share. OXIS competes most directly with Abbott Laboratories,
because OXIS' assays are designed to be run on Abbott's analyzers. The Company
competes based on high product quality, an aggressive pricing strategy and
technical services. Abbott Laboratories and certain of the Company's other
competitors have substantially greater financial and other resources than the
Company and there can be no assurances that the Company can effectively
compete with Abbott Laboratories and such other competitors.
THERAPEUTIC PRODUCTS
Revenues from sales of bulk bSOD, royalties on bSOD products sold by
licensees, and sales of Palosein/(R)/, the Company's veterinary bSOD product,
comprised approximately 48% of the Company's total revenues in 1995, 76% in
1994 and 97% in 1993.
BOVINE SOD (bSOD) PRODUCTS
Commercial-scale manufacture and quality control of bulk bSOD, as well as
subsequent quality control and processing of bSOD into vials require complex,
multi-step processes, continuously developed and improved by the Company since
1965. The Company's processes refine large masses of United States Department
of Agriculture inspected, edible beef liver into small amounts of highly
purified bulk bSOD. The bulk bSOD is then combined with stabilizing
quantities of sucrose and freeze dried in vials to produce dosage forms. The
sterile dosage form of bSOD in vials is stable at room temperature for four or
more years. Although there are other sources of bSOD and other laboratory and
pilot-scale processes to produce bSOD, the Company believes that it is the
only company manufacturing bSOD on a commercial scale for pharmaceutical uses.
The Company maintains no bSOD production facilities and has an agreement with
Diosynth B.V., a Dutch contract manufacturer of pharmaceutical ingredients, to
manufacture bulk bSOD and supply it to OXIS under the terms of a license based
on the Company's processes. Diosynth B.V. is an affiliate of AKZO-Nobel N.V.,
a large, Dutch multinational chemical and health care company.
The Company believes that its present source of bSOD is adequate for its near-
term foreseeable needs.
Although the Company continues to have unpatented trade secrets and know-how,
substantially all of the Company's important U.S. and foreign patents
regarding SOD inventions (other than its recently developed, long-acting SOD
derivatives) have expired. Expiration of the Company's
10
patents may enable other companies to benefit from research and development
efforts of the Company, but such other companies would not receive the
benefits of the Company's unpatented trade secrets and know-how or unpublished
preclinical or clinical data. Such other companies would still be required in
some countries to expend considerable resources to conduct preclinical studies
and clinical studies of their own pharmaceutical preparations of SOD and to
seek and secure governmental approval to market such preparations.
The Company does not market dosage forms of bSOD for human use and does not
depend substantially on trademarks. Palosein/(R)/ is OXIS' registered
trademark for its veterinary brand of bSOD.
The Company has licensed three European pharmaceutical companies to market
animal source (including bovine) SOD for human uses. These licensees have
distributed bSOD for a variety of human uses primarily in Germany, Italy and
Spain, with smaller markets elsewhere in Europe, the Middle East and South
America. However, as discussed in Note 12 to the Company's consolidated
financial statements, the European market for the Company's bSOD has been
adversely impacted by regulatory developments in Europe.
The Company's three European licensees have been responsible for a
substantial, though decreasing, portion of the Company's revenues in recent
years. Sales to, and royalties from, Grunenthal GmbH (German licensee),
Tedec-Meiji Farma, S.A. (Spanish licensee), and SmithKline Beecham
Pharmaceutici S.p.A. (Italian licensee) as a percentage of the Company's total
revenues for the past two years, have been as follows:
1995 1994 1993
Grunenthal 2% 9% 23%
Tedec-Meiji 16% 18% 8%
SmithKline Beecham -- 2% 7%
The Company expects that its revenues from sales to, and royalties from, its
European licensees in the foreseeable future will be substantially less than
historical levels. The Company anticipates significant sales of bSOD products
only to its Spanish licensee in 1996. The amount of sales to the Spanish
licensee for 1996 and beyond cannot be predicted, as such sales will depend on
a Spanish Ministry of Health ruling regarding distribution and the outcome of
current clinical trials.
During recent years, the Company has been selling bulk bSOD to a major
pharmaceutical company (Sanofi Winthrop Inc., formerly Sterling Winthrop Inc.)
for use in its development of a pharmaceutical product for use in humans.
During 1995, Sanofi Winthrop reported on a Phase III clinical trial in which
results did not reach statistical significance. The Company does not expect
that Sanofi Winthrop will buy bulk bSOD product from OXIS in the foreseeable
future.
11
In the last quarter of 1993, the Company reintroduced its veterinary bSOD
product, Palosein/(R)/, in the United States. Palosein/(R)/ is used
primarily for the treatment of certain musculoskeletal inflammatory
conditions in horses and dogs. Palosein/(R)/ sales in the United States and
Canada exceeded $550,000 during 1995. Palosein/(R)/ is also distributed in
Germany under a license agreement with Grunenthal.
EMPLOYEES
As of December 31, 1995, the Company had 60 employees (35 in the United
States and 25 in France). Employees of the Company's French subsidiary are
covered by a government-sponsored collective bargaining agreement. None of
the United States employees are subject to a collective bargaining
agreement. The Company has never experienced a work interruption.
FOREIGN OPERATIONS AND EXPORT SALES
For information regarding the Company's foreign operations and export
sales, see Note 10 to the consolidated financial statements.
ITEM 2. PROPERTIES.
The Company occupies, pursuant to leases, office and laboratory space in
Portland, Oregon; Malvern, Pennsylvania; and near Paris, France.
The Company's Portland, Oregon lease expires in 1997; the lease of the
Malvern, Pennsylvania facility and the lease of the facility in France
expire in 1998.
Although the premises currently occupied are suitable for the Company's
present requirements, other equally suitable premises are readily
available.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Company is a party or
to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the year ended December 31, 1995.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.
The Company's common stock is traded on the NASDAQ National Market System
using the symbol OXIS.
Recent quarterly prices of the Company's common stock are as follows:
1995 1994
---------------------------- --------------------------
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
High 2 13/16 3 1/2 4 1/2 2 7/8 3 1/8 3 1/2 4 4 3/8
Low 1 1/8 2 1/4 1 3/4 1 5/8 1 3/8 2 1/2 2 5/8 3 1/8
The Company has an estimated 7,000 shareholders, including approximately
2,500 shareholders who have shares in the names of their stockbrokers. The
Company utilizes its assets to develop its business and, consequently, has
never paid a dividend and does not expect to pay dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
FOR YEARS ENDED
DECEMBER 31: 1995 1994 1993 1992 1991
Total Revenues/1/ $ 5,136,000 $ 3,470,000 $ 3,044,000 $2,772,000 $2,650,000
Net income (loss) $(8,892,000)/2/ $(5,567,000)/3/ $(1,485,000)/4/ $ (339,000) $ (193,000)
Net income (loss)
per share $(.82)/2/ $(.88)/3/ $ (.30)/4/ $ (.07) $ (.04)
AS OF DECEMBER 31:
Total assets $ 9,870,000 $ 11,194,000 $ 3,124,000 $4,864,000 $4,770,000
Long-term
obligations $ 1,332,000 $ 376,000 -- -- --
Common shares
outstanding 12,124,423 9,322,762 4,982,670 4,982,670 4,982,670
13
/1/ Earned interest not included in revenue.
/2/ Includes a charge of $3,329,000 ($.31 per share) for the write off of
certain technology of an acquired company.
/3/ Includes a charge of $3,675,000 ($.58 per share) for the write off of
certain technology of acquired companies.
/4/ Includes a charge of $1,531,000 ($.31 per share) for control contest
expense.
As explained under the caption "ACQUISITIONS" in Management's Discussion and
Analysis of Financial Condition and Results of Operations below, the Company
made significant acquisitions during 1994 and 1995 that affect the
comparability of the amounts reflected in the table above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ACQUISITIONS
In September 1994, the Company significantly increased its scientific and
technical staff, patent application portfolio, current product offerings,
research and development programs, research and manufacturing facilities and
its customer base by acquiring Bioxytech S.A. (now "OXIS S.A.") and
International BioClinical, Inc. ("IBC") (together the "1994 acquired
businesses"). Both acquisitions were completed through the exchange of stock,
and were accounted for as purchases; accordingly, the acquired assets and
liabilities were recorded at their estimated fair values as of the date of
acquisition. IBC was merged into the Company. OXIS S.A. operates as a
subsidiary of the Company.
In July 1995, in a transaction which was also accounted for as a purchase, the
Company acquired Therox Pharmaceuticals, Inc. ("Therox") through an exchange
of stock. Therox was merged into a wholly-owned subsidiary of the Company.
The acquisition of Therox provided the Company with a technology portfolio
complementary to its novel therapeutics for treatment of free radical
associated diseases together with university partnerships and seven patents.
Because the acquisitions have been accounted for as purchases, the Company's
consolidated results of operations include the operating results of the
acquired businesses from the dates of acquisition only. Therefore, the
results of operations of the 1994 acquired businesses are included in the
consolidated statements of operations from September 7, 1994, and the results
of Therox's operations are included in the consolidated statements of
operations from July 19, 1995.
Costs relating to the acquisitions and the Company's more complex corporate
structure and the increased research and development investments have placed
significant demand on the Company's limited financial resources. See
"Financial Condition, Liquidity and Capital Resources" below.
14
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During 1995 the Company's working capital deficit increased from $1,046,000
at December 31, 1994, to $1,469,000 at December 31, 1995. This increase in
the Company's working capital deficit resulted primarily from the effect of
the net loss for 1995 ($8,892,000 less non-cash charges of $4,698,000),
offset by proceeds from issuance of stock ($2,925,000) and long-term debt
($1,255,000). Shareholders who hold $766,000 of notes that are included in
current liabilities at December 31, 1995 have commitments to invest an
amount at least equal to the note balances in equity securities of the
Company. During March 1996 the Company is negotiating with these
shareholders terms for converting these notes to stock of the Company. If
all such notes are converted to Company stock, the Company's working
capital deficit will be reduced by $766,000.
Cash and certificates of deposit declined from $1,432,000 at December 31,
1994, to $727,000 at December 31, 1995.
The Company expects to continue to report losses in the near term as the
level of expenses is expected to continue to exceed revenues. The Company
must raise additional capital during the first half of 1996. Failure to
raise such additional capital would cause the Company to severely curtail
or cease operations. For more information concerning the Company's ability
to continue as a going concern, see Note 1 to the consolidated financial
statements.
While the Company believes that its new products and technologies show
considerable promise, its ability to realize significant revenues therefrom
is dependent upon the Company's success in developing business alliances
with biotechnology and/or pharmaceutical companies that have the required
resources to develop and market certain of these products. These is no
assurance that the Company's effort to develop such business alliances will
be successful. Further, bovine superoxide dismutase sales of recent years
to Sanofi Winthrop Inc. (18% of 1995 revenues) are not expected to
continue. Sanofi Winthrop announced in October 1995 that a second Phase
III trial on its drug, DISMUTEC (a coupled form of OXIS' bovine superoxide
dismutase) to treat head trauma failed to show statistically significant
improvements between the treatment and control groups. Although the
Company is currently seeking additional funds through a private placement
(described below), it cannot predict the source, terms, amount, form,
and/or availability of additional capital to fund its operations to the end
of the current year.
The Company has engaged an agent to assist on a best-efforts basis to raise
up to $4,000,000 in the first quarter of 1996 through the sale of its
Series C Preferred Stock. On March 4, 1996, the Company announced the
first closing of the offering, with proceeds of $763,000 from the sale of
Series C Preferred Stock. Even if the Company is able to sell the entire
$4,000,000 of Series C Preferred Stock, it expects that additional capital
will be required during 1996 to continue operating in accordance with its
current plans. However, no
15
assurances can be given that the Company will successfully raise the needed
capital. If the Company is unable to raise additional capital during the
remainder of 1996, it would endeavor to extend its ability to continue in
business through the reduction of personnel and facility costs, by slowing its
research and development efforts, and by reducing other operating costs,
however, no assurances can be given that it will be able to do so.
RESULTS OF OPERATIONS
The Company's sales for the past three years consisted of the following:
1995 1994 1993
Diagnostic and research assays $2,240,000 $ 645,000 $ --
Bovine superoxide dismutase (bSOD)
for research and human use 1,817,000 2,130,000 2,098,000
Palosein/(R)/ (bSOD for veterinary use) 555,000 346,000 123,000
Other 370,000 204,000 94,000
---------- ---------- ----------
Total sales $4,982,000 $3,325,000 $2,315,000
========== ========== ==========
Diagnostic and research assays are products acquired with the acquisitions
of IBC and OXIS S.A.. Sales of these products for 1994 represent sales
from September 8 through the end of the year. The entire year's sales of
diagnostic and research assays are included in the Company's sales for
1995.
Reductions of bulk bSOD sales to Sanofi Winthrop and to the Company's
German licensee in 1994 were offset by an increase in sales to the
Company's Spanish licensee, resulting in a slight increase in bulk bSOD
sales in 1994. In 1995 bulk bSOD sales to Sanofi Winthrop declined
further, and there were no sales to the Company's German licensee. These
decreases were partially offset by a further increase in sales to the
Spanish licensee.
Since no further sales of bSOD to either Sanofi Winthrop or the Company's
German licensee are anticipated, future sales of bulk bSOD are largely
dependent on the needs of the Company's Spanish licensee. Although the
Spanish licensee has continued to purchase bSOD in the first quarter of
1996, the Company has received no further firm orders for bSOD beyond what
has been shipped in the first quarter of 1996. Thus, the Company's sales
of bulk bSOD for 1996 and beyond are uncertain and difficult to predict and
no assurances can be given with respect thereto.
16
Sales of Palosein/(R)/, which was reintroduced to the U.S. market in 1993
and is sold primarily to veterinary wholesalers in the United States,
increased from $123,000 in 1993 to $346,000 in 1994 and $555,000 in 1995 as
a result of an active direct mail marketing campaign, which the Company
intends to continue.
Royalty income in 1994 declined to $145,000, from $729,000 in 1993. As
discussed in Note 12 to the consolidated financial statements, the Company
anticipates that royalties from licensees of its bSOD products will be
minimal in the future because of the recent regulatory developments in
Europe. A further decline in royalties in 1995 was offset by a fee
generated from an agreement to license rights to the Company's technology
for the rapid detection of antibiotic resistance.
COSTS AND EXPENSES
Cost of sales as a percent of product sales increased from 57% in 1993 to
62% in 1994. This increase in cost was partially due to the inclusion, in
1994, of sales and cost of products of the businesses acquired in September
1994. The cost of those products includes the amortization of acquired
technology ($239,000 in 1994 and $727,000 in 1995). In addition, the cost
of bulk bSOD sales in 1994 was higher than usual due to a significant sale
at less than the Company's historic profit margin. Cost of sales as a
percent of product sales declined from 62% in 1994 to 59% in 1995. In 1995
the cost of the Company's diagnostic and research assays declined slightly
as a result of increased volumes, and the cost of bulk bSOD sales also
declined from the 1994 level.
Research and development costs increased from $813,000 in 1993 to
$1,670,000 in 1994 and $4,299,000 in 1995. The increases were primarily
due to the cost of the research and development activities associated with
pharmaceutical technologies acquired in the September 1994 and July 1995
business acquisitions.
Sales, general and administrative expenses increased from $1,008,000 in
1993 to $1,652,000 in 1994. This increase was due to the inclusion of
general and administrative costs of the acquired businesses after the
September 1994 acquisitions, other current expenses relating to the
acquisitions, increases in insurance coverage, and increased marketing
costs relating to Palosein/(R)/ and new products from the 1994
acquisitions.
Sales, general and administrative expenses increased further in 1995 to
$3,332,000. The increase in 1995 was due primarily to the inclusion for
the entire year of general and administrative costs of the businesses
acquired in 1994, further increases in sales and marketing costs relating
to Palosein/(R)/ and the new products from the 1994 acquisitions, and
increased legal fees and other expenses relating to the Company's ongoing
need to raise capital and more complex corporate structure.
17
Expenses included charges of $3,675,000 and $3,329,000 to operations for
1994 and 1995, respectively, reflecting the write-off of purchased in-
process technology, as described in Note 3 to the consolidated financial
statements.
INTEREST INCOME AND EXPENSE
Interest income decreased and interest expense increased in both 1994 and
1995 as the Company liquidated certificates of deposit and borrowed funds
pursuant to short-term and long-term interest bearing obligations to
finance increased research and development efforts.
NET LOSS
The Company incurred net losses in 1993, 1994 and 1995. In 1993 the
Company recorded non-recurring costs and expenses of $1,531,000 ($.31 per
share) relating to a contest for control of the Company. The 1994 loss
includes a $3,675,000 ($.58 per share) charge to operations for the write-
off of purchased in-process technology related to the acquisitions of OXIS
S.A. and IBC. Similarly, the 1995 loss includes a $3,329,000 ($.31 per
share) charge to operations for the write-off of purchased in-process
technology related to the acquisition of Therox. Excluding these unusual
charges, the Company would have incurred a net income of $46,000, or $.01
per share for 1993; a net loss of $1,892,000, or $.30 per share for 1994;
and a net loss of $5,563,000, or $.51 per share for 1995.
Increased research and development expenditures and selling, general and
administrative expenses from the businesses acquired late in the third
quarter of 1994 and increased research and development expenditures
relating to the acquisition of Therox early in the third quarter of 1995
contributed to the increased losses.
The Company expects to incur a substantial net loss for 1996. If
additional capital is raised through further sales of securities (See
Financial Condition, Liquidity and Capital Resources), the Company plans to
continue to invest in research and development activities and incur sales,
general and administrative expenses in amounts greater than its anticipated
near-term product margins. If the Company is unable to raise sufficient
additional capital, it will have to cease, or severely curtail, its
operations. In this event, while expenses will be reduced, expense levels,
and the potential write down of various assets, would still be in amounts
greater than anticipated revenues.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 727,000 $ 936,000
Certificates of deposit -- 496,000
Accounts receivable 823,000 740,000
Inventories 953,000 673,000
Prepaid and other 262,000 228,000
---------- -----------
Total current assets 2,765,000 3,073,000
Property and equipment, net 1,092,000 1,298,000
Assets under capital leases, net 1,198,000 1,340,000
Technology for developed products and
custom assays, net 4,498,000 5,215,000
Other assets 317,000 268,000
---------- -----------
Total assets $9,870,000 $11,194,000
========== ===========
See accompanying notes.
19
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- $ 340,000
Other notes payable 1,616,000 --
Accounts payable 1,182,000 1,562,000
Customer deposits 250,000 1,116,000
Accrued liabilities 903,000 628,000
Current portion of capital lease obligations 283,000 473,000
------------ ------------
Total current liabilities 4,234,000 4,119,000
Capital lease obligations 47,000 297,000
8% convertible subordinated debentures 1,255,000 --
Other liabilities 30,000 79,000
Commitments and contingencies (Notes 1, 3 and 11)
Shareholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares
authorized; 642,583 issued and outstanding
(liquidation preference of $1,500,000) 6,000 --
Common stock - $.50 par value; 25,000,000 shares
authorized; 12,124,423 shares issued and outstanding 6,062,000 4,661,000
Additional paid in capital 25,210,000 20,230,000
Accumulated deficit (27,031,000) (18,139,000)
Accumulated translation adjustments 57,000 (53,000)
------------ ------------
Total shareholders' equity 4,304,000 6,699,000
------------ ------------
Total liabilities and shareholders' equity $ 9,870,000 $ 11,194,000
============ ============
See accompanying notes.
20
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
Revenues:
Sales $ 4,982,000 $ 3,325,000 $ 2,315,000
Royalties and license fees 154,000 145,000 729,000
----------- ----------- -----------
Total revenues 5,136,000 3,470,000 3,044,000
Costs and expenses:
Cost of sales 2,939,000 2,074,000 1,330,000
Research and development 4,299,000 1,670,000 813,000
Sales, general and administrative 3,332,000 1,652,000 1,008,000
Purchased in-process technology (Note 3) 3,329,000 3,675,000 --
Control contest -- -- 1,531,000
----------- ----------- -----------
Total costs and expenses 13,899,000 9,071,000 4,682,000
----------- ----------- -----------
Operating loss (8,763,000) (5,601,000) (1,638,000)
Interest income 42,000 82,000 153,000
Interest expense (171,000) (48,000) --
----------- ----------- -----------
Net loss $(8,892,000) $(5,567,000) $(1,485,000)
=========== =========== ===========
Net loss per share $(0.82) $(0.88) $(0.30)
=========== =========== ===========
Weighted average number of shares
used in computation 10,854,149 6,350,097 4,982,670
=========== =========== ===========
See accompanying notes.
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
Cash flows from operating activities:
Net loss $(8,892,000) $(5,567,000) $(1,485,000)
Adjustments to reconcile net loss to cash provided
by (used for) operating activities:
Depreciation and amortization 1,369,000 551,000 53,000
Purchased in-process technology 3,329,000 3,675,000 --
Changes in assets and liabilities:
Accounts receivable (70,000) 258,000 201,000
Inventories (17,000) (186,000) (105,000)
Other current assets 209,000 (19,000) 12,000
Accounts payable (565,000) 562,000 (248,000)
Customer deposits (866,000) 1,116,000 --
Accrued liabilities 251,000 (8,000) (7,000)
----------- ----------- -----------
Net cash provided by (used for)
operating activities (5,252,000) 382,000 (1,579,000)
Cash flows from investing activities:
Redemption of certificates of deposit 496,000 884,000 2,098,000
Purchase of equipment (99,000) (40,000) (69,000)
Acquisition and stock issuance costs (Note 3) -- (1,361,000) --
Cash of businesses acquired (Note 3) 143,000 273,000 --
Other (136,000) 19,000 --
----------- ----------- -----------
Net cash provided by (used for)
investing activities 404,000 (225,000) 2,029,000
Cash flows from financing activities:
Short-term borrowing 1,366,000 296,000 --
Proceeds from issuance of long-term debt 1,255,000 -- --
Costs in connection with isssuance of long-term debt (152,000) -- --
Proceeds from issuance of stock, net of related cost 3,077,000 -- --
Repayment of short-term notes (340,000) -- --
Repayment of capital lease obligations and
other liabilities (573,000) (275,000) --
----------- ----------- -----------
Net cash provided by financing activities 4,633,000 21,000 --
Effect of exchange rate changes on cash 6,000 -- --
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (209,000) 178,000 450,000
Cash and cash equivalents - beginning of year 936,000 758,000 308,000
----------- ----------- -----------
Cash and cash equivalents - end of year $ 727,000 $ 936,000 $ 758,000
----------- ----------- -----------
Supplemental schedule of noncash operating and
financing activities:
Inventory purchase with deferred payment terms $ 250,000 -- --
Common stock issued as incentive to purchase notes $ 156,000 -- --
See accompanying notes.
22
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Preferred Stock Common Stock Additional Accumulated Total
---------------- ---------------------- paid-in Accumulated translation shareholders'
Shares Amount Shares Amount capital deficit adjustments equity
Balances,
January 1, 1993 4,982,670 $2,491,000 $12,863,000 $(11,087,000) $ 4,267,000
Net loss (1,485,000) (1,485,000)
--------- ---------- ----------- ------------ -----------
Balances,
December 31, 1993 4,982,670 2,491,000 12,863,000 (12,572,000) 2,782,000
Series A preferred and
common shares issued in
connection with 1994
business combinations
(Note 3) 40,000 $ -- 4,340,092 2,170,000 7,367,000 9,537,000
Accumulated
translation adjustments $(53,000) (53,000)
Net loss (5,567,000) (5,567,000)
------ ------ --------- ---------- ----------- ------------ -------- ----------
Balances,
December 31, 1994 40,000 -- 9,322,762 4,661,000 20,230,000 (18,139,000) (53,000) 6,699,000
Shares issued in
connection with short-
term notes 93,300 47,000 109,000 156,000
Sale of common shares 1,227,625 614,000 1,089,000 1,703,000
Conversion of Series A
preferred shares to
common (40,000) -- 40,000 20,000 (20,000) --
Shares issued in
connection with 1995
business combination
(Note 3) 1,440,736 720,000 2,633,000 3,353,000
Series B preferred shares
issued (Note 3) 642,583 6,000 1,169,000 1,175,000
Accumulated translation
adjustments 110,000 110,000
Net loss (8,892,000) (8,892,000)
------- ------ ---------- ---------- ----------- ------------ -------- -----------
Balances,
December 31, 1995 642,583 $6,000 12,124,423 $6,062,000 $25,210,000 $(27,031,000) $ 57,000 $ 4,304,000
======= ====== ========== ========== =========== ============ =========== ===========
See accompanying notes.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
OXIS International, Inc. (the "Company") develops, manufactures and markets
selected therapeutic and diagnostic products. The Company's research and
development efforts are concentrated principally in the development of
products to diagnose, treat and prevent diseases associated with free
radicals and reactive oxygen species. Headquartered in Portland, Oregon,
the Company operates research and development facilities in Malvern,
Pennsylvania, and near Paris, France.
The Company has historically licensed and sold pharmaceutical forms of
superoxide dismutase (SOD) for human and veterinary use. In 1994, with the
acquisitions of businesses as described in Note 3, the Company began
selling therapeutic drug monitoring assays and research assays to measure
markers of oxidative stress, and began performing custom assay development.
Therapeutic drug monitoring assays are manufactured by the Company in the
United States and are sold to hospital clinical laboratories and reference
laboratories by an in-house sales force and a network of distributors both
within and outside the United States. Assays to measure markers of
oxidative stress are manufactured by the Company in France and are sold to
distributors for resale to researchers, primarily in Europe, the United
States and Japan.
These financial statement have been prepared on a going concern basis which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred losses in each
of the last three years, and at December 31, 1995, the Company's current
liabilities exceeded its current assets by $1,469,000. These factors,
among others, may indicate that the Company may be unable to continue as a
going concern for a reasonable period of time. These financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification
of liabilities that may be necessary should the Company be unable to
continue as a going concern. The Company's continuation as a going concern
is contingent upon its ability to obtain additional financing, and to
generate revenue and cash flow to meet its obligations on a timely basis.
During the first quarter of 1996 the Company is seeking additional capital
through a private placement of up to $4,000,000 of its Series C Preferred
Stock. On March 4, 1996, the Company had closed the sale of 587,053 shares
of Series C Preferred Stock for $763,000. If the Company is able to sell
the entire $4,000,000 of Series C Preferred Stock, it still expects that
additional capital will be required during 1996 to continue operating in
accordance with its current plans. If the Company is unable to raise
additional capital it intends to curtail its operations through the
reduction of personnel and facility costs and by reducing its research
24
and development efforts. If the Company were to be unable to sufficiently
curtail its costs in such a situation, it might be forced to seek
protection of the courts through reorganization, bankruptcy or insolvency
proceedings.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying balance sheets include the
accounts of the Company as well as its subsidiaries. The results of
operations of the Company's French subsidiary since its purchase by the
Company on September 7, 1994, are included in the accompanying statements
of operations and cash flows. The functional currency of the Company's
French subsidiary is the French franc. The French subsidiary's assets and
liabilities are translated at the exchange rate at the end of the year, and
its statement of operations is translated at the average exchange rates
during the period for which its revenues and expenses are included in the
consolidated statement of operations. Gains or losses resulting from
foreign currency translation are accumulated as a separate component of
shareholders' equity. All significant intercompany balances and
transactions are eliminated in consolidation.
CASH EQUIVALENTS consist of money market accounts with commercial banks.
INVENTORIES are stated at the lower of cost or market. Cost has been
determined by using the first-in, first-out and specific identification
methods. Inventories at December 31, 1995 and 1994, consisted of the
following:
1995 1994
Raw materials $173,000 $179,000
Work in process 354,000 357,000
Finished goods 426,000 137,000
-------- --------
Total $953,000 $673,000
======== ========
PROPERTY AND EQUIPMENT is stated at cost, or, in the case of property and
equipment acquired in transactions accounted for by the purchase method, at
the estimated fair market value at the date of the acquisition (which is
then considered to be the Company's cost). Depreciation of equipment is
computed using the straight-line method over estimated useful lives of
three to ten years. Leasehold improvements are amortized over the shorter
of five years or the remaining lease term. Assets acquired under capital
leases are being amortized over estimated useful lives of four to ten
years.
25
Property and equipment at December 31, 1995 and 1994, consisted of the
following:
1995 1994
Furniture and office equipment $ 346,000 $ 319,000
Laboratory and manufacturing
equipment 707,000 649,000
Automobile 15,000 15,000
Leasehold improvements 806,000 710,000
---------- ----------
Property and equipment, at cost 1,874,000 1,693,000
Accumulated depreciation and
amortization (782,000) (395,000)
---------- ----------
Property and equipment, net $1,092,000 $1,298,000
========== ==========
TECHNOLOGY - Technology for developed products and custom assays, which was
acquired in the 1994 business combinations described in Note 3, is being
amortized over estimated useful lives of seven to ten years. Accumulated
amortization of technology for developed products and custom assays was
$973,000 as of December 31, 1995 and $239,000 as of December 31, 1994.
The Company periodically reviews net cash flows from sales of products and
projections of net cash flows from sales of products on an undiscounted
basis to assess recovery of intangible assets.
REVENUE RECOGNITION - The Company normally recognizes product sales upon
shipment of the product to the customer. Product sales may be recorded on
the scheduled shipment date if the customer has delayed shipment, but has
agreed to accept title to the product and has paid for the product. Sales
from custom assay development contracts is recognized as the work is
performed. Revenue derived from royalties pursuant to license agreements is
recognized after sales information is reported by licensees.
INCOME TAXES - The Company accounts for income taxes under statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires deferred income taxes be provided to reflect temporary differences
between financial and tax bases of assets and liabilities using presently
enacted tax rates and laws.
NET LOSS PER SHARE - Net loss per share is computed based upon the average
number of common shares outstanding and, if dilutive, the incremental
shares issuable upon the assumed exercise of stock options or warrants and
the assumed conversion of convertible debentures and preferred stock.
26
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of sales and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount reported in the
balance sheet for cash and cash equivalents, certificates of deposit,
accounts receivable, notes payable, customer deposits and accrued
liabilities approximates fair value due to the short-term nature of the
accounts. The carrying amount reported in the balance sheet for 8%
convertible subordinated debentures approximates fair value because the
terms of the debentures were determined and the debentures were sold
shortly before the end of 1995.
3. BUSINESS COMBINATIONS
On September 7, 1994, the Company acquired Bioxytech S.A., a French
company, and International BioClinical, Inc. ("IBC"), an Oregon
corporation. The name of Bioxytech S.A. was subsequently changed to OXIS
International S.A. ("OXIS S.A.") OXIS S.A. was acquired through an
exchange of shares that resulted in the Company owning in excess of 99% of
the outstanding stock of OXIS S.A., which thus became a subsidiary of the
Company. IBC was acquired through a merger with and into the Company,
which (1) terminated the separate existence of IBC by merging it into the
Company, and (2) resulted in the conversion of the outstanding stock of IBC
into stock of the Company. Two of the Company's directors were also
directors and major shareholders of IBC.
In exchange for the Bioxytech S.A. shares, the Company issued a total of
2,341,599 shares of the Company's common stock and 40,000 shares of the
Company's non-voting preferred stock (which have subsequently been
converted into 40,000 shares of common stock). In addition, the Bioxytech
S.A. shareholders may receive up to 107,670 shares of the Company's capital
stock if they meet certain participation levels in a contemplated private
placement of equity securities of the Company.
The merger of IBC with and into the Company resulted in the conversion of
IBC's common stock into 1,998,493 shares of the Company's common stock.
The acquisitions of OXIS S.A. and IBC have been accounted for as purchases
and, accordingly, the acquired assets and liabilities were recorded at
their estimated fair market values as of the date of acquisition. The
aggregate purchase price of $9,811,000 (4,380,092 shares issued times the
average per share closing price of the Company's common stock for the five
days ended September 8, 1994, discounted 30% for certain trading
restrictions and less costs of $274,000 directly attributable to issuance
of stock in connection with the acquisitions) plus direct costs for the
acquisitions of $881,000 have been allocated to the
27
assets and liabilities acquired. The Company also issued options to purchase
214,700 shares of the Company's common stock in connection with the
acquisitions. No value was assigned to these options because the exercise
price of the options was in excess of the market value of the common stock.
The total cost of the acquisitions of Bioxytech and IBC has been allocated
to the assets acquired and liabilities assumed as follows:
OXIS S.A. IBC Total
------------ ------------ ------------
Cash $ 150,000 $ 123,000 $ 273,000
Other assets 369,000 611,000 980,000
Property, equipment and capitalized
leases 2,434,000 294,000 2,728,000
Technology for developed products and
custom assay development
capabilities 1,503,000 3,995,000 5,498,000
Technology for in-process products 3,368,000 307,000 3,675,000
Less liabilities assumed (2,011,000) (451,000) (2,462,000)
----------- ---------- -----------
Total acquisition cost $ 5,813,000 $4,879,000 $10,692,000
=========== ========== ===========
The Company's consolidated results of operations include the operating
results of the acquired companies since the acquisitions.
Approximately $3,675,000 ($.58 per share) of the total purchase price
represented technology relating to research and development projects that
were in process by the acquired companies that had no alternative future
use other than the completion of these projects. In accordance with
generally accepted accounting principles, these costs have been charged to
operations immediately upon completion of the acquisitions.
The following table summarizes the unaudited pro forma combined results of
operations for the years ended December 31, 1994 and 1993 as if the
acquisitions had occurred at the beginning of the years presented:
1994 1993
Total revenues $ 5,809,000 $ 6,736,000
Net loss $(4,742,000) $(5,207,000)
Net loss per share (based on 9,322,762
shares outstanding) $ (.51) $ (.56)
28
The above table includes, on an unaudited pro forma basis, the Company's
financial information for the years ended December 31, 1994 and 1993,
combined with the financial information of OXIS S.A. and IBC for the same
twelve-month periods. The above table excludes the one-time $3,675,000
charge for purchased in-process technology arising from the acquisitions.
Pro forma results for the year ended December 31, 1993 include non-
recurring costs of $1,531,000 in connection with a control contest.
The unaudited pro forma combined results of operations are presented for
illustrative purposes only and are not necessarily indicative of the
operating results that would have occurred had the acquisitions been
consummated at the beginning of the periods presented, nor are they
necessarily indicative of future operating results.
On July 19, 1995, the Company consummated the acquisition of Therox
Pharmaceuticals, Inc. ("Therox") pursuant to a transaction wherein Therox
was merged with and into a wholly-owned subsidiary of the Company. Therox
was a Philadelphia-based start-up company focused on the development of
therapeutics to treat diseases associated with damage from free radicals.
The Company issued 1,440,736 shares of its common stock to Therox
stockholders in exchange for all of the Therox capital stock. In addition,
the acquisition agreement provides for payment of up to $2,000,000 by the
Company to the Therox stockholders based on the successful
commercialization of the Therox technologies.
The acquisition of Therox has been recorded as a purchase and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair
values as of the date of acquisition. The aggregate purchase price of
$3,353,000 (1,440,736 shares issued times the average per share closing
price of the Company's common stock for the five days ended July 20, 1995,
discounted 30% for certain trading restrictions) has been allocated to the
assets and liabilities acquired.
The cost of the acquisition of Therox has been allocated to the assets
acquired and liabilities assumed as follows:
Cash $ 143,000
Equipment 16,000
Technology for in-process products 3,329,000
Other assets 23,000
Less liabilities assumed (158,000)
----------
Acquisition cost $3,353,000
==========
The Company's consolidated results of operations include the operating
results of the acquired company since the acquisition.
29
Approximately $3,329,000 of the purchase price represented technology related
to research and development projects that are in process and that has no
alternative future use other than the completion of these projects.
Accordingly, these costs have been charged to operations immediately upon
completion of the acquisition.
The following table presents the unaudited pro forma combined results of
operations for the years ended December 31, 1995 and 1994 as if the
acquisition had occurred at the beginning of the periods presented:
1995 1994
------------ ------------
Total revenues $ 5,136,000 $ 3,470,000
Net loss $(5,990,000) $(6,088,000)
Net loss per share (based
on 12,124,423 shares outstanding) $ (.49) $ (.50)
The above table includes, on an unaudited pro forma basis, the Company's
financial information for the years ended December 31, 1995 and 1994, combined
with the financial information of Therox for the same periods. The above
table excludes the one-time $3,329,000 charge for purchased in-process
technology arising from the 1995 acquisition, but includes non-recurring costs
of $3,675,000 for purchased in-process technology from the Company's September
1994 business acquisitions.
The unaudited pro forma combined results of operations are presented for
illustrative purposes only and are not necessarily indicative of the operating
results that would have occurred had the acquisition been consummated at the
beginning of the periods presented, nor are they necessarily indicative of
future operating results.
Simultaneously with the Therox acquisition, a Series B Preferred Stock
Purchase Agreement was entered into between the Company and two venture
capital firms (S.R. One, Limited and Brantley Venture Partners II, L.P.) which
were major stockholders of Therox. Pursuant to this agreement, the Company
sold 642,583 shares of its Series B Preferred Stock for an aggregate price of
$1,500,000.
Costs of approximately $325,000 directly attributable to the issuance of the
Series B Preferred Stock and the common stock issued in the Therox acquisition
have been recorded as a reduction in the proceeds from the issuance of the
shares.
30
4. NOTES PAYABLE
Notes payable at December 31, 1995 consisted of the following:
8% notes payable to certain shareholders who are former
Bioxytech S.A. shareholders, due February 5, 1996,
secured by assets relating to certain of the Company's
diagnostic products $766,000
Note payable to Sanofi S.A., due May 4, 1996, interest
at prime plus 2% (10-1/2% as of December 31, 1995), secured
by all of the Company's assets 600,000
Liability, without interest, under inventory purchase
agreement, due May 1997 or earlier if 75% of the related
inventory is sold 250,000
----------
$1,616,000
==========
The shareholders who hold the 8% notes have commitments to invest an amount
at least equal to the note balances in stock of the Company. During March
1996 the Company is negotiating with these shareholders terms for converting
these notes to stock of the Company.
5. CAPITALIZED LEASES
The Company's French subsidiary leases certain equipment, furniture and
fixtures under capital leases. The future minimum lease payments on these
capital leases as of December 31, 1995, were as follows:
Year ending December 31:
1996 $309,000
1997 47,000
--------
Total minimum capital lease obligations 356,000
Less amounts representing interest 26,000
--------
Present value of net minimum obligation 330,000
Less amount due within one year 283,000
--------
Long term obligation under capital leases $ 47,000
========
Leased assets, which consist principally of laboratory and office equipment,
are reported in the December 31, 1995, balance sheet at $1,418,000 less
accumulated amortization of $220,000.
31
6. 8% CONVERTIBLE SUBORDINATED DEBENTURES
In November and December 1995, the Company completed a private placement
pursuant to which $1,255,000 of its 8% Convertible Subordinated Debentures
were issued. The debentures are unsecured and are subordinated to other
obligations of the Company up to an aggregate of $3,000,000. The Debentures
are due December 31, 1997; interest is payable semiannually on June 30 and
December 31.
The debentures are convertible into shares of the Company's common stock at
the option of the holders. Any time after six months following closing of the
private placement, the Company may require conversion of the debentures. The
debentures are convertible at a conversion price of $1.25 per common share.
However, the conversion price shall be reduced to $.65 per share if the
closing price of the Company's common stock is less than $.65 for fifteen
consecutive trading days. In such case, the debentures could be converted
into a maximum of 1,930,769 shares of common stock.
7. SHAREHOLDERS' EQUITY
PREFERRED STOCK - Terms of the preferred stock are to be fixed by the Board
of Directors at such time as the preferred stock is issued. The 40,000 shares
of Series A Preferred Stock issued during 1994 were nonvoting and were
converted to common stock on a one share for one share basis during 1995. The
642,583 shares of Series B Preferred Stock are convertible into common stock
on a one-for-one basis and have the same voting rights as the common stock.
The Series B Preferred Stock has certain preferential rights with respect to
liquidation and dividends.
In February and March 1996, the Company has issued 587,053 shares of Series C
Preferred Stock. Each share of Series C Preferred Stock is initially
convertible into one share of the Company's common stock at the option of the
holder at any time. After six months following the closing of the sales of
Series C preferred Stock, the conversion ratio may be adjusted under certain
circumstances, and after eight months following the closing, the Company may
have the right to automatically convert the Series C Preferred Stock into
common stock under certain circumstances. The Series C Preferred Stock has
the same voting rights as the Company's common stock based on the number of
shares into which the Series C Preferred Stock is convertible, subject to
adjustment in certain circumstances.
STOCK WARRANTS - In prior years, the Company issued warrants to purchase
shares of common stock to certain officers and key employees (none of whom
any longer hold a position with the Company) and to former directors. These
warrants are exercisable at $2.875 per share and expire through 1999. At
December 31, 1995 and 1994, warrants to purchase 1,012,500 shares were
exercisable. No warrants were exercised during the years ended 1993, 1994 or
1995.
32
In connection with the issuance of common stock in May 1995, the Company
issued to its placement agent a warrant to purchase 122,763 shares of common
stock at $2.89 per share. This warrant was immediately exercisable upon
issuance and remained outstanding at December 31, 1995.
Warrants to purchase 200,800 common shares at $2.00 per share were issued to
purchasers of the Company's 8% Convertible Subordinated Debentures and
remained outstanding at December 31, 1995. The number of common shares which
may be purchased pursuant to these warrants may be increased in the event
that the number of common shares into which the related debentures may be
converted is increased. The maximum number of common shares to which these
warrants might entitle the holders is 386,154.
Also in connection with the issuance of its 8% Convertible Subordinated
Debentures, the Company issued to its placement agent warrants to purchase
100,400 shares of common stock at $1.375 per share. These warrants were
immediately exercisable upon issuance and remained outstanding at December
31, 1995.
STOCK OPTIONS - In September 1994, the Company's shareholders approved the
1994 Stock Incentive Plan and the reservation of 400,000 shares of the
Company's common stock for issuance thereunder. In August 1995, the
shareholders approved an amendment to the plan increasing the shares reserved
for issuance thereunder to 1,200,000. The plan permits granting stock options
to acquire shares of the Company's common stock, awarding stock bonuses of
the Company's common stock, and granting stock appreciation rights. Options
granted and outstanding under the plan are summarized as follows:
1995 1994
-------------------------- -------------------------
Shares Price Shares Price
------ ----- ------ -----
Outstanding at
beginning of year 90,000 $3.13 - $3.50 --
Granted 317,900 $2.25 - $3.50 90,000 $3.13 - $3.50
Forfeitures (25,000) $2.25 --
------- ------
Outstanding at end
of year 382,900 $2.25 - $3.50 90,000 $3.13 - $3.50
======= ======
Exercisable at end
of year 219,294 $2.25 - $3.50 75,000 $3.50
======= ======
8. INCOME TAXES
INCOME TAX PROVISION - Income tax provisions were not necessary in 1995, 1994
and 1993 due to net losses.
33
DEFERRED TAXES - Deferred taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company's deferred taxes
as of December 31 were as follows:
United States taxes: 1995 1994
Deferred tax assets:
Federal net operating loss carryforward
and capitalized research and development
expenses $ 4,829,000 $ 2,110,000
Federal R&D tax credit carryforward 495,000 465,000
State net operating loss carryforward and capitalized
research and development expenses 125,000 372,000
Deferred tax liabilities - book basis in excess
of noncurrent assets acquired in the
acquisition of IBC (1,338,000) (1,575,000)
----------- -----------
Net deferred tax assets 4,111,000 1,372,000
Valuation allowance (4,111,000) (1,372,000)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
French taxes: 1995 1994
Deferred tax assets:
Net operating loss carryforward $ 5,721,000 $ 5,286,000
Impact of temporary differences (225,000) 453,000
----------- -----------
Total 5,496,000 5,739,000
Valuation allowance (5,496,000) (5,739,000)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
Temporary differences for French taxes result primarily from leases treated
as operating leases for French tax reporting and as capital leases in the
consolidated financial statements.
The tax benefits ($5,136,000) of the net operating losses of $15,410,000
which existed at the date of acquisition (September 7, 1994) of the French
subsidiary will be recorded as a reduction of the net unamortized balance of
property, equipment, capitalized lease assets and intangible assets of
$3,147,000 when and if realized, and the remaining benefit will be recorded
as a reduction of income tax expense.
Statement of Financial Accounting Standards No. 109 requires that the tax
benefit of net operating losses, temporary differences and credit
carryforwards be recorded as an asset to the extent that management assesses
that realization is "more likely than not." Realization of
34
the future tax benefits is dependent on the Company's ability to generate
sufficient taxable income within the carryforward period. Because of the
Company's recent history of operating losses, management has provided a
valuation allowance for its net deferred tax assets.
TAX CARRYFORWARDS - At December 31, 1995, the Company had net operating loss
carryforwards of approximately $5,120,000 to reduce United States federal
taxable income in future years, and research and development tax credit
carryforwards of $495,000 to reduce United States federal taxes in future
years. In addition, the Company's French subsidiary had operating loss
carryforwards of $17,165,000 (84,183,000 French francs) to reduce French
taxable income in future years. These carryforwards expire as follows:
United States R&D tax French
net operating credit operating loss
Year of expiration loss carryforward carryforward carryforward
1996 $1,219,000 $ 1,655,000
1997 2,670,000 1,270,000
1998 208,000 1,312,000
1999 111,000 233,000
2000 -- -- --
2001-2010 912,000 $495,000 --
No expiration -- -- 12,695,000
---------- -------- -----------
$5,120,000 $495,000 $17,165,000
========== ======== ===========
Utilization of the United States tax carryforwards is subject to certain
restrictions in the event of a significant change (as defined in Internal
Revenue Service guidelines) in ownership of the Company.
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
One domestic customer and three foreign licensees have each accounted for
significant portions of the Company's revenues during the past three years.
The percentages of total revenues derived from sales to, and royalties from,
these major customers are as follows:
1995 1994 1993
Domestic customer 18% 35% 50%
Spanish licensee 16% 18% 8%
German licensee 2% 9% 23%
Italian licensee -- 2% 7%
35
The Company's domestic customer to whom sales of bovine superoxide dismutase
("bSOD") accounted for 18%, 35% and 50% of the Company's revenues in 1995,
1994 and 1993, respectively, announced in the fourth quarter of 1995 that the
clinical trial in which it was using bSOD purchased from the Company failed
to show the desired results. Therefore, sales of bSOD to this customer are
not expected to continue.
The Company limits its foreign exchange risk by buying and selling bulk bSOD
in a single currency, the Dutch guilder. The Company maintains a bank account
in The Netherlands for receipt and disbursement of Dutch guilders and had the
equivalent of $81,000 and $659,000 in that account at December 31, 1995 and
1994, respectively. Foreign currency transaction gains and losses were not
material.
10. GEOGRAPHIC AREA INFORMATION
The Company operates in a single industry segment: the development,
manufacture and marketing of therapeutic and diagnostic products. The
Company's foreign operations consist of research and development and
manufacturing facilities and certain marketing activities conducted by the
Company's subsidiary in France. Sales and costs associated with bSOD
manufactured in the Netherlands are considered to be United States
operations, since the contract to manufacture bSOD and all related sales
activities are administered in the United States. Similarly, royalties from
foreign customers that relate to bSOD-based products are considered to be
export sales from the United States, since the product was developed in the
United States.
Sales, operating income and identifiable assets, classified by the major
geographic areas in which the Company operates, are as follows:
1995 1994 1993
Revenues from unaffiliated customers:
United States $ 2,686,000 $ 2,053,000 $ 1,887,000
Export sales from the U.S. 1,878,000 1,257,000 1,157,000
France 572,000 160,000 --
----------- ----------- -----------
Total $ 5,136,000 $ 3,470,000 $ 3,044,000
=========== =========== ===========
Operating income (loss):
United States $(5,653,000) $(1,410,000) $(1,638,000)
France (3,110,000) (4,191,000) --
----------- ----------- -----------
Total $(8,763,000) $(5,601,000) $(1,638,000)
=========== =========== ===========
Identifiable assets:
United States $ 7,824,000 $ 9,587,000 $ 3,124,000
France 3,866,000 2,570,000 --
Eliminations (1,820,000) (963,000) --
----------- ----------- -----------
Total $ 9,870,000 $11,194,000 $ 3,124,000
=========== =========== ===========
36
11. LEASE COMMITMENTS
The Company leases its facilities in Oregon under an operating lease that
expires in 1997, and leases its facilities in Pennsylvania and France under
operating leases that expire in 1998. Future lease payments are scheduled as
follows:
1996 $480,000
1997 436,000
1998 245,000
Rental expense included in the accompanying statements of operations was
$492,000 in 1995, $193,000 in 1994 and $75,000 in 1993.
12. EUROPEAN REGULATORY DEVELOPMENTS
The European market for the Company's bovine bSOD was adversely impacted by a
series of regulatory developments in 1994.
The Italian Health Ministry withdrew the marketing authorization of all
pharmaceutical products composed of orgotein, including Oxinorm (produced
from the Company's product). As indicated in Note 9, the Company's revenues
from its Italian licensee have ceased, and the Company does not anticipate
additional sales or royalties from Oxinorm in Italy. During 1995, SmithKline
Beecham Farmaceutici S.p.A., the Company's licensee in Italy, sold its
remaining bulk Oxinorm inventory to the Company.
During 1994 the Company was also notified that the governments of Austria and
Germany had asked Grunenthal, the Company's licensee for those countries, to
withdraw its Peroxinorm brand of orgotein from the Austrian and German
markets. Grunenthal has also discontinued distributing Peroxinorm in several
other countries where sales were dependent upon the German registration. As a
result, the Company anticipates that royalties from Grunenthal for the
foreseeable future will be substantially less than in previous years.
Because of the action of regulatory authorities in other European countries,
the Company's licensee for Spain has had informal discussions with Spanish
regulatory authorities regarding the Company's bSOD product. Although no
action has been taken by those authorities with regard to the Company's
product, future sales in Spain may be affected by either regulatory action in
Spain, or safety concerns stemming from such actions in other countries.
37
13. CONTROL CONTEST EXPENSES
In 1993, the Company incurred expenses of $1,531,000 ($.31 per share) in
connection with a contest for management control of the Company. Costs
incurred by current officers and directors were advanced by IBC. The
President and the Chairman of the Company were major shareholders of IBC.
Reimbursement of IBC for such expenses was approved at the Company's 1993
annual shareholders' meeting.
14. 401(K) SAVINGS PLAN
The Company has a 401(k) saving plan (the "Plan") which covers all United
States employees who meet certain minimum age and service requirements. The
Company's matching contribution to the Plan for each year is 100% of the
first $1,000 of each employee's salary deferral and 33-1/3% of the next
$3,000 of salary deferral. The Company's contributions have not been
material.
38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
OXIS International, Inc.:
We have audited the accompanying consolidated balance sheets of OXIS
International, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the management of OXIS
International, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of OXIS International, Inc. and
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements for the year ended December 31, 1995,
have been prepared assuming that the Company will continue as a going concern.
The Company is engaged in developing, manufacturing and marketing selected
therapeutic and diagnostic products. As discussed in Note 1 to the financial
statements, the Company has incurred losses in each of the last three years,
and at December 31, 1995, the Company's current liabilities exceeded its
current assets by $1,469,000, raising substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
March 7, 1996
Portland, Oregon
39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated herein by reference from
the material contained under the caption "Proposal No. 1-Election of
Directors" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
Forms 3 Initial Statement of Beneficial Ownership of Securities were not
timely filed upon the appointment of Mr. Lang and Mr. McCamant to the Board of
Directors in January 1996. Late filings of the Forms 3 have been made.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference
from the material contained under the caption "Compensation of Executive
Officers" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated herein by reference
from the material contained under the caption "Proposal No. 1-Election of
Directors" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by reference
from the material contained under the caption "Proposal No. 1-Election of
Directors" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A.
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS
See pages 19 to 39.
2. FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable or the
required information is included in the financial statements and
notes thereto.
3. EXHIBITS
See Exhibit Index - page 44.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fourth
quarter of 1995.
(c) Exhibits specified by item 601 of Regulation S-K.
See Exhibit Index - page 44.
(d) Financial statement schedules required by Regulation S-K are omitted
because they are not applicable or the required information is included in
the financial statements and notes hereto.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 22, 1996
OXIS INTERNATIONAL, INC.
Registrant
By: /s/ Anna D. Barker
-------------------------------------
Anna D. Barker
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jon S. Pitcher
-------------------------------------
Jon S. Pitcher
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following directors on behalf of the
Registrant.
s/ Anna D. Barker March 22, 1996 s/ Timothy G. Biro March 22, 1996
----------------- -------------- ------------------ ---------------
Anna D. Barker Date Timothy G. Biro Date
s/ Stuart S. Lang March 22, 1996 s/ Gerald D. Mayer March 22, 1996
----------------- -------------- ------------------ --------------
Stuart S. Lang Date Gerald D. Mayer Date
s/ James D. McCamant March 22, 1996 s/ David Needham March 22, 1996
-------------------- -------------- ---------------- --------------
James D. McCamant Date David Needham Date
s/ Ray R. Rogers March 22, 1996 s/ A.R. Sitaraman March 22, 1996
---------------- -------------- ----------------- --------------
Ray R. Rogers Date A.R. Sitaraman Date
43
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
2 (a) Agreement and Plan of Reorganization and Merger between
OXIS International, Inc., OXIS Acquisition Corporation
and Therox Pharmaceuticals, Inc. Dated July 18, 1995 (1)
2 (b) Amendment No. 1 to Agreement and Plan for Reorganization
and Merger between OXIS International, Inc., OXIS Acquisition
Corporation and Therox Pharmaceuticals, Inc. 46
3 (a) Restated Certificate of Incorporation as filed February 16, 1995 (2)
3 (b) Certificate of Designations, Preferences, and Rights of Series B
Preferred Stock (3)
3 (c) Certificate of Amendment of Restated Certificate of Incorporation
of OXIS International, Inc. as filed January 29, 1996. 48
3 (d) Bylaws of the Company as amended on June 15, 1994 (4)
4 (a) Subscription and Purchase Agreement 8% Convertible Subordinated
Debentures Due December 31, 1997 50
10 (a) 1987 Stock Purchase Warrants (5)
10 (b) 1988 Stock Purchase Warrants (6)
10 (c) Lease agreement between Bioxytech S.A. and Sofibus (7)
10 (d) Form of 8% Convertible Subordinated Debentures Due December 31,
1997 (8)
10 (e) Form of Warrant to Purchase Common Stock (9)
10 (f) OXIS International, Inc. Series B Preferred Stock
Purchase Agreement dated July 18, 1995 (10)
10 (g) Security Agreement dated February 7, 1995 between Alta-Berkeley
L.P. II and Innolion S.A. and OXIS International, Inc., and five
related promissory notes (11)
44
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
10 (h) Term Loan Agreement dated as of May 2, 1995 between
OXIS International, Inc., Bioxytech, S.A. and related
Promissory Note in the principal amount of $600,000 (12)
21 (a) Subsidiaries of OXIS International, Inc. 76
23 (a) Independent Auditors' Consent 77
27 (a) Financial data schedule 78
(1) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 19, 1995.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for 1994 - Exhibit 3(a).
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
(4) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for 1992 - Exhibit 10(b).
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for 1992 - Exhibit 10(c).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K
for 1994.
(8) Incorporated by reference to the Company's Current Report on Form 8-K
dated January 3, 1996.
(9) Incorporated by reference to the Company's Current Report on Form 8-K
dated January 3, 1996.
(10) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995.
45